Pallipalayam Spinners (P) Ltd., Pallipalayam V. ACIT Circle 1, Namakal

ITA 2487/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5018 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 12-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR MS S VI
• Keywords: Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , !, # !$ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.2487/MDS/2017 ' (' / ASSESSMENT YEAR : 2013-14 M/S PALLIPALAYAM SPINNERS (P) LTD., 14-A, SANKARI BYE-PASS ROAD, PALLIPALAYAM 638 006. PAN : AABCP 2474 R V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, NAMAKKAL. (*+/ APPELLANT) (,-*+/ RESPONDENT) ./ ITA NO.2488/MDS/2017 ' (' / ASSESSMENT YEAR : 2013-14 M/S VSM WEAVES INDIA LTD., S.F. NO.334, SANKARI MAIN ROAD, ELANTHAKUTTAI PO, NEAR PALLIPALAYAM, ERODE-638 008. PAN : AABCV 7326 C V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, NAMAKKAL. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANTS BY : SHRI S. SRIDHAR, ADVOCATE ,-*+ . / / RESPONDENT BY : MS. S. VIJAYAPRABHA, JCIT 0 . 1# / DATE OF HEARING : 03.01.2018 23( . 1# / DATE OF PRONOUNCEMENT : 10.01.2018 2 I.T.A. NOS.2487 & 2488/MDS/17 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF TWO INDEPENDENT ASSESSEESS AR E DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE COMMI SSIONER OF INCOME TAX (APPEALS), SALEM, DATED 20.09.2017 AND P ERTAIN TO ASSESSMENT YEAR 2013-14. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS, WE HEARD BOTH TH E APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. 2. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE SS, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERATION IS DIS ALLOWANCE OF THE CLAIM MADE BY THE ASSESSEES UNDER SECTION 80-IA OF THE INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT') IN RESPECT OF EL ECTRICITY GENERATED FOR CAPTIVE CONSUMPTION. ACCORDING TO THE LD. COUN SEL, 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 PLA CING RELIANCE ON THE DECISION OF THIS BENCH IN SRI MATHA SPINNING MI LLS HAS TAKEN THE 3 I.T.A. NOS.2487 & 2488/MDS/17 COST OF POWER CONSUMED CAPTIVELY AT 5.50 PER UNIT ON THE GROUND THAT THE ELECTRICITY BOARD CHARGED ONLY AT THAT RAT E. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER SIMPLY IGNORED T HE TAX, DUTY AND SURCHARGE PAYABLE BY THE CONSUMER TO THE TAMIL NADU ELECTRICITY BOARD WHICH WOULD BE PASSED ON TO THE GOVERNMENT. 3. REFERRING TO THE ASSESSMENT ORDER, THE LD.COUNSE L FOR THE ASSESSEES SUBMITTED THAT THE ASSESSING OFFICER OBSE RVED THAT IT WAS EXCEPTIONALLY DIFFICULT FOR HIM TO UNDERSTAND THE L EGALITY OF THE ELECTRICITY ACT, ENNUMBER OF ORDERS ISSUED BY THE S TATE GOVERNMENT ON DEMAND AND SUPPLY OF ELECTRICITY, UNDERSTANDING THE WORKING OF TANTRANSCO, TNEB AND TANGEDCO, TAMIL NADU ELECTRICI TY REGULATORY AUTHORITY REPORTS, ETC. THEREFORE, ACCO RDING 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 I S FILED BEFORE THIS TRIBUNAL, THE LD.COUNSEL SUBMITTED THAT GUJARA T ELECTRICITY BOARD COLLECTED ELECTRICITY DUTY AT 8 PAISE PER UNIT OVER AND ABOVE THE ELECTRICITY CHARGES. THE ASSESSING OFFICER, IN THE CASE