Assistant Commissioner of Income Tax-1(2), RAIPUR (CG) V. Mahendra Sponge & Power Limited, RAIPUR

ITA 159/BIL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94013 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K JAIN
• Assessee Lawyers: D C JAIN MALOO
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE S/SHRI MUKUL K SHRAWAT, ( JM) AND SHAMIM YAHYA,(AM) I TA . NO . 159 / BLPR / 201 1 (ASSESSMENT YEAR : 200 8 - 09 ) THE ASSISTANT COMMISSIONER OF INCOME TAX - 1 ( 2 ), CENTRAL REVENUE BUILDING, CIVIL LINES, RAIPUR, CHHATTISGARH. VS. MAHENDRA SPONGE AND POWER LTD, PLOT NO.76&77, PHASE - II, SILTAR A INDUSTRIAL ESTATE AREA, RAIPUR. APPELLANT .. RESPONDENT PAN/GIR NO. : AADCM5765E APPELLANT BY : SHRI D K JAIN RESPONDENT BY : SHRI D C JAIN MALOO DATE OF HEARING : 1 1 .6.2015 DATE OF PRONOUNCEMENT : 19 . 6. 201 5 O R D E R PER MUKUL K SHRAWAT, ( JM) : THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LD. CIT (A) - DATED 18.4.2011 FOR THE ASSESSMENT YEAR S 200 8 - 09 . 2. T HE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. WHETHER IN LAW AND ON THE FACTS THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 2,82,42,302 / - TO RS.11,76 ,763/ - MADE BY THE AO BY DISALLOWING THE DEDUCTION CLAIMED U/S 80IA 2. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS 3. THIS IS A CASE OF COMPANY, STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF SPONGE IRON, ING OTS AND GENERATION OF POWER. WHILE PASSING THE ORDER UNDER SECTION 143(3) OF THE INCOME TAX ITA. NO. 159 /BLPR/201 1 2 ACT, 1961, DATED 1.11.2010, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER SECTION 80IA OF THE ACT AT RS.3,21,93,788/ - . THE SAID CLAIM OF DE DUCTION WAS ALLOWABLE FOR THE UNIT GENERATED AND DISTRIBUTING POWER. THE ASSESSEE COMPANY BROADLY WAS HAVING TWO DIVISIONS NAMELY STEEL DIVISION AND POWER DIVISION . THE POWER DIVISION HAS CLAIMED DEDUCTION UNDER SECTION 80IA(4)(IV) OF THE ACT. THE ASSESS EE WAS ASKED TO FURNISH THE DETAILS OF POWER GENERATION CLAIMED TO BE TRANSFERRED TO OTHER DIVISION . THE EXPLANATION OF THE ASSESSEE WAS THAT THE ELECTRICITY SO PRODUCED WAS USED IN THE IN THE FERRO DIVISION AND THE REMAINING ELECTRICITY WAS SOLD BY THE ASSESSEE TO ELECTRICITY BOARD . THE OBSERVATION OF THE AO WAS THAT THE RATE CHARGED BY THE ASSESSEE WAS HIGHER FROM ITS FERRO DIVISION. IT WAS FOUND THAT THE ASSESSEE HAD SOLD POWER TO FERRO DIVISION AT THE RATE OF RS.4 PER UNIT. WHEREAS THE ASSESS EE HAD SOLD THE ELECTRICITY TO CHHATTISGARH STATE ELECTRICITY BOARD AT THE RATE OF RS.2.80 PER UNIT. THEREFORE, THE ALLEGATION OF THE AO WAS THAT THE ASSESSEE COMPANY HAS INFLATED THE PROFIT OF POWER DIVISION AND CORRESPONDINGLY CLAIMED HIGHER DEDUCTIO N U/S 80IA(4). SIMULTANEOUSLY, THE PROFIT OF FERRO DIVISION WAS REDUCED. FINALLY, THE AO HAS CONCLUDED THE EXCESSIVE CLAIM OF DEDUCTION AND WORKED OUT THE DISALLOWANCE AS UNDER: ENTITY UNITS RATE AMOUNT INTER UNIT SALE 23535252 4 94141008 