Rangamma Steels and Malleables, Coimbatore V. ACIT, Coimbatore

ITA 804/CHNY/2011

• Counselvise Citation: 80421714 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 27-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI S.S. GODARA, JUDICIAL MEMBER .. I.T.A. NO. 804/MDS/2011 ASSESSMENT YEAR :2007-08 M/S. RANGAMMA STEELS AND MALLEABLES, 603, C BLOCK, PIONEER COMPLEX, 1075, AVANASHI ROAD, COIMBATORE 641 018. PAN : AADFR3050J V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE III, COIMBATORE (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI KEB RENGARAJAN, JR. STANDING COUNSEL ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 27 JUNE 2012 DATE OF PRONOUNCEMENT : 13 JULY 2012 O R D E R PER S.S.GODARA, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE CIT(APPEALS)-I, COIMBATORE DATED 04.2.2011 IN CASE APPEAL NO.295/09-10 FOR THE ASSESSMENT YEAR 2007-08 IN PROCEEDINGS UNDER SEC.1 43(3) OF THE I.T. ACT, 1961, IN SHORT ACT. I.T.A. NO.804/MDS/2011 2 . 2. WE FIND THAT THE ONLY SUBSTANTIAL ISSUE RAISED IN THIS APPEAL IS THAT OF DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSE E UNDER SEC.80IA OF THE ACT TO THE EXTENT OF ` 69.70 LAKHS WHICH HAS BEEN RESTRICTED BY THE ASSESS ING OFFICER TO ` 53,87,918/- AND FURTHER CONFIRMED BY THE CIT(APPEAL S). 3. THE BRIEF FACTS OF THE CASE MAY BE NOTICED. 4. THE ASSESSEE IS A FIRM PRODUCING WIND MILL ENER GY FROM WIND MILLS NO.1 & 2. IT FILED ITS RETURN ON 30.11.2007 DECLAR ING INCOME OF ` 41,58,380/-. IT HAD ALSO CLAIMED A DEDUCTION OF ` 69.90 LAKHS UNDER SEC.80IA OF THE ACT IN RESPECT OF INCOME DERIVED FROM THE GENERATION AND S ALE OF ELECTRICITY PRODUCED FROM WIND MILLS AND SOLD TO THE TAMILNADU ELECTRICIT Y BOARD (TNEB) BY WAY OF A CAPTIVE POWER AGREEMENT.. 5. THE ASSESSING OFFICER CONSIDERED THE ASSESSEES CLAIM OF DEDUCTION AND TOOK INTO CONSIDERATION THE SALE PRICE OF THE W IND POWER SOLD BY THE ASSESSEE TO THE TNEB AT THE RATE OF ` 2.70 PER UNIT THROUGH AN AGREEMENT INVOLVING OTHER CONDITIONS OF GENERATION, TRANSMISS ION, WHEELING AND BANKING OF THE ELECTRICITY GENERATED. FURTHER, THE ASSESSING O FFICER, WHILE CONSIDERING VARIOUS CLAUSES OF THE AGREEMENT WHICH PROVIDED DE DUCTION OF 5% OF THE GROSS ENERGY GENERATED BY THE ASSESSEES WIND MILLS, COMP UTED THE GROSS ENERGY AFTER WHEELING IN RESPECT OF UNITS AT THE RATE OF ` 2.70 PER UNIT ONLY THEREBY RESTRICTING THE DEDUCTION AT ` 53,87,918/- AGAINST THE CLAIM OF ` 69,90,153/- CLAIMED IN THE I.T.A. NO.804/MDS/2011 3 RETURN OF INCOME. IN THIS MANNER THE ASSESSING OFF ICER COMPUTED THE ASSESSEES INCOME AT ` 57,60,615/- INSTEAD OF `. 41,58,380/-, THEREBY MAKING DISALLOWANCE TO THE TUNE OF `. 16,02,235/-. 6. THE ASSESSEE PREFERRED APPEAL. BEFORE THE CIT( APPEALS), IT ARGUED THAT SINCE IT HAD ADOPTED THE RATE OF ELECTRICITY AT THE RATE OF `. 