2017 (9) TMI 832 - AT - Income Tax

Claim of assessee towards deduction u/s 80IA(4) - eligible profits for claim of deduction u/s 80IA(4) r.w.s.80IA(8) in respect of assessee s Captive Wind Power Plant - Held that - Deemed sales price of the power supplied by independent power plants excluding the cost towards surcharge and duty etc. levied by the supplier should be adopted for the purposes of determination of market price for computation of eligible profit under s.80IA(4) r.w.s.80IA(8) of the Act. Thus we are in agreement with the contentions on behalf of the assessee that for the purposes of determination of market value of goods/services of eligible business, it is the sale of price at which the Electricity Board supplies electricity to its consumer which will be taken as market price, subject however, to the exclusion of surcharge, duty etc. thereon. The issue is thus accordingly restored back to the file of the AO for determination of eligible profit for the purposes of deduction under s.80IA(4) - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Challenge to reduction in deduction under s.80IA(4) by AO and CIT(A) for captive power plant.

Analysis:
The appeal was against the CIT(A)'s order reducing the deduction under s.80IA(4) for the assessment year 2010-11. The assessee, engaged in manufacturing specialty chemicals and wind power generation, claimed deduction for notional profits on a captive power plant. The AO used the average cost of electricity by Gujarat Electricity Board to determine eligible profits, reducing the claim. The CIT(A) upheld this decision, leading to the current appeal.

The assessee argued that the AO and CIT(A) erred in not accepting the selling price of electricity by Gujarat Electricity Board as the market value for determining eligible profits under s.80IA(4). The assessee relied on a Gujarat High Court decision to support this argument. The bench noted a recent similar decision in Rainbow Papers Ltd. vs. ACIT, emphasizing the exclusion of surcharge and duty from the deemed sale price for computation of eligible profit under s.80IA(4).

The Tribunal referred to the Rainbow Papers Ltd. case, where it was held that the selling price of power supplied by independent power plants, excluding surcharge and duty, should be adopted to determine the market price for eligible profit computation under s.80IA(4). The Tribunal emphasized that the market price should align with the rate prescribed by the electricity board, excluding surcharge and duty.

The Tribunal concluded that the selling price at which the Electricity Board supplies electricity to consumers should be considered the market price for eligible profit determination under s.80IA(4), excluding surcharge and duty. The issue was remanded back to the AO for reevaluation based on the Rainbow Papers Ltd. decision. Consequently, the appeal of the assessee was allowed for statistical purposes.