CSEB 156 94647 2.8 43945012 4. WHEN THE MATTER WAS CARRIED TO LD. CIT(A), THE LD. CIT(A) HAS HELD AS UNDER : 3.4.1 AS PER THE PROVISIONS OF SECTION 80IA(8), THE VALUE CHARGED BY THE ELIGIBLE UNIT FOR INTER - UNIT TRANSFER OF GOODS OR SERVICES SHOULD CORRESPOND T O THE MARKET VALUE. IN THE PRESENT CA S E, THE APPELLANT HAS CHARGED RS.4.00 FOR PER UNIT OF ELECTRICITY SUPPLIED TO ITS STEEL DIVISION . THE APPELLANT HAS ALSO ENTERED INTO POWER PURCHASE AGREEMENT (PPA) WITH CSEB AND ACCORDING TO THE CSEB ITA. NO. 159 /BLPR/201 1 3 TARIFF, THE AVE RAGE PRICE CHARGES PER UNIT IS @ 3.95%. IN THE GIVEN CIRCUMSTANCES, WHAT SHOULD BE THE MARKET PRICE IS A MATTER FOR ADJUDICATION. THE VALUE OF POWER AGREED IN PPA IS ON THE BASIS OF CERTAIN STATUTORY MARKET, SALE OF ELECTRI CITY TO THIRD PARTIES IN THE IMM EDIATELY SUCCEEDING ASSESSMENT YEAR IS RS.7.29 WHICH CLEARLY INDICATES THAT THE MARKET VALUE OF THE ELECTRICITY IS MUCH MORE THAN THE PRICE AGREED BY THE APPELLANT IN PPA WHICH CSEB WHICH WAS @ 2.80 PER UNIT. SECTION 80IA(8) ENVISAGES THE MARKET PRICE W HICH WOULD NORMALLY BE THE PRICE AT WHICH THE APPELLANT WOULD PROCURE THE GOODS AND SERVICES , HAD IT NOT PRODUCED THE SAME. 3.4.2 ABOVE VIEW IS ALSO SUPPORTED BY VARIOUS JUDGMENTS OF INCOME TAX APPELLATE TRIBUNAL . IN THE CASE OF ADDL. CIT V/S JINDAL ST EEL AND POWER LD 16 SOT 509(DEL), IT WAS HELD THAT THE P RICE AT WHICH THE STATE ELECTRI CITY BOARD SUPPLIES POWER TO ITS CONSUMER IS TO BE CONSIDERED TO BE THE MARKET VALUE FOR TRANSFER OF POWER BY THE ASSESSEES ELECTRICITY GENERATING UNDERTAKING FOR CA PTIVE CONSUMPTION FOR THE PURPOSE OF SECTION 80IA(8) AND NOT AT THE PRICE AT WHICH THE POWER IS SUPPLIED BY THE ASSESSEE TO THE BOARD. IN THE CASE OF DALMIA CEMENT (BHARAT)LTD V/S ADDITIONAL CIT(2009) 32 SOT 164 (DEL), IT WAS HELD THAT THE ASSESSEE CAN TAKE CREDIT IN THE COMPUTATION OF ELIGIBLE PROFIT OF THE UNDERTAKING FOR THE ENERGY PRODUCED AND CONSUMED BY IT, THE HIGHER RATE AT WHICH IT WOULD HAVE TO PURCHASE THE POWER FROM ELECTRICITY BOARD, IN THE CA S E OF JCIT V/S CIPLA LTD (2005) 2 SOT 617 (MUM), IT WAS HELD THAT SUB - SECTION (9) OF SECTION 80IA DOES NOT AT ALL MANDATE THAT THE MARKET PRICE HAS TO BE NECESSARY THE SELLING PRICE OF GODS ACTUALLY SOLD BY THE ASSESSEE, BUT THE REQUIREMENT IS THAT THE GOODS SHOULD BE VALUE D AS PER THE MARKET PRI CE, THE MORE APPROPRIATE MARKET PRICE WILL BE DOMESTIC PRICE OF THE SAME GOODS ACTUALLY PURCHASED BY THE ASSE SS EE IN PREFERENCE TO THE SELLING PRICE OF A VERY SMALL QUANTITY BY THE OTHER UNDERTAKING OF THE ASSESSEE. IF THE ACTUAL SELLING PRICE REALIZED IN A GIVEN FACTUAL SITUATION IS DEMONSTRATED BY THE ASSESSEE AS NOT THE APPROPRIATE MARKET PRICE, THEN SUCH A SELLING PRICE CAN BE DISCARDED IN FAVOUR OF MORE APPROPRIATE AND REPRESENTATIVE MARKET PRICE. IN THE CASE OF ASSAM CARBON PRODUCTS LTD. ACIT 1 00 TTJ (KOL) 224, IT WAS HELD THAT ASSESSEE WAS JUSTIFIED IN VALUING INTERNAL TRANSFER