THE COMMISSIONER OF INCOME-TAX-IV, HYDERABAD vs. M/S NAVA BHARAT VENTURES LTD., HYD

: I HIGH COURT DATED:2010612025 JUDGMENT lTTA.Nos.S79 and 639 of 2016 DISMISSING THE BOTH ITTAs WITHOUT COSTS . -. - . __-::_- l .-.,... t : Sra)\ 1fl l;EP 206 .u, :: // * ', ^t r..de/d 1.9' \ Par

: ,/)/ THE HON'BLE SRI WSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA INCOME TA)( TRIBUNAL APPEAL NO.251 OF 2OL4 JUDGMENT: lper Hon'ble Sri .frzstice No,rsin.g Rao Nandikonda) This appeal has been filed under Section 260A of the Income Tax Act, 1961 (for short, 'the Act, 1961) aggrieved by the order, dated 20.07.2012 tn ITA No.lO95/Hyd/2009, dated 2O.O7.20L2, passed by the lncome-Tax Appellate Tribunal, Bench B', Hyderabad, (for short, 'the Tribunal') for the Assessment Year 2006-2007 . 2. Brief facts of the case are that the assessee is a Iimited company engaged in the business of manufacture of Ferro alloys, sugar, fabrication of equipment and generation of power. For the Assessment Year 2006-2007, the assessee filed its returnliss showing income of Rs.1,71,89,OOO/- and in the said returns, the assessee has claimed deduction of Rs.44,91,I7,391/- under Section 8O-IA of the Act, 1961 in respect of profits from power generation units of different Villages. In support of deduction, the assesse has filed Form No.lO CCB, dated 27.11.2006, for each unit. During the assessment proceedings by the Assessing Ofhcer, the assessee

2 It.d 251 2014 claimed 1t)0('/o deduction under Section 80-lA of the Act, 1961, under which the parties can claim only for captive consurnption and not for sale of power to any outside partv. In the Assessmerrt C)rder for the Assessment Years 2004-2005 and 2005 06, thc claim of deduction under Section 80 IA of tl-re Act, 1961 was disallowecl as assessee is not eligible for deduction under Se ction B0 IA of the Act, 196I to a tune of Rs.37,34,5i5.899/ - in respect of captive power plants for this assessmerrt vear. Further, the Assessing Officcr has restricted the deduc ion claimed by the assessee under Section 80 IA of the Act, 1961 from Rs.44,92,O4,89I/- to Rs.7,57,4U,99'2 l- by invoking the provisions of Section 80-IA(8) ar.rd Section 8O- IA(10) of the Act, 1961 and also observed that tlre Porver Plants, which wer: set up are only for Captive Consurnption and that the APSEB has granted sanction only for the purpose of Captive Consumpt on. Since the main objective for setr ing up of power plant is for Captive Consumption, the Assessitrg Ofhcer disallowed the entire claim of deduction under Section 80-lA of the Act, 19,61. Aggrieved by the order of the Ar;sessing Ofhcer, the assessee preferred an appeal before the C ommissioner of Income Tax (Appeals) V, Hyderabad. The CII(A) uide order 'tl

3 , PSA & NNRJ Itto 25L 2014 dated 24.O8.20O9 in ITA No. 0 1 69 / DC- 1 6(11 / cIT (A)-v / 2oo8-o9, keeping in view the decision of the Hon'ble jurisdictional High Court held that it would be just and fair to adopt the prevailing rate of Rs.2 . 1 2 per unit which was adopted in the preceding year, and thus directed to compute the sale proceeds arising from consumption of power in own unlts. Aggrieved by the said order of the CIT (A), the Department as well as the assessee preferred appeals before the learned Income Tax Appellate Tribunal (ITAT). 3. The learned ITAT vide its consolidated order, dated 2O.O7.2O12 disposed of the appeals granting relief to the ASSCSSEC directing the Assessing Officer to re-compute the deduction allowable under Section B0-lA of the Act, 1961 by adopting Rs.2.53 per unit as per prevailing market rate. Further, the ITAT a-lso held that the assesse is entitied for deduction as per the provisions of sub Section (8) of Section 80- IA of the Act, 1961, in spite of the fact that major portion of the power generated by the assesse is utilized for captive consumption ald only a small portion of the power is sold to AP TRANSCO and thereby the appeal filed by the dismissed. revenue was

4 Itto 251 2014 4. The main contention of the appellant is that the Assessing Of{icer restricted the deduction ,:laimed by the assessee under Section 8O-IA of the Ar;t, 1961 from Rs.44,92,O4,891/- to Rs.7,57,48,992/- by invoking the provisions of Section B0-IA(8) and Section 80-IA (10) of the Act, 1961. He further submitted that the Assessing Officer observed that the power plants were set up for Captive C,tnsumption and the APStrE; has granted sanction only for the purpose of Captive Consumption. Since the main objective for setting up of power plant is for captive consumption, the As sessing Ofhcer disallowed the entire claim of deduction under Section 8O-lA of the Act, 19 61. 5. On the other hand, learned counset for respondent while supporting the orders passed by the CIT rA) and the ITAT contending; that the power which was transfer red from power unit to ferro is to be charged with recovery ra-e of power and not at wt.ich the power purchased by AP 'IRANSCO from assessee. He further argued that the power generating companies are supplying power at rates vrrrying between Rs.2.21 to 3.15 per unit. He further contended that the CIT(A) agreed wil h the assessee's contention that the assesse is

