ARTI INDUSTRIES LTD., MUMBAI V. DCIT 15(1)(1), MUMBAI

MA 150/MUM/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3481 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 14 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 19-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-06-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 05-06-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law
• Section: 80IA

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, HON’BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON’BLE ACCOUNTANT MEMBER M.A.No. 150/MUM/2022 [ARISING OUT OF ITA No. 3583/MUM/2018 (A.Y. 2014-15)] M/s. Arti Industries Ltd., 71, Udyog Kshetra, 2 nd Floor Mulund-Goregoaon Link Road Mulund(W), Mumbai -400080 PAN: AABCA2787L v. DCIT – 15(1)(1) Room No. 470, 4 th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 (Appellant) (Respondent) Assessee by : Shri Vijay Mehta Department by : Shri Aditya Rai Date of hearing : 24.06.2022 Date of pronouncement : 20.07.2022 ORDER PER S. RIFAUR RAHMAN (AM) 1. Through this miscellaneous application assessee seeks rectification in Para No. 19 of appeal No. 3583/MUM/2018 order dated 30.03.2022. It was also further stated that Ground No.1 to 3 of the appeal are already covered in favour of the assessee by the decision of the Hon'ble Bombay High Court. 2 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., 2. At the time of hearing, Ld. AR submitted that these cross appeals are filed by both Revenue as well as Assessee. He submitted that ITAT has adjudicated the issues in assessee’s appeal and by mistake which is apparent on record has not adjudicated the grounds raised by the Revenue in Ground No. 1 to 3, it has adjudicated that the issue involved is relating to deduction u/s. 80IA of the Act which is similar to the grounds of appeal raised by the assessee in its appeal. However, he submitted that assessee has filed the detailed chart in the Revenue’s appeal and prayed that this issue is already covered in favour of the assessee. 3. Ld. DR did not objected to the above submissions made by the Ld.AR. 4. Considered the rival submissions and material placed on record, we observe that there is an apparent mistake on record that the bench has not adjudicated the Ground No. 1 to 3 raised by the Revenue. Since the issue involved is relating to s.80IA of the Act and the issue is already covered in favour of the assessee, therefore, we proceeded to hear the case and dispose of the same. Accordingly, we directed both the counsels to make their submissions. 3 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., 5. Ld. AR submitted that the assessee has a captive power plant which supplies power to the fertilizer manufacturing unit of the assessee. The assessee has claimed deduction u/s. 80IA of the Act in respect of the profit derived from the said captive power plant. While calculating the profit of this eligible unit, the selling price of power has been notionally assumed at ₹.7.11 per unit. This is the rate at which fertilizer unit bought power from power distribution company owned by Government of Gujarat. The Assessing Officer was of the view that the rate at which the power distribution company purchases power from various power generating companies has to be adopted for the purpose of determining the eligible profit. Such rate according to the Assessing Officer was ₹.4.22 per unit. The Assessing Officer has discussed this issue on Page No. 2 to 14 of his order. The Assessing Officer has reduced the eligible profit by applying the notional selling price at ₹.4.22 per unit as against ₹.7.11 per unit adopted by the assessee. 6. Ld. AR further submitted that assessee has challenged the above action before the Ld.CIT(A) who has adjudicated this issue on page no. 2 onwards of his order. While concluding in favour of the assessee, the ld.CIT (A) has held (page no, 8 and 9) that the issue is covered by the 4 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., decision of Mumbai Bench of the Hon'ble Tribunal in the case of Reliance Industries Limited. Accordingly, he has directed the Assessing Officer to adopt the rate of electricity at ₹.7.11 per unit as against ₹.4.22 per unit. It would be relevant to note that the ld.CIT (A) has reproduced the entire written submissions filed by the assessee wherein the reliance has been placed upon several decisions including that of Mumbai Bench of the Hon'ble Tribunal in the case of Reliance Industries Limited. Kindly refer to page no. 6 of CIT (A)'s order for this purpose. 7. It is contended that the issue is covered in favour of the assessee vide the decision of the jurisdictional High Court in the case of CIT v. Reliance Industries Limited (421 ITR 686). This has been mentioned in the chart filed by the assessee. Copy of the decision of the Hon'ble Bombay High Court is available at Annexure-4 to the said chart. According to the decision of the Hon'ble Bombay High Court, valuation of the electricity provided to another unit should be at rate at which electricity distribution companies supply electricity to the consumers. Vide the above order, the Hon'ble Bombay High Court has upheld the decision of the Mumbai Bench of the Hon'ble Tribunal, upon which reliance was placed by the CIT (A). In view of the above, it is submitted that the 5 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., issue is squarely covered by the decision of the Hon'ble Bombay High Court and, hence, ground no. 1 to 3 of the appeal filed by the Revenue deserves to be rejected. 8. On the other hand, Ld.DR relied on the orders passed by the Assessing Officer. 9. Considered the rival submissions and material placed on record, we observe that assessee is a captive power plant which supplies power to fertilizer manufacturing unit of the assessee. Accordingly, assessee claimed deduction u/s. 80IA of the Act with respect to profit derived from the said captive power plant. While calculating profit of the eligible unit the selling price of power was notionally assumed at ₹.7.11 per unit; this is the same rate at which the fertilizer unit bought power from power distribution company owned by Government of Gujarat. The Assessing Officer was of the view that the rate at which the power distribution company purchases power from various power from various power generating companies has to be adopted for the purpose of determining the eligibile profit. Accordingly, he adopted the rate of ₹.4.22 per unit. Accordingly, Assessing Officer reduced the eligible profit by applying the 6 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., notional selling price at ₹.4.22 per unit instead of ₹.7.11 per unit adopted by the assessee. 10. We observe that Ld.CIT(A) by following the decision of the Coordinate Bench in the case of Reliance Industries Limited allowed the claim of the assessee by notionally adopting the rate of electricity should be at ₹.7.11 per unit. We observe that the Hon'ble Bombay High Court has decided the issue in favour of the assessee with the following observations: - “4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assesseecompany and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies. 5. This controversy arose in the background of the fact that the assessee had set up a captive power generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1961 ("the Act" for short) in respect of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance 7 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., Infrastructure Limited Vs. Addl. CIT, Range 1(1)1. Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:- “44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. We therefore dismiss ground No.4 of the revenue.” 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure limited(supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations: “6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short “MERC”). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 20052006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 20032004. For the reasons assigned 8 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law.” 8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved. 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of Commissioner of Income-tax, Raipur Vs. Godawari Power & Ispat Limited, in which the Court held and observed as under: “31. The market value of the power supplied to the Steel- Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.” 10. Gujarat High Court in case of Principal Commissioner of Income-Tax Vs. Gujarat Alkalies and Chemicals Ltd. also had occasion to examine such an issue. It referred to earlier order in case of Asst. CIT Vs. Pragati Glass Works Pvt. Ltd.2 in which following observations were made:- "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT(Appeals) while adopting Rs.4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs.4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs.4.17 per unit which was the cost of electricity generation and Rs.0.34 per unit which was duty 9 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., paid by the assessee to GEB for such power generation. Thus the sum of Rs.4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs.4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed." 11. Judgment of Calcutta High Court in case of Commissioner of Income-tax, Kolkata III Vs. ITC Ltd. was also brought to our notice in which the said High Court has taken a different stand. However, since the issue has already been examined by this Court earlier and in view of the decisions of the Chhattisgarh and Gujarat High Court, we see no reason to entertain this question.” 11. Respectfully following the above said decision, we are inclined to allow the ground raised by the assessee and we do not find any reason 10 M.A.No. 150/MUM/2022 M/s. Arti Industries Ltd., to disturb the findings of the Ld.CIT(A). Accordingly, Ground No. 1 to 3 raised by the Revenue are dismissed. 12. In the result, Miscellaneous Application filed by the assessee is allowed as indicated above. Order pronounced in the open court on 20.07.2022. Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 20/07/2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum