M/s. Arun Textiles P Ltd., Tiruppur V. DCIT, Tiruppur

ITA 569/CHNY/2011

• Counselvise Citation: 56921714 RSA 2011
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 29-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: T BANUSEKAR
• Keywords: Set aside
• Section: 143(3); 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI B E F O R E DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. ITA NO. 569(MDS)/2011 ASSESSMENT YEAR: 2007-08 M/S. ARUN TEXTILES P. LTD., 80, PERUMAL KOIL STREET, TIRUPPUR 641 604. PAN AABCA 8982 D VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE, TIRUPPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, CA RESPONDENT BY: SHRI K.E.B.RENGARAJAN, JR. STANDING COUNSEL DATE OF HEARING : 11 TH AUGUST, 2011 DATE OF PRONOUNCEMENT : 11 TH AUGUST, 2011 - - ITA 569 OF 2011 2 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-II AT COIMBATORE DATED 11-1-2011 AND ARISES OUT OF THE AS SESSMENT COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX AC T, 1961. 2. THE GROUNDS RAISED IN THE PRESENT APPEAL READ A S UNDER:- 2. A. HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN FOLLOWING THE RATE ADOPTED BY THE TNEB ( ` 2.70 PER UNIT) FOR PURCHASING POWER FROM THIRD PARTIES IN PREFERENCE TO THE RATE ( ` 3.50 PER UNIT) AT WHICH THE APPELLANT WAS GIVEN SET OFF BY TNEB. B. HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE ARGUMENT OF THE APPELLANT THAT THERE IS NO FREE MARKET FOR SALE OF POWER GENERATED BY THE APPELLANT IS NOT ACCEPTABLE, WHERE , ON FACTS, THE APPELLANT HAS NO OTHER ALTERNATIVE EX CEPT - - ITA 569 OF 2011 3 TO SELL THE POWER GENERATED TO TNEB OR USE FOR ITS CAPTIVE CONSUMPTION. C. HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ENDORSING THE VIEW OF THE LEARNE D ASSESSING OFFICER TO HOLD THAT IN THE TRANSACTIONS CONTEMPLATED HEREIN, THERE IS AN ACT ON THE PART OF THE APPELLANT TO INFLATE PROFIT ELIGIBLE FOR DEDUCTION U/S.80IA WARRANTING THE APPLICATION OF THE HONOURABLE SUPREM E COURT DECISION RENDERED IN THE CASE OF LIBERTY INDI A, WHERE ON FACTS, THERE WERE NO ACTS ON THE PART OF T HE APPELLANT TO INFLATE PROFIT AT ALL. D. HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO DISTINGUISH THE CASE OF POWER PURCHASED BY TNEB FROM THIRD PARTIES AS AGAINST THE CASE OF POWER BEING USED FOR CAPTIVE CONSUMPTION E. HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO FOLLOW THE RATIO LAID DOWN, IN THIS CONTEXT, BY THE HONOURABLE INCOME TAX APPELLATE TRIBUNALS IN THE FOLLOWING CASES; A. JINDAL STEEL & POWER LTD 16 SOT 509 (DEL) B. DALMIA CEMENT (BHARAT) LTD 32 SOT 164(DEL ) F. HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE LEAR NED ASSESSING OFFICER - - ITA 569 OF 2011 4 A. IN FOLLOWING THE PROVISIONS OF SEC.80IA(10) WHICH IS NOT APPLICABLE TO THE FACTS OF THE APPELLANT B. IN FOLLOWING THE PROVISIONS INTRODUCED BY TH E FINANCE BILL (ACT) 2009 WHICH WAS NOT PREVALENT IN