2013 (2) TMI 502 - AT - Income Tax

Claim for deduction under Section 80-IA Assessee is in the business of manufacturing of yarn - Also installed three windmills - Electricity Board purchased power from assessee at the rate of Rs. 2.70 p.u. and sold to assessee s textile units at 3.50 p.u. For deduction u/s 80-IA in respect of the power produced by the windmills, assessee adopted the rate at which the power was sold by Electricity Board to it, after making adjustments for the units generated by the assessee Held that - It is not that the same power that was produced by the assessee was supplied by the Electricity Board to its yarn manufacturing unit. The adjustment in the bills as a barter arrangement was, therefore, only for the convenience of the Electricity Board. Section 80-IA provides that where an assessee, which is eligible for 80-IA benefits, transferred its goods or service to its business other than the eligible business, the consideration if any recorded for such transfer in the accounts of the eligible business, should correspond to the market value of such goods or services - Determining of tariff between assessee and Electricity Board cannot be considered as an exercise undertaken in a competitive environment and under market conditions Further Had the assessee not been saddled with the restrictions of supplying surplus power to the State Electricity Board, it would have supplied the power to ultimate customers at a price not less than Rs. 3.50 per unit, being the rate charged by the Board from its industrial consumers. Thus consideration recorded by the assessee for transfer of power for captive consumption, at Rs. 3.50 per unit, corresponds to the market value of such power In favour of assessee.

Summary

Issues:
Calculation of deduction under Section 80-IA of the Income-tax Act, 1961 based on the price of electricity captively consumed by the assessee.

Analysis:
The appellant, engaged in yarn manufacturing, installed windmills for generating electricity. The dispute arose when the Assessing Officer (A.O.) calculated the deduction under Section 80-IA based on the rate at which the appellant sold electricity to the Tamil Nadu Electricity Board, not the rate at which it purchased electricity for consumption. The A.O. argued that the cost reduction due to electricity production benefited the yarn manufacturing units, not the windmills. The A.O. relied on the decision in Liberty India v. CIT and set the price at Rs. 2.70 per unit, reducing the appellant's deduction claim substantially.

In the first appeal, the CIT(A) allowed set-off of notional losses but upheld the A.O.'s pricing decision. The appellant argued that the rate should be Rs. 3.50 per unit, citing similar Tribunal decisions. The A.O. and CIT(A) maintained that the Rs. 2.70 rate was appropriate due to the regulation by the Electricity Board.

The Tribunal analyzed the market value of electricity transferred for captive consumption. It noted that the windmills' electricity was not directly used by the yarn manufacturing unit, and the pricing was influenced by regulatory restrictions. The Tribunal found that the Rs. 3.50 rate corresponded to the market value, considering the industrial consumer status of the appellant and the Board's pricing. It disagreed with the A.O. and CIT(A), citing precedents supporting the appellant's case.

Ultimately, the Tribunal allowed the appeal, determining the profits based on the annual landing cost of electricity purchased from the Tamil Nadu Electricity Board. The decision aligned with previous Tribunal rulings in similar cases.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the market value of electricity for calculating deductions under Section 80-IA should be based on the actual cost of electricity purchased for captive consumption, rather than the selling price to the Electricity Board.