TaxTMI 
TaxTMI 
2023 (12) TMI 417
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.... R Rao, Adv. Mr. V C Bharathi, Adv. Mr. Prahlad Singh, Adv. Mrs. Anil Katiyar, AOR Mr. Gopal Jain, Sr. Adv. Mr. Naveen Kumar, AOR Ms. Stuti Bisht, Adv. Mr. Nitesh Bhandari, Adv. Mr. Shourajeet Chakravarty, Adv. Ms. Aprajita Bhardwaj, Adv. Mr. Prabhat Kumar Rai, Adv. Mr. Amar Dave, Adv. Mr. S. Ravi Shankar, AOR Mrs. Yamunah Nachiar, Adv. Mr. S. Ganesh, Sr. Adv. Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, AOR Mr. Rohit Jain, Adv. Mr. Aniket D. Agrawal, Adv. Mr. Abhisek Singhvi, Adv. Mr. Shri Venkatesh, Adv. Mr. Ashutosh K. Srivastava, Adv. Mr. Nihal Bhardwaj, Adv. M/S. Khaitan & Co., AOR Mrs. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Mr. V. Lakshmikumaran, Adv. Mr. S. Vasudevan, Adv. Mr. Tanmay Bhatnagar, Adv. Mr. Shivam Gupta, Adv. Ms. Charanya Lakshmikumaran, AOR Mr. Punit Dutt Tyagi, AOR Mr. Nageswar Rao, Adv. Mr. Pukhrambam Ramesh Kumar, AOR Mr. Aksahy Uppal, Adv. Mr. Parth, Adv. Mr. Karun Sharma, Adv. Mr. Percy Pardiwala, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Amit Mathur, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Tushar Bhardwaj, Adv. Mr. Nageswar Rao, Adv. Mr. Ambhoj Kumar Sinha, AOR Mr. Parth, Adv. Ms. Mehar Verma, Adv. JUDGMENT UJJAL BHUYAN, J. There are three special l....
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....ed by the assessee was disallowed by the assessing officer which was affirmed by the first appellate authority i.e., Commissioner of Income Tax (Appeals). On appeal by the assessee, the Income Tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals) which decision has been affirmed by the High Court. The third additional issue relates to what is called carbon credit - whether it is a capital or revenue receipt. This additional issue has been raised in Civil Appeal No.9917 of 2017 (Assistant Commissioner of Income Tax Vs. M/s Godawari Power and Ispat Pvt. Ltd.) and also in Civil Appeal No.8983 of 2017 (Assistant Commissioner of Income Tax Chhattisgarh Vs. M/s Godawari Power and Ispat Pvt. Ltd.) RECOMPUTATION OF DEDUCTION UNDER SECTION 80 IA OF THE INCOME TAX ACT, 1961. 5. At the outset let us deal with the core issue i.e., recomputation of deduction claimed by the assessee under Section 80 IA of the Income Tax Act, 1961 (briefly 'the Act' hereinafter). 6. Though this issue has been raised and urged in all the civil appeals, Civil Appeal No.13771 of 2015 was argued and taken up as the lead case. Since the issue raised is common to all the appeal....
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....shown a substantial amount of profit in its power generating units. The power generated was used for its own consumption and also supplied to the State Electricity Board in the State of Chhattisgarh and prior to the creation of the State of Chhattisgarh, to the State Electricity Board of the State of Madhya Pradesh. The electricity generated by the assessee in its captive power plants at Raigarh (Chhattisgarh) was primarily used by it for its own consumption in its manufacturing units; while the additional/surplus electricity was supplied to the State Electricity Board. Assessee had entered into an agreement on 15.07.1999 with the State Electricity Board as per which assessee had supplied the surplus electricity to the State Electricity Board at the rate of Rs.2.32 per unit. Thus, for the assessment year under consideration, the assessee was paid at the rate of Rs.2.32 per unit for the surplus electricity supplied to the State Electricity Board. 7.2. It was further noticed by the assessing officer that the assessee had supplied power (electricity) to its industrial units for captive consumption at the rate of Rs.3.72 per unit. Assessing officer took the view that the assessee ha....
