A.C.I.T.. Cir.-4, Nagpur V. M/S SARDA ENERGY & MINERALS LTD, Nagpur

ITA 174/NAG/2015

• Counselvise Citation: [2014] 117 COUNSELVISE.COM (IT) 8872 (ITAT-NAGPUR)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 23-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K BARAL
• Keywords: Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 14A; 80IA; 263; 12; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE S HRI SHAMIM YAHYA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 174 / NAG/2015 ASSESSMENT Y EAR: 2009 - 10 & ITA NO. 175 /NAG/2015 ASSESSMENT Y EAR: 2010 - 11 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCL E - 4, ROOM NO. 301, SARAF CHAMBERS, NAGPUR - 01 VS. M /S SARDA ENERGY & MINERALS LTD. , 73 - A, CENTRAL AVENUE, NAGPUR - 18 PAN : AAACR6149L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. BARAL (SR. D R ) REVENUE BY : SHRI RAJESH LOYA ( AR ) DATE OF HEARING: 10 /05 /201 8 DATE OF PRONOUNCEMENT: 20 / 0 6 /201 8 O R D E R PER RAM LAL NEGI, JM THESE APPEAL S HAVE BEEN PREFERRED BY THE REVENUE AGAINST THE TWO ORDER S DATED 25.03.2015 PASSED BY THE COMMISSIONE R OF INCOME TAX (APPEALS) - 4 , NAGPUR, PERTAINING TO THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, WHEREBY THE LD. CIT (A ) HAS PARTLY ALLOWED THE APPEAL S FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER S PASSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). SINCE, BOTH THE APPEALS PERTAIN TO THE SAME ASSESSEE, THE SAME WERE CLUBBED, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 174/NAG/2015 (ASSESSMENT YEAR: 2009 - 1 0 ) 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPONGE IRON, STEEL INGOTS, STEEL BILLETS ETC., FILED ITS RETURN 2 ITA NO S . 174 & 175 / NAG /2015 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 19, 73,05,043/ - . IT WAS NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IA AMOUNTING TO RS. 1,03,23,62,186/ - . THE ASSESSEE WAS ASKED TO SUBMIT DETAILS TO VERIFY THE CLAIM . ACCORDINGLY, THE ASSESSEE SUBMITTED THE DETAILS AND CONTENDED THAT THE COMPANY IS OWNING A CAPTIVE POWER PLANT FOR GENERATING ELECT RICITY FOR CAPTIVE CONSUMPTION IN OTHER MANUFACTURING UNITS AND TO SALE THE EXCESS ELECTRICITY TO CHHATISGARH STATE ELECTRICITY BOARD, PRIVATE PARTIES AND THROUGH INDIAN ENERGY EXCHANGE. THE BOOKS OF ACCOUNT VOUCHERS ETC FOR THE CAPTIVE POWER PLANT UNIT HAS BEEN MAINTAINED SEPARATELY. THEREFORE, THE UNIT IS ENTITLED FOR THE CLAIM OF DEDUCTION U/S 80IA(8). HOWEVER, T HE AO AFTER GOING THROUGH THE DETAILS IN THE LIGHT OF THE CONTENTION OF THE ASSESSEE, RESTRICT ED THE CLAIM OF DEDUCTION U/S 80IA(8) OF THE ACT HOLDING THAT THE CAPTIVE POWER PLANT UNIT HAS SHOWN MORE PROFIT TO CLAIM MORE DEDUCTION U/S 80IA. ACCORDINGLY, THE AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 97,41,42,677/ - . 3. THE ASSESSEE AGGRIE VED BY THE ASSESSMENT ORDER CHALLENGED THE SAME BEFORE THE LD. CIT (A). THE LD.CIT (A) AFTER HEARING THE ASSESSEE FOLLOWING THE DECISION RENDERED BY THE ITAT, NAGPUR IN THE ASSESSEES OWN APPEAL FOR THE A.Y. 2003 - 04, 2004 - 05 AND 2005 - 06 ORDER DATED 28.10. 