9911796707
TMI Blog2007 (6) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 shown by the assessee in its books of account." 3. The assessee is a public limited company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of generation of electric power, manufacture of sponge iron, M.S. Ingots etc. The Assessing Officer in the case of assessment proceedings for the assessment year under consideration i.e. 2001-02 carried out verification exercise of the deposits received by the assessee from public. The Assessing Officer found that in case of four persons, there was variation in the amount of deposits shown by the assessee and the amount shown by the concerned depositor. The difference amounting to Rs. 4,06,000 in relation to four parties was held assessable as income in terms of section 68 of the Income-tax Act, 1961 (in short, 'the Act'). The said addition has since been deleted by the CIT(A) against which the Revenue is in appeal before us. 4. Before us, the ld. Departmental Representative has relied upon the order of the Assessing Officer in support of the case of the Revenue. The ld. D.R. pointed out that the addition has been made by the Assessing Officer on the basis of verification exercise and, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sgarh). The power generated by the assessee was used by it for own consumption as well as for sale to the State Electricity Board (in short, 'the Board'). The Assessing Officer noted that the assessee received Rs. 2.32 for each unit of electricity supplied to the Board whereas for the power supplied to its own units for captive consumption, the assessee recorded it at Rs. 3.72 per unit, in other words, the profits of the undertaking engaged in the generation of power was computed by taking the sale price of power supplied to its own units at Rs. 3.72 per unit, whereas for the power supplied to the State Electricity Board the price was recorded at Rs. 2.32 per unit. The price recorded from the State Electricity Board was the actual price realized in terms of an agreement. In this background, the Assessing Officer was of the opinion that profits and gains of the undertakings engaged in generation of power was not correctly computed by the assessee. The Assessing Officer invoked the provisions of section 80-IA(8) of the Act in this regard. According to the Assessing Officer, the consideration recorded by the Power Generation Units for transfer of power to the other units of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The ld. Counsel pointed out that in terms of the mandate of the Indian Electricity (Supply) Act, 1948, the assessee could not sell its surplus power to a third party and, therefore, it supplied power to the Board at the price determined by the buyer. The ld. Counsel pointed out that section 80-IA(8) of the Act only mandates that the transfer price should correspond to the market value and that such market value has to be determined having regard to a free trade occurring between a willing buyer and willing seller. According to him, in the instant case, the price at which the power was bought by the Board could not be construed as a transaction between a willing buyer and a willing seller. The ld. Counsel referred to the provisions of the Indian Electricity (Supply) Act, 1948, wherein there are restrictions on the generation and distribution of power inasmuch as it stipulates that the power generated can be either captively consumed or supplied to the State at the stipulated rates. Our attention was drawn to the Paper Book wherein is placed relevant extracts of the Indian Electricity (Supply) Act, 1948 as also the Power Purchase Agreement between the assessee and the Board. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of the eligible business does not correspond to the market value, the profits declared of the eligible business can be adjusted by the Assessing Officer on such basis so as to ensure that goods or services transferred to its own unit is done at the market value of such goods or services. Ostensibly, in this case, the Assessing Officer was of the opinion that the consideration for transfer of power for captive consumption to other units has been recorded at a consideration which does not correspond to its market value. According to the the Assessing Officer, the consideration has been recorded at a price higher than the market value, in other words, the Assessing Officer does not perceive Rs. 3.72 per unit as the market value of the power generated by the assessee and instead adopts Rs. 2.32 per unit as the market value, being the price at which the assessee sells power to the Board. 13. Before we proceed further, it is also relevant to understand the implications of the expression "market value" as appearing in section 80-IA(8) of the Act. In the Explanation below section 80-IA(8), it is provided that the expression "market value" for the purposes of the sub-section means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the elements of trading and competition exist. Whereas in the case of the latter situation, the price fixed between the buyer and seller cannot be understood as denoting the market price since the elements of trade and competition are conspicuous by their absence. 16. To understand the contrasting situations, let us analyze the situation on hand. In this case, the assessee received consent under section 44A of the Electricity (Supply) Act, 1948 to establish and operate the captive power plant in terms of a Power Purchase-cum-Wheeling of Power Agreement dated 15-7-1999 entered between the State Electricity Board and the assessee. A copy of the said agreement has been placed in the paper book. Now, in terms of the Electricity (Supply) Act, 1948, the Legislature has put restrictions on establishment of power generating units and their functioning. The power generating units are allowed to use power for captive consumption and the surplus available, if any, is to be sold transferred to the State Electricity Boards. Section 43 of the Electricity (Supply) Act, 1948 only authorizes the State Electricity Board to enter into arrangements for purchase and sale of electricity under certain c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration would still be a commercially free area. Even where a control price is fixed, it is generally the ceiling which is fixed and not an invariable price. Be that as it may, to say that when agents of the State seize paddy grown by subjects under the authority of some law or regulation and pay for it at some rate fixed by themselves and much below the rate in the open market, they create a regulated or any kind of market at all, is if I may be permitted to use the strong expression, a misuse of language. The Tribunal even speak of the persons whose paddy is seized as "operating" in the regulated market. How any person who is seized by the neck and compelled to deliver his paddy and then dismissed with a trivial sum as its price can be said to operate in the market is beyond my comprehension." From the aforesaid, an analogy that can be safely deduced is that the market value cannot be the result of a transaction which has been entered into between a buyer and a seller in a situation where one of the parties is carrying the compulsive mandate of the Legislature. The situation before us is such wherein the aforesaid analogy can be usefully applied. As we have seen earlier, the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion cannot be said to be unrelated to the business purposes. In this connection, the details of the journey as well as the purpose for the same have been tabulated in the following manner:- DETAILS OF FLYING OF B-200 Particulars Hrs. Purpose Delhi-Pune 10.57 To visit Kirloskar Electric & Kirloskar Bros., Pune, the seller of the plane to discuss matters relating to the plane. Delhi-Tirupati 4.50 Delhi-Allahabad 5.67 To meet the prospective customers at that place. Delhi-Ludhiana 2.17 To meet the customers namely Aarti Steels Limited, Vardhman Special Steels Limited and others. Total 22.91 DETAILS OF FLYING OF C-90 DISALLOWED Particulars Hrs. Purpose Bhuj 37.45 The aircraft was mainly used for relief work after earthquake at Bhuj and there were certain visits to unit of Saw Pipes Limited for supplies. The relief work was undertaken as part of social responsibility. Nagpur 5.00 To meet the customers namely Sunvijay Rolling and Engineering Limited, Metalfab Hitech Private Limited and others. Lucknow 5.10 Visit to Research Design and Standard Organization (RDSO) in connection with meeting for the proposed setting up of Rail & Universal Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efineries Ltd. (supra) and Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. (supra), the expenditure is allowable as a deduction. We therefore, set aside order of the CIT(A) and direct the Assessing Officer to rework the disallowance in the aforesaid manner. The assessee partly succeeds on this ground. 24. In Ground No. 3, the issue is with regard to the premium payable to mutual fund which has been treated as income under section 28(iv) of the Act. The said ground has not been pressed on behalf of the assessee in the course of hearing. Accordingly, the same is dismissed as not pressed. 25. Ground No. 4 is in relation to the denial of depreciation on hydraulic excavator amounting to Rs. 27,71,704. On this aspect, the Assessing Officer noted that the assessee had purchased two excavators as under :- (i)Tata Hitachi EX-600 V Hydraulic Excavator for Rs. 1,10,74,752 vide bill dated 27-2-2001. (ii)Hyderabad Excavator H-55 for Rs. 1,10,98,880 vide bill dated 30-3-2001. Depreciation was claimed at half of the normal depreciation allowable on such assets since they were put to use for a period of less than 180 days. The Assessing Officer disallowed the depreciation on the ground that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
