AI Insights
The case involves the Income Tax Department (Appellant) contesting the decision of the CIT(A) which favored M/s Century Textiles & Industrials Ltd (Respondent) regarding the deduction under section 80IA of the Income Tax Act for the assessment year 2012-13. The primary contention was about the correct method of determining the market price of power supplied to captive units for the purpose of calculating deductions under section 80IA. The Appellant argued that the CIT(A) erred in adopting the market price based on the rates of the State Electricity Board without considering the inclusion of government duties and taxes. The Respondent supported the CIT(A)'s decision, referencing previous Tribunal decisions in similar cases.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 125447 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 month(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-03-2023
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
30-01-2023
Assessment Year
2012-2013
Appeal Filed On
19-10-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI BASKARAN BR, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 2647/Mum/2022 (A.Y: 2012-13) ACIT, 6(1)(1) Room No. 502, 5 th Floor, Aayakar Bhavan, MK Road, Mumbai-400020. Vs. M/s Century Textiles & Industrials Ltd 2 nd Floor, Century Bhavan, Dr. Annie Beasant Road, Worli, Mumbai – 400030. ./ज आइआर ./PAN/GIR No. : AAACC2659Q Appellant .. Respondent Appellant by : Mr.Jogendra Singh.DR Respondent by : Mr. Chaitanya D. Joshi.AR Date of Hearing 31.01.2023 Date of Pronouncement 24.02.2023 आद श / O R D E R PER PAVAN KUMAR GADALE JM: The revenue has filed the appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi / CIT(A), passed u/s 250 of the Act. 2. At the time of hearing, the Ld.DR submitted that there is a delay in filing the appeal before the Hon’ble Tribunal and filed an application for condonation of delay and relied on the decision of Hon’ble Supreme ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 2 - Court. We found the facts mentioned are reasonable and the Ld.AR has no specific objections. Accordingly, condone the delay and admit the appeal. 3. The revenue has raised the fallowing grounds of appeal: 1. "whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that market price of power supplied to current unit for captive consumption was correctly adopted by applying the rate at which the State Electricity Board supply electricity, with regard to deduction u/s. 80IA, without considering that the assessee had shown sale price of power in its books at cost price only"? 2. "Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) erred in adopting the market price of power supplied to captive unit at the rate of which the State Electricity Board supplies electricity, with regard to deduction u/s. 80IA, without excluding the government duties and taxes as such levy is involved in transfer of power from one unit to another"? 3. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored." 4. "The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary." 4. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of textile cement, chemicals, power generation and building ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 3 - activities. The assessee has filed the return of income for the A.Y 2012-13 on 28.09.2012 disclosing a total income of Rs. 593,019,478/- u/s 115JB of the Act and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny and notice u/s 143(2) of the Act was issued. On perusal of the financial statements, The A.O. observe that the assessee is receiving the rental income with other owners and the assessee has not properly allocated the property income and made addition under income from house property of Rs. 1,12,078/-. (ii)On the second disputed issue with respect to expenses related to the house property debited to profit and loss account, the AO found that the assessee claimed expenses in respect of let out properties in the profit and loss account, whereas the same has to be allowed in the computation of income from house property, and calculated the disallowance of Rs.9,05,805/-.(iii) the AO found that the assessee has received exempted income of Rs.3,27,23,901/- and claimed exemption u/s 10(34) of the Act and Rs. 3,20,65,557/- u/s 10(35) of the Act. Whereas the assessee has made addition of interest of Rs. 44 lakhs & indirect expenditure of Rs. 30 lakhs attributable to the earning exempt income in the computation of income. Whereas the AO was not satisfied with the explanations ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 4 - filed by the assessee and applied the provisions of Sec. 14A r.w.r 8D of the Act and observed that there is no necessity for making further disallowance u/s 14A of the Act. (iv) the assessee has claimed deduction u/s 80IA of the Act in respect of the two power plants namely (a) Century Cement Thermal Power Plant and (b) Maihar Cement Thermal Power Plant of Rs. 20,38,91,911/-, the AO has dealt on the facts and submissions referred at Para 8.1 of the order and finally the AO was not satisfied with the explanations and disallowed the excess claim referred at Para 8.5 to 8.7 of the order as under: 8.5. the order of my predecessor for A.Y. 2008-09, 2009-10, 2010-11 and 2011-12, same now is being taken for the year under consideration. The assessee company has not provided any details whatsoever in respect of the rate at which the power was purchased by the State Distribution Agency from independent power producer although it was categorically mentioned in the show cause notice that the rate should be determined on that basis. In absence of any details furnished by the assessee company in this regard, it is stated that the assessee company has adopted higher rate for the purpose of computing profits eligible for deduction u/s.80-1A. Accordingly, the deduction u/s.801A is recomputed on similar lines as for A.Y. 2008-09, A.Y. 2009-10, 2010-11, 2011-12 and 2012-13. 