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

Facts

This Tax Appeal, filed by the Principal Commissioner of Income Tax, Vadodara 3, under Section 260A of the Income Tax Act, 1961, challenges an order dated October 11, 2018, passed by the Income Tax Appellate Tribunal, Surat Bench, for the assessment year 2011-12. The appeal concerns the assessee, M/s Pragati Glass Works Pvt Ltd. The core of the dispute revolves around the deduction claimed by the assessee under Section 80IA of the Act in respect of its captive power plant. The Revenue disputes the rate used to calculate this deduction, specifically whether it should be based on the rate at which GEB supplied power to its consumers or the rate at which power generating companies supplied to GEB.

Held

The High Court held that the proposed substantial questions of law were no longer res integra, as they were directly covered by previous decisions of the same Court. Specifically, the Court referred to its own judgment 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 issue of deduction under Section 80IA(4) concerning captive power generation plants and the rate to be considered for deduction was decided. The Tribunal's view, which was consistent with these precedents, was that the market value of electricity supplied by a captive power unit to a general unit should be the same as charged by GEB from consumers. The Court found that the ITAT's order was in line with these established principles. Therefore, the appeal filed by the Revenue was dismissed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the learned ITAT erred in law and on facts in allowing the assessee's deduction under Section 80IA of the Income Tax Act, 1961, in respect of its captive power plant by considering the rate of power purchase at Rs. 5.57 per unit (the rate at which GEB supplied power to its consumers), instead of the rate adopted by the assessing officer at Rs. 2.83 per unit (the rate at which power generating companies supplied power to Gujarat Urja Vikas Nigam Ltd./GEB)? 2. Whether, on the facts and in the circumstances of the case, the learned ITAT erred in law and on facts in allowing the assessee's claim for deduction under Section 80IA(4) of the Income Tax Act, 1961, on the basis of the purchase price of power from GEB by its customers, without appreciating that the Assessing Officer had correctly adopted the rate of Rs. 2.83 per unit (the rate at which power generating companies sold electricity to Gujarat Urja Vikas Nigam Ltd.), given that the assessee utilized power generated by its captive power plant for its own consumption and did not sell electricity in the market? Assessee's Contention: The judgment does not explicitly record the assessee's contentions, but it implies the assessee argued for the deduction to be based on the rate at which GEB supplied power to its consumers. Revenue's Contention: The Revenue argued that the deduction should be based on the lower rate at which power generating companies supplied to GEB, contending that the assessee's captive power plant was for its own consumption and not for sale in the market. The Revenue relied on Section 80IA(4) and the principle of market value for transfers between businesses.