Income Tax Appellate Tribunal - Chennai
Sri Velayudhaswamy Spinning Mills (P) ... vs Assessee on 22 February, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'D', CHENNAI
BEFORE
Dr. O.K.NARAYANAN, VICE PRESIDENT
and
SHRI HARI OM MARATHA, JUDICIAL MEMBER
.....
ITA No.850(Mds)/2011
Assessment Year: 2007-08
M/s. Sri Velayudhaswamy The Deputy Commissioner
Spinning Mills (P) Ltd., of Income-tax,
207/86, Mangalam Road, Vs. Company Circle,
Karuvampalayam, Tirupur. Tirupur.
PAN AADCS0676C.
(Appellant) (Respondent)
Appellant by : Shri T.Banusekar, C.A.
Respondent by: Shri Anirudh Rai, CIT DR.
ORDER
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:
This appeal is filed by the assessee. The relevant assessment year is 2007-08. The appeal is directed against the
-2 - ITA No.850(Mds)/2011 order of the Commissioner of Income Tax (Appeals)-II at Chennai dated 22-2-2011 and arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961.
2. The assessee is a textile manufacturing company. It is having a windmill undertaking as an independent division. The windmill undertaking is entitled for the benefit available under section 80IA of the Act. The assessee accordingly claimed deduction for the impugned assessment year.
3. The electricity generated by the windmill establishment of the assessee is collected by the Tamil Nadu Electricity Board on a special arrangement. The Tamil Nadu Electricity Board collected the electricity from the generating point of the assessee and releases to the assessee company whenever required. This practice is followed by the Tamil Nadu Electricity Board to promote the involvement of industries in generating power necessary for their units. The Tamil Nadu Electricity Board is collecting the electricity from the generation point of a particular industrial unit and supplies to the same unit at the time of requirement. The assessee also had entered into such an agreement with the Tamil Nadu Electricity Board.
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4. When Tamil Nadu Electricity Board takes over the electricity generated by the assessee unit, it pays for the power at the rate of `. 2.70 per unit. Tamil Nadu Electricity Board charges at the rate of `. 3.50 per unit when power is supplied to industrial units. One point is to be remembered at this juncture. As far as captive consumption of power is concerned, the assessee has to pay nothing. If the assessee has given 100 units of electricity to the Tamil Nadu Electricity grid, the assessee can take back 100 units of power without making any payment. That is, the assessee has nothing to pay for captive consumption. If the Tamil Nadu Electricity Board is paying `. 2.70 per unit, the assessee also has to pay only `. 2.70 per unit for captive consumption. But, if the assessee is consuming more than its contribution, then the Tamil Nadu Electricity Board charges `. 3.70 per unit. In the present case the assessee has consumed power more than its contribution. Therefore in all such excess consumptions the assessee has paid `. 3.50 per unit to the Tamil Nadu Electricity Board.
5. In the above background, the assessee computed its profit eligible for the deduction under section 80IA adopting
-4 - ITA No.850(Mds)/2011 the market price of the power generated by it at `. 3.50 per unit. This is on the ground that the Tamil Nadu Electricity Board is supplying power at the rate of `.3.50 per unit and in the absence of any other quoted rate in the market, the same should be considered as the sale price of the power in the market. Accordingly the assessee company computed the eligible profit adopting the market rate of energy produced by it at the rate of `.3.50 per unit.
6. But the Assessing Officer held the view that while the assessee is delivering the power to the Tamil Nadu Electricity Board, the assessee is paid only `. 2.70 per unit and therefore that price of `.2.70 per unit should be taken as the market price of the power generated by the assessee. The Assessing Officer computed the eligible profit of the assessee company on the basis of the price of the power at `. 2.70 per unit. The Assessing Officer reduced the sale price of the power at 80 paise per unit. To that extent the quantum of the eligible profit of the assessee has come down. This grievance of the assessee was taken in first appeal but not successful. The assessee is aggrieved and therefore in appeal before us.
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7. We heard Shri T.Banusekar, the learned Chartered Accountant appearing for the assessee and Shri Anirudh Rai, the learned Commissioner of Income-tax, appearing for the Revenue.
