The Principal Commissioner of Income Tax Vadodara 3 V. Pragati Glass Works Pvt. Ltd.

TAXAP/148/2019

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The case revolves around a dispute concerning the deduction under Section 80IA of the Income Tax Act, 1961, related to the captive power plant of Pragati Glass Works Pvt. Ltd. The Income Tax Appellate Tribunal had allowed the deduction based on the power purchase rate of Rs.5.44 per unit, which was contested by the Principal Commissioner of Income Tax, Vadodara 3. The Revenue argued that the correct rate should be Rs.2.11 per unit, the rate at which power generating companies sold electricity to GEB. The High Court of Gujarat, referencing previous decisions and the Supreme Court's pending review of similar cases, upheld the Tribunal's decision, dismissing the appeal by the Revenue.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 688028 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 23-07-2019
• Assessment Year: misc
• Other Referred Cases: CIT vs. Gujarat Alkalies and Chemicals Ltd, M/s. Alembic Ltd. (Tax Appeal No.553 & 554 of 2017)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: VARUN PATEL
• Keywords: Captive Power Plant; Deduction; Income Tax; Market value; Power Purchase Rate; GEB
• Section: 80IA; 260A; 80IA(4)

Judgement Text

"C/TAXAP/148/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 148 of 2019 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 3 Versus PRAGATI GLASS WORKS PVT. LTD. ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 23/07/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1 This Tax Appeal under Section 260A of the Income Tax Act, 1961 [for short, “the Act, 1961”] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Surat Bench, Surat dated 11th October 2018 in the ITA No..876/Ahd/2017/SRT for the assessment year 2006­07. 2 The Revenue has proposed the following substantial questions of law for the consideration of this Court: “[a]Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the assessee's for deduction u/s. 80IA of the Income Tax Act, 1961 in respect of its captive power plaint by considering the rate of power purchase at Rs.5.44/­ per unit adopted by the Assessee (i.e. the rate at which G.E.B. supplied power to its Page 1 of 4 C/TAXAP/148/2019 ORDER consumers), instead of the rate adopted by the assessing officer at Rs.2.11/­ per unit (i.e. the rate at which power generating companies supplied its power to Gujarat Urja Vikas Nigam Ltd. / G.E.B.)? [b] Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the assessee's claim for deduction u/s. 80IA(4) of the Income Tax Act on the basis of purchase price of power from GEB by its customers without appreciating the fact that the Assessing Officer had correctly adopted the rate of Rs.2.11/­ per unit i.e. the rate at which power generating companies sold electricity to Gujarat Urjja Vikas Nigam Ltd., since the assessee had utilized power generated by its Captive Power Plant for captive consumption of its eligible units and had not sold electricity in the market?” 3 Both the questions referred to above proposed by the Revenue are with respect to the deduction under Section 80IA(4) of the Act at the rate on which the GEB supplied power to its customers ignoring the rate at which the power generating company supplied to the GEB. The proposed issues are no longer res integra as they are directly covered by the decision of this Court in the case of CIT vs. Gujarat Alkalies and Chemicals Ltd 395 ITR 247. This Court observed thus: 25. The fourth question proposed by the revenue is with respect to the deduction under section 80IA(4) of the Act at the rate on which the GEB supplied power to its customers ignoring the rate at which the power generating company supplied to the GEB. This issue is directly covered by the decision of this Court in the case of CIT Vs. Gujarat Alkalies and Chemicals Ltd.; 395 ITR 247. It is also covered by the decision of the Supreme Court in the case of M/s. Alembic Ltd. (Tax Appeal No.553 & 554 of 2017. It appears that Special Leave Petitions filed by the revenue are pending before the Supreme Court questioning the correctness of the view taken by this Court in the aforesaid two judgments. So far as the Gujarat Alkalies and Chemicals Ltd, (supra) is concerned, it takes the view as under: 3. In both the tax appeals though slightly differently worded, the Page 2 of 4 C/TAXAP/148/2019 ORDER questions concerning the same assessee are identical and concern the issue of deduction under section 80IA of the Income Tax Act granted to the assessee by the Tribunal on captive power generation plant. The second question is with respect to recognising such claim on the basis of purchase price of power from GEB and substituting the rates of 2.47 per unit adopted by the Assessing Officer. 4. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under: 3. With respect to Question [B], the issue pertains to sub­ Section (8) of Section 80IA of the Income Tax Act, 1961. The assessee had a CPP Unit generating electricity, which was supplying it to a general unit. The electricity generated is being supplied to other consumers also. The CPP unit charged Rs.5.40 ps. Per unit from the general unit. The Assessing Officer applying sub­Section (8) of Section 80IA restricted the same to Rs.5.32 ps. Per unit and, thereby, restricted the deductions claimed by the assessee under Section 80IA of the Act. This restriction was primarily on the basis that the rate of Rs.5.40 ps. Charged by Gujarat Electricity Board ( GEB for short) was inclusive of 8 paise per unit of electricity duty. This component of electricity duty the Assessing Officer discarded for the purposes of ascertaining market value of the electricity generated by the CPP Unit and supplied to its general unit. 4. CIT (Appeals) confirmed the view of the Assessing Officer on the same line of reasoning. The Tribunal, however, on further appeal by the assessee, reversed the orders passed by the Revenue authorities referring to and relying upon the decisions of other Tribunals. The Tribunal was of the opinion that the market value of the electricity supplied by the CPP Unit to the general unit would be the same being charged by GEB from the consumers. 5. Counsel for the Revenue contended that the component of 8 paise per unit was the electricity duty which GEB was not authorized to retain but had to pass on to the Government. In essence, GEB was only collecting 8 paise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs.5.32 ps. Per unit as was done by the Revenue authority. 6. Under sub­Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any Page 3 of 4 C/TAXAP/148/2019 ORDER other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 5 In view of the aforesaid, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (A. C. RAO, J) CHANDRESH Page 4 of 4 "