Tribunal directs recalculating deductions under section 80IA based on actual wind mill costs

The Tribunal allowed the appeal of the assessee, emphasizing the importance of considering the actual costs saved by investing in wind mills for captive consumption of power. The decision directed the Assessing Officer to re-compute deductions under section 80IA by adopting the actual cost of Rs. 5.50 per unit instead of the hypothetical purchase price of Rs. 2.90 per unit.

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Issues:
- Appeal against the order of the Commissioner of Income Tax (Appeals)
- Determination of profit generated by captive consumption of power
- Transfer pricing calculations for power purchase
- Consideration of costs saved by investing in wind mills

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2015-16. The assessee, a partnership firm running spinning mills, had generated electricity from wind mills for captive consumption. The dispute arose regarding the quantification of profit generated through captive consumption of power. The assessee adopted a cost of Rs. 5.50 per unit, equivalent to the rate at which the Tamil Nadu Electricity Board supplied electricity. However, the Assessing Officer used a figure of Rs. 2.90 per unit, the purchase price of power by the Electricity Board from other wind mill owners. The contention was that the actual profit should be determined based on the rate at which the assessee was supplied electricity, i.e., Rs. 5.50 per unit. The Tribunal referenced a previous case to emphasize the need for adopting the correct cost incurred by the assessee in such situations.

Regarding transfer pricing calculations, it was argued that the Assessing Officer should consider the actual costs saved by the assessee due to captive consumption, rather than the price at which the Electricity Board would purchase power from the wind mills. The Tribunal highlighted that the investment in wind mills allowed the assessee to save on purchasing power from the Electricity Board. The decision emphasized that it is the savings realized by the assessee that should be taken into account, not the hypothetical purchase price by the Electricity Board. The Tribunal directed the Assessing Officer to re-compute the deductions under section 80IA by adopting the figure of Rs. 5.50 per unit instead of Rs. 2.90 per unit.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of considering the actual costs saved by investing in wind mills for captive consumption of power. The judgment was pronounced in Chennai on 27th November 2019.

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