Income Tax Act, 1961 – s.80-IA – The assessing officer accepted the claim of the assessee for deduction u/s. 80-IA of the Income Tax Act, 1961, he, however, did not accept the profits and gains of the eligible business computed by the assessee on the ground that those were inflated by showing supply of power to its own industrial units for captive consumption at the rate of Rs. 3.72 per unit – Assessing officer took the view that there was no justification on the part of the assessee to claim electricity charge at the rate of Rs. 3.72 for supply to its own industrial units when the assessee was supplying surplus power to the State Electricity Board at the rate of Rs 2.32 per unit – Finally, the assessing officer held that Rs. 2.32 per unit was the market value of electricity and on that basis, reduced the profits and gains of the assessee thereby restricting the claim of deduction of the assessee u/s. 80-IA of the Act – Propriety:
Held: In the instant case, since electricity from the State Electricity Board to the industrial units of the assessee was inadequate, the assessee had set up captive power plants to supply electricity to its industrial units – For disposal of the surplus electricity, the assessee could not supply the same to any third-party consumer – Therefore, in terms of the provisions of s.43A of the Electricity (Supply) Act, 1948 the assessee had entered into an agreement with the State Electricity Board as per which, the assessee had supplied the surplus electricity to the State Electricity Board at the rate of Rs. 2.32 per unit determined as per the agreement – 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 – It may also be mentioned that the State Electricity Board had supplied power (electricity) to the industrial consumers at the rate of Rs. 3.72 per unit – The price for supply of electricity by the assesse to the State Electricity Board was fixed at Rs.2.32 per unit as per contract and there was no elbow space for negotiation – Market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market – Assessee had also 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 – Thus, this Court is of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity – It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market – The State Electricity Board’s rate when it supplies power to the consumers have to be taken as the market value for computing the deduction u/s. 80-IA of the Act – Issue answered in favour of the assesse and against the revenue. [Paras 17, 20, 28, 30]
Words and Phrases – ‘Market Value’ – Discussed.
Income Tax Act, 1961 – Income Tax Rules, 1962 – r.5 - Whether the Tribunal could ignore compliance to the statutory provisions relating to exercise of option to adopt Written Down Value (WDV) method in place of the straight line method while computing depreciation on the assets used for power generation:
Held: The assessing officer held that since the assessee did not exercise the option of adopting WDV method, therefore, in view of the provision of Rule 5 of the Rules’, it would be entitled to depreciation on the straight line method – As against the depreciation claim of the assessee of Rs.2,85,37,634.00, the assessing officer allowed depreciation to the extent of Rs.1,59,10,047.00 –However, the Tribunal and the High Court held it in favour of assessee – 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 – Applying the principle laid down in CIT vs. GR Govindarajulu [2015] 9 SCR
289 to the facts of the present case, this Court is in agreement with the view expressed by the Tribunal and the High Court that there is no requirement under the second proviso to sub-rule (1A) of Rule
5 of the Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return – All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under sub-rule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done. [Para 45]
LIST OF CITATIONS AND OTHER REFERENCES
M/s Printers House Private Limited Vs. Mst. Saiyadan [1993]
3 Suppl. SCR 296: (1994) 2 SCC 133:; Commissioner of Income Tax Vs. I.T.C. Limited (2015) 64 Taxman.com 214; CIT Vs. GR Govindarajulu, (2016) 16 SCC 335: [2015] 9 SCR 289; ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd. Civil Appeal No. 9917/2017; ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd. Civil Appeal No. 8983/2017 – referred to.
Black Law Dictionary 10 th edition – referred to.
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