2009 AND FOR THE A.Y. 2007 - 08 AND 2008 - 09 VIDE ORDER DATED 03.02.2014 DELETED THE DISALLOWANCE OF RS. 77,68,37,634/ - IN RESPECT OF DEDUCTION U/S 80IA (8). THE REVENUE IS IN APPEAL AGAINST THE AFORESAID FINDINGS OF THE LD. CIT (A). 4. THE REVENUE HAS CHAL LENGED THE IMPUGNED ORDER PASSED BY THE LD.CIT (A) ON THE FOLLOWING EFFECTIVE GROUND : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE, THE LD. CIT (A) WAS CORRECT IN LAW BY FOLLOWING THE DECISION OF HONBLE ITAT, MUMBAI E - BENCH AND HOLDING THAT THE MARKE T VALUE AS STATED IN SECTION 80IA(8) OF THE I.T. ACT 1961 WILL BE THE SAME AS THE SALE PRICE OF THE STATE ELECTRICITY BOARD WHEN 3 ITA NO S . 174 & 175 / NAG /2015 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 THE ASSESSEE IS NOT INCURRING ANY TRANSMISSION/LINE LOSSES OR ADMINISTRATIVE OR ANY OTHER CHARGE WHICH THE STATE ELECTRICIT Y BOARD HAS TO INCUR NECESSARILY? 5. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SINCE THE LD. CIT (A) HAS DECIDED THE SOLE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE ITAT, NAGPUR RENDERED IN THE ASSESSEE S OWN CASE FOR THE A.Y. 2008 - 09 AND THE ORDERS PERTAINING TO THE ASSESSMENT YEARS 2003 - 04, 2004 - 05, 2005 - 06 AND 2007 - 08 IN THE ASSESSEES OWN CASE, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE. THEREFORE, THE SAME IS LIABLE TO BE DISMISSED. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) DID NOT CONTROVERT THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LD. CIT (A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE ITAT, NAGPUR RENDERED IN THE AS SESSEES OWN CASE FOR THE A.YS. MENTIONED ABOVE. HOWEVER, THE LD. DR RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT THE LD. CIT (A) HAS WRONGLY DELETED THE ADDITION HOLDING THAT THE MARKET VALUE AS STATED IN SECTION 80IA ( 8) OF THE ACT WILL BE THE SAME AS THE SALE PRICE OF THE STATE ELECTRICITY BOARD WHEN THE ASSESSEE IS NOT INCURRING ANY EXPENDITURE ON TRANSMISSION, LINE LOSSES, ADMINISTRATIVE EXPENSES ANY OTHER CHARGES WHICH THE ELECTRICITY BOARD HAS TO INCUR. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AN D ALSO GONE THROUGH THE ORDERS PASSED BY THE AUTHORITIES BELOW. THE LD. CIT (A) HAS DECIDED THE SOLE ISSUE RAISED BY THE REVENUE IN THIS APPEAL BY FOLLOWING THE DECISION OF THE NAGPUR BENCH OF THE ITAT RENDERED IN THE ASSESSEES OWN CASE FOR THE A.YS. REFE RRED ABOVE. THE RELEVANT PARAS OF THE ORDER OF THE LD. CIT (A) READ AS UNDER: - 5.3 IN ANY CASE, AS STATED BY THE APPELLANT IN ITS SUBMISSION, THE MATTER STANDS COVERED IN FAVOUR OF THE APPELLANT IN ITS OWN CASE DECIDED BY THE HONBLE ITAT, MUMBAI E BENCH FOR 2003 - 04, 2004 - 05 & 2005 - 06 4 ITA NO S . 174 & 175 / NAG /2015 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 VIDE ORDER DATED 28 - 10 - 2009 AND BY THE HONBLE ITAT NAGPUR BENCH, NAGPUR FOR AY 2007 - 08 & AY 2008 - 09 VIDE ORDER DATED 03 - 02 - 2014. THE RELEVANT PORTION OF THE ORDER OF HONBLE ITAT, NAGPUR BENCH DATED 03 - 02 - 2014 IS REPRODUCED HEREUNDER FOR READY REFERENCE: - 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT IT WAS THE ORDER PASSED BY THE CIT, RAIPUR U/S 263 OF THE ACT THAT HAS TRIGGERED THE CONTROVERSY BEFORE US. HE HAD, WHILE REVISING THE ORDER FOR THE AY 2003 - 04 PASSED BY THE AO, HELD THAT ELECTRICITY WAS SOLD AT HIGHER RATE BY THE ASSESSEE