OPG Energy Private Limited, CHENNAI V. ACIT, CHENNAI

CO 178/CHNY/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8089 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHRANA
• Assessee Lawyers: V RA VICHANDRAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 1878 & 1879/MDS/2012 (ASSESSMENT YEARS : 2005-06 & 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(1), CHENNAI - 600 034 . (APPELLANT) V. M/S OPG ENERGY PVT. LTD., NO.6, SARDAR PATEL ROAD, GUINDY, CHENNAI - 600 032. PAN : AAACO4724G (RESPONDENT) C.O. NO. 178/MDS/2012 (IN I.T.A. NO. 1878/MDS/2012) (ASSESSMENT YEAR : 2005-06) M/S OPG ENERGY PVT. LTD., NO.6, SARDAR PATEL ROAD, GUINDY, CHENNAI - 600 032. (CROSS-OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(1), CHENNAI - 600 034. (RESPONDENT) REVENUE BY : DR. S. MOHRANA, CIT-DR ASSESSEE BY : SHRI V. RAVICHANDRAN, CA DATE OF HEARING : 17.12.2012 DATE OF PRONOUNCEMENT : 20.12.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE REVENUE FOR ASSESSMENT Y EARS 2005-06 AND 2009-10 AND CROSS-OBJECTION OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06. APPEALS OF THE REVENUE ARE TAKEN UP FIRST FOR DISPOSAL. 2 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 2. GRIEVANCE OF THE REVENUE IS THAT CIT(APPEALS) HE LD THE ASSESSEE TO BE ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 80-IA(10) OF INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT') IN RESPECT OF CA PTIVE CONSUMPTION OF POWER. AS PER REVENUE, ONE OF THE CONCERNS TO WHIC H POWER WAS SOLD BY ASSESSEE, NAMELY, M/S OPG METALS LIMITED, WAS NO T ONLY A GROUP CONCERN, BUT WAS LOCATED IN THE SAME PREMISES AS TH AT OF ASSESSEE. 3. WHEN THE MATTER CAME UP, LEARNED D.R. FAIRLY ADM ITTED THAT SIMILAR ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEE' S OWN CASE FOR ASSESSMENT YEAR 2006-07, WHERE IT WAS HELD THAT ASS ESSEE WAS ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 80-IA(10) OF T HE ACT FOR CAPTIVE CONSUMPTION OF POWER. IN ANY CASE, WHETHER AN ASSE SSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80-IA, IN RESPECT OF NOT IONAL PROFITS ON ACCOUNT OF POWER GENERATED FROM ITS OWN CAPTIVE POW ER PLANT AND UTILIZED BY ITSELF, IS NO MORE AN ISSUE WHICH IS RES INTEGRA . HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TAMILNADU PETRO PRODUCTS LTD. V. ACIT (338 ITR 643) HAS HELD THAT BENEFIT UNDER SECT ION 80-IA(10) COULD BE GIVEN EVEN IN RESPECT OF ELECTRICITY GENERATED B Y AN ASSESSEE ON CAPTIVE BASIS. THERE IS NO NECESSITY THAT POWER GE NERATED SHOULD BE WHEELED THROUGH AN ELECTRICITY BOARD GRID, BEFORE I T IS CONSUMED. FURTHER, WE ALSO FIND THAT THIS TRIBUNAL IN ASSESSE E'S OWN CASE FOR 3 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 ASSESSMENT YEAR 2006-07 IN I.T.A. NO. 1014/MDS/10 D ATED 3 RD JUNE, 2011, HAD HELD AS UNDER AT PARAS 12 TO 16 OF THIS O RDER:- 12. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD SOLD T O M/S OPG METALS P. LTD. DIRECTLY WITHOUT WHEELING THE ELECT RICITY THROUGH TNEB GRID. OUT OF THE TOTAL POWER GENERATED 39% WAS SOLD BY ASSESSEE TO THE SAID M/S OPG METALS P. LTD. A.O. PUT THE ASSES SEE ON NOTICE THAT INCOME ATTRIBUTABLE TO SALE OF POWER TO M/S OPG MET ALS P. LTD. WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SEC. 80IA OF THE ACT. ASSESSEE REPLIED THAT THERE WAS NO DIFFERENCE BETWEEN DRAWIN G POWER FROM CAPTIVE GENERATION OR THROUGH THE GRID AND BOTH HAD TO BE CONSIDERED IN THE SAME STATUS. A.O. WAS NOT IMPRESSED. HE HE LD THAT CAPTIVE CONSUMPTION OF ELECTRICITY WOULD NOT BE ELIGIBLE FO R DEDUCTION UNDER SEC.80IA OF THE ACT. RESULTANT DISALLOWANCE OF DEDUC TION CAME TO ` 9,36,80,721/-. 