8. The assessing authority has adopted the price of power at `. 2.70 per unit in the light of the provisions of law stated in section 80IA(8). Sub-section(8) of section 80IA provides that where any goods are transferred to any other business carried on by the assessee or any goods are transferred to the eligible business, in either case the consideration for the transfer recorded in the books of accounts if not corresponds to the market value of such goods, the assessing authority shall compute the eligible profit on the basis of the market value of such goods. It means that sub-section(8) of section 80IA does not allow an assessee to inflate the profit of its eligible unit by over invoicing the goods transferred or under- invoicing of goods bought in. It is a safeguard against misuse of the existing provision. The Assessing Officer took the market value of the power generated by the assessee at `.2.70 per unit and not `. 3.50 per unit as claimed by the assessee and thereby
-6 - ITA No.850(Mds)/2011 the assessee has overstated the price of the goods sold by it so as to boost the profit of its eligible unit, which in this case is windmill unit.
9. The rule applicable in determining the market value in a similar context has been discussed by the Hon'ble jurisdictional High Court in the case of Commissioner of Income- tax, Madurai vs. Thiagarajar Mills Ltd., Kappalur, Madurai. While delivering the judgment in Tax Case(Appeal) Nos.68 to 70 of 2010 dated 7-6-2010 their Lordships have held as under:-
"9. Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derive profit and gains by working out the cost of such consumption of power inasmuch as the assessee is able to save to that extent which would certainly be covered by section 80IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, we do not find any lack of
-7 - ITA No.850(Mds)/2011 merit in the claim of the respondent/assessee when it claimed by relying upon section 80IA(1) of the Income- tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profit and gains for the relevant assessment years."
10. A careful reading of the above paragraph brings home the point that the Hon'ble High Court has looked into the point of savings made by the assessee by using its own power and the valuation of that savings made on the basis of the price otherwise the assessee should have paid. The ratio is very clear. The value of the power generated and consumed by the assessee will be that value that should have been paid by the assessee if the power was bought from open market. When the above case is applied to the present case, the case of the assessee has to be accepted that the market value should be treated as `.3.50 per unit of electricity.
11. Exactly this issue was considered by the Delhi Bench-I of the Tribunal in the case of Additional Commissioner of Income-tax vs. Jindal Steel & Power Ltd., 16 SOT 509. In that
-8 - ITA No.850(Mds)/2011 case also one of the issues raised was valuation of the power generated by the eligible unit. In that case the power generated by the assessee was used by it for own consumption as well as for sale to the State Electricity Board. The Tribunal held that the rate at which the State Electricity Board supplies power to its consumers is to be considered to be the market value for transfer of power by the assessee's electricity generating undertaking for captive consumption for the purposes of section 80IA(8) and not the price at which power is supplied by the assessee to the Board.
12. Further, as far as captive consumption of power is concerned, the assessee is neither selling nor buying electricity. The quantum of power contributed by the assessee to the Tamil Nadu Electricity Board can be availed as such by the assessee for which no additional payment is to be made. If the assessee has received `. 2.70 per unit, the assessee has to pay only `. 2.70 per unit. It is a kind of commodity banking, or in economic term, barter exchange of same good. Therefore, defacto speaking, there is no sale and purchase. In such circumstances there is no market price at all.
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13. Market price comes into play only when the assessee is buying power from the Tamil Nadu Electricity Board just like any other consumer. Tamil Nadu Electricity Board is the supplier and the assessee is the consumer and there is no question of commodity banking or barter exchange. Tamil Nadu Electricity Board sells power to the assessee in the usual course of its business and the assessee buys the power like any other consumer in the market. It is in that context that the question of market price arises. In such a scenario what is the price collected by the Tamil Nadu Electricity Board? The price is `.3.50 per unit. Therefore it is obvious that the market price of the power generated by the assessee is `.3.50 per unit. The expression used in section 80IA(8) is "market value". Market value means the value determined by market forces. In the captive consumption of power generated by the assessee company no market force is operating. Market forces come into picture only when the assessee buys power from Tamil Nadu Electricity Board like any other consumer. The value paid for such consumption is the market value. In the present case that is `. 3.50 per unit.
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14. Therefore we accept the contention of the assessee and set aside the orders of the lower authorities on this issue. The assessing authority is directed to recompute the profit and gains of the eligible unit for the purpose of section 80IA on the basis of the unit price of electricity generated by the assessee company at `. 3.50 per unit.
15. In result this appeal filed by the assessee is allowed.
Order pronounced in the open Court at the time of hearing on Wednesday, the 13th day of July, 2011 at Chennai.
Sd/- Sd/-
(Hari Om Maratha) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated the 13th July, 2011.
V.A.P.
Copy to: (1) Appellant
(2) Respondent
(3) CIT
(4) CIT(A)
(5) D.R.
(6) G.F.