TO ITS OWN FERRO ALLOYS DIVISION & CAPTIVE DIVISION WITH THE PURPOSE OF REDUCING THE TAX LIABILITY. AO HAD FOLLOWED THE CIT RAIPUR, WHILE FRAMING A SSESSWMENT FOR THE YEAR UNDER APPEAL . WE FIND THAT ORDER PASSED BY THE CIT - RAIPUR U/S 263 HAS BEEN REVERSED BY THE TRIBUNAL FOR ALL THE THREE AYS. IN THESE CIRCUMSTANCES IN OUR OPINION FAA WAS JUSTIFIED IN ALLOWING THE APPEAL FILED BY THE ASSESSEE. WE FIND THAT WHILE DEALING WITH THE IDENTICAL ISSUE IN THE CASE OF GODAVARI POWER AND ISPAT LTD. (SUPRA) HONBLE HIGH COURT CHHATTISGARH HAD FRAMED THE FOLLOWING QUESTION OF LAW. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE MARKET VALUE AS S PECIFIED IN SECTION [ 80 - IA (8) OF THE ACT WOULD BE THE SAME AS THE SALE PRICE OF THE STATE ELECTRICITY BOARD WHEN THE ASSESSEE DID NOT INCUR ANY TRANSMISSION LOSS OR ADMINISTRATIVE OR ANY OTHER CHARGES WHICH THE STATE ELECTRICITY BOARD HAS TO INCUR FOR THE SAME? WHILE DECIDING THE MATTER HONBLE COURT DISMISSED THE APPEALS FILED BY THE DEPARTMENT. 2.3.A. WE FIND THAT IN THE CASE OF JINDAL STEEL AND POWER LTD. (SUPRA) IDENTICAL ISSUE HAD ARISEN AND THE FAA HAD CONFIRMED THE ORDER OF THE AO HOLDING THAT IF THERE WAS DIFFERENCE IN PRINCES OF UNITS OF POWER SUPPLIED TO THE ELECTRICITY BOARD AND TO THE ASSESSEES OWN MANUFACTURING ESTABLISHMENT AO COULD TAKE MARKET VALUE I.E. THE RATE AT WHICH POWER WAS SUPPLIED TO THE STATE ELECTRICITY BOARD. IN THAT MATTE R THE ASSESSEE HAD SOLD POWER @ 3.72 AND RS. 2.32 PER UNIT TO HIS OWN CAPTIVE DIVISION AND THE STATE ELECTRICITY BOARD RESPECTIVELY. DECIDING THE APPEAL IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HELD AS UNDER: - WE HAVE CAREFULLY CONSIDERED THE SUBMISSION S OF BOTH THE PARTIES ON THIS ASPECT. THE CRUX OF THE DISPUTE BEFORE US RELATES TO THE MANNER OF COMPUTING PROFITS OF THE UNDERTAKINGS OF THE ASSESSEE ENGAGED IN 5 ITA NO S . 174 & 175 / NAG /2015 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 GENERATION OF POWER FOR THE PURPOSE OF RELIEF UNDER SECTION 80IA OF THE ACT. THE DIFFERENCE BE TWEEN THE ASSESSEE AND THE REVENUE WITH REGARD TO THE DETERMINATION OF THE MARKET VALUE OF POWER SO AS TO RECORD THE INCOME ACCRUED TO THE ASSESSEE ON SUPPLIES MADE TO ITS OWN MANUFACTURING UNITS AS NOTED EARLIER, IN THIS CASE, THE ASSESSE E HAS UTILIZED TH E POWER GENERATED FOR ITS CAPTIVE CONSUMPTION BY WAY OF SUPPLIES TO ITS OTHER MANUFACTURING UNITS AND ALSO FOR THE STATE ELECTRICITY BOARD. THE DISPUTE ESSENTIALLY RELATES TO THE MECHANISM OF SECTION 80IA(8) OF THE ACT. SECTION 80 - IA(5) PROVIDES THAT WHE RE AN ASSESSEE, WHICH IS ELIGIBLE FOR SECTION 80IA BENEFITS, TRANSFERS ITS GOODS OR SERVICES TO A BUSINESS OTHER THAN THE ELIGIBLE BUSINESS THE CONSIDERATION IF ANY, RECORDED OR S UCH TRANSFER IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS SHOULD CORRESPOND TO T HE MARKET VALUE OF SUCH GOODS OR SERVICES. THE SAID SECTION AUTHORIZES THE ASSESSING OFFICER THAT WHERE THE TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE, THE PROFITS DECLARED OF THE ELIGIBLE BUSI NESS CAN BE ADJUSTED BY THE ASSESSING OFFICER ON SUCH BASIS ENSURE THAT GOODS OR SERVICES TRANSFERRED TO ITS OWN UNIT IS DONE AT THE MARKET BLUE OF SUCH GOODS OR