BEFORE THE 4 I.T.A. NOS.2487 & 2488/MDS/17 GUJARAT HIGH COURT, FOUND THAT THE MARKET VALUE OF THE ELECTRICITY IS ONLY 5.32 PER UNIT AND 8 PAISE WAS COLLECTED BY STATE EL ECTRICITY 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 CONS UMER, THE PRICE PAID REMAINS 5.40 PER UNIT. THE FACT THAT THE SELLER OF ELECTRI CITY, NAMELY, GUJARAT ELECTRICITY BOARD RETAINS ONLY 5.32 PER UNIT AND THE BALANCE OF 8 PAISE WOULD BE PASSED ON TO STATE GOVE RNMENT IN THE FORM OF ELECTRICITY DUTY, WOULD NOT MAKE ANY DIFFER ENCE. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER, ACCORDING TO THE LD. COUNSEL, IS NOT JUSTIFIED IN EXCLUDING THE TAXES AND DUTIES PAI D BY THE CONSUMER OF THE TAMIL NADU ELECTRICITY BOARD OVER AND ABOVE THE ELECTRICITY CHARGES. 4. THE LD.COUNSEL FOR THE ASSESSEES FURTHER SUBMITT ED THAT PROVISO TO SECTION 80-IA(8) OF THE ACT IS APPLICABL E ONLY IN RESPECT OF GOODS AND SERVICE. ACCORDING TO THE LD. COUNSEL, E LECTRICITY IS NEITHER GOODS OR SERVICE, THEREFORE, THE ASSESSING OFFICER HAS NO AUTHORITY TO DETERMINE THE COST OF ACQUISITION. TH E LD.COUNSEL HAS 5 I.T.A. NOS.2487 & 2488/MDS/17 ALSO PLACED HIS RELIANCE ON THE JUDGMENTS OF GUJARA T 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. GUJ ARAT ALKALIES AND CHEMICAL LTD. IN TAX APPEAL NO.544 OF 2016 DATE D 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. 5. ON THE CONTRARY, MS. S. VIJAYAPRABHA, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R 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 I.T.A. NO. 1845/MDS/2011 DATED 14.11.2012, FOUND THAT THE COST OF ELECTRICITY COLLECTED BY TAMIL NADU ELECTRICITY BOA RD FROM ITS CONSUMER HAS TO BE TAKEN AS COST OF THE POWER GENER ATED BY THE ASSESSEES FOR CAPTIVE CONSUMPTION. IN FACT, ACCORD ING TO THE LD. D.R., THE ASSESSING OFFICER HAS TAKEN THE RATE FIXE D 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 P VT. LTD. (SUPRA). REFERRING TO THE GROUNDS OF APPEAL, THE LD. D.R. SU BMITTED THAT WHETHER ELECTRICITY IS GOODS OR SERVICE IS NOT AN I SSUE AND THE SAME 6 I.T.A. NOS.2487 & 2488/MDS/17 WAS NOT RAISED BY THE ASSESSEES IN THEIR GROUNDS OF APPEAL. ACCORDING TO THE LD. D.R., THE ISSUE WHETHER THE EL ECTRICITY IS NOT GOODS OR SERVICE, CANNOT BE CANVASSED BEFORE THIS T RIBUNAL AT THIS STAGE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ONLY QUESTION ARISES FOR CONSIDERATION IS WHETHER THE CO ST OF ELECTRICITY PRODUCED BY THE ASSESSEES THROUGH WINDMILL AND CONS UMED CAPTIVELY WOULD BE THE RATE FIXED BY TAMIL NADU ELE CTRICITY BOARD FOR ELECTRICITY ALONE TO ITS CONSUMER OR THE COST INCLU DES 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 ELEC TRICITY 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 ALLO YS 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 F ACT, THE GUJARAT HIGH COURT HAS OBSERVED AT PARA 7 OF ITS JUDGMENT AS FOL LOWS:- 7 I.T.A. NOS.2487 & 2488/MDS/17 7. WE MAY NOTICE THAT THE TRIBUNAL DID NOT ACCEPT TH E CONTENTION OF THE ASSESSEES THAT THE ELECTRICITY IS NEITHER GOODS NOR SERVICES AND THAT, TRANSFER OF ELECTRICIT Y, THEREFORE, WOULD NOT BE COVERED UNDER SUB-SECTION (8) OF SECTI ON 80-IA OF THE ACT. HOWEVER, IN SO FAR AS THE TRIBUNALS REAS ONING TO ADOPT THE MARKET VALUE OF THE GOODS AT 5.40 PS. PER UNIT IS CONCERNED, WE FIND NO ERROR. UNDISPUTEDLY, GEB SUPP LIED THE ELECTRICITY TO ITS CONSUMERS AT THE SAME RATE. THI S, THEREFORE, WAS A MARKET VALUE OF THE ELECTRICITY SUPPLIED BY T HE CPP UNIT TO THE GENERAL UNIT. THE FACT THAT THIS AMOUNT OF 5.40 PS. COMPRISES OF A COMPONENT OF 8 PAISE, WHICH WAS ELECT RICITY 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 O NLY 5.32 PS. OUT OF THE SAID COLLECTION AND PASSES ON 8 PAISE PE R UNIT TO THE GOVERNMENT IN THE FORM OF ELECTRICITY DUTY, TO OUR MIND, WOULD MAKE NO DIFFERENCE. THIS QUESTION IS, THEREFORE, N OT REQUIRED TO BE CONSIDERED. 7. THE ABOVE OBSERVATION OF GUJARAT HIGH COURT WAS FOLLOWED IN ANOTHER JUDGMENT OF THE SAME HIGH COURT RELIED ON B Y THE LD.COUNSEL FOR THE ASSESSEES. IN VIEW OF THE ABOVE , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT FOR THE PURPOSE OF C OMPUTING COST OF ELECTRICITY GENERATED AND CONSUMED CAPTIVELY, THE C OST FIXED BY THE STATE ELECTRICITY BOARD INCLUDING THE DUTY AND TAXE S HAS TO BE TAKEN FOR THE PURPOSE OF GRANT OF DEDUCTION UNDER SECTION 80-IA(8) OF THE ACT. 8. NOW COMING TO DIFFICULTY EXPRESSED BY THE ASSESS ING OFFICER IN UNDERSTANDING THE ELECTRICITY LAWS, THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER IS NO T A LEGALLY TRAINED 8 I.T.A. NOS.2487 & 2488/MDS/17 PERSON. HE, BEING AN EXECUTIVE AUTHORITY, WAS TRAI NED ONLY IN TAX LAWS FOR COMPUTING TAXABLE INCOME AND LEVY TAX THER EON. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ASSESSING OFFICER WOULD NATURALLY HAVE DIFFICULTY I N UNDERSTANDING THE ELECTRICITY LAWS AND OTHER ENACTMENTS MADE BY P ARLIAMENT AND STATE LEGISLATURE. THEREFORE, IN SUCH A SITUATION, IT IS FOR THE ASSESSING OFFICER TO GET LEGAL OPINION FROM THE GOV ERNMENT STANDING COUNSEL SO THAT HE CAN DECIDE THE ISSUE AF TER UNDERSTANDING THE LAWS. THE ASSESSING OFFICER BEIN G AN ADJUDICATING AUTHORITY UNDER THE PROVISIONS OF INCO ME-TAX ACT, HE CANNOT DISOWN HIS RESPONSIBILITY CONFERRED UNDER TH E INCOME-TAX ACT MERELY BECAUSE HE WAS NOT ABLE TO UNDERSTAND THE EL ECTRICITY LAWS. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT HE SHOULD TAKE SOME EFFORT TO UNDERSTAND THE ELECTRICITY LAWS AND DECID E THE ISSUE AROSE BEFORE HIM. OTHERWISE, THE VERY OBJECT OF PROVISIO NS OF INCOME-TAX ACT WOULD BE DEFEATED. 9. WITH THE ABOVE OBSERVATION, ORDERS OF BOTH THE A UTHORITIES BELOW ARE SET ASIDE AND THE ASSESSING OFFICER IS DI RECTED TO FIX THE COST OF ELECTRICITY AT THE RATE THAT WAS COLLECTED BY THE ELECTRICITY 9 I.T.A. NOS.2487 & 2488/MDS/17 BOARD FROM THE CONSUMERS INCLUDING THE OTHER CHARGE S LIKE DUTY, SURCHARGE CESS, ETC. 10. IN THE RESULT, THE APPEALS FILED BY BOTH THE AS SESSEESS STAND ALLOWED. ORDER PRONOUNCED ON 10 TH JANUARY, 2018 AT CHENNAI. SD/- SD/- ( ! ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 10 TH JANUARY, 2018. KRI. . ,167 87(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 91 () /CIT(A), SALEM 4. PRINCIPAL CIT, SALEM 5. 7: ,1 /DR 6. ' ; /GF.