8.6. It is estimated that the power distributing agency is charging after considering a mark-up of 25% over its cost of purchase. Accordingly, when the price charged is 125 the cost of power to the power distributing agency would be 100. The 801A deduction to the assessee company has to be worked out on the basis of price/cpst of purchase to the power distributing agency. Also, the details of other income under ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 5 - different heads for the aforesaid Thermal Power Plants were called for. The assessee submitted the details on 12.2.2015 in respect of Maihar Cement Thermal Power Plant, rent recovered from Staff Houses at Rs. 25,200/-/- and Workers Houses at Rs. 7,125/- cannot be said to be income derived from power generating activities. Therefore, these receipts are not eligible for deduction u/s 80IA of the Act. In respect of Century Cement Thermal Plant, the assessee company submitted the audit report in form No. 10CCB as required under the provisions of Sec.801A along with I.T. Return. After making adjustment of Staff House Rent at Rs. 25,200/-/- and Workers House Rent at Rs. 7,125/- in respect of Maihar Cement Thermal Plant, the revised figure of deduction u/s 801A in respect of the said Rs.14,81,97,247/-. Thus, after discussion and examination of details filed, total deduction u/s 801A works out to Rs. 16,30,87,699/- es per working below: (i) Deduction w.r.t. Century Cement Thermal Power Plant (10MW) as claimed Rs. 5,56,62,339 ii) Maihar Cement Thermal Power Plant 15MW (after adjustment) Rs. 14,81,97,247/- (i)+(ii)= Rs. 20,38,59,586 Less :25% Mark-up (as discussed above) 25 /125 X 20,38,59,586 125 (-) Rs. 4,07,71,917/- Admissible deduction Rs. 16,30,87,669 8.7. Admissible deduction u/s. 801A is Rs. 16,30,87,699/- as against Rs. 20,38,59,686/- (-) 20,38,91,911/- Rs.32,325/- claimed by the assessee company. Therefore, an addition of Rs.4,07,71,917/- (Rs. 20,38,59,686/- - Rs. 16,30,87,699) is made to the total income of the assessee company. Penalty proceedings u/s. 271(1)(c) of the I. T. Act, are separately initiated for furnishing inaccurate particulars. Disallowance of Excess Claim u/s. 80IA: Rs. 4,07,71,917/-. 5. Further the AO has denied the claim of depreciation, as the assessee has not claimed in the return of income filed. Finally the AO has computed the total loss of Rs. ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 6 - 334, 62,96,948/- and computed book profit U/sec115JB of the Act Rs.59,30,19,476/- and passed the order u/s 143(3) of the Act dated 30.03.2015. 6. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO, in respect of the deduction u/s 80IA of the Act. The CIT(A) has dealt on the facts and relied on the Hon’ble ITAT order in assessee’s own case for assessment year 2006-07 and granted relief and in other grounds of appeal partial relief was granted and partly allowed the assessee appeal. Aggrieved by the CIT(A)order, the revenue has filed an appeal with the Hon’ble Tribunal. 7. At the time of hearing, the Ld. DR submitted that the CIT(A) erred in holding that the market price of power supplied to captive unit was correctly applied at the rate of the State Electricity Boards supplies electricity in respect to deduction u/s 80IA of the Act without considering the factual aspects and the CIT(A) has erred in allowing deduction u/s 80IA of the Act without excluding the government duties and taxes and relied on the order of the AO. Per Contra, the Ld. AR supported the ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 7 - order of the CIT(A) on the disputed issue and relied on the Honble Tribunal order of the assessee’s own case for earlier years. 8. We heard the rival submissions and perused the material on record. The sole disputed issue envisaged by the Ld. DR that the CIT(A) has erred in holding the market price of power supply to the current unit for captive consumption was correctly adopted applying the rate which electricity board supply and the deduction u/s 80IA of the Act should be without excluding the government duties and taxes. The Ld.AR submitted that on the similar issue in the assessee’s own case, the Hon’ble Tribunal has considered the facts and decided the issue in favour of the assessee. At this juncture, we consider it appropriate to refer to the findings of the CIT(A) and granting the relief observed at page 2 as under: DEDUCTIONS UNDER SECTION 801A In the Return of Income the Appellant has claimed deduction u/s 80-IA of Rs.20,38,91,911 in respect of the following Two Power Plants. However, AO has allowed the deduction of Rs. 4,07,71,917 as under: (i) Century Cement Thermal Power Plant (10MW) as claimed Rs. 5,56,62,339 ii) Maihar Cement Thermal Power Plant 15MW (after adjustment) Rs. 14,81,97,247/- ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 8 - (i)+(ii)= Rs. 20,38,59,586 Less :25% Mark-up (as discussed above) 25 /125 X 20,38,59,586 125 (-) Rs. 4,07,71,917/- Admissible deduction Rs. 16,30,87,669 The Appellant submits that the AO has reduced our claim by Rs. 4,07,71,917/- on basis, which is totally unjustified. The Appellant had submitted the necessary Audit Report in Form