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....5.2005, CIT (A) held that the action of the assessing officer in restricting deduction under Section 80 IA in respect of 22,84,76,505 units by Rs.1.40 per unit (Rs.3.72 - Rs.2.32) was justified and hence confirmed the reduction of deduction under Section 80 IA. 9. Assailing the order of CIT (A), assessee preferred further appeal before the Income Tax Appellate Tribunal, Delhi Bench - I, Delhi (briefly 'the Tribunal' hereinafter) which was registered as ITA No.3485/Delhi/05 for the assessment year 2001-02. We may also mention that revenue had filed a cross appeal arising out of the same order before the Tribunal but on a different issue which may not be necessary to be gone into for the purpose of the present appeal. The grievance of the assessee before the Tribunal in its appeal was against the action of CIT (A) in affirming the reduction of deduction under Section 80 IA of the Act made by the assessing officer at Rs.48,11,72,000.00 as against Rs.80,10,38,505.00 claimed by the assessee. 9.1. In its order dated 07.06.2007, Tribunal noted that the dispute between the parties related to the manner of computing profits of the undertaking of the assessee engaged in the business of....
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....n claimed by the assessee under Section 80 IA of the Act should be computed by taking Rs. 2.32 per unit being the price at which electricity was sold to the State Electricity Board as the market value of the electricity or the price of Rs. 3.72 per unit being charged by the State Electricity Board for supply of electricity to the industrial consumers including the assessee. 11.1. Assessee had claimed deduction under Section 80 IA in respect of its two undertakings engaged in generation of power at Raigarh (Chhattisgarh). Power produced in the captive power plants was primarily for use by the respondent assessee in its steel plants. Availability of electricity from the state grid was not adequate to meet the requirements of the assessee. In order to ensure uninterrupted power supply which was crucial for attaining operational efficiency, the captive power generating units were set up by the assessee to meet the power requirements of its manufacturing units. 11.2. It is stated that power generated from the captive power generating units of the assessee were consumed in its manufacturing units. In the event of surplus power being generated, that was supplied to the Madhya Prades....
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....onsumers. 11.6. Respondent has stated that since part of the electricity produced was captively consumed by the manufacturing units owned by it, the rate of transfer of power was recorded at the market rate i.e. the rate at which electricity was supplied by the State Electricity Board to the industrial consumers i.e. Rs. 3.72 per unit. The transfer was not recorded at the rate at which the surplus electricity was sold by the respondent assessee to the State Electricity Board i.e. Rs. 2.32 per unit since that was the price as per the agreement which could not be treated as the market value of power in as much as the State Electricity Board was the only buyer of the surplus power. 11.7. The above stand of the assessee was not accepted by the assessing officer who held that the inter unit transfer of power by the assessee from its power plants to its industrial units should have been Rs. 2.32 per unit being the price at which power was sold to the State Electricity Board and not Rs. 3.72 being the price charged by the State Electricity Board. Assessing officer therefore recomputed the deduction claimed by the assessee under Section 80 IA by treating Rs. 2.32 as the market value ....
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.... purchase surplus power from captive power plants. In the absence of any willing purchaser, the surplus power i.e. power in excess of the requirement of the manufacturing units had to be fed into the state grid which is governed by the agreement entered into with the State Electricity Board. It is contended that the same virtually amounted to a forced sale as the assessee was not in a position to bargain for the rate at which surplus power should have been otherwise sold. On the contrary, assessee was obliged to sell the surplus power to the State Electricity Board at the price mandated by the Board. Adverting to the power purchase agreement, it is stated that the power generated by the captive power plants was required to be consumed by its manufacturing units at Raigarh. The agreement stipulated that assessee could not sell surplus power generated by it to other consumers except on the terms and conditions stipulated by the Board thereby making third party sale of surplus power unviable. In these circumstances, the surplus electricity generated by the captive power plants had to be fed into the transmission system of the grid. 11.11. The rate of purchase of power by the State ....
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....er captively consumed by the manufacturing units of the respondent. The Tribunal and the High Court did not approve of the decision of the assessing officer in seeking to disturb the computation of book profit under Section 115 JA of the Act. Revenue preferred Special Leave Petition (SLP (C)...CC No.10935 of 2009) against the decision of the High Court affirming the order of the Tribunal. However, the same was dismissed by this court vide the order dated 11.09.2009. 11.15. In these circumstances, Tribunal was fully justified in reversing the finding of CIT (A) who had affirmed the decision of the assessing officer. Reasonings given by the Tribunal for discarding the rate of Rs. 2.32 as the market value of the surplus electricity per unit supplied by the assessee to the State Electricity Board and in accepting the rate adopted by the assessee i.e. Rs. 3.72 at which rate the State Electricity Board was supplying electricity to the industrial consumers including the respondent assessee are correct and justified. The High Court had rightly upheld the order of the Tribunal. No case for interference is made out. Therefore, all the civil appeals filed by the revenue on this issue may b....
