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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of
the Assessing Officer dated 28.07.2017 consequent to the
directions of the Dispute Resolution Panel dated 16.06.2017 for the
assessment year 2013-14.
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Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the first issue arises for consideration is addition of `7,17,500/-
being the notional interest and advance given to sister concern M/s
Jhanvi Motors Pvt. Ltd. According to the Ld. counsel, the Assessing Officer found that the assessee advanced interest-free loan to sister concern M/s Jhanvi Motors Pvt. Ltd. to the extent of `1,43,50,000/-.
The assessee explained before the Assessing Officer that these are strategic investments made by it for the immediate working capital
needs of the sister concern. According to the Ld. counsel, the assessee advanced working capital to sister concern is not in dispute. Merely because the borrowed funds were not used for the
business of the assessee, the Assessing Officer disallowed the notional interest of `7,17,500/-. According to the Ld. counsel, using
the borrowed funds for the business of the sister concern would also amount to using the funds for the business purpose of the assessee. Apart from that, according to the Ld. counsel, the
Assessing Officer has not examined the claim of the assessee that sufficient interest funds and profits were available for the purpose of making investment in the sister concern.
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On the contrary, Smt. Ruby George, the Ld. Departmental
Representative, submitted that the borrowed funds were diverted for making investment in the sister concern and it was not used for the purpose of business of the assessee. According to the Ld. D.R., the
funds which are used for the business of the assessee alone are eligible for claiming deduction towards interest payment. Since the sum of `1,43,50,000/- was admittedly invested in the sister concern
M/s Jhanvi Motors Pvt. Ltd., according to the Ld. D.R., the interest pertaining to that portion of the loan cannot be allowed as deduction
while computing the total income, therefore, the Assessing Officer has rightly disallowed the claim of the assessee.
We have considered the rival submissions on either side and
perused the relevant material available on record. M/s Jhanvi Motors Pvt. Ltd. admittedly is a sister concern. It is also not in dispute that the assessee has invested `1,43,50,000/- towards
working capital needs of sister concern M/s Jhanvi Motors Pvt. Ltd. The question arises for consideration is when the assessee
invested the borrowed funds in M/s Jhanvi Motors Pvt. Ltd. being the sister concern, whether the interest on the borrowed funds to the extent of `1,43,50,000/-, which was invested in the sister
4 I.T.A. No.1915/Mds/17
concern, could be allowed as deduction while computing total
income of the assessee? The Apex Court in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1 had an occasion to consider an identical issue. The Apex Court held that when the borrowed funds were
used for the business of sister concern, then the interest can be allowed as deduction even though the borrowed company has not used the loan amount for its business. The utilization of funds by
the sister concern would tantamount to utilization of borrowed funds by the assessee. Therefore, the Apex Court found that there cannot be any disallowance. Moreover, in this case, the assessee claims that sufficient interest free funds were available with it. In those
circumstances, this Tribunal is of the considered opinion that the disallowance of `7,17,500/- is not justified. Accordingly, the orders
of the authorities below are set aside and the addition of `7,17,500/-
is deleted.
The next ground of appeal is with regard to addition of `23,72,714/- being the contribution towards gratuity scheme.
Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee contributed an amount of `23,72,714/- to an
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unapproved gratuity fund. Since the gratuity fund was not approved
by the Commissioner during the relevant year under consideration, according to the Ld. counsel, the contribution made by the assessee towards unapproved gratuity fund was disallowed. According to the
Ld. counsel, the amount paid by the assessee has gone out of the hands of the assessee irrecoverably, therefore, the amount paid by the assessee to the extent of `23,72,714/- needs to be allowed
atleast under Section 37 of the Income-tax Act, 1961 (in short 'the Act').
On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that the assessee claims that the amount of `23,72,714/- was paid towards unapproved gratuity fund,
therefore, the Assessing Officer has rightly disallowed the claim of the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. It is not clear
from the orders of the authorities below whether the gratuity fund was created by the assessee itself or it was contributed to the LIC gratuity fund. In the absence of any details of the nature of fund to
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which the contribution is said to be made, this Tribunal is of the
considered opinion that the claim of the assessee cannot be
adjudicated. In case the assessee has contributed to the LIC
gratuity fund or any other similar fund and the contribution paid by
the assessee has gone out of the hands irrecoverably, then the
claim of the assessee needs to be allowed. In case the fund, which
is said to be paid by the assessee, still remains with the assessee,
then it cannot be said that the fund was irrecoverably gone out of
the hands of the assessee. For deciding this issue, the nature of
fund to which the assessee made contribution towards gratuity
scheme needs to be examined. In the absence of any details
before this Tribunal, the issue of contribution to gratuity scheme is
remitted back to the file of the Assessing Officer. The Assessing
Officer shall re-examine the matter and bring on record the nature of
the gratuity fund to which the contribution is said to be made and
thereafter decide the issue in accordance with law, after giving a
reasonable opportunity to the assessee.
The next issue arises for consideration is with regard to
deduction claimed by the assessee under Section 80-IA of the Act.
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Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the main business of the assessee was manufacturing of cotton yarn and knitted garments. For the purpose of manufacturing activity, the assessee needs electricity. Therefore, according to the Ld. counsel, the assessee-company installed windmill at various places so that the electricity generated out of the windmill could be utilised for the manufacturing activity. According to the Ld. counsel, in fact, the assessee-company entered into an agreement with Tamil Nadu Electricity Board for transmitting the electricity from windmill to the factory of the assessee-company. The agreement is known as “Energy Wheeling Agreement”. The Tamil Nadu Electricity Board, in fact, charges fees for transmitting the electricity generated by the windmill. According to the Ld. counsel, the Transfer Pricing Officer assumed that the assessee could have sold the power generated to Tamil Nadu Electricity Board at ₹3.44 per unit. Accordingly, he determined 7,57,78,820 units as sold at ₹3.44 per unit and consequentially made downward adjustment of ₹20,38,45,020/-. The Ld.counsel further submitted that till assessment year 2012-13, the market value of power generated by the captive power plant was determined by the Assessing Officer himself. Due to amendment in the provisions of Income-tax Act with
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effect from assessment year 2013-14, the issue was referred to the
Transfer Pricing Officer for determination of arm's length price. The Transfer Pricing Officer drastically reduced the tax incentive provided for captive power plant omitting to consider the auditor’s
report filed under Section 92E of the Act in Form No.3CEB in relation to specified domestic transaction along with transfer pricing study report. The Ld.counsel further submitted that the Transfer
Pricing Officer valued the power generated by the captive power plant at regulated rate on the ground that the power generated by the assessee’s captive power plant is not saleable to State Electricity Board. According to the Ld. counsel, this is only an
assumption of the Transfer Pricing Officer. There is no such restriction in any of the regulations framed under Electricity Act. According to the Ld. counsel, the bifurcation of power made by the
Department as “saleable” one and “non-saleable” one is against the National Electricity Policy framed by Government of India under the Electricity Act, 2003. According to the Ld. counsel, the Dispute
Resolution Panel placed its reliance on the judgment of Calcutta High Court in CIT v. ITC Ltd. (2015) 64 taxmann.com 214 which has no application to the facts of the present case. The Calcutta High
Court decided the issue before it after considering the provisions of
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Electricity Act as it stood prior to Electricity Act, 2003. The
assessment year before the Calcutta High Court was 2002-03, therefore, according to the Ld. counsel, the judgment of Calcutta High Court is not applicable to the facts of the case.