3.60 PER UNIT, THE CLAIM OF DEDUCTION UNDER SEC.80IA OF THE ACT WAS LI ABLE TO BE COMPUTED AT THE SAID RATE INSTEAD OF `. 2.70 AS CONSIDERED BY THE ASSESSING OFFICER, ON THE GROUND THAT IT HAD BEEN PAYING ELECTRICITY CHARGES TO THE T NEB AT THE RATE OF ` .3.60 PER UNIT WHICH WOULD HAVE BEEN PAID HAD IT NOT CONSUME D ELECTRICITY GENERATED BY THE WIND MILLS. THE CIT(APPEALS) HAS REJECTED THE A SSESSEES APPEAL BY CONFIRMING THE ASSESSING OFFICERS FINDING. THEREF ORE, THE ASSESSEE HAS RAISED THE GRIEVANCE BEFORE US. 7. BEFORE US, THE A.R., HAS REITERATED VARIOUS PLE AS MADE IN THE GROUNDS OF APPEAL AND CITED CASE LAW OF CHENNAI ITA T D BENCH ORDER IN ITA NO.850/MDS/2011 DECIDED IN THE CASE OF M/S. SRI VEL AYUDHASWAMY SPINNING MILLS (P) LTD., V. DCIT AND PRAYED FOR ACCEPTANCE OF THE APPEAL. 8. THE D.R., ON THE OTHER HAND, HAS RELIED ON THE ORDER OF THE CIT(APPEALS) AND PRAYED FOR REJECTION OF THE ASSESS EES APPEAL. 9. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO T HE VARIOUS ARGUMENTS OF BOTH THE PARTIES AND ALSO PERUSED THE FINDINGS REFERRED TO AS WELL AS CASE LAW RELIED UPON BY THE ASSESSEE. THE ONLY ISSUE WHICH ARISES FOR OUR ADJUDICATION IS AS TO WHETHER FOR THE PURPOSE OF DE DUCTION CLAIMED BY THE I.T.A. NO.804/MDS/2011 4 ASSESSEE UNDER SEC.80IA OF THE ACT REGARDING ELECTR ICITY PRODUCTION FROM ITS WIND MILLS, THE RATE PER UNIT HAS TO BE TAKEN AS ` .2.70 AS CLAIMED BY THE REVENUE OR ` .3.60 AS ADOPTED BY THE ASSESSEE? 10. IT EMERGES FROM THE RECORDS OF THE CASE, THAT THE ASSESSEE IS INVOLVED IN PRODUCTION OF WIND GENERATED POWER WHO ENTERED INTO AN AGREEMENT WITH TNEB TO SUPPLY WIND GENERATED POWER AT THE RATE OF ` .2.70 PER UNIT WHICH CAN BE CALLED AS CAPTIVE CONSUMPTION OF POWERFOR IN STANCE, IN SUCH ARRANGEMENT, FOR SUCH CAPTIVE POWER, THE ASSESSEE PAYS NOTHING IF IT SUPPLIES 100 UNITS TO TNE BOARD GIRD, IT CAN TAKE 100 UNITS W ITH NOTHING TO PAY AS BOTH OF THEM PAY EACH OTHER @ ` .2.70 PER UNIT. IN CASE THE ASSESSEES CONSUMPTION CROSSES 100 UNITS, THEN IT PAYS TNEB @ ` .3.60 PER UNIT. IT IS ONLY ON THE BASIS OF THIS RATE OF ` .3.60 PER UNIT THAT THE ASSESSEE IN THE INSTANT CAS E HAS COMPUTED ITS DEDUCTION. WE FIND THAT IN SUCH A SITUATION, THE C O-ORDINATE BENCH IN THE CASE LAW CITED (SUPRA) HAS UPHELD THE CLAIM :- 7. WE HEARD SHRI T.BANUSEKAR, THE LEARNED CHARTERE D ACCOUNTANT PPEARING FOR THE ASSESSEE AND SHRI ANIR UDH RAI, THE LEARNED COMMISSIONER OF INCOME-TAX, APPEAR ING FOR THE REVENUE. 8. THE ASSESSING AUTHORITY HAS ADOPTED THE PRICE OF POWER AT . 