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....2.32 per unit as the fair market rate. 12.4. Elaborating on this aspect, Mr. Rupesh Kumar, learned counsel submits that the definition of "market value" as appearing in sub-section (8) of Section 80 IA has to be given a reasonable meaning. He has referred to Section 80 IA of the Act as it stood at the relevant point of time, more particularly to sub-section (8) thereof. He also lays emphasis on the proviso to sub-section (8) and the explanation below the proviso. Thereafter, learned counsel has referred to the dictionary meaning of the expression "market value" and how the same is to be determined. 12.5. Adverting to the provisions of the Electricity (Supply) Act, 1948, learned counsel submits that under Section 43 thereof, the State Electricity Board may enter into agreements with any person producing electricity within the state for the purchase of the same by the said board of any surplus electricity which that person may be able to dispose of, on such terms as may be agreed upon. Such a provision, he submits, finds manifestation in Section 43A whereby and whereunder a generating company has been given the liberty to enter into a contract for the sale of electricity genera....
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....an undertaking or enterprise referred to in sub-section (1). He therefore submits that both the Tribunal and the High Court fell in error in accepting the contentions of the assessee that Rs. 3.72 per unit was the market value of electricity supplied by its captive generating plants to its own industrial units. 12.8. Learned counsel has placed reliance on a decision of the Calcutta High Court in Commissioner of Income Tax Vs. I.T.C. Limited, (2015) 64 Taxman.com 214, and submits therefrom that the assessee's generating units cannot claim any benefit under Section 80 IA of the Act computed on the basis of rates chargeable by the distributable licensee from the consumer. The benefit can only be claimed on the basis of rates fixed by the tariff regulatory commission for sale of electricity by the generating companies. According to him, in so far the present case is concerned, instead of the tariff regulatory commission, it would be the rate fixed by the power purchase agreement. 12.9. He, therefore, submits that the order passed by the High Court affirming the decision of the Tribunal is liable to be set aside and the order passed by the assessing officer as affirmed by the CIT(....
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....ng plants of the assessee to its industrial units as being on the higher side and thereafter contended that the rate at which the assessee sold surplus power to the State Electricity Board was the market value of electricity. 13.3. Reverting back to Section 80 IA of the Act, learned counsel has drawn the attention of the court to clause (iv) of sub-section (4) and submits that an undertaking involved in generation or distribution of power is entitled to claim deduction under Section 80 IA of the Act. Respondent assessee fulfils the conditions for claiming such deduction and is, therefore, entitled to claim such deduction. Sub-section (8) of Section 80 IA provides that for the purpose of deduction under Section 80 IA, profits and gains of eligible business are to be computed as if the transfer was done on the market value on that date. Proviso to Section 80 IA(8) requires the assessing officer to compute the profits and gains in the manner provided. If the assessing officer finds difficulty while computing in such manner, he is empowered to compute profits and gains on such reasonable basis as he may deem fit. Referring to the explanation below the proviso to subsection (8) of Se....
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....tricity Board is certainly the dominant partner. The price as per such contract, therefore, cannot be termed as the market value of electricity. In fact, the explanation below the proviso to sub-section (8) of Section 80 IA defines the market value as the price at which the goods in question would ordinarily fetch in the open market. Therefore, the market value in such circumstances can only be the rate at which the State Electricity Board was supplying electricity to the industrial consumers including the assessee. Elaborating further, he submits that the value of transaction of electricity between the two units of the assessee should be at arm's length which would mean that the price in such a transaction should be such as between unrelated persons in an uncontrolled condition. 13.6 After referring to relevant provisions of the Act including Section 80J and Section 80A of the Act and the related Circular No. 169 of the CBDT, learned counsel has referred to the meaning of "market value" as per various dictionaries. Reliance has been placed on several judicial pronouncements to highlight the significance of the expression "market value". Finally, learned counsel for the assessee....
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....ompany, then the benefit for the further five years would be thirty percent instead of twenty five percent. 15.2. Since there is a reference to sub-section (2) in sub-section (1), we may mention that as per sub-section (2), the deduction specified in sub-section (1) may be claimed by the assessee at its option for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or generates power or commences transmission or distribution of power. In the proviso, there is a reference to clause (b) of the explanation to clause (i) of sub-section (4). Where the assessee begins operating and maintaining any infrastructure facility referred to in the said provision, the benefit can be availed of by the assessee for twenty years in place of fifteen years. 15.3. Sub-section (4) of Section 80-IA has some relevance to the present proceeding. Therefore, the same is extracted as under: (4) This section applies to- (i) any enterprise carrying on the business of (i) developing, (ii) mai....
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....ted or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service or network of trunking and electronic data interchange services at any time on or after the 1st day of April, 1995, but before the 31st day of March, 2000. Explanation.-For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2002 : Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 and transfers the operation and maintenance of such industrial park to another undertaking (hereafter in this section referred to as the transferee undertaking) the deduction under subsection (1), shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessmen....
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.... 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. Explanation.-For the purposes of this sub-section, "market value", in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market. 15.6. Sub-section (8) says that where any goods held for the purposes of the eligible business 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 but the consideration for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80-IA, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods as on that date. The pro....
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....urchase thereof by the State Electricity Board. 16.1. Section 43A provides for the terms, conditions and tariff for sale of electricity by a generating company. It says that a generating company may enter into a contract for the sale of electricity generated by it with the State Electricity Board of the State in which the generating station owned or operated by the generating company is located or with any other person with the consent of the competent government. 16.2. As per Section 44, no person can establish or acquire a generating station or generate electricity without the previous consent in writing of the State Electricity Board. However, such an embargo would not be applicable to the Central Government or any corporation created by a central act or any generating company. As per Section 45, the State Electricity Board has been empowered to enter upon and shut down a generating station if the same is in operation contravening certain provisions of the 1948 Act. 17. In so far facts of the present case are concerned, there is no dispute. Since electricity from the State Electricity Board to the industrial units of the assessee was inadequate, the assessee had set up ....
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....Act for the relevant assessment year. The only issue is with regard to the quantum of profits and gains of the eligible business of the assessee and the resultant deduction under Section 80 IA of the Act. The higher the profits and gains, the higher would be the quantum of deduction. Conversely, if the profits and gains of the eligible business of the assessee is determined at a lower figure, the deduction under Section 80-IA would be on the lower side. Assessee had computed the profits and gains by taking Rs. 3.72 as the price of electricity per unit supplied by its captive power plants to its industrial units. The basis for taking this figure was that it was the rate at which the State Electricity Board was supplying electricity to its industrial consumers. Assessing officer repudiated such claim. According to him, the rate at which the assessee had supplied the surplus electricity to the State Electricity Board i.e., Rs. 2.32 per unit, should be the market value of electricity. Assessee cannot claim two rates for the same good i.e., electricity. When it supplies electricity to the State Electricity Board at the rate of Rs. 2.32 per unit, it cannot claim Rs. 3.72 per unit for sup....
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....urse of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity ha....
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....h the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying ta....
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....profits and gains of the eligible business against the assessee. On going through the judgment, we find that facts of that case are clearly distinguishable from the facts of the present batch of appeals. It is noticeable that though an opportunity was granted by the assessing officer to the assessee to adduce evidence to justify the price of electricity sold by it to its paper unit, the same could not be availed of by the assessee. The electricity generated was sold by the assessee entirely to its paper unit. There was no surplus electricity to be supplied to the State Electricity Board and consequently, there was no contract between the assessee and the State Electricity Board determining the rate of tariff for the electricity supplied by the assessee to the State Electricity Board. On the other hand, it was noticed that the Electricity Act, 2003 had come into force whereby and whereunder, the rate at which electricity could be supplied is determined, notably by Sections 21 and 22 thereof. That apart, there is the tariff regulatory commission which has the mandate for fixing the rates for sale and purchase of electricity by the distribution licensee. Thus it was noted that there i....