The Ld.counsel for the assessee further submitted that the Parliament amended the Electricity Act by introducing various reforms by Electricity Act, 2003. The key feature was the policy of
encouraging private sector participation in generation, transmission and distribution of electricity. According to the Ld. counsel, generation of electricity was being de-licensed and captive
generation of power is being freely permitted, all the distribution companies were mandated by law to provide open access to their networks to the generating companies to sell power directly to
consumers. According to the Ld. counsel, where there is a direct commercial relationship between power generating company and consumer or a trader, the price of power would not be regulated.
The sale of power to industrial consumers were freed from all price controls and captive power plants could sell power to industrial consumers at free market prices subject to payment of wheeling charges to the distribution companies. Moreover, according to the
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Ld. counsel, captive power plant was exempted from payment of
surcharges and cross subsidy charges, therefore, captive power plant is one of the beneficiaries from assessment year 2013-14.
The Ld.counsel for the assessee submitted that captive
power plant is defined in Electricity Rules, 2005. As per this Rule, a power plant where not less than 26% of the ownership is held by captive users and not less than 51% of the aggregate electricity
generated was consumed for captive use, such a plant has to be construed as captive power plant. This minimum usage of electricity for captive consumption is prescribed to ensure that only
those generating electricity, which have large internal / captive use of electricity, are entitled to the benefits available to captive power plants under new Electricity Act, 2003. According to the Ld.
counsel, the assessees have large manufacturing undertakings such as cement, textiles, etc. which require enormous amount of electricity. The very object of captive power plant is to use the
electricity for manufacturing activity. According to the Ld. counsel, had the assessee purchased the electricity from Tamil Nadu Electricity Board, then it would have paid the market rate and the profit of the assessee would be reduced considerably.
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Moreover, according to the Ld. counsel, Tamil Nadu Electricity
Board may not be able to provide uninterrupted and continuous power supply required by the assessee-company, therefore, the assessee installed its own captive power plant to ensure
uninterrupted and continuous power supply required for its manufacturing unit. According to the Ld. counsel, the very object of putting of the captive power plant was to consume the power
generated for their own manufacturing activity. According to the Ld. counsel, there was no intention on the part of the assessee to sell the power generated by captive power plant to outside.
The Ld.counsel for the assessee further submitted that when there was no intention to sell the power generated by captive power plant, there is no reason to classify as saleable and non-saleable
power. According to the Ld. counsel, entire power generated by the captive power plant of the assessee is intended for captive consumption for the manufacturing unit and not intended for sale.
Therefore, according to the Ld. counsel, there is no question of sale of any power arising for consideration. Hence, according to the Ld. counsel, the segregation made by the Department, more particularly by the Assessing Officer and the Dispute Resolution Panel that part
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of the power is saleable and other part is non-saleable is irrelevant for determination of arm's length price.
Referring to Section 80-IA(8) of the Act, the Ld.counsel submitted that the profit of the eligible business shall be computed as if the power generated by captive power plant was transferred to manufacturing industry at the market value. Referring to Explanation to Section 80-IA(8) of the Act, the Ld.counsel submitted that “market value” means the price that the electricity would ordinarily fetch in the open market. In the open market, the Tamil Nadu Electricity Board supplies power at ₹6.03 per unit. Referring to observation made by the Transfer Pricing Officer and the Dispute Resolution Panel, the Ld.counsel submitted that the reasoning of the TPO and DRP that the power generated by captive power plant of the assessee is non-saleable, therefore, the only buyer could be the Tamil Nadu Electricity Board. According to the Ld. counsel, when the power generated by captive power plant is not intended to be sold, there is no question of any presumption that the assessee would have sold only to State Electricity Board.
The Ld.counsel for the assessee further submitted that the power generated by the assessee has a market value. Merely
13 I.T.A. No.1915/Mds/17
because the power was consumed internally for captive
consumption, according to the Ld. counsel, it does not mean that the market value of the power generated by captive power plant is less valuable in the open market. Due to liberalization of electricity
policy in 2003, the power generated by captive power plant could be sold to industrial consumers without any tariff regulations. According to the Ld. counsel, these market rates clearly reflect the
value of power in the open market and cannot be disregarded merely because the power plant chooses to consume the electricity captively and does not actually sell the power in the open market. According to the Ld. counsel, the electricity consumed by the
assessee internally for its manufacturing activity cannot be less valuable than the power which is actually sold by State Electricity Board or other companies in the open market. The Ld.counsel
further submitted that there is a recognized power exchange for trading. Sale of power outside in the open market is governed by market forces. According to the Ld. counsel, the market rates of
power are very high sometimes due to demand for the electricity.
Referring to Rule 7 of Income-tax Rules, 1962, the Ld.counsel for the assessee submitted that the market price shall be
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the price at which it was sold during the relevant previous year. In
this case, according to the Ld. counsel, the price at which the electricity was sold in the open market has to be taken into consideration and not the purchase price of Tamil Nadu Electricity
Board. Placing reliance on the decision of the Mumbai Bench of this Tribunal in Addl. CIT v. M/s Reliance Industries Limited in I.T.A. No.4361/Mum/2012 dated 12.04.2017, the Ld.counsel submitted
that the Mumbai Bench has held that the price at which the State Electricity Board sells the electricity to its consumer has to be taken as market price for the purpose of deduction under Section 80-IA of the Act.