2.70 PER UNIT IN THE LIGHT OF THE PROVISIONS OF L AW STATED IN SECTION 80IA(8). SUB- SECTION(8) OF SECTION 80IA PROVIDES THAT WHERE ANY GOODS ARE TRANSFERRED TO AN Y OTHER I.T.A. NO.804/MDS/2011 5 BUSINESS CARRIED ON BY THE ASSESSEE OR ANY GOODS AR E TRANSFERRED TO THE ELIGIBLE BUSINESS, IN EITHER CAS E THE CONSIDERATION FOR THE TRANSFER RECORDED IN THE BOOK S OF ACCOUNTS IF NOT CORRESPONDS TO THE MARKET VALUE OF SUCH GOODS, THE ASSESSING AUTHORITY SHALL COMPUTE THE EL IGIBLE PROFIT ON THE BASIS OF THE MARKET VALUE OF SUCH GOO DS. IT MEANS THAT SUB-SECTION(8) OF SECTION 80IA DOES NOT ALLOW AN ASSESSEE TO INFLATE THE PROFIT OF ITS ELIGIBLE UNIT BY OVER INVOICING THE GOODS TRANS FERRED OR UNDERINVOICING OF GOODS BOUGHT IN. IT IS A SAFEGUAR D AGAINST MISUSE OF THE EXISTING PROVISION. THE ASSESSING OFF ICER TOOK THE MARKET VALUE OF THE POWER GENERATED BY THE ASSE SSEE AT .2.70 PER UNIT AND NOT . 3.50 PER UNIT AS CLAIMED BY THE ASSESSEE AND THEREBY THE ASSESSEE HAS OVERSTATED TH E PRICE OF THE GOODS SOLD BY IT SO AS TO BOOST THE PR OFIT OF ITS ELIGIBLE UNIT, WHICH IN THIS CASE IS WINDMILL UNIT. 9. THE RULE APPLICABLE IN DETERMINING THE MARKET VA LUE IN A SIMILAR CONTEXT HAS BEEN DISCUSSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSION ER OF INCOMETAX, MADURAI VS. THIAGARAJAR MILLS LTD., KAPP ALUR, MADURAI. WHILE DELIVERING THE JUDGMENT IN TAX CASE(APPEAL) NOS.68 TO 70 OF 2010 DATED 7-6-2010 TH EIR 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 THE I.T.A. NO.804/MDS/2011 6 RESPONDENT/ASSESSEE TO DERIVE PROFIT AND GAINS BY W ORKING 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 B Y SETTING UP ITS OWN POWER PLANT, WE DO NOT FIND ANY LACK OF MERIT IN THE CLAIM OF THE RESPONDENT/ASSESSEE WHEN IT CLAIMED BY RELYING UPON SECTION 80IA(1) OF THE INCO METAX ACT BY WAY OF DEDUCTION OF THE VALUE OF SUCH UNITS OF POWER CONSUMED BY ITS OWN PLANT BY WAY OF PROFIT AND GAI NS FOR THE RELEVANT ASSESSMENT YEARS. 10. A CAREFUL READING OF THE ABOVE PARAGRAPH BRINGS HOME THE POINT THAT THE HONBLE HIGH COURT HAS LOOKED IN TO THE POINT OF SAVINGS MADE BY THE ASSESSEE BY USING ITS OWN POWER AND THE VALUATION OF THAT SAVINGS MADE ON THE BASIS OF THE PRICE OTHERWISE THE ASSESSEE SHOULD HAVE PAI D. THE RATIO IS VERY CLEAR. THE VALUE OF THE POWER GENERAT ED AND CONSUMED BY THE ASSESSEE WILL BE THAT VALUE THAT SH OULD HAVE BEEN PAID BY THE ASSESSEE IF THE POWER WAS BO UGHT FROM OPEN MARKET. WHEN THE ABOVE CASE IS APPLIED TO THE PRESENT CASE, THE CASE OF THE ASSESSEE HAS TO BE AC CEPTED THAT THE MARKET 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 ADDITIONAL COMMISSIO NER OF INCOME-TAX VS. JINDAL STEEL & POWER LTD., 16 SOT 50 9. IN I.T.A. NO.804/MDS/2011 7 THAT CASE ALSO ONE OF THE ISSUES RAISED WAS VALUATI ON 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 TRIBUN AL HELD THAT THE RATE AT WHICH THE STATE ELECTRICITY BOARD SUPPL IES POWER TO ITS CONSUMERS IS TO BE CONSIDERED TO BE THE MARK ET VALUE FOR TRANSFER OF POWER BY THE ASSESSEES ELECTRICITY GENERATING UNDERTAKING FOR CAPTIVE CONSUMPTION FOR THE PURPOSE S OF SECTION 80IA(8) AND NOT THE PRICE AT WHICH POWER IS SUPPLIED BY THE ASSESSEE TO THE BOARD. 