By TIOL News Service

KOLKATA, APRIL 19, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether profit derived by power generation companies should not be outcasted for deductions u/s 80IB, simply because such power is entirely consumed in the business and is not sold outside. YES IS THE ANSWER.

Facts of the case:

The Assessee company, engaged in the business of import of Edible Oil and Pulses and export of Agro Commodities, Iron ore etc, had filed its return declaring total income of Rs.2,93,51,430/-, which was subsequently revised to Rs.2,96,16,994/-. In the said return, deductions of Rs.3,68,38,770/- and Rs.5,04,44,366/- were claimed by assessee u/s 80IA and 80IB respectively in respect of profits derived from its stand-alone warehouses. According to AO however, 'warehouse' per se was not an infrastructure facility as defined in Explanation below Section 80IA(4), inasmuch as, the legislature in its wisdom had included a port and not a stand-alone warehouse in the definition of the 'infrastructure facility'. He also referred in this regard to the definition of 'warehouse' given in the Customs Act and held that the stand-alone warehouse thus was neither a Customs Freight Station nor an Inland Container Depot and the same, therefore, could not be treated as a "port infrastructure" within the meaning of Explanation below to Section 80IA. He accordingly disallowed the deduction claimed by assessee u/s 80IA(4) in respect of profits derived from its warehouses.

As regards the claim of assessee for deduction u/s 80IB(11A), the AO found that the same was claimed by assessee in respect of one Division situated under Visakhapatnam Port Trust and the other Division situated under Kolkata Port Trust. He also found that in both these Divisions, the assessee had used its own warehouses for storage of its own foodgrains and there were no such services provided by the assessee to any third party or outside party. According to him, the assessee-company thus had computed only the notional profit in respect of these two Divisions for the purpose of claiming deduction u/s 80IB(11A), which was not correct. He accordingly also disallowed the claim of assessee for deduction u/s 80IB(11A). On appeal, the FAA deleted the disallowance made by AO on account of assessee's claim for deductions u/s 80IA and 80IB.

Tribunal held that,

++ as far as deduction u/ss 80IA & 80IB are concerned, the the Revenue has challenged the decision of FAA in allowing the claim of the assessee for deduction u/s 80IA in respect of the profits derived from stand alone warehouses on the specific ground that the definition of infrastructural facility provided in Explanation to section 80IA does not include stand alone warehouses. The said definition of "infrastructure facility", however, includes 'Port' and as clarified by the CBDT in its Circular No. 10 of 2005, structures at the Port for storage, loading and unloading, etc. will be included in the definition of "Port" for the purpose of section 80IA, if the concerned Port Authority has issued a certificate that the said structures formed part of the Port. In the assessee's case, such certificate has been issued by the Visakhapatnam Port Trust certifying that this storage sheds constructed by the assessee company on the lease land were part and parcel of the Port for the infrastructure facility at Visakhapatnam. Keeping in view the said certificate as well as the Circular No. 10 of 2005 issued by the CBDT, the profit derived by assessee company from its stand alone warehouses was entitled for deduction u/s 80IA;

++ as regards the relief allowed by FAA by directing the AO to allow the claim of the assessee for deduction u/s 80IB in respect of profit derived from the business of handling, storage and transportation of food grains, it is observed that the same is challenged by the Revenue on the ground that such business was not carried on by the assessee-company with any outside or third party and it was, therefore, not eligible for deduction on notional profit claimed to have been derived from the said business. As rightly contended by the AR, this issue is squarely covered in favour of the assessee by the decision of the Calcutta High Court in the case of ITC Limited, wherein it was held that the claim made by assessee for deduction u/s 80IA in respect of profit derived from the business of generation of power could not be denied merely because power generated by the assessee was in its entirety consumed by other business of the assessee and was not sold to outsiders. Respectfully following the said decision of jurisdictional High Court, the order of FAA in allowing the claim of assessee for deduction u/s 80IB is upheld.

(See 2018-TIOL-574-ITAT-KOL)