We heard Smt. Ruby George, the Ld. Departmental Representative also. On identical situation, the issue of deduction
under Section 80-IA of the Act was elaborately considered by the Mumbai Bench of this Tribunal in M/s Reliance Industries Limited (supra), a copy of the order is available at page 229 of the paper-
book. The Mumbai Bench, after elaborately considering the provisions of Electricity Act for the purpose of deduction under Section 80-IA of the Act, found that the price at which the Electricity Board sells the electricity to its consumer has to be taken as market
15 I.T.A. No.1915/Mds/17
price for the purpose of computing deduction under Section 80-IA of
the Act. In fact, the Mumbai Bench of this Tribunal has observed as
follows:-
“17. The assessee had claimed the deduction u/s.80IA on power generation undertaking by adopting price which the industrial consumers paid during the year under consideration for electricity purchased from State Power Distribution Agency. However, the Assessing Officer has restricted the claim of deduction u/s.80IA to Rs.34,23,45,990/- by taking 16% return on capital base as per the parameters prescribed by the Regulatory Authorities i.e. State Electricity Board for procuring the electricity.
By the impugned Order CIT(A) allowed assessee’s claim of deduction u/s.80IA after having its observation at pages 6.3 of its appellate order. Precise observation is as under:- "6.3 I have considered the facts of the case and submissions of the appellant as against the observation / findings of the AO in his order. The contentions raised by the appellant in respect of the ground of appeal are being discussed and decided as under:- i.This issue also appeared in the assessee’s reopened assessment for the A.Y.2006-07. On the identical set of facts, the Ld. CIT(A) in the office while deciding the appellant’s case for A.Y.2006-07 has reached the decision as under: “I have considered the facts of the case, the reasons given by the Assessing 'Officer for restricting 'the deduction claimed by the assessee u/s 80IA in respect of its power generating undertakings and the' submissions of the assessee, in my opinion the question which is required, to be answered in respect of the ground of appeal taken by the assessee is whether the action of the AO of restricting the deduction is correct in the present facts and circumstances of the case.. To answer the question, it would be pertinent to refer to Sec. 80IA(8) of the Act since the said section is relevant in the present case Sec. 80IA(8)reads as follows: "Where any goods (or services) held for the 'purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods (or services) held for the purpose of any other business carried on by the assessee or where any goods (or services) held for the purpose of any other business carried on by the assessee are transferred to the eligible business and, in either case the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the
16 I.T.A. No.1915/Mds/17
market value of such goods (or services) as on' the date of the transfer, then for the purposes of the deduction under this' section, the profits and gains of such eligible business shall be computed as if the transfer, in either case had been made at the market value of such goods (or services) as on that date.
Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents. exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.
(Explanation - For the purposes of this sub-section; "market value ", in relation: to any goods 'or services, 'means the price that such goods or services would ordinarily fetch in the open market.)
A perusal of the said section reveals that where transfer of any goods or services by the eligible business to any other business carried on by the assessee is not recorded in the books of accounts of the eligible business at the market value of such goods or services as on date of the transfer, then for "the purposes of the deduction, the profits and gains of such eligible business is required to be computed as if the transfer has been made at the market value of such goods or services as on that date. As per the Explanation,' 'market value' in relation to the goods would mean the price that such-goods would ordinarily fetch in the open market. The proviso to sub-section(8) of section 80IA would come into operation only' when in the opinion of the Assessing Officer; the computation of profits and gains of the eligible business in the manner provided in the main· sub-section presents exceptional difficulty. It is, therefore, clear that the Assessing Officer, in order to invoke the proviso, must form an opinion based on the material on record that the computation in the manner provided presented exceptional difficulties. If he does not form an opinion, he cannot invoke the proviso to determine the profits & gains of the eligible business. It would, therefore, be required to be seen whether the AO has found based on any material on record, and has brought any evidence or material on record, that the transfer of the goods by the eligible business, i.e. the power generating units, has not been recorded at the market value of such goods. It will also be required to be seen whether the AO has formed any opinion which would justify the invoking of the proviso to Sec, 80lA(B), because it is the proviso that the AO has invoked to work out the deduction available to the assessee u/s. 80lA . Perusal of the facts on record show that the assessee had disclosed that it has sold/transferred electricity to related concerns and, that the said transfer had been done at the fair market value of the goods. In the earlier 'assessment years in the regular assessments, the basis of taking the market value of the goods had been accepted by the Assessing Officer. I find that the Assessing Officer has assumed the power u/s. 80IA(B) without bringing any
17 I.T.A. No.1915/Mds/17
material on record to show that the price recorded in the books by the eligible business did not correspond to the market value of the goods as on the date of the transfer. It is important to note that for giving a finding that a particular value did not correspond to the market value, the market value has to be found out. Hence, the section pre-supposes that there is another value attached to the said goods which would represent the market value of the goods. I find that there is nothing brought on record to show as to how the price recorded in the Books does not correspond to the market value of goods, when sold in the open market, especially in the light of the reasons given by the 'assessee that such price corresponded to the market value of the goods. I find that the Assessing Officer has rejected the value recorded by the eligible business by merely holding that the market value cannot be the purchase value of electricity but the price of the electricity which the assessee can fetch in the open market. There being no open market for electricity during the period under review, the regulatory bodies fixed the price of electricity. He has further held that the tariff fixed for sale by the State. Power Distribution Agency for industrial consumers could not be called as market price as the regulatory fixes the tariff considering the wheeling charges, transmission loss due to leakage, past losses of the distribution agency, etc. In my opinion, the findings of the AO cannot be taken to be correct. Even though there may be 110 open market for the goods, an open market has to be presumed in respect of the goods in question in view of the categorical condition laid down in the provisions itself and the law laid down in this regard by the different Hon’ble Courts of the land and which have/been relied" upon by the assessee in its submissions. The Assessing Officer has not brought any material to show that the price charged was not in consonance with the market value. The AO has also not suggested, leave alone computed as to what the market value of the goods should be. While the assessee has given detailed reasons as to why the price of the goods recorded by it corresponds to till! market value, the Assessing Officer has not given any specific findings to hold as to why such price does not correspond to the market value of the goods and as to what was the market value of such goods. The assessee has contended that the 'rate 'charged to the end user by the State Electricity Board would provide the 'most appropriate basis to arrive at the market value. Since, the eligible unit is, in effect, transferring the goods to another business which is the end consumer, the cost to the end consumer, is required to be considered and not the tariff at which the 'Independent Power Producers' sell to the: 'State Distribution Agency', which in turn sells to the State Electricity Board for further sale to the end users i.e. consumers, at a rate higher than the rate at which the 'State Distribution Agency had procured the electricity, at. 'Another important aspect which is required to be considered is' that the: rate at which the 'Independent Power Producers' sell to the; State - Distribution Agency' under the Electricity Act, 1948 is a regulated rate which is determined ,on the basis' of the normative parameters 'determined by the Government of India
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under its Notification No, 251 (E) 'dated 30.03.1992. The normative parameters have been fixed by the Government, which is required to be followed by all, and no deviation in fixing the tariff is allowed Hence, even here, the rate cannot be taken to be the "price that such goods would ordinarily fetch in the open 'market" as this is the regulated rate fixed by the Government. It is also seen that the Assessing Officer has taken 16% return on capital base to work out the profits of the eligible business of the. assessee eligible for deduction u/s, 80IA of the IT.Act, 1961. 16% return on capital base in Notification No. 251(E) dt .. 30/3/1992 is only an exercise for fixation, of tariff. It is 'one 'of the parameters 'out of many which is required to be taken into consideration for fixing the tariff in relation' to the' rate at which the Independent Power 'Producers sell their power to the - State Distribution Agency. Hence, 16% return on capital base 'alone' would not be relevant while computing the profits of the eligible business under the Act.
