2011 (7) TMI 965 - AT - Income Tax

Deduction u/s 80IA in respect of windmill undertaking - determination of price - assessee engaged in textile manufacturing, also engaged in generation of electricity from its windmills - captive consumption - assessing authority adopted the price of power at Rs. 2.70 per unit (rate at which Tamil Nadu Electricity Board takes over electricity from assessee) - assessee contended it to be market rate of Rs 3.50 per unit( rate at which TNEB sells electricity to consumers - Held that - Market price comes into play only when the assessee is buying power from the Tamil Nadu Electricity Board just like any other consumer. The Tamil Nadu Electricity Board is the supplier and the assessee is the consumer and there is no question of commodity banking or barter exchange. The Tamil Nadu Electricity Board sells power to the assessee in the usual course of its business and the assessee buys the power like any other consumer in the market. It is in that context price collected by the Tamil Nadu Electricity Board i.e. Rs. 3.50 per unit is obvious the market price of the power generated by the assessee. The expression used in section 80-IA(8) is market value means the value determined by market forces. In the captive consumption of power generated by the assessee-company no market force is operating. Market forces come into the picture only when the assessee buys power from the Tamil Nadu Electricity Board like any other consumer. Therefore assessing authority is directed to recompute, the profit and gains of the eligible unit for the purpose of section 80-IA on the basis of the unit price of electricity generated by the assessee-company at Rs. 3.50 per unit - Decided in favor of assessee.

Summary

Issues:
Calculation of eligible profit under section 80-IA based on market value of power generated by the windmill undertaking.

Analysis:
The case involved an appeal by the assessee, a textile manufacturing company with a windmill undertaking eligible for deduction under section 80-IA of the Income-tax Act, 1961 for the assessment year 2007-08. The dispute arose from the method used by the assessing officer to compute the eligible profit of the windmill unit based on the market value of the power generated. The assessing officer considered the market value of power at Rs. 2.70 per unit, whereas the assessee claimed it to be Rs. 3.50 per unit, leading to a difference in the eligible profit calculation.

The assessing officer relied on section 80-IA(8) to determine the market value of the power generated by the assessee at Rs. 2.70 per unit, emphasizing that the provision prevents over-invoicing of goods to inflate profits. However, the assessee argued that the market value should be Rs. 3.50 per unit, considering the rate at which the Tamil Nadu Electricity Board supplied power to industrial units. The contention was supported by a judgment of the jurisdictional High Court, emphasizing the value of savings from captive consumption based on the price the assessee would have paid otherwise.

The Tribunal referred to a similar case where the market value for captive consumption of power was determined based on the rate charged by the State Electricity Board, not the price at which power was supplied by the assessee. It was highlighted that in cases of captive consumption, there is no sale or purchase involved, resembling a barter exchange, and market price considerations apply when buying power from external sources.

The Tribunal concluded that in the context of captive consumption, the market value of power generated by the assessee should be considered as Rs. 3.50 per unit, as determined by the price charged by the Tamil Nadu Electricity Board for power supply. Therefore, the Tribunal allowed the appeal, directing the assessing authority to recompute the eligible profit of the windmill unit based on the market price of electricity generated by the assessee at Rs. 3.50 per unit.