Market value for captive power transfers, depreciation option, and retracted statements: assessee's claims upheld on all issues.

For Section 80-IA(8), electricity transferred from a captive power unit to the assessee's other business had to be valued at the consumer-side market price ordinarily obtainable in the open market, not at the lower compulsory sale price to the State Electricity Board; the assessee's computation was therefore upheld. Rule 5(1A) did not require a separate prescribed-form option for WDV depreciation, and timely indication in the return was sufficient. A disallowance based on retracted search statements also failed because later material supported the expenditure, cross-examination was not afforded, and the factual findings were not perverse. The revenue challenge accordingly failed.

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Issues: (i) Whether, for computing deduction under Section 80-IA, the market value of electricity transferred from the captive power undertaking to the assessee's other business should be taken as the price at which surplus power was sold to the State Electricity Board or the price at which the Board supplied electricity to industrial consumers. (ii) Whether the assessee was required to make a separate exercise of option in a particular form to avail depreciation under the WDV method under Rule 5(1A) of the Income-tax Rules, 1962. (iii) Whether the expenditure paid to Shri S.K. Gupta and his group of companies could be disallowed on the basis of retracted statements recorded during search.

Issue (i): Whether, for computing deduction under Section 80-IA, the market value of electricity transferred from the captive power undertaking to the assessee's other business should be taken as the price at which surplus power was sold to the State Electricity Board or the price at which the Board supplied electricity to industrial consumers.

Analysis: Section 80-IA(8) requires intra-assessee transfers to be taken at market value, meaning the price goods would ordinarily fetch in the open market. The price at which surplus electricity was compulsorily sold to the State Electricity Board under the statutory regime and power purchase arrangement was not a price formed in an open competitive market. By contrast, the tariff charged by the Board to industrial consumers represented the price at which electricity was available to a consumer in the market environment relevant to the assessee's captive unit. The transfer value had therefore to be aligned with that consumer-side market price, not the contracted sale price to the Board.

Conclusion: The issue is answered in favour of the assessee and against the revenue.

Issue (ii): Whether the assessee was required to make a separate exercise of option in a particular form to avail depreciation under the WDV method under Rule 5(1A) of the Income-tax Rules, 1962.

Analysis: Rule 5(1A) permits an eligible undertaking to opt for depreciation under Rule 5(1) read with Appendix I instead of Appendix IA, provided the option is exercised before the due date for furnishing the return. The rule does not prescribe any special or formal mode of exercising the option. The assessee had indicated the choice in the return filing process within time, which satisfied the statutory requirement.

Conclusion: The issue is answered in favour of the assessee and against the revenue.

Issue (iii): Whether the expenditure paid to Shri S.K. Gupta and his group of companies could be disallowed on the basis of retracted statements recorded during search.

Analysis: The disallowance rested on statements later retracted by affidavit and followed by a subsequent statement reiterating the rendering of services. The revenue did not effectively dislodge this later material, and the assessee was not afforded cross-examination on the basis of the retracted statement. On the record, the Tribunal's factual finding that the expenditure was supported could not be said to be perverse.

Conclusion: The issue is answered in favour of the assessee and against the revenue.

Final Conclusion: The common challenge raised by the revenue fails on the issues decided, and the deductions and expenditure reliefs upheld by the Tribunal and the High Courts remain undisturbed.

Ratio Decidendi: For Section 80-IA(8), market value means the price ordinarily obtainable in an open competitive market, and a statutory or contracted transfer price to a dominant buyer cannot be treated as that market value for computing eligible profits.

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