To sum up under Sec. 80IA(8), the following conditions are required to be satisfied:- a) Any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee.
b) The' consideration if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the. date of transfer, c) It is only when condition (b).is satisfied then the Revenue gets a right to determine profits and gains of such eligible business at the market value of such-goods or services. as on the date of its transfer. The Assessing Officer had considered the rate' charged by [he State Distribution Agency as the market value of the goods 'transferred by the eligible business in the original assessment of the assessee, There is nothing on record to show as to how the value of the goods adopted/taken by the assessee do not correspond to the market value of such goods especially in light of the reasons given by the assessee. The Assessing Officer has also not expressed any opinion as to how the computation of profits and gains of the business tn. the manner provided in the main subsection' presented exceptional difficulties. Hence, proviso to Sec. 80lA could not have been invoked by him. It is also clear that the parameter 'relating to 16% of capital base js only an exercise for fixation of tariff and is only one of the many parameters taken into consideration for fixing the tariff under' the Old Electricity Act of 1948, This parameter is for working 'out the' tariff for sale to Distribution agencies and not for sale to the end' consumers and not for computing the profits and gains of the eligible business. In' view of the aforesaid reasons, the order of the AO of working out the profits eligible for deduction on the basis of 16% return on 'capital base cannot be upheld.
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As regards the submission relating to Sec, 80A(6), I find that same submissions were made by the assessee before the Assessing Officer during the course of the re-assessment proceedings. I find that the AO has not controverted the submissions of the assessee .I am also of the opinion that since the said Sec, 80(6) has been specifically made retrospective from a specific date i.e. w.e.f.01.04.2009, the same would apply only with respect to the A.Y. 2009-10 onwards and would not apply to the A.Y.· 2VUtj-07 in question. This is also clear from the fact that the Explanation 10 Sec. 80IB(10) was inserted by the Finance (No.2) ct, 2009 and was made operational w.r.e.f 01/04/2001 while sec. 80A(6) was also inserted by the Finance (No.2) Act, 2009 and was made operational w.r.e.f 01/04/2009. Further, as per the explanation to Sec. 80A(6), the market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or 'enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any. In the present case, the AO has not brought any material on record to show that the goods supplied by the undertaking were at a price higher than what it was required to supply as a result of any statutory or regulatory restrictions or as to what should have been the rate at which it was required to supply the goods as a result of any statutory or regulatory restrictions.
In the case of Reliance Infrastructure Ltd (Supra) Hon'ble jurisdictional Mumbai, Tribunal has held that the price that the unit paid to TPC for purchase of power would be the best basis for working out the profits of the business of generation of power even after the order MERC. In this case, the assessee, other than using power generated from its own captive generating units, was also purchasing power from TPC.
In the case of Jindal Steel & Power Ltd. reported in 16 SOT 509 (Del), Hon 'ble Tribunal has held as follows:-
"Sec: 43A of the Electricity (Supply)Act,1948, lays down rules and conditions for determining the tariff for sale of electricity by a generating company to the State Electricity Boards. A perusal of the same reveals that the tariff is determined on the basis of various parameters contained therein: From the aforesaid, it is evident that on one hand it is only upon granting of specific' consent that a private person call set up a power generating unit having 'restrictions on the use of power generated and at the same time the tariff at which a power generating unit can supply power to the Electricity Board is also liable to 'be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the
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compulsive legislative mandate not only in the realm of enforcing buying but also to set the' buying tariff in terms of scenario cannot be, equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. There is no reason for not holding so for the purposes of. Section 80IA-(8) also, The price at which the power is supplied by the assessee to the Board is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of s.80-IA(8) The price recorded by the assessee Rs. 3.72 per unit can be considered to be the market value-for the purposes of s. 80-IA(8). This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of Rs.3.72 per unit to its-consumers. This is the price at which the consumers are able to procure the power. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee’s undertaking generating electric power for transfer power for captive "consumption at' the rate of Rs. 3.72 per unit corresponds to the market value of power. The AO is directed to allow relief to the assessee under s.'80IA as claimed:"
It is pertinent to note that the assessee is not supplying electricity to the State Electricity Board or to any other power distribution agency. In the case of West Coast Paper Mills Ltd. reported in 1000 TT] 833 (Mum), the Hon'ble Tribunal has held as follows:
"Having held that the assessee is entitled for the deduction available under s. 80-IA,· the next question is what should be the price attributable to the power generated and consumed by the assesses, The answer to the question is readily available in sub.s(8) of s.80-IA, which reads as below:
80-IA(8)
Where any goods held for the purpose of eligible profits are' transferred to any other business carried on by the assessee, or where any goods held for the purposes of any 'other business'. carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of transfer, then for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer in either case, had been made at the market value of such goods as' on that date".