13. IN ITS APPEAL BEFORE THE CIT(A), ARGUMENT OF TH E ASSESSEE WAS THAT AN UNREASONABLE DISTINCTION WAS MADE BETWEEN C APTIVE UNIT AND NON-CAPTIVE UNIT AND JUST BECAUSE POWER WAS NOT WHE ELED THROUGH TNEB, A.O. OUGHT NOT HAVE DISALLOWED DEDUCTION UNDER SEC. 80IA OF THE ACT. RELYING ON SUB-SEC.(8) OF SEC.80IA OF THE A CT, ASSESSEE ARGUED THAT CAPTIVE CONSUMPTION WAS RECOGNIZED BY T HE STATUTE FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SEC.80IA O F THE ACT. CIT(A) WAS APPRECIATIVE OF THIS CONTENTION AND HELD THAT ASSESSEE HAD SATISFIED THE REQUIREMENTS OF SEC.80IA OF THE ACT AS CAPTIVE CONSUMPTION ALSO WAS RECOGNIZED FOR THAT PURPOSE AN D HENCE IT COULD NOT BE DENIED DEDUCTION UNDER SEC.80IA OF THE ACT ON BILLINGS MADE FOR CAPTIVE CONSUMPTION. 14. NOW BEFORE US, LD. DR STRONGLY ASSAILING THE OR DER OF LD. CIT(A), SUBMITTED THAT IN VIEW OF THE DECISION OF CO-ORDINA TE BENCH OF THIS TRIBUNAL IN M/S CHITTINADU CEMENT CORPORATION LTD. (SUPRA), ASSESSEES CLAIM OUGHT NOT HAVE BEEN ALLOWED. PER CONTRA, LD. AR SUBMITTED THAT IN THE CASE OF CHETTINADU CEMENT CORPORATION LTD. ( SUPRA), THAT COMPANY WAS NOT ENGAGED IN THE BUSINESS OF GENERATI NG ELECTRICITY, WHEREAS HERE THE ASSESSEE WAS ENGAGED IN THE BUSINE SS OF GENERATION OF ELECTRICITY. ACCORDING TO HIM, THE DECISION IN CHETTINADU CEMENT 4 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 CORPORATION LTD. (SUPRA) COULD NOT BE APPLIED ON FA CTS HERE. RELIANCE WAS PLACED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. AHMEDABAD MANUFACTURING & CALICO PRINTING CO. LTD. (59 ITR 514) AND THAT HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DCM SRIRAM CONSOLIDATED LTD. (176 TAXMAN 49). 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WHETHER BILLINGS FOR POWER CAPTIVELY CONSUMED WOULD BE ELIGIBLE FOR DEDUCTION UNDER SEC. 80IA OF THE ACT IS NO MORE AN IS SUE WHICH IS RESINTEGRA INSOFAR AS THIS TRIBUNAL FALLING WITHIN THE JURISDICTION OF HONBLE MADRAS HIGH COURT, IS CONCERNED. IT IS FOR THE REASON THAT HON'BLE JURISDICTIONAL HIGH COURT HAS DEALT WITH TH IS MATTER ELABORATELY IN THE CASE OF CIT V. THIAGARAJAR MILLS LTD. (TCA 68 TO 70 OF 2010 DATED 07-06-2010). RELEVANT PARAS 8 AND 9 OF THE JUD GMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE ABO VE CASE ARE REPRODUCED BELOW:- 8. THE CONTENTION THAT ONLY WHATEVER POWER GENERAT ED FROM THE SALE TO AN OUTSIDER OF THE ELECTRICITY BOARD, A ND THE PROFIT OR GAIN DERIVED BY SUCH SALE ALONE CAN BE TAKEN AS PROFIT OR GAINS DERIVED BY THE ASSESSEE AS MENTIONED IN SEC. 80IA(1) OF THE ACT, HAS BEEN REJECTED BY THE TRIBUNAL IN THE ORDER IMPUGNED. IN OUR CONSIDERED VIEW, THE TRIBUNAL WAS WELL JUSTI FIED IN HAVING REJECTED SUCH A STAND OF THE APPELLANT. HAVING REF ERRED TO SEC. 80IA(1) OF THE ACT, WE ARE ALSO CONVINCED THAT WHAT A RE ALL TO BE SATISFIED IN ORDER TO BE ELIGIBLE FOR THE DEDUCT ION AS PROVIDED UNDER SUB-SEC.