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Facts
The assessee, engaged in manufacturing and wind power generation, challenged an order that reduced its deduction under Section 80IA. The dispute arose over the valuation of electricity sold by the assessee to the DISCOM at Rs. 2.86 per unit, which the Assessing Officer deemed the market price for captive consumption.
Held
The Tribunal held that the market value of electricity for the purpose of Section 80IA deduction should be the rate at which the State Electricity Board supplied electricity to consumers (Rs. 7.49 per unit), not the rate at which the assessee sold surplus power to the DISCOM (Rs. 2.86 per unit).
Key Issues
Whether the rate at which the assessee sells surplus electricity to DISCOM represents the market value for calculating Section 80IA deduction, or if it should be the rate at which DISCOM supplies electricity to consumers.
Sections Cited
80IA, 143(1), 142(1), 80IB, 80IC, 43, 43A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Justice (Retd.) C V Bhadang, Hon’ble & Ms. Padmavathy S, Hon’ble
Per Justice (Retd.) C V Bhadang, President:
By this appeal the appellant-assessee is challenging the order dated 14.02.2025 passed by the National Faceless Appeal Centre [CIT(A) for short], which arises out of the order dated 16.12.2019 passed by the Assessing Officer.
The appeal relates to assessment year 2017-18.
The brief facts are that the appellant is engaged in the business of manufacturing of wielded and seamless tubes, cold forged nuts and also generation of wind power.
The assessee has set up a wind power generation plant at Kutch, Gujarat as permitted by GEDA of 1.25 MW. The assessee has entered into an agreement with Madhya Gujarat Vij Company Ltd. (MGVC) which is a distribution company (DISCOM) on 14.05.2008 and another agreement with Gujarat Energy Transmission Corporation Limited (GETCO) on 06.05.2008. The assessee has opted to wheel the energy generated at its captive unit to its other establishment M/s. Gandhi Special Tubes at Village Nurpura, Taluka Halol, Dist.
Panchamahal through the DISCOM power grid. It appears that it is essentially a net metering arrangement. According to the assessee, normally the power generated at its wind farm is less than the monthly consumption at the manufacturing unit except during the monsoon season where, on account of the windy situation, the power generated at the wind farm exceeds the consumption at the Halol Plant. It is contended that DISCOM does not permit carry forward set off against subsequent months consumption of manufacturing unit. The excess power generated over its monthly consumption during such period is treated as sales by DISCOM for which the DISCOM pays Rs.2.86 per unit to the assessee. During the rest of the months when the consumption is more than the energy generated at the wind farm, the DISCOM charges/bills such energy after set off towards unit generated at the wind farm.
The assessee had filed its Return of Income (RoI) for the relevant assessment year on 07.10.2017 declaring total income of Rs.27,89,75,810/-.
The return was processed under Section 143(1) of the Income Tax Act, 1961 (‘Act’ for short) without variation in the income returned. The case was subsequently picked up for complete scrutiny inter alia on the ground of excessive deduction claimed under Section 80I/80IA/80IB/80IC as compared to the turnover. The Assessing Officer issued notice under Section 142(1) of the Act on 11.02.2019 and 16.09.2019 alongwith questionnaire and calling for certain details/documents which were furnished by the assessee. The Assessing Officer has found that the rate for captive consumption was charged at Rs.7.49 per unit by Madhya Gujarat Veej Company Ltd. (DISCOM) and the rate for wind energy sold to DISCOM was charged at Rs.2.86 per unit. The Assessing Officer has observed that the sale price of the assessee to MGVC (DISCOM) i.e. Rs.2.86 should have been the market price for captive consumption as it represents the market value of the goods and the same should have been adopted for the purpose of deduction under Section 80IA of the Act. In that view, the Assessing Officer has reduced the deduction under Section 80IA of the Act by Rs.58,15,960/-, which order has been confirmed in appeal.
We have heard parties. Perused record.
The learned AR has submitted that the authorities below were in error in reducing the permitted eligible quantum of deduction under Section 80IA of the Act. In the submission of the learned AR it ought to have been the market rate i.e. the rate at which electricity distribution companies (DISCOM) were allowed to supply power to its consumers. The learned AR pointed out that the issue is well settled by several decisions of this Tribunal as well as various High Courts and Hon’ble Supreme Court of India. Reliance is placed on the decision of Mumbai Bench of the Tribunal in the case of West Coast Paper Mills Ltd. vs Addl. CIT [2014] 52 taxmann.com 268 (Mumbai - Trib.) and Hindalco Industries Ltd. vs DCIT [2024] 165 taxmann.com 606 (Mumbai - Trib.). Further reliance is placed on the decision of jurisdictional High Court in CIT vs Reliance Industries Ltd. [2019] 102 taxmann.com 372 (Bom) and [2024] 161 taxmann.com 423 (Bom) and decision of Supreme Court in CIT vs Jindal Steel & Power Ltd., 460 ITR 162 (SC). It is alternatively submitted that the allowance/deduction cannot be disturbed in the subsequent year unless and until the deduction for the initial assessment year is upset/withdrawn.
The learned DR has supported the impugned order. It is submitted that the Assessing Officer has rightly come to the conclusion that the rate of Rs.2.86
per unit should have been the market price for the captive consumption as it represents the market value of the goods and has rightly been adopted for the purpose of deduction under Section 80IA of the Act.
We have considered the submissions made. We find that the issue may not detain us long as it is covered by the two decisions of jurisdictional High Court in case of Reliance Industries Ltd. (supra) and the decision of Supreme Court in Jindal Steel & Power Ltd. (supra). It is not in dispute that the assessee is entitled to deduction under Section 80IA for the relevant assessment year in respect of the eligible business. The only issue is with regard to the quantum of profit and gains of the eligible business and the resultant deduction as is permissible under Section 80IA of the Act. It is also not in dispute that the DISCOM is supplying power to the assessee @ Rs.7.49 per unit. During the months where the power generation at the wind farm is in excess of the consumption at the Halol unit, the excess power is sold to DISCOM @ Rs.2.86
per unit, which the Assessing Officer has relied upon for the purpose of calculating the profits and the resultant deduction.
The Bombay High Court in the case of Reliance Industries Ltd. (supra) has held that in such a case the valuation of the electricity provided by assessee to eligible industrial unit should be at the rate at which the electricity distribution companies were allowed to supply electricity to the consumers, which in the present case is Rs.7.49 per unit. The only contention on behalf of the Revenue is that the said decision is subject matter of challenge before the Supreme Court. It is trite that unless and until the decision is set aside or varied, the same is binding. That apart, the Supreme Court in the case of Jindal Steel & Power Ltd. (supra) has held as under:
Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition.
Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit.
Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80-IA of the Act.”
In that view of the matter, the appeal deserves to succeed. The appeal is accordingly allowed. The impugned addition made by the Assessing Officer stands deleted.
Order pronounced in the open court on 10th October,2025.