2013-VIL-658-CHG-DT
CHHATTISGARH HIGH COURT
Tax Case No. 31 of 2012, Tax Case No. 34 of 2012, Tax Case No. 32 of 2012
Date: 02.08.2013
COMMISSIONER OF INCOME TAX
Vs
M/s GODAWARI POWER & ISPAT LTD.
For the Appellant : Shri Anand Dadariya
For the Respondent : Shri Shashank Dubey, Senior Advocate with Shri Anand Mohan Tiwari
BENCH
Shri Yatindra Singh, C.J. And Shri Pritinker Diwaker,JJ.
JUDGMENT
1. These cases deal with interpretation of sub-section (8) of section 80-IA {80-IA(8)} of the Income Tax Act, 1961 (the Act). It arises in the aforesaid three tax appeals under section 260-A of the Act, filed against the order of the Income Tax Appellate Tribunal, Bilaspur Bench Camp at Raipur (the Tribunal) dated 04.11.2011 dismissing the appeals of the Income Tax Department (the Department) as well as of M/s Godawari Power & Ispat Limited, Siltara, Raipur (the Assessee) in respect of the Assessment year (AY) 2004-05 to 2006-07.
THE FACTS
2. The Assessee manufactures iron and steel. It has established a Captive Power Plant (the CPP) to supply electricity to its manufacturing unit (the Steel-Division). The excess power is sold to the Chhattisgarh State Electricity Board (the Board).
3. The Assessee filed its return for the AYs 2004-05 to 2006-07 showing nil, Rs. 5,10,92,400/-, Rs. 91,08,876/- income respectively.
4. A search was conducted by the Department. Thereafter, the Assessing Officer (the AO) issued a notice to the Assessee under section 153-A of the Act to file revised return.
5. The Assessee filed its revised return, again showing nil income for the AY 2004-05, but showing Rs. 5,09,91849/- and Rs. 90,66,465/- income for the AYs 2005-06 and 2006-07 respectively.
6. The AO issued notice under section 143(2) and 142(1) of the Act on 18.07.2008 for the purpose of assessment. Thereafter, he passed three separate assessment orders on 31.12.2008 assessing the income to Rs. 6,38,61,156/- Rs. 13,85,04,890/- and Rs. 12,79,18,784/- respectively for the AYs 2004-05 to 2006-07.
7. Among others, the AO computed the market value of the power supplied to the Steel-Division and disallowed the difference between the market value claimed by the Assessee and the market value assessed by him.
8. Aggrieved by the aforesaid orders, the Assessee filed appeals before the Commissioner of Income Tax (Appeals) (the CIT-A). These appeals were partly allowed by a common order on 19.01.2010.
9. The CIT-A held that the market value of the power supplied to the Steel-Division to be the same as claimed by the Assessee. There were some other points as well that were decided against the Assessee.
10. Aggrieved by the aforesaid order, the Department as well as the Assessee filed three appeals each in respect of three AYs before the Tribunal.
11. The Tribunal by a common order dated dismissed the appeals on 04.11.2011. Hence, the present three appeals by the Department.
POINT FOR DETERMINATION
12. We have heard counsel for the parties.
13. Tax case-32 of 2012 is in respect of AY 2005-06. This appeal was admitted on 10.12.2012 on the following substantial question of law:
'Whether on the facts and in the circumstances of the case, the "market value", as specified in Section [80-IA (8)] of the Act would be the same as the "sale price" of the State Electricity Board when the assessee did not incur any transmission loss or administrative or any other charges which the State Electricity Board has to incur for the same?'
14. The remaining two appeals namely, Tax case-31 and 34 of 2012 are in respect of AYs 2004-05 and 2006-07. These appeals are not admitted, but the counsel for the Department states that in these two appeals also, he is pressing the aforesaid substantial question only.
15. Considering the statement of the Department, these appeals are formally admitted on the aforesaid substantial question and with consent of the parties, are being decided.