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....lready made a brief description of the status of the assessee. It is, therefore, not necessary for a repetition of the same. What is however discernible from the assessment order dated 26.03.2004 passed under Section 143(3) of the Act is that the assessee had purchased twenty five MV turbines on and around 08.07.1998 for the purpose of its eligible business. Assessee claimed depreciation on the said turbines at the rate of 25% on WDV basis. On perusal of the materials on record, assessing officer held that in view of the change in the law with regard to allowance of depreciation on the assets of the power generating unit w.e.f. 01.04.1997, the assessee would be entitled to depreciation on straight line method in respect of assets acquired on or after 01.04.1997 as per the specified percentage in terms of Rule 5 (1A) of the Income Tax Rules, 1962. Assessing officer however noted that the assessee did not exercise the option of claiming depreciation on WDV basis. Therefore, it would be entitled to depreciation on straight line method. 36.1. After obtaining the clarification of the assessee, assessing officer held that since the assessee did not exercise the option of adopting WDV ....
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....ed for the purposes of the business of the assessee at any time during the previous year: Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset: Provided further that the undertaking specified in clause (i) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before the due date for furnishing the return of incomes under sub-section (1) of section 139 of the Act, (a) for the assessment year 1998-99, in the case of an undertaking which began to generate power to prior 1st day of April, 1997; and b) for the assessment year relevant to the previous year in which it begins to generate power, in case of any other undertaking : Provided also that any such option once exercised shall be final and shall apply to all the subsequent assessment years. 40.1. Thus, what is noticeable is that as per sub-rule (1A), the allowance under clause (i) of sub-section (1) of Section 32 of the Act in res....
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....second proviso to sub-rule (1A) clarifies that an assessee may opt for depreciation under Appendix-1 instead of Appendix-1A but such option has to be exercised before the due date for furnishing the return of income under sub-section (1) of Section 139 of the Act. 43. In the instant case, there is no dispute that the assessee had claimed depreciation in accordance with sub-rule (1) read with Appendix-I before the due date of furnishing the return of income. The view taken by the assessing officer as affirmed by the first appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Therefore, the revenue was not justified in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifically opted for the WDV method. 44. A similar issue was examined by this Court in CIT Vs. GR Govindarajulu, (2016) 16 SCC 335, wherein it has been held that the law does not mention any specific mode of exercising such an option. The only requirement is that the option has to be exercised before filing of the return. In that case, assessee had set apart a sum of Rs. 32 lakhs to be spent for charitable purposes in ....
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....and the assessment year under consideration is 2006- 2007. Assessee claimed allowance of expenditure of about Rs. 3.39 crores on account of payments made to one Shri SK Gupta and his group of companies. The assessing officer vide the assessment order dated 19.03.2008 passed under Section 143 (3) of the Act, referred to the statement of Shri S.K. Gupta recorded during the search operations and held that the said person had not rendered any service to the assessee so as to receive such payments. Therefore, the assessing officer disallowed such claim of expenditure of the assessee and added the same to the income of the assessee. 48. On an appeal by the assessee, CIT(A) vide the order dated 27.01.2009 confirmed the disallowance of professional fee paid by the assessee to Shri S.K. Gupta and his group of companies. 49. On further appeal by the revenue, Tribunal vide the order dated 29.05.2015 set aside the view taken by CIT (A). Tribunal on perusal of the materials on record, noted that Shri S.K. Gupta had retracted his statement within a short time by filing an affidavit. He thereafter got his further statement recorded where he reiterated his stand taken in the affidavit. In vi....
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.... recorded during the search operation which was retracted by him within a reasonable period. In these circumstances, we are of the view that there is no admissible material to deny the claim of expenditure made by the assessee. Accordingly, this issue is answered in favour of the assessee and against the revenue. WHETHER CARBON CREDIT IS CAPITAL OR REVENUE RECEIPT. 53. This brings us to the last of the three additional issues i.e., whether carbon credit is capital or revenue receipt. This additional issue has been raised by the revenue in Civil Appeal No. 9917/2017 (ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd.) and in Civil Appeal No. 8983/2017 (ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd.). In the two appeals, revenue has raised the question as to whether receipts on sale of carbon credit is a capital receipt whereafter assessee is not liable to pay any tax. 54. We may mention that before the Tribunal in Civil Appeal No. 9917/2017, the assessee had questioned amongst others the finding of CIT (A) confirming the decision of the assessing officer that an amount of Rs. 4,47,75,122.00 realised on account of carbon credit had no direct and immediate nexus with the income....