TaxTMI 
TaxTMI 
2018 (1) TMI 1658
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts made by it for the immediate working capital needs of the sister concern. According to the Ld. counsel, the assessee advanced working capital to sister concern is not in dispute. Merely because the borrowed funds were not used for the business of the assessee, the Assessing Officer disallowed the notional interest of Rs. 7,17,500/-. According to the Ld. counsel, using the borrowed funds for the business of the sister concern would also amount to using the funds for the business purpose of the assessee. Apart from that, according to the Ld. counsel, the Assessing Officer has not examined the claim of the assessee that sufficient interest funds and profits were available for the purpose of making investment in the sister concern. 3. On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that the borrowed funds were diverted for making investment in the sister concern and it was not used for the purpose of business of the assessee. According to the Ld. D.R., the funds which are used for the business of the assessee alone are eligible for claiming deduction towards interest payment. Since the sum of Rs. 1,43,50,000/- was admittedly invested in the sister ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rably, therefore, the amount paid by the assessee to the extent of Rs. 23,72,714/- needs to be allowed atleast under Section 37 of the Income-tax Act, 1961 (in short 'the Act'). 7. On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that the assessee claims that the amount of Rs. 23,72,714/- was paid towards unapproved gratuity fund, therefore, the Assessing Officer has rightly disallowed the claim of the assessee. 8. We have considered the rival submissions on either side and perused the relevant material available on record. It is not clear from the orders of the authorities below whether the gratuity fund was created by the assessee itself or it was contributed to the LIC gratuity fund. In the absence of any details of the nature of fund to which the contribution is said to be made, this Tribunal is of the considered opinion that the claim of the assessee cannot be adjudicated. In case the assessee has contributed to the LIC gratuity fund or any other similar fund and the contribution paid by the assessee has gone out of the hands irrecoverably, then the claim of the assessee needs to be allowed. In case the fund, which is said to be paid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aptive power plant omitting to consider the auditor's report filed under Section 92E of the Act in Form No.3CEB in relation to specified domestic transaction along with transfer pricing study report. The Ld.counsel further submitted that the Transfer Pricing Officer valued the power generated by the captive power plant at regulated rate on the ground that the power generated by the assessee's captive power plant is not saleable to State Electricity Board. According to the Ld. counsel, this is only an assumption of the Transfer Pricing Officer. There is no such restriction in any of the regulations framed under Electricity Act. According to the Ld. counsel, the bifurcation of power made by the Department as "saleable" one and "non-saleable" one is against the National Electricity Policy framed by Government of India under the Electricity Act, 2003. According to the Ld. counsel, the Dispute Resolution Panel placed its reliance on the judgment of Calcutta High Court in CIT v. ITC Ltd. (2015) 64 taxmann.com 214 which has no application to the facts of the present case. The Calcutta High Court decided the issue before it after considering the provisions of Electricity Act as it stood pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mil Nadu Electricity Board, then it would have paid the market rate and the profit of the assessee would be reduced considerably. Moreover, according to the Ld. counsel, Tamil Nadu Electricity Board may not be able to provide uninterrupted and continuous power supply required by the assessee-company, therefore, the assessee installed its own captive power plant to ensure uninterrupted and continuous power supply required for its manufacturing unit. According to the Ld. counsel, the very object of putting of the captive power plant was to consume the power generated for their own manufacturing activity. According to the Ld. counsel, there was no intention on the part of the assessee to sell the power generated by captive power plant to outside. 13. The Ld.counsel for the assessee further submitted that when there was no intention to sell the power generated by captive power plant, there is no reason to classify as saleable and non-saleable power. According to the Ld. counsel, entire power generated by the captive power plant of the assessee is intended for captive consumption for the manufacturing unit and not intended for sale. Therefore, according to the Ld. counsel, there is no ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rther submitted that there is a recognized power exchange for trading. Sale of power outside in the open market is governed by market forces. According to the Ld. counsel, the market rates of power are very high sometimes due to demand for the electricity. 