OF NH COKE, AN IMPORT SUBSTITUTE, AT NOTIONAL LANDED COST BY OBTAINING QUOTATIONS FROM THE ERSTWHILE FOREIGN SUPPLIERS. OPEN MARKET PRICE WOULD BE THE PRICE AT MUCH THE ASSESSEE COULD OBTAIN NH COKE IN THE OPEN MARKET. ASSESSEE WAS EXPORTING NH COKE TO THE FOREIGN COLLABORATOR IN ORDER TO FULFILL THE CONDITION IMPOSED BY THE GOVERNMENT OF INDIA FOR IMPORTING TECHNICAL KNOWHOW , AT A PRICE WHICH WAS UNDISPUTEDLY MUCH LOWE R THAN THE PREV AILING MARKE T PRICE AND, THEREFORE , THE SAME CANNOT BE CONSIDERED AS MARKET VALUE. IN THE CASE OF DCW LTD V/S ACIT (2010) 37 SOT 322 ITA. NO. 159 /BLPR/201 1 4 (MUM), IT WAS HELD THAT MARKET PRICE HAS BEEN DEFINED BY WAY OF EXPLANATION TO SECTION 80IA(8) THAT MARKET VALUE, IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. THIS CAN BE UNDERSTOOD BY THE SIMPLE FACT THAT SUPPORT THE ASSESSEE DID NOT PRODUCE THE ELECTRICITY BY HIMSELF AND IT WAS PURCHASE FROM ELECTRIFY BOARD, THE AMOUNT WHICH THE ASSESSEE WAS TO PAY WAS INCLUDING THE TAX . 3.4.3 CONSIDERING THE FACTS OF THE CA S E AND THE LEGAL PROPOSITION, I AM OF THE CONSIDERED OPINION THAT IN PRESENT CA S E, THE AVERAGE PURCHASE PRICE OF T HE ELECTRICITY BY THE APPELLANT FROM CSEB SHALL BE MARKET PRICE WHICH IS RS.3.95 PER UNIT AS AGAINST RS.4.00 CLAIMED BY THE APPELLANT. THUS , THE MARKET VALUE OF THE GOODS SOLD BY T HE ELIGIBLE UNIT SHALL BE RS.9,29,64,245(I..E VALUE OF 23535252 UNIT @ RS .3.95% PER UNIT) AS AGAINST CLAIMED BY APPELLANT AT RS.9,41,41,008/ - . THE DISALLOWANCE IS SUSTAINED AT RS.11,76,763/ - AS AGAINST RS.2,82,42,302/ - MADE BY THE AO. 5. BOTH THE SIDES HAVE BEEN HEARD . THE LD. DR HAS PLACED RELIANCE ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. AR SUPPORTED THE ORDER OF LD. CIT(A). 6. AT THE OUTSET, IT IS INFORMED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF BILASPUR BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V/S GODAVARI POWER & ISPAT LTD. [2011] 133 ITD 5 02 ( BILASPUR ). IN THE COMPILATION OF THE ASSESSEE AT PAGE 12, THE RESPONDENT - ASSESSEE HAS ALSO PLACED RELIANCE ON THE ORDER OF HONBLE HIGH COURT OF CHHATTISGARH AT BILASPUR IN THE TAX CASE NO.31, 34,32 OF 2012 DATED 2 ND AUGUST, 2013 PRONOUNCED IN T HE CASE OF CIT V/S GODAVARI POWER & ISPAT LTD., WHEREIN ON THIS VERY FACT THAT THE SAID ASSESSEE WAS A MANUFACTURER OF IRON STEEL AND CAPTI VE POWER PLANT HAS SUPPLIED ELECTRICITY TO ITS MANUFACTURER UNIT WHICH WAS AT HIGHER RATE THAN THE POWER SUPPLIED TO CHHATTISGARH STATE ELECTRICITY BOARD ; T HE HONBLE HIGH COURT HAS HELD AS UNDER : 28. THE CHHATTISGARH - COMPANY IS A COMPANY WHICH IS GENERATING POWER. IT IS NEITHER CONSUMER OF THE ELECTRICITY, NOR IT IS SUPPLYING POWER TO A CONSUMER. IT ALSO CANNOT SELL POWER TO ANY CONSUMER DIRECTLY: IT HAS TO COMPULSORILY SELL IT TO THE BOARD. ITA. NO. 159 /BLPR/201 1 5 29. THE POWER SOLD BY THE CHHATTISGARH - COMPANY TO THE BOARD IS A SALE TO A COMPANY WHICH ITSELF SUPPLIES POWER TO THE CONSUMERS. IT IS NOT SALE OF POWER TO THE CONSUMER. 