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The above concept of transfer pricing is also apparent in r. 7 of I T Rules, 1962 provided for determining the income from agricultural produces consumed by the agriculturist-assessee in his business as raw material. The rule provides that in the case' of income which is partially agricultural income and partially income chargeable as business income in determining that part which is chargeable to income-tax, the market value of any agricultural produce which has been raised by the assessee and utilized as a raw material in such business shall be deducted at the prevalent market value. This principle has been considered and upheld by the Supreme Court in the case of Thiru Arooran Sugars Ltd. Vs. ClT (1997) -142 CTR (SC) 9; (1997) 227 ITR 432 (SC). Therefore, we direct the assessing authority to work out the profits on the basis of the price of the power generated' by the assessee' at the average of the annual landed cost of electricity 'purchased by the assessee from Karnataka State Electricity Board during the impugned previous year. It may be determined on the basis of 'payment details available from the bills issued by the Karnataka state Electriciiy Board, during the year under consideration ."
During the course of the appellate proceedings, the assessee has submitted that the sale price of electricity by the captive generating units varies from Rs. 4.55 per KWH to,Rs. 4.52 per KWH and for the sake of uniformity, the same had been taken at the average rate of Rs. 4.54 per KWH for computing the claim u/s. 80IA for the power generating units. The working had been done based on the price of electricity charges by Dakshin 'Gujarat . Vij company, a state owned company which was the only supplier of electricity other than the captive power plants. In views of the decisions of Hon’ble Tribunals as. discussed above, the Assessing. Officer will examine whether the submission of the assessee with respect to the rate taken is correct. If it is found that the rate charged by the suppliers is lower than the role adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of 'the' eligible-business, eligible for deduction u/s. 80IA. However, if the' rate charged. by the suppliers is the same as the rate adopted for sale' by the 'captive power generating units of the assessee, such rate' adopted should be accepted for' the purpose of working out the deduction u/s. 80IA.
Subject to the above, this ground of appeal filed by the assessee is allowed.
The facts of the case are similar and issue involved is identical. Accordingly in view of the facts of the case and keeping in view the principles of judicial consistency, it -Is directed that. the Assessing Officer will examine correctness of the-rate taken (Rs. 4.799 per unit) and if it is found that the rate charged by the suppliers is lower than the rate adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing
22 I.T.A. No.1915/Mds/17
Officer for computing the profits of the eligible business, eligible for deduction u/s. 80IA. However, if the rate charged by the suppliers is the same as the rate adopted for sale by the captive power generating units of the assessee, such rate adopted should be accepted for the purpose of working out the deduction u/s.80-lA.Subject to the above, this ground or-appeal filed by the assessee is allowed.
We found that exactly similar issue has been considered by the Tribunal in assessee’s own case for the assessment year 2006-07 wherein issue has been decided in favour of the assessee. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee’s own case, we do not find any infirmity in the order of CIT(A) for allowing assessee’s claim of deduction u/s. 80IA with reference to power generating undertaking and the power so generated being used mainly for captive consumption.
Learned DR has relied on the decision of Calcutta High Court in the case of ITC Ltd., (2015) 64 Taxman.com 214 and contended that distributing expenditure not actually incurred by the assessee increases its profits. Such profit cannot be said to be derived from industrial undertaking, therefore, to this extent deduction u/s.80IA cannot be allowed.
In the course of the hearing, the Revenue has relied on the decision of Calcutta High Court in Commissioner of Income tax, Kolkata-III v. M/s. ITC Ltd. (ITA 426 of 2006) for the proposition that the market price determined u/s 80lA of the Act ought not to be determined at the rate at which electricity was supplied to the assesses for its consumption other than for Captive Power plant. According to the Revenue, this decision was therefore in favour of the Revenue and ought to be followed in preference to the decision of the Tribunal referred to earlier in the assessee's own case.
We had gone through the decision of the Calcutta High court in M/s.ITC Ltd. and found that it has no connection to the facts of the assessee's case for following reasons:
First, the judgement of the Calcutta High Court was considering the provisions relating to the Electricity Act as they stood prior to the Electricity Act, 2003 as it was dealing with A Y 2002-03. No doubt, the Calcutta High Court has referred to Section 61 & 62 of the Electricity Act, 2003, but that is only in context of discussion relating to the rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. The decision therefore cannot hold the field for A Y 2007-08, 2008-09 and 2009-10 as these Assessment years are years after the Electricity Act came into force on 10.06.2003.
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It is therefore necessary to see what is the effect of the Electricity Act 2003 and its impact on and regulation of tariffs. The Preamble to The Electricity Act 2003 states as follows: ”An Act to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto".
A look at the Statement of Objects and Reasons annexed to the bill, para 4 would indicate that the Act seeks to encourage private sector participation in generating, transmission and distribution of electricity and promoting competition and providing for newer concepts like power trading and open access. A copy of the statement of Objects and reasons is annexed herewith. Para 4(i) of the Objects and Reasons is particularly important and it reads as under:
"Generation is being delicensed and captive generation is being freely permitted. Hydro projects would, however, need approval of the State Government and clearance from the Central Electricity Authority which would go into the issues of dam safety and optimal utilisation of water resources" (Emphasis supplied).
Reference is invited to this para to show that captive generation is being freely promoted. With this background, it is necessary to see what is the scope and impact of the Electricity Act 2003.
Section 12 provides that no person shall transmit electricity or distribute electricity or undertake trading in electricity unless he is authorised to do so by a licence issued u/s 14 or he is exempt under section 13.
It is quite clear that under section 12, a licence is not required for generation of electricity and this is made clear by section 7 which reads as follows:
“PART III- GENERA TION OF ELECTRICITY Section 7. (Generating company and requirement for setting up of generating station):
Any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act if it complies with the
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technical standards relating to connectivity with the grid referred to in clause (b) of section 73.
Section 8(Hydro Electric generation)"
Notwithstanding anything contained in section 7, any generating company intending to set-up a hydrogenating station shall prepare and submit to the Authority for its concurrence, a scheme estimated to involve a capital expenditure exceeding such sum, as may be fixed by the Central Government, from time to time, by notification.
It is only hydro-electric electricity generation which is regulated u/s 8. In the case of the assessee, the generation is for captive consumption and therefore section 9 is material and it reads as under:
"Section 9. (Captive generation):
(1) Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines:
Provided that the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company.
Provided further [flat no licence shall be required under [his Act for supply of electricity generated from a captive generating plant to any licencee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under subsection (2) of section 42.
