Diamines and Chemicals Limited, Vadodara V. The Deputy Commissioner of Income Tax, Circle-1(1)(1), Baroda

ITA 657/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7034 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P SRIVASTAVA

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.657/AHD/2017 / ASSESSMENT YEAR: 2012-13 DIAMINES AND CHEMICALS LTD. PLOT NO.13, PCC AREA PO PETROCHEMICALS VADODARA 391 346 PAN : AAACD 5356 R VS DCIT, CIR.1(1)(1) BARODA. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI SANJAY R. SHAH, AR REVENUE BY : SHRI B.P. SRIVASTAVA, SR.DR / DATE OF HEARING : 07/01/2019 /DATE OF PRONOUNCEMENT : 9/01/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A) 1, VADODARA DATED 2.12.2016 PASSED FOR THE ASSESSMENT YEAR 2012-13. 2. THOUGH THE ASSESSEE HAS TAKEN FOUR GROUNDS OF AP PEAL, BUT THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBM ITTED THAT ONLY ISSUE INVOLVED IN THIS APPEAL IS QUANTUM OF DEDUCTION ADM ISSIBLE UNDER SECTION 80IA(4) OF THE INCOME TAX ACT, 1961. HE FUR THER CONTENDED THAT IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN T HE ASSESEES OWN CASE FOR THE ASSTT.YEAR 2010-11 IN ITA NO.668/AHD/2015. THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE PL ACED ON RECORD COPY OF THE TRIBUNALS ORDER. ITA NO.657/AHD/2017 - 2 - 3. THE LD.DR WAS UNABLE TO CONTROVERT THE SUBMISSIO NS MADE BY THE LD.COUNSEL FOR THE ASSESSEE. 4. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS A C APTIVE WIND POWER PLANT. IT IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA. WHILE COMPUTING ELIGIBLE PROFIT FOR CLAIMING OF DEDUCTION UNDER SEC TION 80IA(4), R.W. SECTION 80IA(8), THE ASSESSEE CONSIDERED AVERAGE R ATE AT WHICH POWER WAS SOLD BY AN INDEPENDENT POWER SUPPLY COMPANY I.E . MGVCL TO ITS CUSTOMERS, WHEREAS THE AO WAS OF THE VIEW THAT AVER AGE PRICE AT WHICH GEB (UGVCL) HAS PURCHASED POWER FOR SUPPLYING TO IT S CUSTOMERS ARE REQUIRED TO BE ADOPTED. THE TRIBUNAL HAS CONSIDERE D THIS ISSUE. THE LD.COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BROUGHT TO OUR NOTICE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHAH ALLOYS LTD., RENDERED IN TAX APPEAL NO.2093 OF 2010 . THIS APPEAL WAS DECIDED ON 22.1.2011. ON THE STRENGTH OF THIS ORDE R, THE LD.COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT CERTAIN ADJUSTMENT OBSERVED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSTT.Y EAR 2010-11 WAS NOT REQUIRED TO BE MADE IN VIEW OF THE JUDGMENT. DISCU SSION MADE BY THE TRIBUNAL IN THE ASSTT.YEAR 2010-11 IS WORTH TO NOTE , WHICH READS AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE AUTHORITIES BELOW. THE SUBSTANTIVE ISSUE THAT ARISE S FOR CONSIDERATION IS COMPUTATION OF 'ELIGIBLE PROFITS' FOR CLAIM OF DEDI CTOPM UNDER S.80IA(4) R.W.S.80IA(8) IN RESPECT OF ASSESSEE'S CAPTIVE WIND POWER PLANT. FOR THE PURPOSES OF CLAIMING TAX