5 PSKJ & NNN Itto 251 2014 entitled to avail deduction under Section 8O-I of the Act, 1961 on the proflt earned from the captive consumption power plant. Though the CIT has not accepted, there is contention that the assesse during the relevant assessment year has supplied the power for Rs.2.53 per unit. In support of his contentions he also placed reliance on the judgment of the Hon'ble Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Limited (and connected appeals)1, wherein at paragraphs 24,25,26,27 ar,d28 it was held as under: "2+. Black's Law Dictionary, lOth Edition, defines the expression "open market" to mean a market in which aly buyer or seller may trade and in which prices and product avajlability are deterrnined by free competition. P. Ramanatha Aiyer,s Advanced Law Lexicon has also defined the expression .open market" to mean a market in which goods are available to be. bought and sold by anyone who caJes to. Prices rl an open market are determined by the laws of supply and demand. 25. Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 8O IA would mean the price of such goods determined in an environment of free trade or competition. 'Market value' is al expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pncing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricit5r regime in force, an industnal consumer could purchase electricity from the State Electricit5r Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricit5z 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 surpius power to the State Electricity Board was also liable to be '1zoz+1 aoo ttn rsz

6 Itto 251 2014 determined in accordalce with the statutory requirements. In the pr:sent case, as the electricity from the Sttte Electricity Board was inadequate to meet power requirernents of the indust-ial units of the assessee, it set up captive p )wer plants to supply electricity to its industrial units. Howeve r, the captive power plalts of the assessee could sell or supplir the surplus electri(ity (after supplying electricity to its industrirLl units) to the State lllectncifir Board only and not to any othe- authority or person Therefore, the surplus electricity had to br compulsorily supplie d by the assessee to the State trlectricity Board and in terms ,)f Sections 43 and 43A of the 1948 Act, a contract was entereci into between the assessee and the StiLte Electricity Board lor supply of the surplus electricity by the former to the Iatter. 'lhe price for supply of such electricity by tlre assessee to the State Electricity Board was fixed at Rs. 2.32 plr unit as per the cor.tract. This price is, therefore, a contracted lrrice. Further, there uas no room or any elbow space for negotiation on the part o[ the assessee. Uncler rhe statutory regime in place, the assess(e had no other alternative but to sell c,r supply the surplu:; electricity to the State Electricity Boarc. Berng in a dominant position, the State Electricity Board coul,l fix the price to whir:h the assessee really had little or no scope to either oppose or negotiate. Therefore, it is endent that determination of tariff Letween the assessee and the State Ele< tricity Board cannot be said to be an exercise between a buyer and a sel1er in a competitive environment or in the ordinary coursr: of trade and busines,s i.e., in the open market. Such a price cal eot be said to be the price which is determined in the normal cr urse of trade and cornpetition. 27 . Anothcr way of looking at the issue is, if ..he inCustrial units or'the assessee did not have the option of ob _aining power from the captive power plants of the assessee, ther. in that case it wou.d have had to purchase electricity frorn the State Electricity Board. In such a scenario, the industrial units of the assessee rvould have had to purchase power frcm the State Etectricity Board at the same rate at which the Strtte Electricity Board :;upplied to the industrial consumers i.e., Rs. 3.72 per unit. 28. Thus, market value of the power supplied by the assesse 3 to its mdustria.l units should be ccmputed by conside:ing the rate at which the State Elecr ricitJz Board supplie<l po$,er to the consumers in the open ma rket arrd not comparng it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Eiectricity Board as this was not the rate at which an industrial consumer could have purchas ed power in the open market. It is clear th:it the rate at which power was supplied to a supplier could not be the market rate of electricit5z purchased by a consumer in the ,rpen rnarket. On the contrary, the rate at which the State Electricitv Board

7 I I I ,| i I PSKJ & NNRJ Itto 257_2014 supplied power to the industrial consumers has to be taken as the market value for computlng deduction under Section 80 IA of the Act. .. ." 6, Learned counsel for the respondent has further contended that if the assessee company involved in manufacture of Ferro Alloys, sugar, fabrication of equipment and generation of power, the assessee is entitled for disallowance of claim of deduction under Section 8O-lA of the Act, 1961. 7. Having considered the entire material placed before this Court and also the ratio laid down by the Hon'lcle Supreme Court in Jindal Steel and Power Limited's case (supra), this Bench opines that there is force in the argument of learned counsel for the respondent that power plant has been set up for generating captive consumption of power for its own Units and not to make profits out of its own consumption. The learned Commissioner of Income Tax (Appeals)-V, Hyderabad has rightly considered the factual aspects of the case and adopted the rate at Rs.2.53 per unit, as per the market rate for the current year in respect of power consumed internally and the same was confirmed by the Income Tax Department, Hyderabad

8 PSKI & NNRJ lfta_251_2014 and dlrectr:d the Assessing Officer to change raLe from Rs.2.53 per unit as per Section BO-IA of the Act, 1961 8. Considering the entire materlal placeC on record and the judgmt:nt of the Hon'b1e Supreme Court relerred to above, this BencL. opines that the appellant has not made out any valid ground calling interference of the impugtred order. The question of 1aw stands decided in favour of the assessee and against the appellant. For the said reasons, there are no grounds to interfere with the impugned order and accorclingly, the appeal is iiabie to be dismissed. 9. Accordingly, the appeal is dismissed. There shall be no order as; to costs. Miscr:lianeous petitions, tf any , pending in this appeal shall stand closed. JUSTICE P.SAM KOSHY JUSTICE NARSING RAO NANDIKONDA Date:18.O6.2O25 YVL