2024 (5) TMI 1013 - AT - Income Tax

Deduction u/s 80IA - determination of market value of the power supplied by the assessee to its industrial units - rate fixed by Tariff Regulatory Commission OR Rate chargeable by the distribution companies - as per AO assessee could not have claimed the benefit at the rate chargeable by the distribution companies but should have claimed on the basis of rates fixed by Tariff Regulatory Commission for sale of electricity by generating companies - Assessee supported in adopting the average price of the power purchased other than the captive power - HELD THAT - Hon ble Supreme Court in the case of CIT v. Jindal Steel Power Limited 2023 (12) TMI 417 - SUPREME COURT held the expression market value in relation to any goods as defined by the explanation below to proviso to sub-section (8) of section 80IA of the Act, meaning the price of such goods determined in an environment of free trade or competition, is market value which is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Hon ble Supreme Court held that the 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, but not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board. Thus, it is clear that the rate at which power was supplied to a supplier could not be a market rate of electricity purchased by a consumer in the open market, but, the rate at which the State Electricity Board supplied power to the industrial consumers is to be taken as market value. AR brought to our notice that the AO allowed the deduction under section 80IA of the Act for the initial year being assessment year 2011-12 - For the assessment year 2020-21, the Assessing Officer allowed deduction u/s 80IA in favour of the assessee. We note that the Revenue allowed the claim of the assessee for computing deduction u/s 80IA of the Act for initial year and the assessment year subsequent to the year under consideration. The assessee adopted price at ₹.5.60 per unit which was arrived at on the total charges paid by the assessee towards electricity purchased from Tamilnadu Electricity Board and other price power purchaser. Therefore, we hold that the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under section 80IA of the Act. Grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Determination of the market value for computing deduction under section 80IA of the Income Tax Act, 1961.
2. Whether the rate fixed by the Tariff Regulatory Commission or the rate charged by the State Electricity Board should be considered for the market value of electricity generated by the assessee for captive consumption.

Issue-Wise Detailed Analysis:

1. Determination of the Market Value for Computing Deduction under Section 80IA of the Income Tax Act, 1961:

The primary issue revolves around the appropriate rate to be applied for the market value of electricity generated by the assessee's windmills for captive consumption. The assessee, engaged in manufacturing cotton yarn and fabrics, claimed a deduction under section 80IA of the Act based on the average price of electricity purchased from the open market, which was Rs. 5.60 per unit. The Assessing Officer (AO), however, restricted the deduction by applying the rate fixed by the Tariff Regulatory Commission of Tamil Nadu at Rs. 2.75 per unit.

The assessee contended that the market value should be determined based on the rate at which electricity is purchased from private power producers and the Tamil Nadu Electricity Board, arguing that this rate represents the open market value. The AO disagreed, stating that the market value should reflect the rate at which electricity could be sold to a distribution licensee, considering transmission losses and distribution costs.

The CIT(A) allowed the assessee's claim, relying on several judicial precedents, including decisions from the Jaipur ITAT Bench, Chennai ITAT, and the Hon'ble High Courts of Chhattisgarh and Gujarat. The CIT(A) held that the rate at which the State Electricity Board or power distribution companies sell power to industrial consumers should be adopted as the open market value.

2. Whether the Rate Fixed by the Tariff Regulatory Commission or the Rate Charged by the State Electricity Board Should be Considered for the Market Value of Electricity Generated by the Assessee for Captive Consumption:

The Revenue appealed against the CIT(A)'s order, arguing that the market value should be based on the realizable value from selling the power in the open market, considering transmission losses and distribution costs. The Revenue contended that the assessee artificially increased profits from eligible undertakings for deduction under section 80IA.

However, the Tribunal upheld the CIT(A)'s decision, referring to the Hon'ble Supreme Court's judgment in CIT v. Jindal Steel & Power Limited, which clarified that the market value should be the rate at which the State Electricity Board supplies electricity to industrial consumers, not the rate at which electricity is sold to the State Electricity Board. The Supreme Court emphasized that the market value denotes the price determined in an environment of free trade or competition, where the transaction occurs in the normal course of trading.

The Tribunal noted that the assessee's adoption of Rs. 5.60 per unit, based on the average rate of electricity purchased from the Tamil Nadu Electricity Board and private producers, was justified. The Tribunal also highlighted that the AO had allowed the deduction under section 80IA for the initial year (AY 2011-12) and subsequent years (AY 2020-21) based on similar computations.

Conclusion:

The Tribunal dismissed the Revenue's appeals for all three assessment years (2015-16, 2017-18, and 2018-19), affirming that the rate at which the State Electricity Board supplies electricity to industrial consumers should be taken as the market value for computing the deduction under section 80IA of the Income Tax Act, 1961. The Tribunal's decision aligns with the Hon'ble Supreme Court's interpretation of "market value" in the context of section 80IA.