No.10CCB of the Plant as required under the provisions of Sec.80-1A along with various other details of Power Plants as required by the AO. The Appellant had made claim of the above deduction in the Return and the relevant notes are set out at paragraph 19 (1) to 19 (v) of covering letter No. Secy/123/2011 dated 28.9.2011 attached to Income-tax Return and its computation statement. The Appellant has clarified regarding charges for supply of power, which was calculated in line with prevailing market price in the area i.e. power rate charged by State Electricity Board or other Power distributing Company in the respective areas. In the course of the assessment proceedings the AO has called for the basis of charging the other units for supply of power. We have produced the details as required vide letter dated 23.12.2013 along with copies of bills raised by the State Electricity Board. This will make it clear that the profit for the purpose of claiming deduction u/s 801A has been calculated considering the power realization rate for the power supplied to Century Cement in line with the prevailing market price in the area i.e power rate charged by Chattisgarh State Electricity Board for the power supplied by them during the Assessment year 2012- 13. Similarly. power realization rate for the power supplied to Maihar Cement Unit No.Il is also in line with the prevailing market price in the area i.e. power rate charged by M.P.Poorv Kshetra Vidyut Vitaran Co. Lid. during the Assessment year 2012-13. The AO asked us to show cause as to why the rate adopted by it in respect of power tariff should not be modified ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 9 - and determined on the basis of power purchased by the State Distribution Agency. The Appellant has submitted as under "At the outset may we most humbly draw your kind attention to the provision of Sec 80-1A (8) which requires that for the purposes of computing deduction uws 80-14, the profits of the eligible business should be determined having regard to the "market value" of the goods and services that are transferred by the eligible business to the other business carried on by the assessee. The Explanation at the foot of Sec. 80-IA (8) further elucidate on the concept of market value in the following words". For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market. It will be observed from the foregoing explanation that the market value means the price that such goods or services would ordinarily fetch in the open market. It has been held in the case of ACIT v. Jindal Steel and Power Ltd. (16 SOT 509) by the Hon'ble Delhi Tribunal that the price at which the State purchases the electricity is subject to many statutory restrictions and, therefore, cannot be held as market value. The tribunal has held that the price at which the assessee purchases its power from the State Electricity Board shall be considered as "market value" for the purposes of sec.801A. Your attention is also invited to the decision of the Mumbai Bench of the ITAT in the case of West Coast Paper Mills v. JCIT (100 TTJ 833) wherein the Hon'ble Bombay Tribunal has held that the profits of the captive power plant should be computed on the basis of the price of power at the average of the annual landed cost of electricity purchased by the assessee from the State Electricity Board during the relevant previous year. The Tribunal directed the Assessing authority to determine the price of the power and grant deduction u/s.80-IA on the basis of payment details available from the bills issued by the State Electricity Board during the relevant year. In view of the above, it is most humbly submitted that the proposal for re computation of deduction u/s.80-1A is contrary to the law laid ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 10 - down by the two different Benches of the Hon'ble ITAT, one of them being the jurisdictional bench at Mumbai. 1t is further most humbly submitted that it is a settled position that a decision of the jurisdictional bench of the Tribunal is binding on the tax authorities functioning within the relevant jurisdiction. For this proposition reliance is placed on the following decisions: Union of India vs. Kamlakshi Finance Corporation Ltd. (55 ELT 433)(SC) Commissioner Of Income Tax Vs Thana Electricity Supply Ltd (206 ITR 727 Bom); Bank Of Baroda Vs H. C. Shrivastava (122 Taxman 330) (Bom); Eagle Flask Industries Ltd Vs Deputy Commissioner Of Income Tax (72 ITD 455) (Pune), and Smt Padma Charry Vs Income Tax Officer (59 ITD 350) Bom,) In view of the above, we most humbly submit that the computation of deduction u/s.80-1A in respect of the power plant which is made in the return of income on the basis of the price of the power paid by the assessee to the State Electricity Board should be accepted and the proposal of reworking the same may kindly be dropped. The Appellant has further submitted in this regards which is reproduced by AO in the Order as under a) We do not sell power to State Distribution Agencies and the cost of power at which they may purchase from independent producers is not relevant to us We are concerned with the cost at which we and several other industries in the b) vicinity buy electricity from the Distribution Agencies. Hence for the purpose of computing the deduction under section 80(IA), the actual rate at which Distribution Agency sells power to Independent consumers in the market is considered and not a hypothetical rate at which it may purchase power from independent producers. In view of the above, deduction