Verified Use for Manufacturing Operations by Jindal Pipes: ITAT Deletes Disallowance on Captive Power Expenses [Read Order]
The Tribunal rejected the AO’s claim due to lack of evidence against actual power generation, noting that earlier assessments had accepted these expenses without objection
Jindal Pipes – ITAT – Captive Power Expenses – Taxscan
Jindal Pipes – ITAT – Captive Power Expenses – Taxscan
The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax (Appeals)[CIT(A)]’s deletion of disallowance on power and fuel expenses claimed by Jindal Pipes Ltd. for operating a 5 MW captive power plant by a steel pipe manufacturer, confirming that the electricity generated was fully used for manufacturing operations and no revenue was earned from power sales.
The Revenue-appellant, appealed against the order passed by CIT(A). In this case,Jindal Pipes Ltd.,respondent-assessee,manufactured ERW, black, and galvanized steel pipes and tubes. Their tax returns for the relevant years were scrutinized, leading to some disallowances. These disallowances were deleted by the CIT(A).
The issue related to disallowances on power and fuel expenses claimed by the assessee for both years. The company had incurred ₹12.79 crore in AY 2016-17 and ₹11.42 crore in AY 2018-19 for running its 5 MW captive power plant at its manufacturing facility in Ghaziabad.
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During assessment, the AO noted that the Power-Electricity Division showed a loss equal to the claimed amount in AY 2016-17. He asked for separate financial statements for this segment and proof of actual power supply. The assessee submitted the required details and explained that there was no separate power division and no revenue from electricity sales. The segment was shown separately only due to audit requirements.
The two member bench comprising Anubhav Sharma( Judicial Member) and S.Rifaur Rahman( Accountant Member) noted that the CIT(A) had rightly accepted that no revenue was earned from the power segment and the electricity generated was used entirely for the company’s manufacturing activities. It was also observed that the captive power plant, running on eco-friendly rice husk, had been set up in 2011. Before that, the company used electricity from the UP Electricity Board.
The tribunal pointed out that in earlier years AYs 2013-14 to 2015-16, the AO had never questioned the power and fuel expenses. So, there was no basis for the AO’s claim that the company failed to prove actual power generation and supply. The ITAT upheld the CIT(A)’s decision to delete the disallowance and allowed the issue for both years.
The appeal of Revenue was dismissed.
To Read the full text of the Order CLICK HERE
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