16. Referring to Rule 7 of Income-tax Rules, 1962, the Ld.counsel for the assessee submitted that the market price shall be the price at which it was sold during the relevant previous year. In this case, according to the Ld. counsel, the price at which the electricity was sold in the open market has to be taken into consideration and not the purchase price of Tamil Nadu Electricity Board. Placing reliance on the decision of the Mumbai Bench of this Tribunal in Addl. CIT v. M/s Reliance Industries Limited in I.T.A. No.4361/Mum/2012 dated 12.04.2017, the Ld.counsel submitted that the Mumbai Bench has held that the price at which the State Electricity Board sells the electricity to its consumer has to be taken as market price for the purpose of deduction under Section 80-IA of the Act. 17. We heard Smt. Ruby George, the Ld. Departmental Representative also. On identical situation, the issue of deduction under Section 80-IA of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(8)reads as follows: "Where any goods (or services) held for the 'purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods (or services) held for the purpose of any other business carried on by the assessee or where any goods (or services) held for the purpose of any other business carried on by the assessee are transferred to the eligible business and, in either case the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods (or services) as on' the date of the transfer, then for the purposes of the deduction under this' section, the profits and gains of such eligible business shall be computed as if the transfer, in either case had been made at the market value of such goods (or services) as on that date. Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents. exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. (Exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer. I find that the Assessing Officer has assumed the power u/s. 80IA(B) without bringing any material on record to show that the price recorded in the books by the eligible business did not correspond to the market value of the goods as on the date of the transfer. It is important to note that for giving a finding that a particular value did not correspond to the market value, the market value has to be found out. Hence, the section pre-supposes that there is another value attached to the said goods which would represent the market value of the goods. I find that there is nothing brought on record to show as to how the price recorded in the Books does not correspond to the market value of goods, when sold in the open market, especially in the light of the reasons given by the 'assessee that such price corresponded to the market value of the goods. I find that the Assessing Officer has rejected the value recorded by the eligible business by merely holding that the market value cannot be the purchase value of electricity but the price of the electricity which the assessee can fetch in the open market. There being no open market for electricity during the period under review, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3.1992. The normative parameters have been fixed by the Government, which is required to be followed by all, and no deviation in fixing the tariff is allowed Hence, even here, the rate cannot be taken to be the "price that such goods would ordinarily fetch in the open 'market" as this is the regulated rate fixed by the Government. It is also seen that the Assessing Officer has taken 16% return on capital base to work out the profits of the eligible business of the. assessee eligible for deduction u/s, 80IA of the IT. Act, 1961. 16% return on capital base in Notification No. 251(E) dt .. 30/3/1992 is only an exercise for fixation, of tariff. It is 'one 'of the parameters 'out of many which is required to be taken into consideration for fixing the tariff in relation' to the' rate at which the Independent Power 'Producers sell their power to the - State Distribution Agency. Hence, 16% return on capital base 'alone' would not be relevant while computing the profits of the eligible business under the Act. To sum up under Sec. 80IA(8), the following conditions are required to be satisfied:- a) Any goods or services held for the purposes of the el....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ec. 80IB(10) was inserted by the Finance (No.2) ct, 2009 and was made operational w.r.e.f 01/04/2001 while sec. 80A(6) was also inserted by the Finance (No.2) Act, 2009 and was made operational w.r.e.f 01/04/2009. Further, as per the explanation to Sec. 80A(6), the market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or 'enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any. In the present case, the AO has not brought any material on record to show that the goods supplied by the undertaking were at a price higher than what it was required to supply as a result of any statutory or regulatory restrictions or as to what should have been the rate at which it was required to supply the goods as a result of any statutory or regulatory restrictions. In the case of Reliance Infrastructure Ltd (Supra) Hon'ble jurisdictional Mumbai, Tribunal has held that the price that the unit paid to TPC for purchase of power would be the best basis for working out the profits of the business of generation of power even after the order MERC. In this case, the assessee, other than ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer power for captive "consumption at' the rate of Rs. 3.72 per unit corresponds