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

Facts

The Revenue, Principal Commissioner of Income Tax, Vadodara 3, has appealed against an order of the Income Tax Appellate Tribunal (ITAT), Surat Bench, dated October 11, 2018, for the assessment year 2006-07. The appeal concerns the deduction allowed to the assessee, Pragati Glass Works Pvt. Ltd., under Section 80IA of the Income Tax Act, 1961, in respect of its captive power plant. The dispute revolves around the rate at which the power generated by the captive plant should be valued for calculating the deduction. The Assessing Officer (AO) had adopted a rate of Rs. 2.11 per unit, representing the rate at which power generating companies supplied power to Gujarat Urja Vikas Nigam Ltd. (GEB). The ITAT, however, allowed the deduction based on a rate of Rs. 5.44 per unit, which was the rate at which GEB supplied power to its consumers.

Held

The High Court dismissed the appeal filed by the Revenue. The Court noted that the substantial questions of law proposed by the Revenue 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. (Tax Appeal No. 553 & 554 of 2017). The Court reiterated the principle that for the purpose of Section 80IA deduction concerning captive power generation, the market value of electricity supplied to the assessee's own units should be considered. In the context of Gujarat Alkalies and Chemicals Ltd., the Court had observed that the market value of electricity supplied by a captive power unit to a general unit would be the same as charged by GEB from its consumers. The Court also referenced a prior decision concerning a similar controversy where the Tribunal had reversed the revenue authorities' orders, opining that the market value of electricity supplied by a CPP unit to a general unit would be the same as charged by GEB from consumers. The Court found no reason to deviate from these established precedents.

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. 5.44 per unit (the rate at which GEB supplied power to its consumers), instead of the rate of Rs. 2.11 per unit (the rate at which power generating companies supplied power to GEB)? Assessee's Contention: The judgment does not record specific arguments made by the assessee. However, the ITAT's decision implies that 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 rate at which power generating companies supplied power to GEB (Rs. 2.11 per unit), not the rate at which GEB supplied to its consumers (Rs. 5.44 per unit). The Revenue contended that the assessee utilized power for captive consumption and did not sell electricity in the market, thus the AO's adoption of the lower rate was correct. The Revenue also raised a point regarding an electricity duty component of 8 paise per unit in the GEB's supply rate, which GEB collected for the government and was not authorized to retain.