(1) OF SEC.80IA, THE ASSESSEE SHOULD HAVE SET UP AN UNDERTAKING OR AN ENTERPRISE AND FRO M AND OUT OF SUCH AN UNDERTAKING OR AN ENTERPRISE SET UP, ANY PR OFIT OR GAIN IS DERIVED, FALLING UNDER SUB-SEC. COVERED BY SUB-SEC. (4) OF SEC.80IA OF THE ACT SUCH PROFIT OR GAIN DERIVED BY TH E ASSESSEE CAN BE DEDUCTED IN ITS ENTIRETY FOR A PERI OD OF 10 YEARS STARTING FROM THE DATE OF FUNCTIONING OF THE SET UP. THE CONTENTION THAT PROFIT OR GAINS CAN BE CLAIMED BY T HE ASSESSEE ONLY IF SUCH PROFIT OR GAIN IS DERIVED BY THE SALE OF ITS PRODUCT OR POWER GENERATED TO AN OUTSIDER CANNOT BE THE MAN NER IN WHICH THE PROVISIONS CONTAINED IN SEC.80IA(1) CAN BE INTERPRETED. THE EXPRESSION DERIVED; USED IN THE SAID SEC.80IA(1) IN THE BEGINNING AS WELL AS IN THE LAST P ART OF THE SUB-SEC. (4) MAKES IT ABUNDANTLY CLEAR THAT SUCH PRO FIT OR GAIN 5 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 COULD BE OBTAINED BY ONES OWN CONSUMPTION OF THE O UTCOME OF ANY SUCH UNDERTAKING OR BUSINESS ENTERPRISES AS REF ERRED TO IN SUB-SEC.(4) OF SEC.80IA. THE DICTIONARY MEANING OF TH E EXPRESSION DERIVE IN THE NEW OXFORD DICTIONARY OF E NGLISH STATES OBTAINING SOMETHING FROM A SPECIFIED SOURCE . IN SEC.80IA(1) ALSO NO RESTRICTION HAS BEEN IMPOSED AS R EGARDS THE DERIVING OF PROFIT OR GAIN IN ORDER TO STATE THAT S UCH PROFIT OR GAIN DERIVED ONLY THROUGH AN OUTSIDE SOURCE ALONE W OULD MAKE ELIGIBLE FOR THE BENEFITS PROVIDED IN THE SAID SECT ION. 9. THEREFORE, THERE IS NO DIFFICULTY IN HOLDING THA T CAPTIVE CONSUMPTION OF THE POWER GENERATED BY THE ASSESSEE FROM ITS OWN POWER PLANTS WOULD ENABLE THE RESPONDENT/ASSESS EE TO DERIVE PROFITS AND GAINS BY WORKING OUT THE COST OF SUCH CONSUMPTION OF POWER INASMUCH AS THE ASSESSEE IS AB LE TO SAVE TO THAT EXTENT WHICH WOULD CERTAINLY BE COVERED BY S EC.80IA(1). WHEN SUCH WILL BE THE OUTCOME OF OWN CONSUMPTION OF THE POWER GENERATED AND GAINED BY THE ASSESSEE BY THE ASSESSE E BY SETTING UP IS OWN POWER PLANT, WE DO NOT FIND ANY L ACK OF MERIT IN THE CLAIM OF THE RESPONDENT/ASSESSEE WHEN IT CLAIME D BY RELYING UPON SEC.80IA(1) OF THE ACT BY WAY OF DEDUCTION OF TH E VALUE OF SUCH UNITS OF POWER CONSUMED BY ITS OWN PLANT BY WAY OF PROFITS AND GAINS FOR THE RELEVANT ASSESSMENT YEARS . 16. SINCE THE ABOVE DECISION OF THE JURISDICTIONAL HIGH COURT EFFECTIVELY OVERRULES THE COORDINATE BENCH DECISION IN CHETTINADU CEMENT CORPN LTD. (SUPRA), WE ARE OF THE OPINION TH AT RELIANCE PLACED BY LD. DR ON THE LATTER DECISION IS OF NO SUPPORT T O THE REVENUE. WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. IN THE ABOVE CIRCUMSTANCES, GROUND NO.3 OF THE REVENUE STANDS DISMISSED. 4. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THESE A PPEALS OF THE REVENUE, WHICH STAND DISMISSED. 5. COMING TO THE CROSS-OBJECTION OF THE ASSESSEE, I TS GRIEVANCE IS THAT CIT(APPEALS) CONFIRMED PARTIAL DENIAL OF DEDUCTION CLAIMED BY THE 6 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 ASSESSEE UNDER SECTION 80-IA(10) OF THE ACT, FOR A REASON THAT ASSESSEE HAD SOLD POWER AT INFLATED PRICES. 6. WHEN THE MATTER CAME UP, LEARNED A.R. SUBMITTED THAT THE SAME ISSUE WAS BEFORE THE TRIBUNAL IN ASSESSEE'S OWN CAS E CITED SUPRA. ACCORDING TO HIM, THERE ALSO DISALLOWANCE WAS MADE FOR A REASON THAT ASSESSEE HAD AGREED TO SELL SURPLUS POWER TO TAMIL NADU ELECTRICITY BOARD (TNEB) AT ` 3.16 PER UNIT, WHEREAS, IT HAD SOLD POWER AT MUCH HIGHER RATE TO ITS SISTER CONCERNS. RELYING ON THE DECISION OF THE TRIBUNAL DATED 3 RD JUNE, 2011 (SUPRA), LEARNED A.R. SUBMITTED THAT RA TES AT WHICH ASSESSEE HAD AGREED TO SELL ITS SURPLUS POWER TO TN EB COULD NOT BE CONSIDERED AS A YARDSTICK FOR JUDGING THE FAIRNESS OF PRICES AT WHICH IT HAD SOLD THE POWER TO ITS SISTER CONCERN. 