2023 (12) TMI 417 - SC - Income Tax

Deduction u/s 80IA - quantum of profits and gains of the eligible business - Scope of expression market value in relation to any goods - profits of eligible business of captive power generation plants - Re-computation of amount of deduction - revenue contended that the profits of eligible business of captive power generation plants of the assessees were inflated by adopting an excessive sale rate per unit for power supply to the assessees own industrial units for captive consumption as opposed to the rate per unit at which power was supplied by the assessees to the power distributing companies i.e. the State Electricity Boards which is contended to be the market rate. - High Court has decided the issue in favor of assessee. HELD THAT - Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition. Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act. We hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue. Before parting with this issue, we may mention that reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the definition of the expression market value as defined in the explanation below sub-section (6) of Section 80 A of the Act is totally misplaced inasmuch as sub-section (6) was inserted in the statute with effect from 01.04.2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne. That being the position, we have no hesitation in answering this issue in favour of the assessee and against the revenue. Depreciation - Determination of WDV - Exercise of option to Adopt written down value method - Rule 5 provides for the method of calculation of depreciation allowed under Section 32 (1) of the Act. It says that such depreciation of any block of assets shall be allowed, subject to provisions of sub-rule (2), as per the specified percentage mentioned in the second column of the table in Appendix-I to the Rules on the WDV of such block of assets as are used for the purposes of the business or profession of the assessee during the relevant previous year. In so far the present case is concerned, it is not in dispute that sub-rule (2) has no application. From a conjoint reading of Rules 5(1) and (1A) of the Rules read with Appendix-1 and Appendix-1A, it is evident that while subrule (1) provides for allowance of depreciation in respect of any block of assets in terms of the second column of the table in Appendix 1, sub-rule (1A) enables an assessee to seek allowance of depreciation of assets acquired on or after the 1st day of April, 1997 as per the percentage specified in the second column of the table in Appendix-1A on actual cost basis. However, the second proviso to sub-rule (1A) clarifies that an assessee may opt for depreciation under Appendix-1 instead of Appendix-1A but such option has to be exercised before the due date for furnishing the return of income under sub-section (1) of Section 139 of the Act. In the instant case, there is no dispute that the assessee had claimed depreciation in accordance with sub-rule (1) read with Appendix-I before the due date of furnishing the return of income. The view taken by the assessing officer as affirmed by the first appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Therefore, the revenue was not justified in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifically opted for the WDV method. We are in agreement with the view expressed by the Tribunal and the High Court that there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return. All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under subrule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done. If that be the position, we find no merit in the question proposed by the revenue. The same is therefore answered in favour of the assessee and against the revenue. Genuineness of Professional expenses - Payment made by the assessee to Shri SK Gupta and his group of companies - From the materials on record, we find that the assessing officer had solely relied upon the statements made by Shri S.K. Gupta on 12.12.2006 and 23.12.2006 during the course of the search. However, the assessing officer overlooked the fact that within a short span of time, Shri S.K. Gupta had retracted from the said statements by filing an affidavit on 05.02.2007. Thereafter, he reiterated the statements made by him in the affidavit dated 05.02.2007 in a statement recorded on 08.02.2007. We find that in the later statements, Shri S.K. Gupta had categorically stated that he had rendered services to the assessee. He also mentioned that the name of the assessee was not referred to as one of the beneficiaries of the accommodation bills in his earlier statement. He had categorically stated that he had rendered service to the assessee and that the assessee had not obtained any bogus accommodation bills from him. Assessing officer had dis-believed the affidavit as well as the subsequent statement of Shri S.K. Gupta without any justifiable and cogent reason. That apart when the revenue had relied upon the retracted statement of Shri S.K. Gupta, it ought to have provided an opportunity to the assessee to cross-examine Shri S.K. Gupta which was however denied. Thus, revenue was not justified in disallowing the claim of professional expenses of the assessee on account of payment to Shri S.K. Gupta and his group of companies. Therefore, we agree with the view taken by the High Court. As noted by the High Court, the entire issue is based on appreciation of the materials on record. Tribunal had scrutinized the materials on record and thereafter had recorded a finding of fact that there were sufficient evidence to justify payment made by the assessee to Shri SK Gupta, a consultant of the assessee, and that the assessing officer had wholly relied upon the statement of Shri Gupta recorded during the search operation which was retracted by him within a reasonable period. There is no admissible material to deny the claim of expenditure made by the assessee. Accordingly, this issue is answered in favour of the assessee and against the revenue. Nature of receipts - carbon credit - capital or revenue receipt - HELD THAT - As the issue relating to carbon credit was not raised or urged by the revenue. If that be the position, revenue would be estopped from raising the said issue before this Court at the stage of final hearing. That apart, there is no decision of the High Court on this issue against which the revenue can be said to be aggrieved and which can be assailed. In the circumstances, we decline to answer this question raised by the revenue and leave the question open to be decided in an appropriate proceeding.

Summary

Issues Involved:
1. Recomputation of Deduction Under Section 80 IA of the Income Tax Act, 1961.
2. Exercise of Option to Adopt Written Down Value Method.
3. Deletion of Addition Made by the Assessing Officer on Account of Payment Made by the Assessee to Shri S.K. Gupta and His Group of Companies.
4. Whether Carbon Credit is Capital or Revenue Receipt.

Summary:

Recomputation of Deduction Under Section 80 IA of the Income Tax Act, 1961:
The core issue in these appeals was the recomputation of deduction under Section 80 IA of the Income Tax Act, 1961. The revenue's contention was that the profits of eligible business of captive power generation plants were inflated by adopting an excessive sale rate per unit for power supply to the assessee's own industrial units for captive consumption. The assessing officer had recomputed the deduction by taking the market rate as the rate at which power was supplied to the State Electricity Boards. The Tribunal and the High Courts upheld the assessee's contention that the rate at which electricity was supplied by the State Electricity Board to the industrial consumers should be considered the market value. The Supreme Court affirmed this view, holding that the rate at which the State Electricity Board supplied power to the industrial consumers should be construed as the market value for computing deduction under Section 80 IA of the Act.

Exercise of Option to Adopt Written Down Value Method:
The issue was whether the Tribunal could ignore compliance to the statutory provisions relating to exercise of option to adopt Written Down Value (WDV) method in place of the straight line method while computing depreciation on the assets used for power generation. The Tribunal and the High Court held that there was no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Income Tax Rules, 1962, that any particular mode of computing the claim of depreciation had to be opted for before the due date of filing of the return. The Supreme Court agreed with this view, holding that the law does not mention any specific mode of exercising such an option, and the only requirement is that the option has to be exercised before filing of the return.

Deletion of Addition Made by the Assessing Officer on Account of Payment Made by the Assessee to Shri S.K. Gupta and His Group of Companies:
The issue was the deletion of the addition made by the assessing officer on account of payment made by the assessee to Shri S.K. Gupta and his group of companies. The Tribunal found that Shri S.K. Gupta had retracted his statement within a short time by filing an affidavit and had reiterated his stand in a subsequent statement. The High Court upheld the Tribunal's decision, finding no substantial question of law. The Supreme Court agreed, holding that there was no admissible material to deny the claim of expenditure made by the assessee.

Whether Carbon Credit is Capital or Revenue Receipt:
The issue was whether receipts on sale of carbon credit are capital receipts, whereafter the assessee is not liable to pay any tax. The Tribunal held that carbon credit is a capital receipt. The revenue did not challenge this decision before the High Court, and therefore, the Supreme Court declined to answer this question, leaving it open to be decided in an appropriate proceeding.

Conclusion:
The Supreme Court dismissed the civil appeals filed by the revenue, affirming the decisions of the High Courts and the Tribunals on all the issues involved.