2012 (1) TMI 309 - HC - Income Tax

Deduction u/s 80IA - eligible business - Held that - 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 subsection 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 ₹ 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 ₹ 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 ₹ 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 ₹ 4.51 per unit but ₹ 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 ₹ 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee.

Summary

Issues:
1. Interpretation of Section 80IA for deduction calculation.
2. Determination of market value of electricity generated by the assessee.
3. Application of transfer pricing principles in computing eligible profits.

Issue 1: Interpretation of Section 80IA for deduction calculation:
The Revenue appealed against the Tribunal's judgment regarding the computation of deduction under Section 80IA. The primary question was whether the Tribunal was correct in directing to compute the deduction by taking the market value of electricity generated by the assessee at a specific rate per unit. The Assessing Officer reduced the claim under Section 80IA by a certain amount, leading to the dispute. The CIT(Appeals) dismissed the appeal, emphasizing the provisions of Section 80IA(8) and the concept of market value. The Tribunal, however, allowed the appeal, considering the assessee's entitlement to calculate the market value differently. The Tribunal referred to a similar case and upheld the assessee's approach, leading to the Revenue's challenge of the Tribunal's decision.

Issue 2: Determination of market value of electricity generated by the assessee:
The Assessing Officer initially computed the reasonable value of electricity generated by the assessee at a specific rate per unit, considering the duty paid and the actual cost of electricity generation. The CIT(Appeals) and the Tribunal differed in their assessment of the market value, with the Tribunal setting aside the CIT(Appeals) order and directing the calculation based on a different rate per unit. The Tribunal justified its decision by comparing the cost of electricity purchased from an external source with the cost of electricity generated by the assessee, ultimately determining the market value for deduction purposes.

Issue 3: Application of transfer pricing principles in computing eligible profits:
The Tribunal's decision was influenced by the application of transfer pricing principles in determining the eligible profits of the assessee. By referencing a relevant case and the provisions of Section 80IA(8), the Tribunal directed the Assessing Officer to calculate the deduction based on the market value of electricity generated by the assessee. The Tribunal emphasized the importance of considering the actual cost of electricity generation and the prevailing market rates in determining the eligible profit, leading to the dismissal of the Revenue's appeal.

In conclusion, the judgment delves into the intricate interpretation of Section 80IA, the determination of market value for electricity generated by the assessee, and the application of transfer pricing principles in computing eligible profits. The Tribunal's decision, based on a comparative analysis of costs and market rates, was upheld, highlighting the significance of accurate valuation in tax deduction calculations.