7. PER CONTRA, LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. NO DOUBT, A SIMILAR ISSUE CAME UP BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006-07 ALSO. IT WAS HELD BY THIS TRIBUNAL AT PARAS 7 TO 10 OF ITS ORDER DATED 3 RD JUNE, 2011, AS UNDER:- 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ANNEXURE 2 OF THE ASSESSMENT ORDER HAS GIVEN DETAILS OF POWER PRODUCED 7 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 AND SOLD BY ASSESSEE DURING THE RELEVANT PREVIOUS Y EAR AND HOW THE A.O. ARRIVED AT THE SUM OF ` 2,17,33,237/-, WHICH IS CONSIDERED AS INFLATED INCOME. THIS IS REPRODUCED HEREUNDER FOR BREVITY :- RECEIPTS FROM SALE OF POWER UNIT SHARE AMOUNT IN ` `` ` GROSS-AS PER P&L (A) 12,83,46,882 100% 42,94,37,615/- FROM M/S OPG METALS (DIRECT SALES NON- GRID) (B = 39% OF A 5,25,52,595 39% 16,81,94,431/- THROUGH TNEB GRID AS PER P&L (C = 61% OF A) 7,57,94,287(F) 61% 26,12,43,184/- THROUGH GRID IF SOLD @ ` 3.16 PER UNIT (E = (D)( ` 3.16) 23,95,09,947/- INFLATED INCOME NOT ELIGIBLE FOR DEDUCTION U/S 80IA. 2,17,33,237/- 8. IF WE LOOK AT THE ABOVE TABLE, THE SUM REALIZED BY ASSESSEE THROUGH SALES TO ITS GROUP CONCERNS OF POWER, WHEEL ED THROUGH TNEB GRID CAME TO ` 26,12,43,184/- AND QUANTUM OF POWER WAS 7,57,94,287 UNITS. THE AVERAGE UNIT RATE WOULD COME TO ` 3.45 APPROXIMATELY. AS PER A.O., ` 3.16 WAS THE RATE AT WHICH ASSESSEE AGREED TO SELL TO TNEB AND HENCE PRICE BILLED BY ASSESSEE TO ITS GROUP CONCERN WAS E XCESSIVE, RESULTING IN HIGHER CLAIM OF DEDUCTION UNDER SEC. 80IA OF THE ACT. THERE ARE TWO ASPECTS TO THIS WHICH NEED EMPHASIZE. ONE IS THE P REAMBLE OF THE AGREEMENT THAT ASSESSEE ENTERED WITH TNEB. THIS PRE AMBLE WHICH APPEAR AT PAGES 4 AND 5 OF THE PB, IS REPRODUCED HERE UNDER :- ' THIS POWER PURCHASE AGREEMENT ENTERED INTO THIS DAY OF 30 TH SEPTEMBER 2003, BETWEEN TAMILNADU ELECTRICITY BOARD CONSTITUTED UNDER ARTICLE 5(1) OF THE ELECTRICITY (SUPPLY) ACT, 1948, AS AMENDED BY THE GOVERNMENT OF TAMILNADU 1948, A CONSTITUENT STATE OF THE UNION OF INDIA WITH ITS CAPITAL AT CHENNAI HEREINAFTER REFERRED AS ' TNEB ' WHICH EXPRESSION SHALL UNDER UNLESS REPUGNANT TO THE CONT EXT OF MEANING HEREOF BE DEEMED TO INCLUDE ITS SUCCESSORS AND ASSIGNS AS PARTY OF THE FIRST PART . AND M/S OPG ENERGY (P) LTD., REGISTERED UNDER THE COMPA NIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE AT 17, MOOKER NALLAMUT HU ST., CHENNAI-01 HEREINAFTER REFERRED TO AS THE COMPANY THE PARTY OF THE SECON D PART WHICH EXPRESSION UNLESS REPUGNANT TO THE CONTEXT OF MEANING HEREOF DEEMED T O INCLUDE ITS SUCCESSORS AND ASSIGNS. WITNESSTH 8 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 WHEREAS. TNE COMPANY WAS GIVEN APPROVAL TO SET UP A NATURAL GAS BASED CAPTIVE POWER PLANT OF 17.5 MW CAPACITY AT MARUTHUR VILLAGE IN MAYILADUTHURAI TALUK OF NAGAPATTINAM DISTRICT TO ' GENERATE POWER TO MEET THE REQUIREMENTS OF THE COMPANIEAS WHO ARE UNDER JOINT VENTURE OF ITS OWN/SISTER CONCERN/JOINT VENTURE COMPANIES SITUATED