Market value for captively used windmill power u/s80-IA(8): consumer tariff accepted; eligible profits recomputed, appeal allowed.

For deduction under s. 80-IA in respect of a windmill undertaking where electricity was captively consumed, the dominant issue was determination of "market value" under s. 80-IA(8) for valuing inter-unit transfer of power. The Tribunal held that "market value" means value determined by market forces, which operates when the assessee purchases electricity from the State electricity board as a consumer; hence the board's consumer tariff reflected the market rate, not the lower rate at which the board purchases surplus power. The AO was directed to recompute eligible profits adopting Rs. 3.50 per unit, and the appeal was allowed in favour of the assessee.

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Issues:
Calculation of eligible profit under section 80-IA based on market value of power generated by the windmill undertaking.

Analysis:
The case involved an appeal by the assessee, a textile manufacturing company with a windmill undertaking eligible for deduction under section 80-IA of the Income-tax Act, 1961 for the assessment year 2007-08. The dispute arose from the method used by the assessing officer to compute the eligible profit of the windmill unit based on the market value of the power generated. The assessing officer considered the market value of power at Rs. 2.70 per unit, whereas the assessee claimed it to be Rs. 3.50 per unit, leading to a difference in the eligible profit calculation.

The assessing officer relied on section 80-IA(8) to determine the market value of the power generated by the assessee at Rs. 2.70 per unit, emphasizing that the provision prevents over-invoicing of goods to inflate profits. However, the assessee argued that the market value should be Rs. 3.50 per unit, considering the rate at which the Tamil Nadu Electricity Board supplied power to industrial units. The contention was supported by a judgment of the jurisdictional High Court, emphasizing the value of savings from captive consumption based on the price the assessee would have paid otherwise.

The Tribunal referred to a similar case where the market value for captive consumption of power was determined based on the rate charged by the State Electricity Board, not the price at which power was supplied by the assessee. It was highlighted that in cases of captive consumption, there is no sale or purchase involved, resembling a barter exchange, and market price considerations apply when buying power from external sources.

The Tribunal concluded that in the context of captive consumption, the market value of power generated by the assessee should be considered as Rs. 3.50 per unit, as determined by the price charged by the Tamil Nadu Electricity Board for power supply. Therefore, the Tribunal allowed the appeal, directing the assessing authority to recompute the eligible profit of the windmill unit based on the market price of electricity generated by the assessee at Rs. 3.50 per unit.

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