(2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use:
Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be:
Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission.” (Emphasis Supplied)
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Section 9 is a non-obstante clause and permits any person to construct, maintain or operate a Captive Generation plant and dedicated transmissions lines. A bare perusal of section 9(1) would indicate that there is no restriction whatsoever on a person in respect of Captive Generation plant. It is neither required to obtain a licence under section 7 or under section 12 as a generating company if it consumes power within itself. In other words, a Captive Generation Plant does not need to apply for licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73.
The reason for excluding a Captive Generation plant from any of the technical standards for construction of electricity plants relating to connectivity with the grid, is because a person can, without a licence, construct, maintain and operate a Captive Generation plant and use dedicated transmission lines. His generating, transmitting and consuming power within his own jurisdiction neither needs access nor seeks to use the grid and therefore such a Captive Generation Plant is not cabined and cribbed by any regulatory mechanism under the Electricity Act 2003.
If however the Captive Generation Plant seeks to supply electricity to any outsider through the grid, the proviso requires that the supply of electricity shall be regulated in the same manner as a generating station of a generating company. The word 'grid' is defined in section 2(32) of the Act as under:
(32) "grid" means the high voltage backbone system of inter-connected transmission lines, sub-stations and generating plants;
Thereafter the proviso makes it clear that it is only when the Captive Generation Plant sells to an outsider through the high voltage backbone system of interconnection transmission, that the full vigour and rigour of regulation under the Electricity Act, 2003 will be attracted. The 2nd proviso makes it clear that although no license is required when a Captive Generation plant supplies electricity to a consumer, the rules and regulations of the Act made u/s 42(2) would apply for the sale of electricity by a Captive Generation plant to a consumer other than himself.
This fact makes it clear that the provisions of section 42(2) apply only to a Captive Generation plant in respect of sales made or electricity consumed by a third party. This distinction is very significant in as much as there is no regulation of intra department consumption by any person generating electricity. In other words, for a person generating electricity and consuming it there is no obligation and no duty to either obtain a licence to set up a plant or transmit electricity which is self consumed.
26 I.T.A. No.1915/Mds/17
The Calcutta High Court in page 11 has held "the rate at which electricity was purchased from Andhra State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged in generation and distribution. Therefore the rate which is sold to any such company can only be the market rate contemplated by the section". In other words, according to the Calcutta High Court, the regulated selling price by a third party to the assessee cannot form the selling price by a Captive Generation plant. Whilst this is the absolutely correct and true, it is wholly irrelevant in context of Electricity Act, 2003. In a much as under the Electricity Act 2003, when the Captive Generation plant notionally sells electricity to itself, there is no regulation in respect of market price. In this connection, the decision of Supreme Court in the case of Thiru Arooran Sugars Ltd. v. CIT (1997) 227 ITR 432 is material. In that case, the assessee company was a manufacturer of sugar which purchased sugarcane from the market for crushing. It also had its own cane fields where it cultivated sugarcane, which was entirely consumed by its factory. Since the profit made by the assessee from the sale of sugar arose out of agricultural activities as well as manufacturing activities, the income earned by the assessee was required to be divided into two parts. No tax was leviable on agricultural income, but the profit generated from non-agricultural activities was leviable to be taxed under the Act. Therefore the agricultural income had to be determined and for that market value of the sugarcane consumed in its factory had to be determined. The relevant rule 7 of the Incometax Rules, 1962 read as follows: "Income which is partially agricultural and partially from business - (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head 'profits and gains of business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rentin-kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.
“(2) For the purpose of sub-rule (1) 'market value' shall be deemed to be
(a) where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the relevant previous year;
27 I.T.A. No.1915/Mds/17
(b) where agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process aforesaid, the aggregate of-
(i) the expenses of cultivation; (ii) the land revenue or rent paid for the area in which it was grown; and (iii) such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit. "
The revenue argued that Rule 7(2)(a) ought to be followed and according to the assessee, Rule 7(2)(b) was the correct rule to be followed. The Supreme Court rejected the argument of the assessee that Rule 7(2)(b) ought to be followed. It held at page 438 as follows:
“We are unable to uphold this argument. 'Market' in the context of rule 7 does not mean an open market where buyers and sellers get together for the purpose of purchase and sale of goods. The assessee-company regularly, year after year, in the ordinary course of business bought sugarcane from registered and unregistered ryots. Whether the purchase was at a price controlled by the Sugarcane Control Order or not is quite immaterial. There was a price at which sugarcane could ordinarily be purchased by the assessee for the purpose of its own business. The price paid by the assessee was the market price. It is by now well-settled that market does not have to be one open place of business where buyer and seller congregate (Emphasis Supplied).
According to the Supreme Court, it is not necessary that there must be an actual market where buyers and consumers congregate to purchase 8nd sell Goods Where there is no such open market, an estimate of the market price will have to be done on an estimated hypothetical basis. It stated at page 440, para (f) of 227 ITR 432.
The principle that value of a property will be the price which it will fetch if sold in the open market is a well-known method of valuation which has been adopted in a large number of statutes in England and also in India. It is well- settled that existence of an open market is not a pre-condition for application of this principle. There may or may not be an actual market where buyers and sellers congregate to purchase and sell goods. Where there is no such open market, an estimate of the market price will have to be done on a hypothetical basis.
The Supreme Court also referred to its decision in the case of Ahmed G. H Ariff v. CWT [1970] 761TR 471 (SC), in the following words:
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In the case of Ahmed G.H. Ariff v. CWT [1970176 ITR 471 , explaining the phrase 'if sold in the open market' in section 7(1) of the Wealth-tax Act, it was observed by Grover, J., speaking for the Court that the phrase did not contemplate actual sale or the actual state of the market, but only enjoined that it should be assumed that there was an open market and the property could be sold in such a market and, on that basis, the value had to be found out. It was a hypothetical case which was contemplated and the tax officer must assume that there was an open market in which the asset could be sold. In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price there has to be an actual market where there will be 'a concourse of buyers and sellers'.
