Revenue's appeal dismissed as market value for power under section 80IA determined by State Electricity Board rates to industrial consumers, not regulatory tariffs

The ITAT Chennai dismissed Revenue's appeal regarding determination of market value for power supplied under section 80IA deduction. Following SC precedent in Jindal Steel Power Limited, the tribunal held that market value should be computed based on rates at which State Electricity Board supplied power to industrial consumers in open market, not rates fixed by Tariff Regulatory Commission for generating companies. The assessee's adoption of average price of Rs.5.60 per unit from electricity purchased from Tamil Nadu Electricity Board was upheld as proper market value determination for section 80IA deduction calculation.

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Issues Involved:
1. Determination of the market value for computing deduction under section 80IA of the Income Tax Act, 1961.
2. Whether the rate fixed by the Tariff Regulatory Commission or the rate charged by the State Electricity Board should be considered for the market value of electricity generated by the assessee for captive consumption.

Issue-Wise Detailed Analysis:

1. Determination of the Market Value for Computing Deduction under Section 80IA of the Income Tax Act, 1961:

The primary issue revolves around the appropriate rate to be applied for the market value of electricity generated by the assessee's windmills for captive consumption. The assessee, engaged in manufacturing cotton yarn and fabrics, claimed a deduction under section 80IA of the Act based on the average price of electricity purchased from the open market, which was Rs. 5.60 per unit. The Assessing Officer (AO), however, restricted the deduction by applying the rate fixed by the Tariff Regulatory Commission of Tamil Nadu at Rs. 2.75 per unit.

The assessee contended that the market value should be determined based on the rate at which electricity is purchased from private power producers and the Tamil Nadu Electricity Board, arguing that this rate represents the open market value. The AO disagreed, stating that the market value should reflect the rate at which electricity could be sold to a distribution licensee, considering transmission losses and distribution costs.

The CIT(A) allowed the assessee's claim, relying on several judicial precedents, including decisions from the Jaipur ITAT Bench, Chennai ITAT, and the Hon'ble High Courts of Chhattisgarh and Gujarat. The CIT(A) held that the rate at which the State Electricity Board or power distribution companies sell power to industrial consumers should be adopted as the open market value.

2. Whether the Rate Fixed by the Tariff Regulatory Commission or the Rate Charged by the State Electricity Board Should be Considered for the Market Value of Electricity Generated by the Assessee for Captive Consumption:

The Revenue appealed against the CIT(A)'s order, arguing that the market value should be based on the realizable value from selling the power in the open market, considering transmission losses and distribution costs. The Revenue contended that the assessee artificially increased profits from eligible undertakings for deduction under section 80IA.

However, the Tribunal upheld the CIT(A)'s decision, referring to the Hon'ble Supreme Court's judgment in CIT v. Jindal Steel & Power Limited, which clarified that the market value should be the rate at which the State Electricity Board supplies electricity to industrial consumers, not the rate at which electricity is sold to the State Electricity Board. The Supreme Court emphasized that the market value denotes the price determined in an environment of free trade or competition, where the transaction occurs in the normal course of trading.

The Tribunal noted that the assessee's adoption of Rs. 5.60 per unit, based on the average rate of electricity purchased from the Tamil Nadu Electricity Board and private producers, was justified. The Tribunal also highlighted that the AO had allowed the deduction under section 80IA for the initial year (AY 2011-12) and subsequent years (AY 2020-21) based on similar computations.

Conclusion:

The Tribunal dismissed the Revenue's appeals for all three assessment years (2015-16, 2017-18, and 2018-19), affirming that the rate at which the State Electricity Board supplies electricity to industrial consumers should be taken as the market value for computing the deduction under section 80IA of the Income Tax Act, 1961. The Tribunal's decision aligns with the Hon'ble Supreme Court's interpretation of "market value" in the context of section 80IA.

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