SERVICES. OSTENSIBLY, IN THIS CASE THE ASSESSING OFFICER WAS OF THE OPINION THAT THE CONSIDERA TION FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION TO OTHER UNITS HAS BEEN RECORDED AT A CONSIDERATION WHICH DOES NOT CORRESPOND TO ITS MARKET VALUE. ACCORDING TO THE ASSESSING OFFICER THE CONSIDERATION HAS BEEN RECORDED AT A PRICE HIGHER THAN THE MARKET V ALUE IN OTHER WORDS, THE ASSESSING OFFICER DOES NOT PERCEIVE RS. 3.72 PER UNIT AS THE MARKET VALUE OF THE POWER GENERATED BY THE ASSESSEE AND INSTEAD ADOPTS RS. 2.32 PER UNIT AS THE MARKET VALUE, BEING THE PRICE AT WHICH THE ASSESSEE SELLS POWER TO THE BO ARD. 13. BEFORE WE PROCEED FURTHER, IT IS ALSO RELEVANT TO UNDERSTAND THE IMPLICATIONS OF THE EXPRESSION MARKET VALUE AS APPEARING IN SECTION 80IA(8) OF THE ACT. IN THE EXPLANATION BELOW SECTION 80 IA (8), IT IS PROVIDED THAT THE EXPRESSION MARKET VALU E FOR THE PURPOSES OF THE SUB - SECTION MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. IN THE ABOVE CONTEXT, IT THEREFORE BECOMES IMPORTANT FOR US TO CONSIDER AS TO WHETHER THE PRICE CHARGED BY THE ASSESSEE FOR POWER SUPPLIED TO ITS OWN MANUFACTURING UNITS AT THE RATE OF 3.12 PER UNIT CAN BE SAID TO BE CONSTITUTING A MARKET VALUE OF ITS GOODS, NAMELY, POWER. 6 ITA NO S . 174 & 175 / NAG /2015 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 14. IN THE ADVANCED LAW LEXICON BY P RAMANATHA AIYA, 3 RD EDITION, 2005 THE MARKET PRICE OR MARKET VALUE HAS BE EN DEFINED AS BELOW: - MARKET PRICE OR VALUE - THE PRICE FIXED BY BUYER AND SELLER IN AN OPEN MARKET IN THE USUAL AND ORDINARY COURSE OF LAWFUL TRADE AND COMPETITION, THE PRICE OR VALUE OF THE ARTICLE ESTABLISHED OR SHOWN BY SALES, PUBLIC OR PRIVATE, IN THE ORDINARY WAY OF BUSINESS, THE FAIR VALUE OF THE PROPERTY AS BETWEEN ONE WHO DESIRES TO PURCHASE AND ONE WHO DESIRES TO SELL, THE CURRENT PRICE. SIMILARLY, IN THE CASE OF ORCHARD V SIMPSON (1857) 2 CBNS 299, THE PHRASE MARKET VALUE IN CONTRACT FOR THE SALE OF GOODS HAS BEEN UNDERSTOOD TO MEAN THE PRICE IN THE MARKET TO AN ORDINARY CONSUMER, IRRESPECTIVE OF THE PARTICULAR CONTRACT. SIMILARLY, IN LAW LEXICON BY P RAMANATHA AIYAR, WITH REFERENCE TO U.S. VS CERTAIN: PROPERTY IN BOROUGH OF MANHATTAN, CITY COUNTY AND STATE OF NEW YORK, ACANY, 403 F.D800, 802, IT HAS BEEN EXPLAINED THAT THE MARKET VALUE OF AN ARTICLE OR PIECE OF PROPERTY IS THE PRICE WHICH IT MIGHT BE EXPECTED TO BRING IF OFFERED FOR SALE IN A FAIR MARKET, NOT THE PRICE WHICH MIGHT BE OBTAI NED ON A SALE AT PUBLIC AUCTION OR A SALE FORCED BY THE NECESSITIES OF THE OWNER BUT SUCH A PRICE AS WOULD BE FIXED BY NEGOTIATION AND MUTUAL AGREEMENT, AFTER AMPLE TIME TO FIND A PURCHASER, AS BETWEEN A VENDOR WHO IS WILL (BUT NOT COMPELLED) TO SELL AND A PURCHASER WHO DESIRES TO BUY BUT IS NOT COMPELLED TO TAKE THE PARTICULAR ARTICLE OR PIECE PROPERTY . 15. THEREFORE FROM THE AFORESAID, IT CAN DEDUCED THAT MARKET VALUE IS AN EXPRESSION WHICH DENOTES A PRICE ARRIVED AT BETWEEN THE BUYERS AND THE SELLER IN THE OPEN MARKET WHEREIN THE TRANSACTIONS TAKE PLACE IN THE NORMAL COURSE OF TRADING AND COMPETITION IN CONTRAST TO A SITUATION WHERE THE PRICE IS FIXED BETWEEN A BUYER AND A SELLER IN A NEGOTIATION DONE UNDER THE SHADOW OF