30. THE STEEL - DIVISION OF THE ASSESSEE IS A CONSUMER. THE CPP OF THE ASSESSEE SUPPLIES ELECTRICITY TO THE STEEL - DIVISION. HAD THE STEEL - DIVISION NOT TAKEN POWER FROM THE CPP THEN IT HAD TO PURCHASE POWER FROM THE BOARD. THE CPP HAS CHARGED THE SAME RATE FROM T HE STEEL - DIVISION THAT THE STEEL - DIVISION HAD TO PAY TO THE BOARD IF THE POWER WAS PURCHASED FROM THE BOARD. 31. THE MARKET VALUE OF THE POWER SUPPLIED TO THE STEEL - DIVISION SHOULD BE COMPUTED CONSIDERING THE RATE OF POWER TO A CONSUMER IN THE OPEN MARKET AND IT SHOULD NOT BE COMPARED WITH THE RATE OF POWER WHEN IT IS SOLD TO A SUPPLIER AS THIS IS NOT THE RATE FOR WHICH A CONSUMER OR THE STEEL - DIVISION COULD HAVE PURCHASED POWER IN THE OPEN MARKET. THE RATE OF POWER TO A SUPPLIER IS NOT THE MARKET RATE TO A CONSUMER IN THE OPEN MARKET. 32. IN OUR OPINION, THE AO COMMITTED AN ILLEGALITY IN COMPUTING THE MARKET VALUE BY TAKING INTO ACCOUNT THE RATE CHARGED TO A SUPPLIER: IT SHOULD HAVE BEEN COMPARED WITH THE MARKET VALUE OF POWER SUPPLIED TO A CONSUMER. 33. IT IS ADMITTED BY THE DEPARTMENT THAT IN CHHATTISGARH THE POWER WAS SUPPLIED TO THE INDUSTRIAL CONSUMERS AT THE RATE OF RS. 3.20/ - PER UNIT FOR THE AY 2004 - 05 AND RS. 3.75/ - PER UNIT FOR THE AYS 2005 - 06 AND 2006 - 07. IT WAS THIS RATE THAT WAS TO BE CONSIDERED WHILE COMPUTING THE MARKET VALUE OF THE POWER. 34. THE CIT - A AND THE TRIBUNAL HAD RIGHTLY COMPUTED THE MARKET VALUE OF THE POWER AFTER CONSIDERING IT WITH THE RATE OF POWER AVAILABLE IN THE OPEN MARKET NAMELY THE PRICE CHARGED BY THE BOARD. THERE IS NO IL LEGALITY IN THEIR ORDERS. 35. IN VIEW OF ABOVE, THE QUESTION IS DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. THE TAX APPEALS HAVE NO MERIT. THEY ARE DISMISSED 7 . SINCE, THIS ISSUE HAS ALREADY BEEN DECIDED BY HONBLE JURISDICTIONAL HIGH CO URT AS DISCUSSED HEREINABOVE, THEREFORE, WE FIND NO FORCE IN THIS GROUND OF REVENUE . BEFORE WE CONCLUDE THIS JUDGMENT IT IS ALSO WORTH TO MENTIONED THAT THE LD. CIT(A) HAS TAKEN INTO CONSIDERATION MARKET PRICE AND THEREAFTER GRANTED PART RELIEF BY SUSTA INING THE DISALLOWANCE OF RS.11,76,763/ - . THE RELEVANT PARAGRAPH OF LD.CIT(A) HAS ALREADY BEEN REPRODUCED ABOVE. THE LD. AR HAS STATED AT BAR THAT THE ASSESSEE HAS NOT CHALLENGED THE SAID PARTIAL RELIEF AND NO APPEAL WAS PREFERRED. THUS, UNDER THE TOTA LITY OF THE FACTS AN CIRCUMSTANCE OF THE CASE, AS ALSO LAW ITA. NO. 159 /BLPR/201 1 6 PRONOUNCED BY THE HONBLE JURISDICTIONAL HIGH COURT, WE HEREBY REJECT THIS GROUND OF REVENUE. 8 . I N THE RESULT , THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JUNE , 201 5 SD SD ( SHAMIM YAHYA ) ( MUKUL K SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER RAIPUR : 19TH JUNE,2015. SRL , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - CONCERNED 4. CIT CONCERNED 5. DR, ITAT, RAIPUR CONCERNED 6. GUARD FILE. BY ORDER, SENIOR PRIVATE SECRETARY /AR