2012 (8) TMI 1016 - AT - Income Tax

Summary

Issues Involved:
1. Restriction of deduction u/s 80IA for Captive Power Generating Unit (CPGU).
2. Determination of market value for electricity supplied by CPGU to the Chemical Division.

Summary:

Issue 1: Restriction of Deduction u/s 80IA for Captive Power Generating Unit (CPGU)

The assessee challenged the CIT(A)'s order which restricted the deduction u/s 80IA of the Income Tax Act, 1961, for the Captive Power Generating Unit (CPGU). The assessee claimed a deduction of Rs. 35,18,06,526, but the AO allowed only Rs. 5,04,78,555, disallowing Rs. 30,13,28,171. The AO based the disallowance on the market value of electricity, using the rate at which surplus power was sold to the Uttar Pradesh State Electricity Board (UPSEB) instead of the rate at which the Chemical Division purchased electricity from UPSEB.

Issue 2: Determination of Market Value for Electricity Supplied by CPGU to the Chemical Division

The AO determined the market value of electricity supplied by the CPGU to the Chemical Division by adopting the sale value at which surplus power was supplied to UPSEB. The CIT(A) upheld this decision, stating that the rule of consistency does not apply if the claim is found incorrect in subsequent years. The CIT(A) observed that the assessee showed inflated turnover and net profit to claim a higher deduction. The Tribunal found that the price at which State Electricity Boards sell electricity to industrial consumers represents the market value. The AO's figures from UPPCL did not represent the open market value, as they were based on statutory parameters for compulsory sale of surplus power.

Conclusion:

The Tribunal concluded that the market value for the purpose of section 80IA(8) should be the price at which electricity is sold to industrial consumers by the State Electricity Board, excluding duties, cess, taxes, etc. The Tribunal allowed the assessee's appeal in principle but directed the AO to recompute the deduction u/s 80IA, excluding electricity duty, cess, taxes, etc.

Order:

The appeal of the assessee is allowed as indicated above.