HOLIDAY, THE ASSESSEE CONS IDERED THE AVERAGE RATE AT WHICH POWER WAS SOLD BY AN INDEPENDENT POWER SUPPLI ER, I.E. MGVCL TO ITS CUSTOMERS TO ENABLE IT TO DETERMINE THE 'MARKET VAL UE' OF ELECTRICITY IS GENERATED BY ITS CAPTIVE WIND POWER PLANT. THE AO, O N THE OTHER HAND, HAS PLACED RELIANCE UPON THE AVERAGE PRICE AT WHICH GUV NL HAS PURCHASED POWER ITA NO.657/AHD/2017 - 3 - FOR SUPPLY TO CUSTOMERS. CONSEQUENTLY, THE ELIGIBLE PROFIT UNDER S.80IA(4) WAS REDUCED BY RS.18,87,051/-. 9. WE OBSERVE THAT THE IDENTICAL ISSUE HAS BEEN SQU ARELY DEALT WITH IN THE CASE OF RAINBOW PAPERS LTD. VS. ACIT IN IT(SS)A NOS.101 TO 10 3/AHD/2013 FOR AYS2008-09 TO 2010-11 ORDER DATED 11/07/2017 WHERE O NE OF US IS PARTY TO THE DECISION. IN THAT CASE, IT WAS HELD THAT THE DEEMED SALES PRICE OF THE POWER SUPPLIED BY INDEPENDENT POWER PLANTS (UGVCL - IN TH AT CASE) EXCLUDING THE COST TOWARDS SURCHARGE AND DUTY ETC. LEVIED BY THE SUPPLIER SHOULD BE ADOPTED FOR THE PURPOSES OF DETERMINATION OF 'MARKET PRICE' FOR COMPUTATION OF ELIGIBLE PROFIT UNDER S.80IA(4) R.W.S.80IA(8) OF THE ACT. THE REL EVANT PARA OF THE AFORESAID ORDER OF THE TRIBUNAL DEALING WITH THE DE TERMINATION OF ELIGIBLE PROFIT READS AS UNDER:- '15. WE SHALL NOW TURN TO THE SECOND AND MAJOR CONT ROVERSY RAISED BY THE ASSESSEE TOWARDS THE 'MARKET VALUE' OF CAPTIVE TRANSFER OF POWER GENERATED BY POWER UNIT TO ITS PAPER UNIT FOR CAPTI VE USE. AS NARRATED EARLIER, THE ASSESSEE HAS ADOPTED THE RATE CHARGED BY THE GEB (UGVCL) INCLUDING SURCHARGE AND DUTY FOR THE PURPOSE OF WOR KING OUT THE DEEMED SELLING PRICE OF POWER BEING SUPPLIED BY THE CAPTIV E POWER GENERATING UNIT TO PAPER UNIT. THE DEEMED SALE VALUE TOWARDS C APTIVE SUPPLY THUS INCLUDED RECOVERY TOWARDS 'SURCHARGE' AND 'DUTY' SI MILAR TO WHAT IS MADE BY THE ELECTRICITY BOARD ON THE BASIC SALE PRI CE TO ITS CONSUMERS. THE AO DECLINED TO ADMIT THE CLAIM OF THE ASSESSEE T O INCLUDE SURCHARGE AND DUTY LEVIED BY THE GEB (UGVCL) FOR THE PURPOSES OF CALCULATION OF SELLING PRICE. IN OTHER WORDS, THE AO ADJUSTED THE D EEMED SALE PRICE OF THE POWER TO EXCLUDE 'FUEL SURCHARGE' AND 'DUTY' CH ARGEABLE THEREON IN COMMERCIAL SALE. 15.1. THE AO WHILE DETERMINING THE DEEMED SALE PRIC E OF POWER SUPPLIED BY THE CAPTIVE POWER GENERATING UNIT TO PAPER UNIT EXCLUDED THE COST TOWARDS SURCHARGE AND DUTY LEVIED BY GEB (UGVCL) FOR THE PURPOSES OF DETERMINATION OF ARM'S LENGTH PRICE. THE ELIGIBL E PROFITS UNDER S.80IA(4) R.W.S.80IA(8) OF THE ACT WAS ACCORDINGLY BROUG HT DOWN BY THE AO TO THE EXTENT OF DUTY AND SURCHARGE. THE CIT(A) A LSO DECLINED TO ADMIT THE CLAIM OF THE ASSESSEE TOWARDS 'SURCHARGE' AND 'DUTY' FOR THE PURPOSES OF CALCULATION OF SELLING RATE PER UNIT. T HIS APART, THE CIT(A) FURTHER TOOK NOTE OF THE AVERAGE PRICE CHARGED BY V ARIOUS DISTRIBUTION COMPANIES COMMONLY KNOWN AS 'DISCOMS' AND EVENTUALL Y CALCULATED THE SELLING