to the market value of power. The AO is directed to allow relief to the assessee under s.'80IA as claimed:" It is pertinent to note that the assessee is not supplying electricity to the State Electricity Board or to any other power distribution agency. In the case of West Coast Paper Mills Ltd. reported in 1000 TT] 833 (Mum), the Hon'ble Tribunal has held as follows: "Having held that the assessee is entitled for the deduction available under s. 80-IA,* the next question is what should be the price attributable to the power generated and consumed by the assesses, The answer to the question is readily available in sub.s(8) of s.80-IA, which reads as below: 80-IA(8) Where any goods held for the purpose of eligible profits are' transferred to any other business carried on by the assessee, or where any goods held for the purposes of any 'other business'. carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e rate charged by the suppliers is lower than the role adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of 'the' eligible-business, eligible for deduction u/s. 80IA. However, if the' rate charged. by the suppliers is the same as the rate adopted for sale' by the 'captive power generating units of the assessee, such rate' adopted should be accepted for' the purpose of working out the deduction u/s. 80IA. Subject to the above, this ground of appeal filed by the assessee is allowed. The facts of the case are similar and issue involved is identical. Accordingly in view of the facts of the case and keeping in view the principles of judicial consistency, it -Is directed that. the Assessing Officer will examine correctness of the-rate taken (Rs. 4.799 per unit) and if it is found that the rate charged by the suppliers is lower than the rate adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of the eligible business, eligible for deduction u/s. 80IA. However, if t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for sale of electricity by generating companies. The decision therefore cannot hold the field for A Y 2007-08, 2008-09 and 2009-10 as these Assessment years are years after the Electricity Act came into force on 10.06.2003. 24. It is therefore necessary to see what is the effect of the Electricity Act 2003 and its impact on and regulation of tariffs. The Preamble to The Electricity Act 2003 states as follows: "An Act to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto". 25. A look at the Statement of Objects and Reasons annexed to the bill, para 4 would indicate that the Act seeks to encourage private sector participation in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company. Provided further [flat no licence shall be required under [his Act for supply of electricity generated from a captive generating plant to any licencee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under subsection (2) of section 42. (2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use: Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be: Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission." (Emphasis Supplied) 30. Section 9 is a non-obsta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is distinction is very significant in as much as there is no regulation of intra department consumption by any person generating electricity. In other words, for a person generating electricity and consuming it there is no obligation and no duty to either obtain a licence to set up a plant or transmit electricity which is self consumed. 35. The Calcutta High Court in page 11 has held "the rate at which electricity was purchased from Andhra State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged in generation and distribution. Therefore the rate which is sold to any such company can only be the market rate contemplated by the section". In other words, according to the Calcutta High Court, the regulated selling price by a third party to the assessee cannot form the selling price by a Captive Generation plant. Whilst this is the absolutely correct and true, it is wholly irrelevant in context of Electricity Act, 2003. In a much as under the Electricity Act 2003, when....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n; (ii) the land revenue or rent paid for the area in which it was grown; and (iii) such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit. " 36. The revenue argued that Rule 7(2)(a) ought to be followed and according to the assessee, Rule 7(2)(b) was the correct rule to be followed. The Supreme Court rejected the argument of the assessee that Rule 7(2)(b) ought to be followed. It held at page 438 as follows: "We are unable to uphold this argument. 