PALLIPALAYAM SPINNERS (P) LTD.,PALLIPALAYAM vs. ACIT CIRCLE 1, NAMAKAL

Shri S. Sridhar, the Ld.counsel for the assesseess, submitted that the only issue arises for consideration is disallowance of the claim made by the assessees under Section 80-IA of the Income- tax Act, 1961 (in short 'the Act') in respect of electricity generated for captive consumption. According to the Ld. counsel, the assessees claimed deduction under Section 80-IA of the Act in respect of the power generated through windmill and utilised for captive consumption. According to the Ld. counsel, the Tamil Nadu Electricity Board charged ₹5.50 per unit of the electricity during the year under consideration excluding electricity tax, service charges and other taxes, etc. The Assessing Officer by placing reliance on the decision of this Bench in Sri Matha Spinning Mills has taken the cost of power consumed captively at ₹5.50 per unit on the ground that the Electricity Board charged only at that rate. According to the Ld. counsel, the Assessing Officer simply ignored the tax, duty and surcharge payable by the consumer to the Tamil Nadu Electricity Board which would be passed on to the Government.

Referring to the assessment order, the Ld.counsel for the assessees submitted that the Assessing Officer observed that it was exceptionally difficult for him to understand the legality of the Electricity Act, ennumber of orders issued by the State Government on demand and supply of electricity, understanding the working of TANTRANSCO, TNEB and TANGEDCO, Tamil Nadu Electricity Regulatory Authority reports, etc. Therefore, according to the Ld. counsel, he fixed the rate at ₹5.50 per unit the rate on which Electricity Board sells the electricity to consumer excluding the taxes payable by the consumer. Placing reliance on the judgment of Gujarat High Court in CIT v. Shah Alloys Limited in Tax Appeal No.2092 of 2010 dated 22.11.2011, a copy of which is filed before this Tribunal, the Ld.counsel submitted that Gujarat Electricity Board collected electricity duty at 8 paise per unit over and above the electricity charges. The Assessing Officer, in the case before the Gujarat High Court, found that the market value of the electricity is only ₹5.32 per unit and 8 paise was collected by State Electricity Board as tax, therefore, it cannot be considered as cost of electricity for deduction under Section 80-IA of the Act. This claim of the Department was rejected and the Gujarat High Court found that the amount of ₹5.40 per unit comprises of the component of 8 paise which is nothing but electricity duty. To a consumer, the price paid remains ₹5.40 per unit. The fact that the seller of electricity, namely, Gujarat Electricity Board retains only ₹5.32 per unit and the balance of 8 paise would be passed on to State Government in the form of electricity duty, would not make any difference. In view of the above, the Assessing Officer, according to the Ld. counsel, is not justified in excluding the taxes and duties paid by the consumer of the Tamil Nadu Electricity Board over and above the electricity charges.

The Ld.counsel for the assessees further submitted that proviso to Section 80-IA(8) of the Act is applicable only in respect of goods and service. According to the Ld. counsel, electricity is neither goods or service, therefore, the Assessing Officer has no authority to determine the cost of acquisition. The Ld.counsel has also placed his reliance on the judgments of Gujarat High Court in ACIT v. Pragati Glass Works Pvt. Ltd. in Tax Appeal No.1646 of 2010 dated 30.01.2012 and also Principal CIT v. Gujarat Alkalies And Chemical Ltd. in Tax Appeal No.544 of 2016 dated 03.10.2016 and Principal CIT v. Alembic Ltd. in Tax Appeal No.553 of 2017 dated 28.08.2017. The Ld.counsel has filed copies of all the above cited judgments of Gujarat High Court relied on by him.

On the contrary, Ms. S. Vijayaprabha, the Ld. Departmental Representative, submitted that the Assessing Officer as well as the CIT(Appeals) by placing reliance on the decision of this Bench of the Tribunal in Sri Matha Spinning Mills Pvt. Ltd. v. DCIT in dated 14.11.2012, found that the cost of electricity collected by Tamil Nadu Electricity Board from its consumer has to be taken as cost of the power generated by the assessees for captive consumption. In fact, according to the Ld. D.R., the Assessing Officer has taken the rate fixed by the Tamil Nadu Electricity Board at ₹5.50 per unit as per the decision of this Bench of the Tribunal in Sri Matha Spinning Mills Pvt. Ltd. (supra). Referring to the grounds of appeal, the Ld. D.R. submitted that whether electricity is goods or service is not an issue and the same was not raised by the assessees in their grounds of appeal. According to the Ld. D.R., the issue whether the electricity is not goods or service, cannot be canvassed before this Tribunal at this stage.

We have considered the rival submissions on either side and perused the relevant material available on record. The only question arises for consideration is whether the cost of electricity produced by the assessees through windmill and consumed captively would be the rate fixed by Tamil Nadu Electricity Board for electricity alone to its consumer or the cost includes other taxes and duties collected by Tamil Nadu Electricity Board? Admittedly, the Assessing Officer has taken ₹5.50 per unit as per the rate fixed by the Tamil Nadu Electricity Board for supplying electricity to its consumer. The Assessing Officer excluded the taxes and duties collected by State Electricity Board over and above and the rate fixed at ₹5.50 per unit. The Gujarat High Court in Shah Alloys Limited (supra) examined this issue and found that the duty collected by the assessees and which was passed on to Electricity Board would form part of cost of electricity. In fact, the Gujarat High Court has observed at para 7 of its judgment as follows:-

“7. We may notice that the Tribunal did not accept the contention of the assessees that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under sub-section (8) of Section 80-IA of the Act. However, in so far as the Tribunal’s reasoning to adopt the market value of the goods at ₹5.40 ps. Per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of ₹5.40 ps. Comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only ₹5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered.”

The above observation of Gujarat High Court was followed in another judgment of the same High Court relied on by the Ld.counsel for the assessees. In view of the above, this Tribunal is of the considered opinion that for the purpose of computing cost of electricity generated and consumed captively, the cost fixed by the State Electricity Board including the duty and taxes has to be taken for the purpose of grant of deduction under Section 80-IA(8) of the Act.

Now coming to difficulty expressed by the Assessing Officer in understanding the electricity laws, this Tribunal is of the considered opinion that the Assessing Officer is not a legally trained person. He, being an executive authority, was trained only in tax laws for computing taxable income and levy tax thereon.

With the above observation, orders of both the authorities below are set aside and the Assessing Officer is directed to fix the cost of electricity at the rate that was collected by the Electricity Board from the consumers including the other charges like duty, surcharge cess, etc.