Captive power valuation for eligible-unit deductions follows industrial consumer rates, while export-linked incentives remain taxable as revenue receipts.
For the section 80-IA deduction, captive power supplied to industrial units is valued at the rate charged to industrial consumers, rather than the generator's sale rate to a supplier. Common head-office expenses may be allocated by reference to fixed assets in a capital-intensive business, rather than profitability. An appellate authority may entertain a claim first raised during assessment even if it was not made in the return or a revised return. Merchandise export incentives are taxable as revenue receipts where their purpose is to offset export costs and improve competitiveness, and the rewards are freely usable rather than restricted to capital investment or expansion.
Issues: (i) Whether the transfer value of captive power supplied to non-eligible units warranted a downward adjustment for computing the eligible-unit deduction; (ii) whether common head-office expenses should be allocated to eligible units by reference to fixed assets or profitability; (iii) whether an appellate authority could entertain a claim not made in the return or a revised return; (iv) whether the merchandise export incentive was taxable as a revenue receipt.
Issue (i): Whether the transfer value of captive power supplied to non-eligible units warranted a downward adjustment for computing the eligible-unit deduction.
Analysis: For computing the deduction under section 80-IA, the applicable market value was assessed by reference to the electricity rate charged to industrial consumers. The adopted precedent distinguished that consumer rate from the rate at which a power generator sells electricity to a supplier.
Conclusion: The downward adjustment of Rs. 139,01,47,760 was directed to be deleted, in favour of the assessee.
Issue (ii): Whether common head-office expenses should be allocated to eligible units by reference to fixed assets or profitability.
Analysis: Allocation by fixed assets had been consistently followed in earlier years. The adopted reasoning treated profitability as a flawed allocation basis and recognised an asset-based allocation as appropriate for a capital-intensive business.
Conclusion: The additional allocation of Rs. 49,86,132 was directed to be deleted, in favour of the assessee.
Issue (iii): Whether an appellate authority could entertain a claim not made in the return or a revised return.
Analysis: Jurisdictional precedent concerning the appellate authority's power to entertain a new claim was applied to the claim first raised during assessment.
Conclusion: The assessee was entitled to raise the claim before the appellate authority, in favour of the assessee.
Issue (iv): Whether the merchandise export incentive was taxable as a revenue receipt.
Analysis: Applying the purpose test and section 2(24)(xviii), the adopted Special Bench reasoning identified the incentive's purpose as offsetting export-related costs and improving competitiveness. The rewards were linked to exports and were freely usable rather than required to be applied to capital investment or expansion.
Conclusion: The incentive was taxable as a revenue receipt, against the assessee.
Final Conclusion: The eligible-unit deduction is to be computed without the challenged transfer-price and expense-allocation reductions, while the export incentive remains taxable.
Ratio Decidendi: For computing the section 80-IA deduction, captive power supplied to industrial units is valued by reference to the rate charged to industrial consumers, rather than the rate at which power is sold to a supplier.