THE STATUTE BOOK FOR INTERPRETING THE PROVISIONS OF SEC .80IA C. IN FOLLOWING THE PROVISIONS OF THE PROVISO T O SEC. 80IA(8) ON THE PRESENT CASE, WHICH ON FACTS DO NOT WARRANT THE APPLICATION OF THE SAID PROVISO. IN VIEW OF THE ABOVE GROUNDS AND SUCH OTHER ADDITIO NAL GROUNDS WHICH MAY BE ADDUCED AT THE TIME OF HEARING WITH THE LEAVE OF THE HONBLE INCOME-TAX APPELLATE TRIBUNAL A) TO REVERSE THE ORDER OF THE HONBLE COMMISSIONER OF INCOME-TAX(APPEALS) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER BY ADOPTING THE RATE OF ` 2.70 PER UNIT AS SELLING PRICE FOR THE POWER UNITS GENERATED BY THE WINDMILL B) TO DIRECT THE ASSESSING OFFICER TO ADOPT TH E SELLING RATE OF POWER UNITS GENERATED BY WINDMILL @ ` 3.50 PER UNIT WHILE COMPUTING THE PROFIT DERIVED FR OM WINDMILL ELIGIBLE U/S 80IA. 3. WE HEARD SHRI T.BANUSEKAR, THE LEARNED CHARTERE D ACCOUNTANT APPEARING FOR THE ASSESSEE AND SHRI - - ITA 569 OF 2011 5 K.E.B.RENGARAJAN, THE LEARNED STANDING COUNSEL APPE ARING FOR THE REVENUE. THE VERY SAME ISSUE WAS RECENTLY CONS IDERED BY THE INCOME-TAX APPELLATE TRIBUNAL, D-BENCH, CHENNAI IN THE CASE OF M/S. SRI VELAYUDHASWAMY SPINNING MILLS(P) LTD., TIRUPUR VS. DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE, TIRUPUR IN ITA NO.850(MDS)/2011 THROUGH THEIR ORDER DATED 13-7 -2011. THE RELEVANT PORTION OF THE DISCUSSION AND FINDING OF T HE TRIBUNAL IN THE SAID ORDER ARE REPRODUCED BELOW:- 8. THE ASSESSING AUTHORITY HAS ADOPTED THE PRICE OF POWER AT ` . 2.70 PER UNIT IN THE LIGHT OF THE PROVISIONS OF LAW STATED IN SECTION 80IA(8). SUB- SECTION(8) OF SECTION 80IA PROVIDES THAT WHERE ANY GOODS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR ANY GOODS ARE TRANSFERRED TO THE ELIGIB LE BUSINESS, IN EITHER CASE THE CONSIDERATION FOR THE TRANSFER RECORDED IN THE BOOKS OF ACCOUNTS IF NOT CORRESPOND S TO THE MARKET VALUE OF SUCH GOODS, THE ASSESSING AUTHO RITY SHALL COMPUTE THE ELIGIBLE PROFIT ON THE BASIS OF T HE MARKET VALUE OF SUCH GOODS. IT MEANS THAT SUB- SECTION(8) OF SECTION 80IA DOES NOT ALLOW AN ASSESS EE TO - - ITA 569 OF 2011 6 INFLATE THE PROFIT OF ITS ELIGIBLE UNIT BY OVER INV OICING THE GOODS TRANSFERRED OR UNDER-INVOICING OF GOODS BOUGH T IN. IT IS A SAFEGUARD AGAINST MISUSE OF THE EXISTING PR OVISION. THE ASSESSING OFFICER TOOK THE MARKET VALUE OF THE POWER GENERATED BY THE ASSESSEE AT ` .2.70 PER UNIT AND NOT ` . 3.50 PER UNIT AS CLAIMED BY THE ASSESSEE AND THEREBY THE ASSESSEE HAS OVERSTATED THE PRICE OF TH E GOODS SOLD BY IT SO AS TO BOOST THE PROFIT OF ITS E LIGIBLE UNIT, WHICH IN THIS CASE IS WINDMILL UNIT. 9. THE RULE APPLICABLE IN DETERMINING THE MARKET VALUE IN A SIMILAR CONTEXT HAS BEEN DISCUSSED BY TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX, MADURAI VS. THIAGARAJAR MILLS LTD., KAPPALUR, MADURAI. WHILE DELIVERING TH E JUDGMENT IN TAX CASE(APPEAL) NOS.68 TO 70 OF 2010 DATED 7-6-2010 THEIR LORDSHIPS HAVE HELD AS