THE DECISION: MARKET VALUE IS SAME AS SALE PRICE OF BOARD
16. Section 80-IA of the Act is titled as 'Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc'. The CPP of the Assessee has claimed deductions under this section.
17. Clause (iv) of sub-section (4) of 80-IA {80-IA (4) (iv)} (See Appendix-1) of the Act provides that an undertaking involved in generation or distribution of power is entitled to claim deduction under section 80-IA of the Act.
18. It is admitted case that the CPP of the Assessee qualifies for claiming deductions under this sub-section 80-IA (4) (iv) of the Act.
19. Sub-section (8) of section 80-IA {80-IA (8)} (See Appendix-1) of the Act provides that for the purposes of deduction under this section profits and gains of eligible business are to be computed as if the transfer was done on the market value on that date.
20. The proviso to section 80-IA (8) of the Act requires the AO to compute the profits and gains in the manner already proved. And in case the manner presents exceptional difficulties then the AO is empowered to compute profits and gains on such reasonable basis as he may deem fit.
21. Explanation to section 80-IA (8) of the Act provides 'market value' to mean the price that such goods would ordinarily fetch on sale in the open market.
22. The Assessee had sold power to the Steel-Division at the rate of Rs. 3.30/- per unit for AY 2004-05 and Rs. 3.75/- per unit for AYs 2005-06 and 2006-07
23. The AO computed the market value of power under section 80-IA (8) read with its proviso and the explanation. He considered the rate charged by the Chhattisgarh Electricity Company Limited, Raipur (the Chhattisgarh-Company) for supply of electricity to the Board and held the market value of the power to be Rs. 2.25/- per unit for the AY 2004-05 and 2005-06; and Rs. 2.32/- per unit for the AY 2006-07.
24. The market value computed by the AO was less than the value claimed by the Assessee, he (the AO) dis-allowed the difference and added it in the income of the Assessee.
25. In Chhattisgarh, a consumer can utilise the power produce by its own captive power generating unit or it can buy power from the Board. No other entity can supply power to any consumer in the State: a consumer cannot purchase electricity from any other person.
26. The Board was charging @ Rs. 3.30/- per unit in the AY 2004-05 and @ Rs. 3.75/- per unit in the AYs 2005-06 and 2006-07 from industrial units. The CPP of the Assessee also charged the same amount from its Steel- Division. As both were same, the CIT-A held this is to be the market value. The Tribunal has upheld this finding.
27. The counsel for the Department submits that:
• The Chhattisgarh-Company is situate in the same area and the price for which it sold power to the Board was relevant;
• The AO rightly compared it for calculating the market value of the power supplied to the Steel-Division;
• The rate charged by the Board cannot be taken into account as it includes wheeling and transmission charges.
28. The Chhattisgarh-Company is a company which is generating power. It is neither consumer of the electricity, nor it is supplying power to a consumer. It also cannot sell power to any consumer directly: it has to compulsorily sell it to the Board.
29. The power sold by the Chhattisgarh-Company to the Board is a sale to a company which itself supplies power to the consumers. It is not sale of power to the consumer.
30. The Steel-Division of the Assessee is a consumer. The CPP of the Assessee supplies electricity to the Steel-Division. Had the Steel-Division not taken power from the CPP then it had to purchase power from the Board. The CPP has charged the same rate from the Steel-Division that the Steel-Division had to pay to the Board if the power was purchased from the Board.
31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel- Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market.
32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.
33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power.
34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders.
35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals have no merit. They are dismissed.
APPENDIX-1
The relevant part of section 80-IA of the Income Tax Act, 1961 is as follows:
'Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. …
(4) This section applies to—
(iv) an undertaking which,—
(a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2011;
...
(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date:
Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.
Explanation—For the purpose of this sub-section, “market value”, in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.'
HEADLINES
Rate of sale to a consumer by Board is market value of power.
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