ELSE WHERE ;IN TAMIL NADU AND SUBSEQUENTLY WAS GIVEN APPROVAL TO ACCEPT THEIR OFFER OF SALE OF SURPLUS POWER OF 2.5 MW APPROXIMATELY TO TNEB THE RATE ACCEPTED FOR M/S OPG ENERGY P. LTD. IS THE SAME AS THAT OF M/S ARKAY ENERGY PVT . LTD : SUBJECT TO THE MAXIMUM OF THE UNIT RATE AS PER THE CPG POLICY FOR THE YEAR CONCERNED, IRRESPEC TIVE OF ANY VARIATION IN ANY OF THE PARAMETERS. THE RATE IS VALID UP TO 2007-08. AFTERWARDS IT WILL BE REVIEWED. ' 9. IT IS VERY CLEAR THAT THE PURPOSE OF THE ASSESSEE WAS TO MEET THE POWER REQUIREMENTS OF ITS JOINT VENTURE AND SISTER CONCERNS AND 2.5 MW OUT OF YEARLY CAPACITY OF 17.5 MW OFFERED TO TNEB WAS THE SURPLUS ARISING AFTER SUPPLIES MADE TO SUCH CONCERNS. AGAI N AT PARA 3.05 OF THE AGREEMENT IT IS MENTIONED THAT THE PROPOSED CPP OF 17.5 MW WAS MAINLY TO MEET THE REQUIREMENTS OF JOINT VENTURE COMPANIES . THUS, ARGUMENT OF THE ASSESSEE THAT THE AGREEMENT ENTERED INTO WITH T NEB FOR SUPPLY OF 2.5 MW OF ELECTRICITY TO IT WAS ONLY A STAND-BY ARRAN GEMENT, AND SUCH RATE AGREED THEREIN COULD NOT BE TAKEN FOR COMPARIS ON PURPOSES CANNOT BE BRUSHED ASIDE. IF WE LOOK AT SUB-SEC.(8) OF SEC.80IA OF THE ACT IT RUNS AS UNDER:- (8) WHERE ANY GOODS [OR SERVICES] HELD FOR THE PUR POSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSI NESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS (OR SERVICES) H ELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE AS SESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN OTHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDE D IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS (OR SERVICES) AS ON THE DATE OF THE TRAN SFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, T HE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED A S IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE O F SUCH GOODS (OR SERVICES) AS ON THAT DATE. 10. THEREFORE, WHERE THE PRODUCTION IS FOR CAPTIVE USER THEN MARKET VALUE OF SUCH PRODUCTION HAS TO BE CONSIDERED FOR W ORKING OUT DEDUCTION UNDER SEC.80IA OF THE ACT. QUESTION HERE IS WHAT COU LD BE CONSIDERED 9 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 THE MARKET VALUE OF POWER SUPPLIED BY ASSESSEE TO V ARIOUS SISTER CONCERNS? THE POWER PURCHASE AGREEMENT ENTERED BY ASSESSEE ON 27-02- 2002 WITH ONE OF ITS GROUP CONCERNS NAMELY M/S KANISHK STEEL INDUSTRIES LTD., COPY OF WHICH IS PLACED AT PB PAGES 15 TO 23 ME NTIONS AT PARA 4.2 THAT THE TARIFF AS PER TAMILNADU GOVERNMENT NOTIFIC ATION VIDE GO(M/S)MP/95 ENERGY (A2) DATED 29-11-2001 WAS ` 3.30 PER UNI T FOR CHENNAI METROPOLITAN AREA AND ` 3.20 PER UNIT FOR NON METROPOLITAN AREAS. IF WE CONSIDER 20% EXTRA THAT IS TO BE CHARGED FOR ENE RGY USED DURING PEAK HOUR THEN AVERAGE RATE OF ` 3.45 PER UNIT BILLED BY ASSESSEE TO ITS SISTER CONCERNS CANNOT BE CONSIDERED AS ABOVE MARKE T RATE. ASSESSEES CONTENTION THAT THE CONSUMERS OF HIGH TENSION CATEG ORIES WERE CHARGED BY TNEB AT ` 3.675 PER UNIT HAS NOT BEEN REBUTTED BY THE LD. DR. HAD THE CONSUMERS OF THE ASSESSEE BOUGHT POWER FROM TNE B IT WOULD HAVE BEEN NECESSARY FOR THEM TO PAY THE TARIFF RATE OF T HE TNEB AND THERE IS NO CASE FOR THE REVENUE THAT SUCH TARIFF RATE WAS L ESS THAN ` 3.45 PER UNIT. DELHI BENCH IN THE CASE OF JINDAL STEEL & POW ER LTD. (SUPRA) WITH REGARD TO THE ISSUE OF WORKING OUT THE MARKET