PRICE AT RS.2.99 PER UNIT AS PER WORKING RE PRODUCED IN PRECEDING PARAS. THE ASSESSEE HAS VEHEMENTLY CONTESTED THE AF ORESAID ACTION OF THE CIT(A). THUS, THE SUBSTANTIVE GRIEVANCE OF THE ASSES SEE IS THAT (I) THE DEEMED SELLING PRICE SHOULD BE DETERMINED AT THE AV ERAGE PRICE AT WHICH THE GEB (UGVCL) IS SUPPLYING TO ITS CONSUMERS AND NO T THE AVERAGE ITA NO.657/AHD/2017 - 4 - RATE OF SUPPLY AS ADOPTED BY THE CIT(A) BASED ON THE PRICE CHARGED BY THE DISTRIBUTION COMPANY 'DISCOMS' IN THE OPEN MARK ET AND (II) WITHOUT EXCLUDING SURCHARGE AND DUTY. HOWEVER, IN THE COURS E OF HEARING AS WELL AS FROM THE SUBMISSIONS BEFORE THE CIT(A), WE FIND THAT THE ASSESSEE WHILE FIERCELY ASSERTING ITS CLAIM FOR INCLUSION OF 'SURCHARGE' IS NOT SERIOUSLY CONTESTING THE EXCLUSION OF 'DUTY' CHARGE D BY THE GEB (UGVCL). THUS, TWO POINTS OF DIFFERENCE REMAINS IN D ETERMINATION OF DEEMED SELLING PRICE, ONE TOWARDS AVERAGE SELLING P RICE AS PER DISCOMS AND SECOND TOWARDS INCLUSION OF SURCHARGE. 15.2. THE ASSESSEE ASSERTS THE RATE CHARGED BY THE GEB (UGVCL) AS BENCHMARK RATE FOR THE PURPOSES OF DEEMED SELLING P RICE ALONG WITH 'SURCHARGE' COLLECTED BY THE ELECTRICITY BOARD. 15.3. IN THE CONTEXT, IT WILL BE RELEVANT TO REFER SECTION 80IA(8) OF THE ACT WHICH PROVIDES FOR THE MANNER OF COMPUTATION OF TRANSFER PRICE WHERE THERE IS CAPTIVE CONSUMPTION OF FINISHED-GOOD S OF ELIGIBLE UNIT FOR THE PURPOSES OF COMPUTATION OF DEDUCTION UNDER S.80 IA(4) OF THE ACT. WE FIND STRENGTH IN THE ASSERTION ON BEHALF OF THE ASSESSEE THAT THE MARKET PRICE IS TO BE DETERMINED IN SYNC WITH THE R ATE PRESCRIBED BY THE GEB (UGVCL). THE AFORESAID PRICE IS MOST RELIABLE FO R THE PURPOSE OF DETERMINATION OF ARM'S LENGTH PRICE. THUS, WE DO NO T SEE ANY LOGIC FOR DEVIATION FROM THE SAME AND APPLY AVERAGE PRICE OF OTHER COMPANIES WITHOUT ANY SOLID BASIS. 16. WE NOW SEEK TO DWELL ON OTHER ASPECT OF CONTROV ERSY I.E. INCLUDIBILITY FOR OTHERWISE OF 'SURCHARGE' IN THE DEEMED SELLING PRICE. THE CONTROVERSY CONCERNS AS TO WHETHER 'SURCHARGE' AND 'DUTY' LEVIE D BY THE POWER GENERATION AND DISTRIBUTION COMPANIES TO ITS CONSUM ER WILL FORM PART OF SELLING PRICE OR NOT FOR THE DETERMINATION OF MARKE T VALUE UNDER S.80IA(8) FOR CALCULATION OF ELIGIBLE PROFITS UNDER S .80IA(4) OF THE ACT. 16.1. IN THIS REGARD, WE REFER TO THE ELECTRICITY AC T, 2003 AND NOTE THAT SURCHARGE IS APPLIED WITH AN OBJECT OF MEETING THE REQUIREMENT OF CURRENT LEVEL CROSS SUBSIDY. THE AFORESAID ACT CLEAR LY PROVIDES THAT SURCHARGE SHALL NOT BE LEVIABLE IN CASE OPEN ACCESS IS PROVIDED TO A PERSON WHO HAD ESTABLISHED A CAPTIVE GENERATING PLA NT FOR HIRING ELECTRICITY TO THE DESTINATION OF HIS OWN USE. IN P ARITY, THE CAPTIVE POWER GENERATING PLANT IS NOT ENTITLED TO RECOVER SURCHAR GE WHILE TRANSFERRING THE POWER FOR CAPTIVE USE BY OPERATION OF LAW. THIS BEING SO, THE DEEMING SELLING PRICE SHOULD