Having discussed these principles, it laid down the following criteria for determining the price at which the sugar cane was said to have been sold to the manufacturing unit of the assessee. It noted that the assessee company actually bought sugarcane from a large number of growers, year after year in the ordinary course of business. The price at which it buys the sugarcane must be the market price and if the price was controlled, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. Applying, this principle of the facts of the assessee's case, there is only a single buyer for the electricity generated by the Captive Generation Power which is the assessee himself. Just as in Thiru Arooran Sugars Ltd. v. CIT, the sugarcane produced by Thiru Arooran Sugars categorically confirms that there was only a single buyer viz. manufacturing unit of Thiru Arooran Sugars, the Supreme Court there stated that because manufacturing unit also bought from other growers, the price at which they obtain sugar cane should be adopted as market price. Applying this principle to the facts of the assessee's case, the assessee also buys electricity from other supplier viz Gujarat Electricity Board (GEB). It is not relevant whether that price was controlled or not. If the price at which the GEB supplied as controlled then that would be the market price vis-a-vis the assessee. Accordingly, the price charged by GEB should be adopted as market price. Therefore, the decision of Supreme Court in Thriu Arooran Sugars completely covers the situation of the assessee.
The Supreme Court at page 441 has stated as under:
"These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre-requisite that an open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee-company actually bought sugarcane from a large number of growers year after year in the ordinary course of business. The price at which it buys sugarcane must/be taken to be the market price. If the price is
29 I.T.A. No.1915/Mds/17
controlled by Sugarcane Control Order, the controlled price will be taken as the market price because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was the only buyer in the region where its factory was located".
The Calcutta High Court has however stated at page 11 :
"But in the case before us the electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution."
In our case, the entire consumption is by the assessee itself and the assessee is not obliged to sell to only a distribution company or a company which is engaged in generation and distribution. This is made clear from the 2nd proviso to section 9(1) of the Electricity Act, 2003 which reads as follows:
"Provided further that no licence shall be required under this Act for supply of electricity generated from a captive generating plant to any licensee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under sub- section (2) of section 42. "
Therefore, the decision of the Calcutta High Court is distinguishable as in that case in the .period before the introduction of the Electricity Act, 2003 a captive generating plant would sell electricity only to a generating or distribution and generating company whereas in the case of the assessee after the enactment of the Electricity Act, 2003 the Assessee would sell to "any licencee" and is not restricted to selling electricity only to a distribution company or a generating and distribution company.
It was in these circumstances and for these reasons that the Calcutta High Court concluded that the purchase price would be different from the selling price of electricity on account of wheeling and distribution of losses. The Calcutta High Court concluded at page 12 as under:
"The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by Sections 61 and 62 of the Electricity Act 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There are provisions in Section 62 so that the generating companies can recover expected revenue on the basis of the tariff fixed by the commission. There are similarly provisions in Section 61 so that the distribution licensee can derive
30 I.T.A. No.1915/Mds/17
reasonable return. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees ..... "
This conclusion is indisputable as applicable to licenced generating companies selling in the market but has no application to a 'captive generating plant' as much as there is no tariff fixed by Tariff Regulation Commission for self consumption. Therefore, the open market for sale of electricity by a licenced generating company and the open market which must be assumed for consumption of electricity by the generating producer itself are two different markets and the market price for self consumption and the market price for sale by the licenced generating companies to outsiders are two different prices. The Electricity Act, 2003 contemplates determination of market price only in respect of licenced generating companies willing to distribute or transmit power to a distribution licensees or to a consumer and it is only those generating companies which are regulated under section 42(2). The self consumption of electricity by a Captive Power Plant is' not regulated under Electricity Act, 2003. In the decision of Supreme Court In Thiru Arooran Sugars also, it is quite clear that self consumption of sugarcane was not regulated and given that circumstance, the Supreme Court held that because the manufacturing unit was purchasing sugar from other growers that price ought to be adopted as market price. Similarly in the case of the assessee, in respect of the electricity produced by Captive Power Plant for consumption, there is no regulation for pricing the price charged by GEB ought to be adopted as market price. The market is therefore hypothetical open market exactly as was contemplated in Rule 7(2)(a) referred to in Thriu Arooran Sugars.
We further observe that the Calcutta High Court had referred to section 62 of the Electricity Act 2003, whereby generating companies can recover expected revenue on the basis of tariff fixed by the commission. The provisions of section 62 of the Electricity Act 2003 reads as follows:
62 (1) The Appropriate Commission shall determine the tariff in accordance with provisions of this Act for –
(a) Supply of electricity by a generating company to a distribution licensee:
Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity;
(b) Transmission of electricity;
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(c) Wheeling of electricity; (d) Retail sale of electricity
Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity.
On perusal of the above, it can be observed that section 62 of the Electricity Act 2003 authorizes commission to determine tariff for
(1) Generating company supplying to distribution licensee, (2) Transmission of Electricity (3) Wheeling of electricity (4) Retail sales of electricity.
Thus captive power plant and its users are not covered under the four categories mentioned in section 62(1) above. Hence for supply of power by a captive power plant to the captive users or to open access consumers, it is not required to get the tariff approved by the commission as stated in section 86(1)(a) of the Electricity Act, 2003.
Therefore, the decision of the Calcutta High Court cannot be applied to the acts of the assessee in as much as it was delivered in respect of A Y 2002-03 for which the Electricity Act 2003 did not apply and also for the reason that the Honourable Court has not considered the provisions of sections 8, 9, 42 and 2(g) of the Electricity Act, 2003. Further the provisions of section 62 of the Electricity Act, 2003 referred to by the Honourable Court are not applicable to the fact of the assessee's case.
The Calcutta High Court has dissented from the decision of three different High Court as follows:
The decision of Chattisgarh High Court Bilaspur Bench in the case of ACIT v. Godavari Power & Ispat Ltd. - 223 Taxman 234. 2. CIT v. Kanoria Chemicals and Industries Ltd 35 taxmann.com (Cal). 3. CIT v. Graphite India Ltd ITA No ITA No 733 of 2008 (Cal). 4. Madras High Court decision referred to in page 12 (Citation not available).
Under these circumstances following two principles involved here.
Where there is a conflict of views between High Court, Tribunal may choose to follow what in its opinion is the correct view.
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When there is a conflict of opinion between two or more High courts, opinion of jurisdictional High Court, which is in favour of the assessee ought to be followed.
If neither of the above two principles are followed, there is a decision of assessee in its own case for the earlier year on identical fats and that ought to be followed.
Further there are several decision of Tribunal which have taken the same view, In cases with similar facts viz:-.