UNDER:- 9. THEREFORE, THERE IS NO DIFFICULTY IN HOLDING TH AT CAPTIVE CONSUMPTION OF THE POWER GENERATED BY THE ASSESSEE FROM ITS OWN POWER PLANT WOULD ENABLE - - ITA 569 OF 2011 7 THE RESPONDENT/ASSESSEE TO DERIVE PROFIT AND GAINS BY WORKING OUT THE COST OF SUCH CONSUMPTION OF POWER INASMUCH AS THE ASSESSEE IS ABLE TO SAVE TO THAT EXTENT WHICH WOULD CERTAINLY BE COVERED BY SECTION 80IA(1). WHEN SUCH WILL BE THE OUTCOME OUT OF OWN CONSUMPTION OF THE POWER GENERATED AND GAINED BY THE ASSESSEE BY SETTING UP ITS OWN POWER PLANT, WE DO NOT FIND ANY LACK OF MERIT IN TH E CLAIM OF THE RESPONDENT/ASSESSEE WHEN IT CLAIMED BY RELYING UPON SECTION 80IA(1) OF THE INCOME-TAX ACT BY WAY OF DEDUCTION OF THE VALUE OF SUCH UNITS OF POWER CONSUMED BY ITS OWN PLANT BY WAY OF PROFIT AND GAINS FOR THE RELEVANT ASSESSMENT YEARS. 10. A CAREFUL READING OF THE ABOVE PARAGRAPH BRINGS HOME THE POINT THAT THE HONBLE HIGH COURT H AS LOOKED INTO THE POINT OF SAVINGS MADE BY THE ASSESS EE BY USING ITS OWN POWER AND THE VALUATION OF THAT SA VINGS MADE ON THE BASIS OF THE PRICE OTHERWISE THE ASSESS EE SHOULD HAVE PAID. THE RATIO IS VERY CLEAR. THE VA LUE OF THE POWER GENERATED AND CONSUMED BY THE ASSESSEE WI LL - - ITA 569 OF 2011 8 BE THAT VALUE THAT SHOULD HAVE BEEN PAID BY THE ASSESSEE IF THE POWER WAS BOUGHT FROM OPEN MARKET. WHEN THE ABOVE CASE IS APPLIED TO THE PRESENT CASE, THE CASE OF THE ASSESSEE HAS TO BE ACCEPTED THAT THE MA RKET VALUE SHOULD BE TREATED AS ` .3.50 PER UNIT OF ELECTRICITY. 11. EXACTLY THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH-I OF THE TRIBUNAL IN THE CASE OF ADDITI ONAL COMMISSIONER OF INCOME-TAX VS. JINDAL STEEL & POWER LTD., 16 SOT 509. IN THAT CASE ALSO ONE OF THE ISS UES RAISED WAS VALUATION OF THE POWER GENERATED BY THE ELIGIBLE UNIT. IN THAT CASE THE POWER GENERATED BY THE ASSESSEE WAS USED BY IT FOR OWN CONSUMPTION AS WELL AS FOR SALE TO THE STATE ELECTRICITY BOARD. THE TRIBU NAL HELD THAT THE RATE AT WHICH THE STATE ELECTRICITY BOARD SUPPLIES POWER TO ITS CONSUMERS IS TO BE CONSIDERED TO BE TH E MARKET VALUE FOR TRANSFER OF POWER BY THE ASSESSEE S ELECTRICITY GENERATING UNDERTAKING FOR CAPTIVE CONSUMPTION FOR THE PURPOSES OF SECTION 80IA(8) AND NOT THE PRICE AT WHICH POWER IS SUPPLIED BY THE ASSESSE E TO THE BOARD. - - ITA 569 OF 2011 9 12. XX XX XX 13. XX XX XX 14. THEREFORE WE ACCEPT THE CONTENTION OF THE ASSESSEE AND SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE. THE ASSESSING AUTHORITY IS DIRECTED TO RECOMPUTE THE PROFIT AND GAINS OF THE E LIGIBLE UNIT FOR THE PURPOSE OF SECTION 80IA ON THE BASIS O F THE UNIT PRICE OF ELECTRICITY GENERATED BY THE ASSESSEE COMPANY AT ` . 3.50 PER UNIT. 4. ACCORDINGLY THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON THURSDAY, THE 11 TH DAY OF AUGUST, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 11 TH AUGUST, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.