THE PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 3 vs. M/S PRAGATI GLASS WORKS PVT LTD

Facts

This Tax Appeal was filed by the Revenue (Principal Commissioner of Income Tax, Vadodara 3) against an order of the Income Tax Appellate Tribunal (ITAT), Surat Bench, dated October 11, 2018, for the assessment year 2008-09. The appeal challenges the ITAT's decision to allow the assessee, M/s Pragati Glass Works Pvt Ltd, a deduction under Section 80IA of the Income Tax Act, 1961. The dispute centers on the rate at which electricity generated by the assessee's captive power plant should be valued for the purpose of calculating the deduction. The Assessing Officer had adopted a rate of Rs. 2.60 per unit, while the assessee used Rs. 5.21 per unit, which was the rate at which Gujarat Electricity Board (GEB) supplied power to its consumers.

Held

The High Court held that the proposed questions of law were no longer res integra, being directly covered by its own previous decision in CIT vs. Gujarat Alkalies and Chemicals Ltd. (395 ITR 247) and a Supreme Court decision in M/s. Alembic Ltd. The Court noted that in the Gujarat Alkalies and Chemicals Ltd. case, the Tribunal had reversed the revenue authorities' orders, opining that the market value of electricity supplied by a captive power unit to a general unit would be the same as charged by GEB to its consumers. The High Court affirmed that the deduction under Section 80IA should be based on the market value of the electricity supplied, which, in this context, was determined to be the rate at which GEB supplied power to its customers. The appeal was dismissed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the ITAT erred in law and fact by allowing the assessee's deduction under Section 80IA of the Income Tax Act, 1961, in respect of its captive power plant, considering the power purchase rate at Rs. 5.21 per unit (the rate GEB supplied to its consumers) instead of the rate of Rs. 2.60 per unit adopted by the Assessing Officer (the rate power generating companies supplied to Gujarat Urja Vikas Nigam Ltd./GEB)? Assessee's contention: The judgment does not record specific arguments made by the assessee. However, the ITAT's decision implies the assessee argued for the higher rate based on GEB's supply to consumers. Revenue's contention: The Revenue argued that the deduction should be based on the rate at which power generating companies supplied electricity to Gujarat Urja Vikas Nigam Ltd./GEB (Rs. 2.60 per unit), not the rate at which GEB supplied to its customers (Rs. 5.21 per unit), as the assessee utilized power for captive consumption and did not sell it in the market. The Revenue relied on Section 80IA(4) of the Act.