ALSO NOT INCLUDE THE COMPONENT OF SURCHARGE WHICH IS NOT CHARGEABLE AT THE FIRST PLACE IN THE FACTS O F THE CASE. ITA NO.657/AHD/2017 - 5 - 16.2. THE DECISION IN THE CASE OF PRAGATI GLASS (SU PRA) ALSO PROVIDES EXCLUSION OF EXCISE DUTY FOR THE PURPOSES OF DETERM INATION OF MARKET VALUE OF ELECTRICITY GENERATED. THE 'DUTY' BEING EX CLUDED, SURCHARGE MEANT FOR SPECIFIC PURPOSES CANNOT FORM PART OF PRO FITS OF THE ELIGIBLE BUSINESS. WE ALSO TAKE NOTE OF SIMILAR OBSERVATIONS HAVE BEEN MADE BY THE COORDINATE BENCH OF THE TRIBUNAL IN WEST COAST PAPER MILLS LTD. VS. ACIT 103 ITD 19 (MUM.) REFERRED TO AND RELIED UPON BY THE REVENUE TO SUPPORT OUR VIEW. 16.3. IN PARITY, WE HOLD THAT BOTH 'SURCHARGE' AND 'DUTY' SHALL NOT FORM PART OF THE DEEMED SALE PRICE BEING EXTRANEOUS CHAR GES FOR DETERMINATION OF 'MARKET VALUE' IN TERMS OF S.80IA(8) OF THE ACT. 16.4. THUS, WE ARE OF THE VIEW THAT WHILE AVERAGING OF SELLING PRICE AS PER PRICES OF VARIOUS DISTRIBUTION COMPANIES IS NOT WARRANTED, THE AVERAGE STANDARD SALE PRICE CHARGED BY ELECTRICITY BOARD EXCLUDING SURCHARGE, DUTY AND TAXES ETC. IS RELIABLE BENCHMAR K FOR COMPUTATION DEEMED SALE PRICE AND MARKET VALUE OF GOODS/SERVICE S SUPPLIED.' 10. IN THE LIGHT OF THE AFORESAID DECISION, WE ARE IN AGREEMENT WITH THE CONTENTIONS ON BEHALF OF THE ASSESSEE THAT FOR THE PURPOSES OF DETERMINATION OF 'MARKET VALUE' OF GOODS/SERVICES OF ELIGIBLE BUSINE SS, IT IS THE SALE OF PRICE AT WHICH THE ELECTRICITY BOARD SUPPLIES ELECTRICITY TO ITS CONSUMER WHICH WILL BE TAKEN AS MARKET PRICE, SUBJECT HOWEVER, TO THE EXCL USION OF SURCHARGE, DUTY ETC. THEREON. THE ISSUE IS THUS ACCORDINGLY RESTORED BAC K TO THE FILE OF THE AO FOR DETERMINATION OF ELIGIBLE PROFIT FOR THE PURPOSES O F DEDUCTION UNDER S.80IA(4) OF THE ACT IN THE LIGHT OF OBSERVATIONS OF THE COORDINA TE BENCH OF TRIBUNAL IN RAINBOW PAPERS LTD.(SUPRA). 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 5. AS FAR AS THE DECISION OF SHAH ALLOYS (SUPRA) IS CONCERNED, IT IS VERY OLD DECISION RENDERED IN 2011 AND IT WAS AVAIL ABLE WHEN ASSTT.YEAR 2010-11 WAS DECIDED BY THE TRIBUNAL. WE HAVE GONE THROUGH THIS DECISION. BUT WE FIND THAT HONBLE HIGH COURT HAS ADJUDICATED THE ISSUE FACTUALLY IN THAT CASE, AND NOT LAID DOWN ANY RATIO OF LAW AS CONTENDED BY THE LD.COUNSEL FOR THE ASSESSEE. THEREFORE, WE DO NOT SEE ANY REASON TO DEVIATE OURSELVES FROM THE FINDING OF THE TRIBUN AL MADE IN THE ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2010-11. WE ALLOW THE APPEAL FOR ITA NO.657/AHD/2017 - 6 - STATISTICAL PURPOSE AND DIRECT THE AO TO COMPUTE EL IGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80IA(4) R.W. SECTION 80I A(8) AS PER THE TRIBUNALS DIRECTION GIVEN IN THE ORDER FOR THE A.Y . 2010-11. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 9 TH JANUARY, 2019. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER