TMI Blog2018 (1) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the authorities below whether the gratuity fund was created by the assessee itself or it was contributed to the LIC gratuity fund. In the absence of any details of the nature of fund to which the contribution is said to be made, this Tribunal is of the considered opinion that the claim of the assessee cannot be adjudicated. In case the assessee has contributed to the LIC gratuity fund or any other similar fund and the contribution paid by the assessee has gone out of the hands irrecoverably, then the claim of the assessee needs to be allowed. In case the fund, which is said to be paid by the assessee, still remains with the assessee, then it cannot be said that the fund was irrecoverably gone out of the hands of the assessee. For deciding this issue, the nature of fund to which the assessee made contribution towards gratuity scheme needs to be examined. In the absence of any details before this Tribunal, the issue of contribution to gratuity scheme is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and bring on record the nature of the gratuity fund to which the contribution is said to be made and thereafter decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders of the lower authorities are modified and the Assessing Officer is directed to fix the purchase price of power from subsidiary company, namely, KPR Sugar Mills Ltd. at ₹ 6.30 per unit. - ITA No.1915/Mds/2017 (Assessment Year : 2013-14) - - - Dated:- 24-1-2018 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER Appellant by : Shri S. Sridhar, Advocate Respondent by : Smt. Ruby George, CIT ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the assessee is directed against the order of the Assessing Officer dated 28.07.2017 consequent to the directions of the Dispute Resolution Panel dated 16.06.2017 for the assessment year 2013-14. 2. Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the first issue arises for consideration is addition of ₹ 7,17,500/- being the notional interest and advance given to sister concern M/s Jhanvi Motors Pvt. Ltd. According to the Ld. counsel, the Assessing Officer found that the assessee advanced interest-free loan to sister concern M/s Jhanvi Motors Pvt. Ltd. to the extent of ₹ 1,43,50,000/-. The assessee explained before the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest can be allowed as deduction even though the borrowed company has not used the loan amount for its business. The utilization of funds by the sister concern would tantamount to utilization of borrowed funds by the assessee. Therefore, the Apex Court found that there cannot be any disallowance. Moreover, in this case, the assessee claims that sufficient interest free funds were available with it. In those circumstances, this Tribunal is of the considered opinion that the disallowance of ₹ 7,17,500/- is not justified. Accordingly, the orders of the authorities below are set aside and the addition of ₹ 7,17,500/- is deleted. 5. The next ground of appeal is with regard to addition of ₹ 23,72,714/- being the contribution towards gratuity scheme. 6. Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee contributed an amount of ₹ 23,72,714/- to an unapproved gratuity fund. Since the gratuity fund was not approved by the Commissioner during the relevant year under consideration, according to the Ld. counsel, the contribution made by the assessee towards unapproved gratuity fund was disallowed. According to the Ld. counsel, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installed windmill at various places so that the electricity generated out of the windmill could be utilised for the manufacturing activity. According to the Ld. counsel, in fact, the assessee-company entered into an agreement with Tamil Nadu Electricity Board for transmitting the electricity from windmill to the factory of the assessee-company. The agreement is known as Energy Wheeling Agreement . The Tamil Nadu Electricity Board, in fact, charges fees for transmitting the electricity generated by the windmill. According to the Ld. counsel, the Transfer Pricing Officer assumed that the assessee could have sold the power generated to Tamil Nadu Electricity Board at ₹ 3.44 per unit. Accordingly, he determined 7,57,78,820 units as sold at ₹ 3.44 per unit and consequentially made downward adjustment of ₹ 20,38,45,020/-. The Ld.counsel further submitted that till assessment year 2012-13, the market value of power generated by the captive power plant was determined by the Assessing Officer himself. Due to amendment in the provisions of Income-tax Act with effect from assessment year 2013-14, the issue was referred to the Transfer Pricing Officer for determination of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell power to industrial consumers at free market prices subject to payment of wheeling charges to the distribution companies. Moreover, according to the Ld. counsel, captive power plant was exempted from payment of surcharges and cross subsidy charges, therefore, captive power plant is one of the beneficiaries from assessment year 2013-14. 12. The Ld.counsel for the assessee submitted that captive power plant is defined in Electricity Rules, 2005. As per this Rule, a power plant where not less than 26% of the ownership is held by captive users and not less than 51% of the aggregate electricity generated was consumed for captive use, such a plant has to be construed as captive power plant. This minimum usage of electricity for captive consumption is prescribed to ensure that only those generating electricity, which have large internal / captive use of electricity, are entitled to the benefits available to captive power plants under new Electricity Act, 2003. According to the Ld. counsel, the assessees have large manufacturing undertakings such as cement, textiles, etc. which require enormous amount of electricity. The very object of captive power plant is to use the electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able, therefore, the only buyer could be the Tamil Nadu Electricity Board. According to the Ld. counsel, when the power generated by captive power plant is not intended to be sold, there is no question of any presumption that the assessee would have sold only to State Electricity Board. 15. The Ld.counsel for the assessee further submitted that the power generated by the assessee has a market value. Merely because the power was consumed internally for captive consumption, according to the Ld. counsel, it does not mean that the market value of the power generated by captive power plant is less valuable in the open market. Due to liberalization of electricity policy in 2003, the power generated by captive power plant could be sold to industrial consumers without any tariff regulations. According to the Ld. counsel, these market rates clearly reflect the value of power in the open market and cannot be disregarded merely because the power plant chooses to consume the electricity captively and does not actually sell the power in the open market. According to the Ld. counsel, the electricity consumed by the assessee internally for its manufacturing activity cannot be less valuable tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctricity. 18. By the impugned Order CIT(A) allowed assessee s claim of deduction u/s.80IA after having its observation at pages 6.3 of its appellate order. Precise observation is as under:- 6.3 I have considered the facts of the case and submissions of the appellant as against the observation / findings of the AO in his order. The contentions raised by the appellant in respect of the ground of appeal are being discussed and decided as under:- i. This issue also appeared in the assessee s reopened assessment for the A.Y.2006-07. On the identical set of facts, the Ld. CIT(A) in the office while deciding the appellant s case for A.Y.2006-07 has reached the decision as under: I have considered the facts of the case, the reasons given by the Assessing 'Officer for restricting 'the deduction claimed by the assessee u/s 80IA in respect of its power generating undertakings and the' submissions of the assessee, in my opinion the question which is required, to be answered in respect of the ground of appeal taken by the assessee is whether the action of the AO of restricting the deduction is correct in the present facts and circumstances of the case.. To answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business in the manner provided in the main sub-section presents exceptional difficulty. It is, therefore, clear that the Assessing Officer, in order to invoke the proviso, must form an opinion based on the material on record that the computation in the manner provided presented exceptional difficulties. If he does not form an opinion, he cannot invoke the proviso to determine the profits gains of the eligible business. It would, therefore, be required to be seen whether the AO has found based on any material on record, and has brought any evidence or material on record, that the transfer of the goods by the eligible business, i.e. the power generating units, has not been recorded at the market value of such goods. It will also be required to be seen whether the AO has formed any opinion which would justify the invoking of the proviso to Sec, 80lA(B), because it is the proviso that the AO has invoked to work out the deduction available to the assessee u/s. 80lA . Perusal of the facts on record show that the assessee had disclosed that it has sold/transferred electricity to related concerns and, that the said transfer had been done at the fair market value of the goods. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to why the price of the goods recorded by it corresponds to till! market value, the Assessing Officer has not given any specific findings to hold as to why such price does not correspond to the market value of the goods and as to what was the market value of such goods. The assessee has contended that the 'rate 'charged to the end user by the State Electricity Board would provide the 'most appropriate basis to arrive at the market value. Since, the eligible unit is, in effect, transferring the goods to another business which is the end consumer, the cost to the end consumer, is required to be considered and not the tariff at which the 'Independent Power Producers' sell to the: 'State Distribution Agency', which in turn sells to the State Electricity Board for further sale to the end users i.e. consumers, at a rate higher than the rate at which the 'State Distribution Agency had procured the electricity, at. 'Another important aspect which is required to be considered is' that the: rate at which the 'Independent Power Producers' sell to the; State - Distribution Agency' under the Electricity Act, 1948 is a regulated rate which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness tn. the manner provided in the main subsection' presented exceptional difficulties. Hence, proviso to Sec. 80lA could not have been invoked by him. It is also clear that the parameter 'relating to 16% of capital base is only an exercise for fixation of tariff and is only one of the many parameters taken into consideration for fixing the tariff under' the Old Electricity Act of 1948, This parameter is for working 'out the' tariff for sale to Distribution agencies and not for sale to the end' consumers and not for computing the profits and gains of the eligible business. In' view of the aforesaid reasons, the order of the AO of working out the profits eligible for deduction on the basis of 16% return on 'capital base cannot be upheld. As regards the submission relating to Sec, 80A(6), I find that same submissions were made by the assessee before the Assessing Officer during the course of the re-assessment proceedings. I find that the AO has not controverted the submissions of the assessee .I am also of the opinion that since the said Sec, 80(6) has been specifically made retrospective from a specific date i.e. w.e.f.01.04.2009, the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the' buying tariff in terms of scenario cannot be, equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. There is no reason for not holding so for the purposes of. Section 80IA-(8) also, The price at which the power is supplied by the assessee to the Board is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of s.80-IA(8) The price recorded by the assessee ₹ 3.72 per unit can be considered to be the market value-for the purposes of s. 80-IA(8). This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle has been considered and upheld by the Supreme Court in the case of Thiru Arooran Sugars Ltd. Vs. ClT (1997) -142 CTR (SC) 9; (1997) 227 ITR 432 (SC). Therefore, we direct the assessing authority to work out the profits on the basis of the price of the power generated' by the assessee' at the average of the annual landed cost of electricity 'purchased by the assessee from Karnataka State Electricity Board during the impugned previous year. It may be determined on the basis of 'payment details available from the bills issued by the Karnataka state Electriciiy Board, during the year under consideration . During the course of the appellate proceedings, the assessee has submitted that the sale price of electricity by the captive generating units varies from ₹ 4.55 per KWH to,₹ 4.52 per KWH and for the sake of uniformity, the same had been taken at the average rate of ₹ 4.54 per KWH for computing the claim u/s. 80IA for the power generating units. The working had been done based on the price of electricity charges by Dakshin 'Gujarat. Vij company, a state owned company which was the only supplier of electricity other than the captiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) 64 Taxman.com 214 and contended that distributing expenditure not actually incurred by the assessee increases its profits. Such profit cannot be said to be derived from industrial undertaking, therefore, to this extent deduction u/s.80IA cannot be allowed. 21. In the course of the hearing, the Revenue has relied on the decision of Calcutta High Court in Commissioner of Income tax, Kolkata-III v. M/s. ITC Ltd. (ITA 426 of 2006) for the proposition that the market price determined u/s 80lA of the Act ought not to be determined at the rate at which electricity was supplied to the assesses for its consumption other than for Captive Power plant. According to the Revenue, this decision was therefore in favour of the Revenue and ought to be followed in preference to the decision of the Tribunal referred to earlier in the assessee's own case. 22. We had gone through the decision of the Calcutta High court in M/s.ITC Ltd. and found that it has no connection to the facts of the assessee's case for following reasons: 23. First, the judgement of the Calcutta High Court was considering the provisions relating to the Electricity Act as they stood prior to the Electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke trading in electricity unless he is authorised to do so by a licence issued u/s 14 or he is exempt under section 13. 28. It is quite clear that under section 12, a licence is not required for generation of electricity and this is made clear by section 7 which reads as follows: PART III- GENERA TION OF ELECTRICITY Section 7. (Generating company and requirement for setting up of generating station): Any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73. Section 8(Hydro Electric generation) Notwithstanding anything contained in section 7, any generating company intending to set-up a hydrogenating station shall prepare and submit to the Authority for its concurrence, a scheme estimated to involve a capital expenditure exceeding such sum, as may be fixed by the Central Government, from time to time, by notification. 29. It is only hydro-electric electricity generation which is regulated u/s 8. In the case of the assessee, the generation is for captive consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on plant and use dedicated transmission lines. His generating, transmitting and consuming power within his own jurisdiction neither needs access nor seeks to use the grid and therefore such a Captive Generation Plant is not cabined and cribbed by any regulatory mechanism under the Electricity Act 2003. 32. If however the Captive Generation Plant seeks to supply electricity to any outsider through the grid, the proviso requires that the supply of electricity shall be regulated in the same manner as a generating station of a generating company. The word 'grid' is defined in section 2(32) of the Act as under: (32) grid means the high voltage backbone system of inter-connected transmission lines, sub-stations and generating plants; 33. Thereafter the proviso makes it clear that it is only when the Captive Generation Plant sells to an outsider through the high voltage backbone system of interconnection transmission, that the full vigour and rigour of regulation under the Electricity Act, 2003 will be attracted. The 2nd proviso makes it clear that although no license is required when a Captive Generation plant supplies electricity to a consumer, the rules and regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and for that market value of the sugarcane consumed in its factory had to be determined. The relevant rule 7 of the Incometax Rules, 1962 read as follows: Income which is partially agricultural and partially from business - (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head 'profits and gains of business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rentin-kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind. (2) For the purpose of sub-rule (1) 'market value' shall be deemed to be (a) where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket, an estimate of the market price will have to be done on a hypothetical basis. 38. The Supreme Court also referred to its decision in the case of Ahmed G. H Ariff v. CWT [1970] 761TR 471 (SC), in the following words: In the case of Ahmed G.H. Ariff v. CWT [1970176 ITR 471 , explaining the phrase 'if sold in the open market' in section 7(1) of the Wealth-tax Act, it was observed by Grover, J., speaking for the Court that the phrase did not contemplate actual sale or the actual state of the market, but only enjoined that it should be assumed that there was an open market and the property could be sold in such a market and, on that basis, the value had to be found out. It was a hypothetical case which was contemplated and the tax officer must assume that there was an open market in which the asset could be sold. In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price there has to be an actual market where there will be 'a concourse of buyers and sellers'. 39. Having discussed these principles, it laid down the following criteria for determining the price at which the sugar can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his position that the assessee was the only buyer in the region where its factory was located . 41. The Calcutta High Court has however stated at page 11 : But in the case before us the electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. 42. In our case, the entire consumption is by the assessee itself and the assessee is not obliged to sell to only a distribution company or a company which is engaged in generation and distribution. This is made clear from the 2nd proviso to section 9(1) of the Electricity Act, 2003 which reads as follows: Provided further that no licence shall be required under this Act for supply of electricity generated from a captive generating plant to any licensee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under subsection (2) of section 42. 43. Therefore, the decision of the Calcutta High Court is distinguishable as in that case in the .period before the introduction of the Electricity Act, 2003 a captive generating pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulated under Electricity Act, 2003. In the decision of Supreme Court In Thiru Arooran Sugars also, it is quite clear that self consumption of sugarcane was not regulated and given that circumstance, the Supreme Court held that because the manufacturing unit was purchasing sugar from other growers that price ought to be adopted as market price. Similarly in the case of the assessee, in respect of the electricity produced by Captive Power Plant for consumption, there is no regulation for pricing the price charged by GEB ought to be adopted as market price. The market is therefore hypothetical open market exactly as was contemplated in Rule 7(2)(a) referred to in Thriu Arooran Sugars. 46. We further observe that the Calcutta High Court had referred to section 62 of the Electricity Act 2003, whereby generating companies can recover expected revenue on the basis of tariff fixed by the commission. The provisions of section 62 of the Electricity Act 2003 reads as follows: 62 (1) The Appropriate Commission shall determine the tariff in accordance with provisions of this Act for (a) Supply of electricity by a generating company to a distribution licensee: Provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing two principles involved here. 1. Where there is a conflict of views between High Court, Tribunal may choose to follow what in its opinion is the correct view. 2. When there is a conflict of opinion between two or more High courts, opinion of jurisdictional High Court, which is in favour of the assessee ought to be followed. 52. If neither of the above two principles are followed, there is a decision of assessee in its own case for the earlier year on identical fats and that ought to be followed. 53. Further there are several decision of Tribunal which have taken the same view, In cases with similar facts viz:-. 1. ACIT, Raipur v. Godavari Power Ispat Ltd - 133 ITD 502 (Dilaspur ITAT) 2. Eveready Spinning Mills (P) Ltd v. ACIT, Circle-1, Tirupur - 17 Taxmann 254 (AY 2007-08) Chennai ITAT. 3. Assam Carbon Products Ltd v. ACIT - 100 TT J 224 (IT AT Kolkatta) 4. West Coast Paper Mills Ltd V. JCIT -100 TTJ 833 (Mum) Mumbai ITAT 5. Add!. CIT v. Jindal Steel Power Ltd - 16 SOT 509 (ITAT Delhi). 6. Shree Cement Ltd v. The Addl. CIT Jaipur-ITA NO.503/JP/2012 (Jaipur ITAT) 54. In any view of the matter, several decision of the Tribunal listed bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his price that a willing buyer and a willing seller are expected to transact business. The Tribunal agreed with the submission of the Assessee that as held in the aforesaid judgment of the Hon'ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC s case because the Hon'ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. The Tribunal also held that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The Tribunal held that the annual weighted average adopted by the ld. CIT(A) would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee s method is more appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary company, namely, KPR Sugar Mills at Karnataka. The purchase of power is not in dispute. Had the assessee purchased power from State Electricity Board or Karnataka State Electricity Board, it would have paid the price fixed by the respective Electricity Board. Merely because the assessee purchased the power from subsidiary company that cannot be a reason to fix the cost of generation and also the purchase price. We have to determine the purchase price in an estimated market rate at which the assessee would have purchased the power from open market. When the Tamil Nadu Electricity Board sells power at ₹ 6.03 per unit, this Tribunal is of the considered opinion that the assessee could not have paid in the open market at ₹ 7 per unit. Therefore, even though the assessee claims ₹ 7/- per unit, this Tribunal is of the considered opinion that the assessee ought to have purchased the power at ₹ 6.03 per unit from TNEB. There is no justification in fixing the arm's length price at ₹ 3.59 per unit. In view of the above, and the reason stated in the earlier part of the order for deduction under Section 80-IA of the Act, the orders of the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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