2019 (4) TMI 1313 - HC - Income Tax

High Court affirms ITAT ruling on Section 80IA deduction for captive power plant; Revenue's challenge dismissed

The High Court of Madras upheld the decision of the Income Tax Appellate Tribunal, 'C' Bench, Chennai, allowing the deduction under Section 80IA of the ... Monetary limit - Deduction u/s 80IA - notional profits on account of power generated from its own captive power plant and utilized by itself - HELD THAT:-  When the matter is taken up for admission, the learned Standing Counsel brought to our notice the Circular instruction issued by the Central Board of Direct Taxes vide Circular No.3/2018 dated 11.7.2018 wherein it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed ₹ 50 lakhs. In the instant case, the tax effect is said to be less than the monetary limit imposed and therefore, the appeal filed by the Revenue is dismissed as not pressed, keeping open the substantial questions of law for determination in an appropriate case. Issues:1. Entitlement to deduction under Section 80IA of the Act for notional profits from captive power plant.2. Consideration of notional profit vs. actual profit in claiming deduction under Section 80IA.Analysis:1. The High Court of Madras addressed the first issue regarding the entitlement to deduction under Section 80IA of the Act for notional profits from a captive power plant. The Revenue challenged the order of the Income Tax Appellate Tribunal, 'C' Bench, Chennai, questioning the correctness of allowing the deduction. The Tribunal had to determine whether the assessee could claim a deduction for notional profits on power generated from its captive power plant and used internally. The key question was whether such notional profits were eligible for deduction under Section 80IA of the Act.2. The second issue involved in the case was whether the Tribunal erred in overlooking the distinction between notional profits and actual profits in the context of claiming deductions under Section 80IA. The Revenue contended that since the electricity generated was not sold by the assessee, the profit or gain derived by the unit could not be accurately computed. The Revenue argued that the amount claimed by the assessee as a deduction under Section 80IA was based on notional profits and did not reflect the actual profit earned by the eligible unit. The Tribunal's decision to allow the deduction based on notional profits was challenged, raising the question of whether such deductions should be based on actual profits rather than notional ones.3. The High Court considered the Circular instruction issued by the Central Board of Direct Taxes, which specified that appeals should not be pursued before the High Court if the tax effect did not exceed a certain monetary limit. In this case, the tax effect was found to be below the specified limit, leading to the dismissal of the appeal filed by the Revenue. However, the Court kept the substantial questions of law open for determination in a suitable case, indicating that the issues raised regarding the deduction under Section 80IA for notional profits from a captive power plant could be revisited in the future under different circumstances.