'Market' in the context of rule 7 does not mean an open market where buyers and sellers get together for the purpose of purchase and sale of goods. The assessee-company regularly, year after year, in the ordinary course of business bought sugarcane from registered and unregistered ryots. Whether the purchase was at a price controlled by the Sugarcane Control Order or not is quite immaterial. There was a price at which sugarcane could ordinarily be purchased by the assessee for the purpose of its own business. The price paid by the assessee was the market price. It is by now well-settled that market does not have to be one open place of business ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. Applying, this principle of the facts of the assessee's case, there is only a single buyer for the electricity generated by the Captive Generation Power which is the assessee himself. Just as in Thiru Arooran Sugars Ltd. v. CIT, the sugarcane produced by Thiru Arooran Sugars categorically confirms that there was only a single buyer viz. manufacturing unit of Thiru Arooran Sugars, the Supreme Court there stated that because manufacturing unit also bought from other growers, the price at which they obtain sugar cane should be adopted as market price. Applying this principle to the facts of the assessee's case, the assessee also buys electricity from other supplier viz Gujarat Electricity Board (GEB). It is not relevant whether that price was controlled or not. If the price at which the GEB supplied as controlled then that would be the market price vis-a-vis the assessee. Accordingly, the price charged by GEB should be adopted as market price. Therefore, the decision of Supreme Court in Thriu Arooran Sugars completely covers the situation of the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nces and for these reasons that the Calcutta High Court concluded that the purchase price would be different from the selling price of electricity on account of wheeling and distribution of losses. The Calcutta High Court concluded at page 12 as under: "The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by Sections 61 and 62 of the Electricity Act 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There are provisions in Section 62 so that the generating companies can recover expected revenue on the basis of the tariff fixed by the commission. There are similarly provisions in Section 61 so that the distribution licensee can derive reasonable return. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees ..... " 45. This conclusion is indisputable as applicable to licenced generating companies selling in the market but has no application to a 'captive gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctricity; (c) Wheeling of electricity; (d) Retail sale of electricity Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity. 47. On perusal of the above, it can be observed that section 62 of the Electricity Act 2003 authorizes commission to determine tariff for (1) Generating company supplying to distribution licensee, (2) Transmission of Electricity (3) Wheeling of electricity (4) Retail sales of electricity. 48. Thus captive power plant and its users are not covered under the four categories mentioned in section 62(1) above. Hence for supply of power by a captive power plant to the captive users or to open access consumers, it is not required to get the tariff approved by the commission as stated in section 86(1)(a) of the Electricity Act, 2003. 49. Therefore, the decision of the Calcutta High Court cannot be applied to the acts of the assessee in as much as it was delivered in respect of A Y 2002-03 for which the Electricity Act 2003 did not app....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... decision of Supreme Court in the case of Thiru Aroovan Sugar Mills and the decisions of Calcutta High Court which are earlier in point of time and decision of Chattisgarh and Madras High Court and various benches of Tribunals and assessee's own case for the earlier year. 55. Furthermore the Supreme Court has endorsed the view that where there is a conflict between two High Courts the view in favour of the assessee must be adopted. There are several decision which have taken the same view, in cases with similar facts viz:-. 1. CIT v. Vegetable Products Ltd - 88 ITR 192 (SC) 2. Pradeep J Mehta v. CIT Ahmedabad - 169 Taxman 454 (SC) 3. CIT v. Naga Hills Tea Co. Ltd - 89 ITR 236 (SC) In view of the above discussion, the Calcutta High Court can have no application to the assessee's case." 18. The Kolkata Bench of this Tribunal in Birla Corporation Ltd. v. DCIT (I.T.A. No.686/Kol/2014 dated 13.09.2017), after following the decision of the Mumbai Bench of this Tribunal, has held as follows:- "14. After coming to the conclusion that the decision of the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) would not be applicable to the case of Assessee, the Tribun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er unit. 20. The next issue arises for consideration is determination of purchase of power from subsidiary company located in Karnataka. 21. Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee purchased power from sister concern, namely, KPR Sugar Mills Ltd. The assessee paid Rs. 7/- per unit. According to the Ld. counsel, the price was paid as per the price traded in Indian Energy Exchange. According to the Ld. counsel, the Assessing Officer, however, rejected the claim of the assessee on the ground that the assessee is not a trader in power, therefore, the prices traded in Indian Energy Exchange cannot be taken as price for the purpose of purchasing power from sister concern. The Assessing Officer determined the purchase prices of power at Rs. 3.69 per unit. According to the Ld. counsel, the power traded in Indian Energy Exchange has to be considered for the purpose of determination of power price purchased from sister concern. 22. On the contrary, Smt. Ruby George, the Ld. Departmental Representative submitted that the assessee has liberty to purchase power from its own subsidiary company at Karnataka. According to the Ld. D.R., the power was purchas....