PRICE IN RELATION TO POWER GENERATION, HELD AS UNDER IN PARAS 12 TO 18 OF ITS OR DER AS UNDER: 12 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOT H THE PARTIES ON THIS ASPECT. THE CRUX OF THE DISPUT E BEFORE US RELATES TO THE MANNER OF COMPUTING PROFITS OF THE UNDERTAKINGS OF THE ASSESSEE ENGAGED IN THE GENERAT ION OF POWER FOR THE PURPOSES OF RELIEF UNDER SECTION 80- LA OF THE ACT . THE DIFFERENCE BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGARD TO THE DETERMINATION OF THE MARKET VALU E OF POWER SO AS TO RECORD THE INCOME ACCRUED TO THE ASSESSEE ON SUPPLIES MADE TO ITS OWN MANUFACTURING UNITS. AS NO TED EARLIER, IN THIS CASE , THE ASSESSEE HAS UTI L IZED THE POWER G ENERATED FOR ITS CAPTIVE CONSUMPTION BY WAY OF SUPP LIES TO ITS OTHER MANUFACTURING UNITS AND ALSO FOR SALE TO THE COMPETITION EXIST . . WHEREAS IN THE CASE OF ' THE LATTER SITUA T ION, THE PRICE F IXED BETWEEN THE BUYER AND SELLER CANNOT BE UNDERSTOOD AS DENOTING THE MARKET PRICE SINCE TH E ELEMENTS OF TRADE AND C OMPETIT I ON ARE CONSPICUOUS BY THEIR ABSENCE . 16 . TO UNDERSTAND THE CONTRASTING SITUATIONS , LET US ANALYZE THE SITUATION ON HAND . IN THIS CASE, THE ASSESSEE RECEIVED CONSENT UNDER SECTION~ , HE ELECTRICITY (SUPPLY) ACT, 1948 TO 10 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 ESTABLISH AND OPERATE THE CAPTIVE POWER PLANT IN TE RMS OF A POWER PURCHASE-CUM - WHEELING OF POWER AGREEMENT DA TED 15-7 -1999 ENTERED BETWEEN THE STATE ELECTRICITY BOARD A ND THE ASSESSEE. A COPY OF THE SAID AGREEMENT HAS BEEN PLA CED IN THE PAPER BOOK. NOW , I N TERMS OF THE ELECTRICITY (SUPPLY) ACT, 1948, THE LEGISLATURE HAS PUT RESTRICTIONS ON ESTABLISHME NT OF POWER GENERATING UNITS AND THEIR FUNCTIONING. THE POWER G ENERATING UNITS ARE ALLOWED TO USE POWER FOR CAPTIVE CONSUMPT ION AND THE SURPLUS AVAILABLE, IF ANY, IS TO BE ' SOLD TRANSFERRED TO THE STATE ELECTRICITY BOARDS . SECTION 43 OF THE ELECTRICITY (SUPPLY) ACT, 1948 ONLY AUTHORIZES THE STATE ELECTRICITY BOARD TO ENTER INTO ARRANGEMENTS FOR PURCHASE AND SALE OF ELECTRICITY U NDER CERTAIN CONDITIONS . SECTION 43A OF THE ELECTRICI1Y(SUPPLY) ACT, 1948 ALSO LAYS DOWN ROLES AND CONDITIONS FOR DETERMINING THE TARIFF FOR THE SALE OF ELECTRICITY BY A GENERATING COMPANY TO THE STATE ELECTRICITY BOARDS . A PERUSAL OF THE SAME REVEALS THAT THE TARIFF I S DETERMINED ON THE BASIS OF VARIOUS PARAMETERS CON TAINED T HEREIN . FROM THE AFORESAID, IT IS EVIDENT THAT ON ONE HAND IT IS ONLY UPON GRANTING OF SPECIFIC CONSENT THAT A PRIVA TE PERSON CAN 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 ELECT RICITY BOARD IS ALSO LIABLE TO BE DETERMINED IN ACCORDANCE WITH THE STATUTORY REQUIREMENTS. IN THIS CONTEXT IT CAN BE SAFELY DEDU CED THAT DETERMINATION OF TARIFF BETWEEN THE ASSESSEE AND TH E BOARD CAN BE SAID TO BE AN EXERCISE BETWEEN A BUYER AND SELLE R NEITHER IN A COMPETIT I VE ENVIRONMENT AND NOR IN THE ORDINARY COURSE OF TR ADE AND BUSINESS . IT IS AN ENVIRONMENT WHERE ONE OF THE PLAYERS HAS THE COMPULSIVE LEGISLATIVE MANDATE NOT ONLY IN THE REALM OF ENFORCING BUYING BUT ALSO TO SET THE BUYING TARIFF IN TERMS OF PRESENT S T ATUTORY GUIDELINES . THEREFORE , THE PRICE DETERMINED IN S UCH A SCENARIO CANNOT BE EQUATED WITH A SITUATION WHERE THE PRICE I S DE TERMINED IN THE NORMAL COURSE OF TRADE AND COMPETITION . THEREFORE, THE PRICE DETERMINED AS PER THE POWER PURCHASE AGREEMENT CANNOT BE EQUATED WITH MARKET VA LUE AS UNDERSTOOD IN COMMON PARLANCE . WE SEE NO REASON FOR NOT HOLDING SO FOR THE PURPOSES OF SECTION 80-LA(8) ALS O . 