ACIT, Raipur v. Godavari Power & Ispat Ltd - 133 ITD 502 (Dilaspur ITAT) 2. Eveready Spinning Mills (P) Ltd v. ACIT, Circle-1, Tirupur - 17 Taxmann 254 (AY 2007-08) Chennai ITAT. 3. Assam Carbon Products Ltd v. ACIT - 100 TT J 224 (IT AT Kolkatta) 4. West Coast Paper Mills Ltd V. JCIT -100 TTJ 833 (Mum) Mumbai ITAT 5. Add!. CIT v. Jindal Steel & Power Ltd - 16 SOT 509 (ITAT Delhi). 6. Shree Cement Ltd v. The Addl. CIT Jaipur-ITA NO.503/JP/2012 (Jaipur ITAT)
In any view of the matter, several decision of the Tribunal listed below have taken a view consistent with a view taken by Tribunal in assessee's own case for A Y 2006-07. In the circumstances, except in the case of Calcutta High Court in M/s. ITC Ltd, there are four judgements of other High Court in assessee's favour and six judgements of Tribunal in assessee favour and no contrary decision of Tribunal. In the circumstance, the appropriate course of action to follow would be the decision of Supreme Court in the case of Thiru Aroovan Sugar Mills and the decisions of Calcutta High Court which are earlier in point of time and decision of Chattisgarh and Madras High Court and various benches of Tribunals and assessee's own case for the earlier year.
Furthermore the Supreme Court has endorsed the view that where there is a conflict between two High Courts the view in favour of the assessee must be adopted. There are several decision which have taken the same view, in cases with similar facts viz:-.
CIT v. Vegetable Products Ltd - 88 ITR 192 (SC) 2. Pradeep J Mehta v. CIT Ahmedabad - 169 Taxman 454 (SC) 3. CIT v. Naga Hills Tea Co. Ltd - 89 ITR 236 (SC) In view of the above discussion, the Calcutta High Court can have no application to the assessee’s case.”
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The Kolkata Bench of this Tribunal in Birla Corporation Ltd.
v. DCIT (I.T.A. No.686/Kol/2014 dated 13.09.2017), after following
the decision of the Mumbai Bench of this Tribunal, has held as
follows:-
“14. After coming to the conclusion that the decision of the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) would not be applicable to the case of Assessee, the Tribunal thereafter went into the question as to what would be appropriate rate for the adopted as sale price by the TPP unit of the Assessee to its Cement manufacturing units. The Tribunal thereafter referred to the decision of the Hon'ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), as to the meaning of the word “Market Price” wherein in the context of market price of sugarcane which was also a commodity whose price was subject to control by the Government held that the price at which a manufacturer buys sugarcane must be taken to the market price. The Hon'ble Supreme Court held that if the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. The Tribunal agreed with the submission of the Assessee that as held in the aforesaid judgment of the Hon'ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC’s case because the Hon'ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. The Tribunal also held that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the
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previous month is quite appropriate and reasonable for determining the market value for the month of supply. The Tribunal held that the annual weighted average adopted by the ld. CIT(A) would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee’s method is more appropriate as it factors in variations as and when they take place.” 19. In view of the above decisions of the Mumbai Bench and
Kolkata Bench of this Tribunal which dealt with the matter elaborately, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of the authorities below
are set aside and the Assessing Officer is directed to adopt the arm's length price of electricity at ₹ 6.03 per unit.
The next issue arises for consideration is determination of
purchase of power from subsidiary company located in Karnataka.
Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee purchased power from sister concern, namely, KPR Sugar Mills Ltd. The assessee paid ₹ 7/- per unit. According to the Ld. counsel, the price was paid as per the price traded in Indian Energy Exchange. According to the Ld. counsel, the
Assessing Officer, however, rejected the claim of the assessee on the ground that the assessee is not a trader in power, therefore, the
35 I.T.A. No.1915/Mds/17
prices traded in Indian Energy Exchange cannot be taken as price for the purpose of purchasing power from sister concern. The Assessing Officer determined the purchase prices of power at ₹3.69 per unit. According to the Ld. counsel, the power traded in Indian Energy Exchange has to be considered for the purpose of determination of power price purchased from sister concern.
On the contrary, Smt. Ruby George, the Ld. Departmental Representative submitted that the assessee has liberty to purchase power from its own subsidiary company at Karnataka. According to the Ld. D.R., the power was purchased by the assessee from loss making subsidiary company. The subsidiary company has no authority to sell power at the price / rate of its choice. The electricity regulatory authority has not fixed any price for sale of power from subsidiary company. Moreover, according to the Ld. D.R., transmission and distribution were not performed by the subsidiary company, therefore, for the reason stated by the Assessing Officer, for claiming deduction under Section 80-IA of the Act, he fixed the price at ₹3.69 per unit. Accordingly downward adjustment was made at the rate of ₹3,11,06,020/-.
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We have considered the rival submissions on either side and perused the relevant material available on record. The assessee purchased power from subsidiary company, namely, KPR Sugar Mills at Karnataka. The purchase of power is not in dispute. Had the assessee purchased power from State Electricity Board or Karnataka State Electricity Board, it would have paid the price fixed by the respective Electricity Board. Merely because the assessee purchased the power from subsidiary company that cannot be a reason to fix the cost of generation and also the purchase price. We have to determine the purchase price in an estimated market rate at which the assessee would have purchased the power from open market. When the Tamil Nadu Electricity Board sells power at ₹6.03 per unit, this Tribunal is of the considered opinion that the assessee could not have paid in the open market at ₹7 per unit. Therefore, even though the assessee claims ₹7/- per unit, this Tribunal is of the considered opinion that the assessee ought to have purchased the power at ₹ 6.03 per unit from TNEB. There is no justification in fixing the arm's length price at ₹ 3.59 per unit. In view of the above, and the reason stated in the earlier part of the order for deduction under Section 80-IA of the Act, the orders of the lower authorities are modified and the Assessing Officer is directed
37 I.T.A. No.1915/Mds/17
to fix the purchase price of power from subsidiary company, namely, KPR Sugar Mills Ltd. at ₹6.30 per unit.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 24th January, 2018 at Chennai. sd/- sd/- (एस जयरामन) (एन.आर.एस. गणेशन) (S. Jayaraman) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member चे�नई/Chennai, �दनांक/Dated, the 24th January, 2018. Kri. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. Principal CIT- 2, Coimbatore 4. CIT(TP), Chennai 5. JCIT, TPO-2, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.