of u/s 801A of Rs. 14,81,97,247/ Rs. 5,56,62,339) Century Cement Thermal Power Plant II (10 MW) Maihar Cement Thermal Power Plant II(15 M W) -- *Rs 20,38,59,586 in respect of aforesaid Power Plants should be allowed instead of deduction of Rs. 16,30,87,669/- granted by the A0. The Appellant craves leave to further substantiate this ground with necessary documents, evidences, etc. along ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 11 - with the decisions of the authorities to support its claim at the time of hearing. Disallowance under 801A-decision of the CIT(Appeals) For its own consumption of electricity, the assessee has set up two 'captive power plants in the name and style of Century Cement Thermal Power plant which supplies power to Century Cement Plant, where as Maihar Cement Power Thermal Plant supplies power generated to Maihar Cement Plant. For the power supplied to cement plants for captive consumption the assessee charges at cost price. For claiming deduction u/s 801A for power generation plant the assessee calculates the cost of power supplied to two cement plants at market value by adopting the rate per unit at which it purchases power from SEB's during the relevant period. In the revision order u/s 263 passed the hon CIT held that the rate at which assessee purchases power from SEB's cannot be the market value of power supplied/ sold by the assessee to cement plants. The CIT u/s 263 alleged that the AO while allowing the assessee's claim under sec 801A, has not examined whether the market value of power generated by the captive power plants can be adopted on the basis of rate of electricity supplied by the respective SEB's. The ITAT held against this finding of CIT u/s 263. The ITAT held that on a perusal of material placed on record, during the course of assessment proceedings, AO has specifically enquired into the computation of deduction under sec 80IA in respect of power generation units. The assessee has furnished all necessary details relating to the computation of deduction and the basis for the rate applied for computing the quantity of electricity sold/supplied to Cement Units. Thus allegation of CIT that AO has not examined the market value is totally unfounded according to ITAT. Assessee had clearly stated the basis of deriving market value of electricity supplied to the Cement units is the rate at which assessee purchases electricity from the respective SEB's. The ITAT held that under given circumstances, the market value of electricity sold/supplied as provided under 801A(6) can be adopted at ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 12 - the rate at which the assessee purchases electricity from concerned SEB's during the relevant period. When there is no other method to find out the market value, according to ITAT it is rational and reasonable to adopt the rate at which SEB's supplies electricity to similar types of consumers as the market value. The ITAT relied on the decisions of - CIT Vs Godavari Power and Ispat (2004) 42 taxmann.com 551 According to the ITAT the computation of deduction u/s 801A in respect of sale/supply of electricity to its own units adopting the rate at which SEB's supply electricity to other consumers and the AO having accepted the same after due enquiry, the assessment cannot held to be erroneous and prejudicial to the interest of revenue. More over the determination of market value by adopting the aforesaid method can very well be considered to be one of the possible views. There fore only because of the adoption of such view there might be some prejudice to the interests of revenue for that reason alone the assessment order cannot be held to be erroneous. Thus, one of the conditions of sec 263 is not satisfied. Relying on the decision of SC in Max India, the exercise of power under sec 263 to revise the assessment order cannot be sustained. Accordingly the impunged order of CIT(Appeals) was quashed and assessment order was restored. In effect the ITAT has adopted the selling rate of electricity to 'SEB's as the market rate rejecting the department's finding that the rate adopted by Power Distribution Agencies is the market rate to be adopted. Following this finding of the ITAT for AY 2006-07 in order dtd 14/6/2017, the 801A deduction disallowed by the assessing officer @ Rs 4,07.71,917 is deleted. 9. The Ld.AR supported the submissions with the Hon’ble Tribunal order in the assessee’s own case for the A.Y 2010-11 inITANo.1886/Mum/2022dated29-11-22.The ITA No. 2647/Mum/2022 M/s Century Textiles & Industries, Mumbai. - 13 - Ld.DR fairly accepted the decision of the Honble decision. We respectfully fallow the decision of the Honble Tribunal and up hold the decision of the CIT(A) on this disputed issue allowing relief to the assseessee and dismiss the grounds of appeal raised by the revenue. 10. In the result, the appeal filed by the revenue is dismissed. Order pronounced in the open court on 24.02.2023. Sd/- Sd/- (BASKARAN BR) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 24.02.2023 KRK, PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. आ र आ / The CIT(A) 4. आ र आ ( ) / Concerned CIT 5. "#$ % & &' , आ र ) र*, हमद द / DR, ITAT, Mumbai 6. % -. / 0 / Guard file. ान ु सार/ BY ORDER, " & //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai
Other Referred Cases
ACIT v. Jindal Steel and Power Ltd., West Coast Paper Mills v. JCIT, CIT Vs Godavari Power and Ispat, Max India vs. CIT
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Income Tax Act
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