17 . IN THIS BACKGROUND, WE MAY MAKE A GAINFUL REFERENCE TO THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT I N THE CASE OF CAIT V . MANMATHA NATH MUKHERJEE (1958) 34 ITR 567, WHICH HAS BEEN 11 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 RELIED ON BY THE ASSESSEE BEFORE US. THE ISSUE BEFO RE THE HON'BLE CALCUTTA HIGH COURT WAS IN THE CONTEXT OF TH E BENGAL AGRICULTURAL INCOME-TAX ACT, 1944 . SHORN OF OTHER DETAILS, THE QUESTION CONSIDERED BY THE HON'BLE HIGH COURT, RELE VANT FOR THE PRESENT, WAS WHETHER THE PROCUREMENT RATE OF PADDY OFFERED BY THE STATE COULD BE CONSIDERED TO BE THE MARKET VALU E OF PADDY . IN THIS BACKGROUND THE FOLLOWING OBSERVATIONS OF TH E HON' BLE HIGH COURT ARE WORTH OF NOTICE : - 'A MARKET CONNOTES FREEDOM OF BARGAIN. THERE MAY BE A MARKET, COMPLETELY CIRCUMSCRIBED AS REGARDS BY PRIC E CONTROL , BUT WITHIN THE LIMIT SET BY THE RELEVANT RULE OR ORDER, THE AREA OF OPERATION WOULD STILL BE A COMME RCIALLY FREE AREA . EVEN WHERE A CONTROL PRICE IS FIXED, IT IS GENERALLY THE CEILING WHICH IS FIXED AND NOT AN INVA RIABLE PRICE. BE THAT AS IT MAY, TO SAY THAT WHEN AGENTS OF THE STATE SEIZE PADDY GROWN BY SUBJECTS UNDER THE AUTHO RITY OF SOME LAW OR REGULATION AND PAY FOR IT AT SOME RATE FIXED BY THEMSELVES AND MUCH BELOW THE RATE IN THE OPEN MARK ET, THEY CREATE A REGULATED OR ANY KIND OF MARKET AT AL L, IS IF I MAY BE PERMITTED TO USE THE STRONG EXPRESSION, A MIS USE OF LANGUAGE . THE TRIBUNAL EVEN SPEAK OF THE PERSONS WHOSE PADDY IS SEIZED AS 'OPERATING' IN THE REGULATED MAR KET . HOW ANY PERSON WHO IS SEIZED BY THE NECK AND COMPEL LED TO DELIVERY HIS PADDY AND THE DISMISSED WITH A TRIVIAL SUM AS ITS PRICE CAN BE SAID TO OPERATE IN THE MARKET IS BEYON D MY COMPREHENSION . ' FROM THE AFORESAID , AN ANALOGY THAT CAN BE SAFELY DEDUCTED IS THAT THE MARKET VALUE CANNOT BE THE RESULT OF A TRANSACTION WHICH HAS BEEN ENTERED INTO BETWEEN A BUYER AND A S ELLER IN A SITUATION WHERE ONE OF THE PARTIES IS CARRYING THE COMPULSIVE MANDATE OF THE LEGISLATURE . THE SITUATION BEFORE US IS SUCH WHEREIN THE AFORESAID ANALOGY CAN BE USEFULLY APPLIED . AS WE HAVE SEEN EARLIER, THE PRICE OF WHICH THE POWER IS SUPPLIED B Y 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 PURPOSE OF SEC~I ON . 80-LA(8) OF THE ACT . THE STAND OF THE REVENUE TO THE AFORESAID EFFECT CANNOT BE APPROVED . 12 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 18. HAVING HELD SO, THE NATURAL COROLLARY IS TO ASCE RTAIN WHETHER THE PRICE RECORDED BY THE ASSESSEE AT ` 3.72 PER UNIT CAN BE CONSIDERED TO BE THE MARKET VALUE FOR THE PURPO SES OF SEC.80- IA(8) OF THE ACT. THE ANSWER, TO OUR MIND, IS IN TH E AFFIRMATIVE. THIS IS FOR THE REASON THAT THE ASSESSEE AS AN INDU STRIAL CONSUMER IS ALSO BUYING POWER FROM THE BOARD AND THE BOARD SU PPLIES SUCH POWER AT THE RATE OF ` 3.72 PER UNIT TO ITS CONSUMERS. THIS IS THE PRICE AT WHICH THE CONSUMERS ARE ABLE TO PROCURE TH E POWER. WE MAY CONSIDER HYPOTHETICAL SITUATION AS WELL. HAD T HE ASSESSEE NOT BEEN SADDLED WITH RESTRICTIONS OF SUPPLYING SURPLUS POWER TO THE STATE