12. FURTHER, AS FAR AS CAPTIVE CONSUMPTION OF POWER IS CONCERNED, THE ASSESSEE IS NEITHER SELLING NOR BUYI NG ELECTRICITY. THE QUANTUM OF POWER CONTRIBUTED BY TH E ASSESSEE TO THE TAMIL NADU ELECTRICITY BOARD CAN BE AVAILED AS SUCH BY THE ASSESSEE FOR WHICH NO ADDITIONAL PAY MENT IS TO BE MADE. IF THE ASSESSEE HAS RECEIVED . 2.70 PER UNIT, THE ASSESSEE HAS TO PAY ONLY `. 2.70 PER UNIT. IT IS A KIND OF COMMODITY BANKING, OR IN ECONOMIC TERM, BARTER EXC HANGE OF SAME GOOD. THEREFORE, DEFACTO SPEAKING, THERE IS NO SALE AND PURCHASE. IN SUCH CIRCUMSTANCES THERE IS NO MAR KET PRICE AT ALL. 13. MARKET PRICE COMES INTO PLAY ONLY WHEN THE ASSE SSEE IS BUYING POWER FROM THE TAMIL NADU ELECTRICITY BOARD JUST LIKE ANY OTHER CONSUMER. TAMIL NADU ELECTRICITY BOARD IS THE SUPPLIER AND THE ASSESSEE IS THE CONSUMER AND THERE IS NO QUESTION OF COMMODITY BANKING OR BARTER EXCHANGE. T AMIL I.T.A. NO.804/MDS/2011 8 NADU ELECTRICITY BOARD SELLS POWER TO THE ASSESSEE IN THE USUAL COURSE OF ITS BUSINESS AND THE ASSESSEE BUYS THE POWER LIKE ANY OTHER CONSUMER IN THE MARKET. IT IS IN THAT CONTEXT THAT THE QUESTION OF MARKET PRICE ARISES. I N SUCH A SCENARIO WHAT IS THE PRICE COLLECTED BY THE TAMIL N ADU ELECTRICITY BOARD? THE PRICE IS .3.50 PER UNIT. THEREFORE IT IS OBVIOUS THAT THE MARKET PRICE OF THE POWER GENERATE D BY THE ASSESSEE IS .3.50 PER UNIT. THE EXPRESSION USED IN SECTION 80IA(8) IS MARKET VALUE. MARKET VALUE MEANS THE V ALUE DETERMINED BY MARKET FORCES. IN THE CAPTIVE CONSUMP TION OF POWER GENERATED BY THE ASSESSEE COMPANY NO MARKET FORCE IS OPERATING. MARKET FORCES COME INTO PICTURE ONLY WHEN THE ASSESSEE BUYS POWER FROM TAMIL NADU ELECTR ICITY BOARD LIKE ANY OTHER CONSUMER. THE VALUE PAID FOR SUCH CONSUMPTION IS THE MARKET VALUE. IN THE PRESENT CAS E THAT IS ` . 3.50 PER UNIT. 14. THEREFORE WE ACCEPT THE CONTENTION OF THE ASSES SEE AND SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON TH IS ISSUE. THE ASSESSING AUTHORITY IS DIRECTED TO RECOMPUTE TH E PROFIT AND GAINS OF THE ELIGIBLE UNIT FOR THE PURPOSE OF S ECTION 80IA ON THE BASIS OF THE UNIT PRICE OF ELECTRICITY GENER ATED BY THE ASSESSEE COMPANY AT ` . 3.50 PER UNIT. 15. IN RESULT THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. I.T.A. NO.804/MDS/2011 9 11. IT IS, THEREFORE, CRYSTAL CLEAR THAT THE RATIO OF THE SAID CASE LAW ALSO SQUARELY COVERS THE ISSUE IN HAND. HENCE, TAKING C UE FROM THE SAME, WE ALSO ALLOW THE INSTANT APPEAL AND DIRECT THE ASSESSING O FFICER TO RE-COMPUTE THE PROPERTY AND GAINS FOR THE PURPOSE OF COMPUTING DED UCTION UNDER SEC.80IA AT THE RATE OF ` .3.60 PER UNIT. 12. IN VIEW OF OUR ABOVE DISCUSSION, THE ASSESSEE S APPEAL STANDS ACCEPTED. 13. ORDER PRONOUNCED ON FRIDAY, THE 13TH OF JULY 2012 AT CHENNAI. SD/- SD/- ( DR. O.K. NARAYANAN) (S.S. GODARA) VICE PRESIDENT JUDICIA L MEMBER CHENNAI, DATED : 13 TH JULY 2012 JLS. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE