Telangana High Court
The Commissioner Of Income Taxiv, ... vs M/S Nava Bharat Ventures Ltd., ... on 18 June, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
INCOME TAX TRIBUNAL APPEAL NO.251 OF 2014
JUDGMENT:(per Hon'ble Sri Justice Narsing Rao Nandikonda) This appeal has been filed under Section 260A of the Income Tax Act, 1961 (for short, 'the Act, 1961') aggrieved by the order, dated 20.07.2012 in ITA No.1095/Hyd/2009, dated 20.07.2012, passed by the Income-Tax Appellate Tribunal, Bench 'B', Hyderabad, (for short, 'the Tribunal') for the Assessment Year 2006-2007.
2. Brief facts of the case are that the assessee is a limited company engaged in the business of manufacture of Ferro alloys, sugar, fabrication of equipment and generation of power. For the Assessment Year 2006-2007, the assessee filed its returnliss showing income of Rs.1,71,89,000/- and in the said returns, the assessee has claimed deduction of Rs.44,91,17,391/- under Section 80-IA of the Act, 1961 in respect of profits from power generation units of different Villages. In support of deduction, the assesse has filed Form No.10 CCB, dated 27.11.2006, for each unit. During the assessment proceedings by the Assessing Officer, the assessee 2 PSKJ & NNRJ Itta_251_2014 claimed 100% deduction under Section 80-IA of the Act, 1961, under which the parties can claim only for captive consumption and not for sale of power to any outside party. In the Assessment Order for the Assessment Years 2004-2005 and 2005-06, the claim of deduction under Section 80-IA of the Act, 1961 was disallowed as assessee is not eligible for deduction under Section 80-IA of the Act, 1961 to a tune of Rs.37,34,55,899/- in respect of captive power plants for this assessment year. Further, the Assessing Officer has restricted the deduction claimed by the assessee under Section 80-IA of the Act, 1961 from Rs.44,92,04,891/- to Rs.7,57,48,992/- by invoking the provisions of Section 80-IA(8) and Section 80- IA(10) of the Act, 1961 and also observed that the Power Plants, which were set up are only for Captive Consumption and that the APSEB has granted sanction only for the purpose of Captive Consumption. Since the main objective for setting up of power plant is for Captive Consumption, the Assessing Officer disallowed the entire claim of deduction under Section 80-IA of the Act, 1961. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-V, Hyderabad. The CIT(A) vide order 3 PSKJ & NNRJ Itta_251_2014 dated 24.08.2009 in ITA No.0169/DC-16(1)/CIT(A)-V/2008-09, keeping in view the decision of the Hon'ble jurisdictional High Court held that it would be just and fair to adopt the prevailing rate of Rs.2.12 per unit which was adopted in the preceding year, and thus directed to compute the sale proceeds arising from consumption of power in own units. Aggrieved by the said order of the CIT (A), the Department as well as the assessee preferred appeals before the learned Income Tax Appellate Tribunal (ITAT).
3. The learned ITAT vide its consolidated order, dated 20.07.2012 disposed of the appeals granting relief to the assessee directing the Assessing Officer to re-compute the deduction allowable under Section 80-IA of the Act, 1961 by adopting Rs.2.53 per unit as per prevailing market rate. Further, the ITAT also held that the assesse is entitled for deduction as per the provisions of sub-Section (8) of Section 80- IA of the Act, 1961, in spite of the fact that major portion of the power generated by the assesse is utilized for captive consumption and only a small portion of the power is sold to AP TRANSCO and thereby the appeal filed by the revenue was dismissed.
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PSKJ & NNRJ Itta_251_2014
4. The main contention of the appellant is that the Assessing Officer restricted the deduction claimed by the assessee under Section 80-IA of the Act, 1961 from Rs.44,92,04,891/- to Rs.7,57,48,992/- by invoking the provisions of Section 80-IA(8) and Section 80-IA (10) of the Act, 1961. He further submitted that the Assessing Officer observed that the power plants were set up for Captive Consumption and the APSEB has granted sanction only for the purpose of Captive Consumption. Since the main objective for setting up of power plant is for captive consumption, the Assessing Officer disallowed the entire claim of deduction under Section 80-IA of the Act, 1961.
5. On the other hand, learned counsel for respondent while supporting the orders passed by the CIT (A) and the ITAT contending that the power which was transferred from power unit to ferro is to be charged with recovery rate of power and not at which the power purchased by AP TRANSCO from assessee. He further argued that the power generating companies are supplying power at rates varying between Rs.2.21 to 3.15 per unit. He further contended that the CIT(A) agreed with the assessee's contention that the assesse is 5 PSKJ & NNRJ Itta_251_2014 entitled to avail deduction under Section 80-I of the Act, 1961 on the profit earned from the captive consumption power plant. Though the CIT has not accepted, there is contention that the assesse during the relevant assessment year has supplied the power for Rs.2.53 per unit. In support of his contentions he also placed reliance on the judgment of the Hon'ble Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Limited (and connected appeals) 1, wherein at paragraphs 24, 25, 26, 27 and 28 it was held as under:
"24. Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand.
25. Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80 IA would mean the price of such goods determined in an environment of free trade or competition. "Market value" 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. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply.
26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be 1 (2024) 460 ITR 162 6 PSKJ & NNRJ Itta_251_2014 determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. 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.
27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit.
28. 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 7 PSKJ & NNRJ Itta_251_2014 supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act...."
6. Learned counsel for the respondent has further contended that if the assessee company involved in manufacture of Ferro Alloys, sugar, fabrication of equipment and generation of power, the assessee is entitled for disallowance of claim of deduction under Section 80-IA of the Act, 1961.
7. Having considered the entire material placed before this Court and also the ratio laid down by the Hon'ble Supreme Court in Jindal Steel and Power Limited's case (supra), this Bench opines that there is force in the argument of learned counsel for the respondent that power plant has been set up for generating captive consumption of power for its own Units and not to make profits out of its own consumption. The learned Commissioner of Income Tax (Appeals)-V, Hyderabad has rightly considered the factual aspects of the case and adopted the rate at Rs.2.53 per unit, as per the market rate for the current year in respect of power consumed internally and the same was confirmed by the Income Tax Department, Hyderabad 8 PSKJ & NNRJ Itta_251_2014 and directed the Assessing Officer to change rate from Rs.2.53 per unit as per Section 80-IA of the Act, 1961.
8. Considering the entire material placed on record and the judgment of the Hon'ble Supreme Court referred to above, this Bench opines that the appellant has not made out any valid ground calling interference of the impugned order. The question of law stands decided in favour of the assessee and against the appellant. For the said reasons, there are no grounds to interfere with the impugned order and accordingly, the appeal is liable to be dismissed.
9. Accordingly, the appeal is dismissed. There shall be no order as to costs.
Miscellaneous petitions, if any, pending in this appeal shall stand closed.
________________________________ JUSTICE P.SAM KOSHY ________________________________________ JUSTICE NARSING RAO NANDIKONDA Date:18.06.2025 YVL