ELECTRICITY BOARD, IT WOULD HAVE SUPPLIED POW ER TO THE ULTIMATE CONSUMER AT RATES SIMILAR TO THOSE OF THE BOARD OR SUCH OTHER, COMPETITIVE RATES, MEANING THEREBY THAT PRIC E RECEIVED BY THE ASSESSEE WOULD BE IN THE VICINITY OF ` 3.72 PER UNIT I.E. CHARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS/USERS. T HUS, UNDER THE GIVEN CIRCUMSTANCES, IT WOULD BE IN THE FITNESS OF THINGS TO HOLD THAT THE CONSIDERATION RECORDED BY THE ASSESSEES U NDERTAKING GENERATING ELECTRIC POWER FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION AT THE RATE OF ` 3.72 PER UNIT CORRESPONDS TO THE MARKET VALUE OF POWER. THEREFORE, ON THIS ASPECT, WE UPHOLD THE STAND OF THE ASSESSEE AND SET ASIDE ORDER OF THE CI T(A) AND DIRECT THE A.O. TO ALLOW RELIEF TO THE ASSESSEE UNDER SECT ION 80-IA AS CLAIMED. ASSESSEE SUCCEEDS ON THIS GROUND. THUS, WE ARE OF THE OPINION THAT THE A.O. HAD FELL IN ERROR IN CONSIDERING THE POWER PURCHASE AGREEMENT WITH TNEB, WHICH WAS ONLY A STANDBY ARRANGEMENT, AS THE BASIS FOR ARRIVING AT T HE MARKET RATE OF THE POWER DISREGARDING THE ENERGY RATE AT WHICH TNEB GRI D SOLD POWER TO ITS CUSTOMERS. LD. CIT(A) WAS JUSTIFIED IN CONSIDERING THAT THERE WAS NO EXCESS CHARGES LEVIED BY ASSESSEE ON ITS CONSUMERS F OR THE SALE OF POWER. HE HAD RIGHTLY DELETED THE DISALLOWANCE OF ` 2,17,44,237/- ON THE CLAIM OF SEC.80IA OF THE ACT MADE BY THE ASSESSEE. WE DO NOT FIND ANY REASON TO INTERFERE. GROUND NO.2 OF THE REVENUE STANDS DISMIS SED. 9. THE TRIBUNAL HAD GIVEN A CLEAR FINDING THAT HIGH TENSION CATEGORIES WERE CHARGED BY TNEB AT ` 3.675 PER UNIT AND RATE AT WHICH ASSESSEE HAD SUPPLIED TO ITS SISTER CONCERN WERE MUCH LESSER THAN THAT. IT WAS FOR THIS REASON THAT THIS TRIBUNAL HELD IN FAVOUR OF TH E ASSESSEE DESPITE THE 13 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 ARGUMENT THAT ASSESSEE HAD AGREED WITH TNEB FOR SEL LING ITS SURPLUS POWER AT A MUCH LOWER RATE OF ` 3.16 PER UNIT. HOWEVER, FOR IMPUGNED ASSESSMENT YEAR, THE ASSESSMENT ORDER DOES NOT SHOW WHAT WAS THE RATE CHARGED BY TNEB FOR HIGH TENSION CATEGORIES DU RING THE RELEVANT PREVIOUS YEAR, NOR DOES IT SAY WHAT WAS THE ACTUAL RATE AT WHICH ASSESSEE HAD SOLD THE POWER TO ITS ASSOCIATE CONCER NS. NO DOUBT, FOR DETERMINING THE FAIRNESS OF THE PRICE, THE AGREEMEN T ASSESSEE ENTERED WITH TNEB FOR SELLING ITS SURPLUS POWER WHICH WAS O NLY A STANDBY ARRANGEMENT, COULD NOT BE CONSIDERED AS A YARDSTICK . BUT, NEVERTHELESS, SUCH RATES WILL BE EXCESSIVE IF IT IS HIGHER THAN T HE RATES CHARGED BY TNEB TO REGULAR HIGH TENSION CUSTOMERS. SINCE THES E FACTS ARE NOT FORTHCOMING FROM THE ORDERS OF THE AUTHORITIES BELO W, WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY TH E ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING EXCESSIVE PRICING OF ELECTRICITY SO LD BY ASSESSEE TO ITS SISTER CONCERN, BACK TO THE FILE OF THE A.O. FOR CO NSIDERATION AFRESH, IN ACCORDANCE WITH LAW. 10. IN THE RESULT, C.O. FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 14 I.T.A. NO. 1878 & 1879/MDS/12 C.O. NO. 178/MDS/12 11. TO SUMMARIZE THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED AND C.O. OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 20 TH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 20 TH DECEMBER, 2012. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE