Itta/251/2014 Of The Commissioner Of Income Tax-Iv, Hyderabad v. M/S Nava Bharat Ventures Ltd., Hyderabad

HIGH COURT FOR THE STE OF TELANGANAAT HYERBAD WEDNTSDAY, fHT FIGHTENTH DAY OF JUNETWO THOUSAND ANIWENTY FIVE PRESET THE HONOURABLE SRI JUTICE P,SAM KOSHYTHE HONOURABLE SRI JUSTICEARSING RAO NANDIKONDA INCOME TAX TRIBUNAL AP EAL NO: 251 OF 2014 Appeal under section 260_4 of thelncome Tax Act, 1961, against theorders of the lncome{ax Appellate Tib u na l, Ben ch 'B', H ydera ba d inlTA.NO.'l 095/Hydt20O9, dated 20.07.2012for the Assessment year 2006-07.Served on 13.O8.2012, preferred againstthe order of the Commissioner oflncome Tax (Appeals) - V, Hyderabad inTA. No 1 69/CD/1 6(1 )/CtT(A)-Vl200809, dated 24.08.2009, preferred against thorder of Deputy Commissioner oflncome Tax, Circle-16(1), Hyderabad in pN.No.AAACN7327C, dt. 30.12 2OOBfor the assessment year 2006-07. Between: THE COMMISSIONER OF INCON4E TA -IV, HYDERABAD APPELLANT AND IVI/S NAVA BHARAT VENTURES LTD.,YDERABAD, 6 3-1109/,1 ,Navabharat Chambers Somajiguda, RajBhavan Road, HyderabadNavabharat Chambers Somajiguda, RajBhavan Road, Hyderabad RESPONDENT Counsel for the AppellantSRI. K SUDHKAR REDDY (Sr SC FOR TNCOMErAX)rAX) Counsel for the Respondent : C V NARAIMHAM The Court made the following: ORDER -) THE HON'BLE WSTICE P.SAM KOSHYANDTHE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDAINCOME TAX TRIBUNAL APPEAL NO.251 OF 2014 JUDGMENT'. U)er Hon'ble Sri &sttce No,rsl'l.g Roo Na;nd.lkondo') This appeal has been hled under Section 260A of theIncome Tax Act, 196 I [(for ]short, the Act, 196 1') aggrieved bythe order, dated 20.O7.2012 in ITA No. 1095 dated/Hyd/2OO9, 2O.O7.2O12, passed by the Income-Tax Appellate Tribunal,Bench 'B', Hyderabad, (for short, 'the Tribunal') for theAssessment Y ex 2006-2007 [.] 2. Brief facts of the case are that the assessee is alimited company engaged in the business of manufacture ofFerro al1oys, sugar, fabrication of equipment and generation ofpower. For the Assessment Year 2006-2O07, the assessee hledits returnliss showing income of Rs. 1 ,7 1,89 ,OOO I - and in thesaid returns, the assessee has claimed deduction ofRs.44,91,17,39 1/- under Section 80-IA of the Act, 196 1 inrespect of profits from power generation units of differentVillages. In support of deduction, the assesse has filed FormNo.lO CCB, dated 27.1L.2OO6, for each unit. During theassessment proceedings by the Assessing Officer, the assessee tfto 251 [2074] claimed 100% deduction [under ][Se]tion 8O-IA of the Act, [1961,]under which the Parties [can claim]nly for captive consumPtionand not for sale of Power [to]y outside party. In [the]Assessment Order for [the ][Assess]ent Years 2OO4-2005 [and]2005-06, the claim [of deduction]der Section 80-IA [of ][the ][Act,]196 1 was disallowed [as ][assessee]is not eligible for [deduction]under Section 80-IA [of ][the]ct, 7961 to a tune [of]Rs.37,34,55,899 l- in [resPect ][of]ptive power Plants for [this]assessment Year. [Further; ][the ][As]essing Officer has [restricted]the deduction claimed [bY ][the ][ass]ssee under Section [8O-IA ][of]the Act, 1961 from [Rs.44,92'O4'8]1/- to Rs.7,57,a8,992/- [bY]invoking the Provisions [of ][Secti]n8O-IA(8) and Section [8O-]IA(10) of the Act, [1961 ][and ][also ][o]erved that the [Power ][Plants,]which were set uP [are ][onlY ][for ][C]tive ConsumPtion [and ][that]the APSEB has [granted sanction ][o]y for the purPose of [CaPtive]Consumption. S[ince ][the main ][ob]ctive for setting uP [of ]Powerplant is for CaPtive [ConsumP]oo, the Assessing [Officer]disa,llowed the entire [claim ][of ][ded]ction under [Section ][80-IA ][of]the Act, 1961. [Aggrieved ][bY ][the]rder of the [Assessing ][Ofhcer,]before the [Commissioner ][of]the assessee Preferred [al ][aPPeai]Income Tax (APPeals)-V, [HYdera]ad. The CIT(A) [uide ][order] ,l ,l dated 24.o8.2009 in rTA No.0169 / DC-t6(t) / CrT(A)-Vl2008-09,keeping in vier,r, the decision of the Hon'ble jurisdictional HighCourt held that it would be just and fair to adopt the prevailingrate of Rs.2.12 per unit which was adopted in the precedingyear, and thus directed to compute the sa_le proceeds arisingfrom consumption of power in own units. Aggrieved by the saidorder of the CIT (A), the Department as well as the assesseepreferred appeals before the learned Income Tax AppellateTribunal (ITAT). 3. The learned ITAT ITAT vide its consolidated its consolidated consolidated order, dateddated2O.O7.2O12 disposed of the appeals granting relief to theassessee directing the Assessing Officer to re-compute thededuction allowable under Section 8O-IA of the Act, 196 1 byadopting Rs.2.53 per unit as per prevailing market rate.Further, the ITAT also held that the. assesse is entitled fordeductiorr as per the provisions of sub-section (8) of Section 8O-IA of the Act, 1961, in spite of the fact that major portion of thepower generated by the assesse is utilized for captiveconsumption and only a small portion of the power is sold to APTRANSCO and thereby the appeal filed by the revenue wasdismissed The learned ITAT ITAT vide its consolidated its consolidated consolidated order, dateddated .- 4 PSN & NNRIlfto 251 2014 4. The main contentionthe appellant is that [the]Assessing Officer restricted [the]deduction clairned by [the]assessee under Section [8O-IA]of the Act, 1961 [from]Rs.44,92,O4,8911- to [Rs.7,57,4],9921- [by ][invoking ][the]provisions of Section 8OJA(8) [and]ection 80-IA [(10) ]of.the [Act,]1961. He further submitted [that]e Assessing Officer observedthat the power plants [were ][set uP]r Captive ConsumPtion [and]the APSEB has [granted sanction ][o]ly for the pufpose of [CaPtive]Since the [main ][obj]tive for setting uP of PowerConsumption. plant is for captive. consumPn, the Assessing [Officer]disallowed the entire claim [of ][ded]ction under Section [8O-IA ][of]the Act, 1961. 5. On the other hand, [le]ned counsel for [resPondent]while supporting the [orders ]Passeby the CIT (A) and the contending that the Power [which]wad transferred from Powerunit to ferro is to be [charged ][wi]recovery rate of Power [and]not at which the Power Purched by AP TRANSCO [from]assessee. He further [argued]at the power [generattng]companies are supplying Powerat rates varying [between]Rs.2.21 to 3.15 per unit.Heer contended that the [CIT(A)]agreed willAhe assessee's con ntion that [the ][assesse ][rs] Itta 251 2014 entitled to avail deduction [under ][Section ][8O-I ][of ][the ][Act, ][196 ][1]on the proht earned [from the ][captive ][consumption ][power ][plant']Though the CIT has not [accepted, ][there ][is ][contention ][that ][the]assesse during the relevant [assessment ][year ][has ][supplied ][the]power for Rs.2.53 per unit. tn [support ][of ][his ][contentions ][he]a-lso placed reliarce on the [judgment of ][the ][Hon'ble ][Supreme]Court in Commissioner of [Income Tax ][v. ][Jindal ][Steel ][and]Power Limited (and connected [appealsf ][t, ][wherein ][at]paragraphs 24, 25, 26, 27 and 28 it [was ][held ][as ][under:] "24. B1.ack's Law Dictionary, 10th [Edition, ][defrnes ][the]expression ''open market" to [mean ][a ][market ][in ][which ][any buyer]or seller may trade ald in [which ][prices and ][product ][availability]are determined by free competition. [P. ][Ramalatha ][Aiyer's]Advanced Law Lexicon has also [defined tJle ][expression ]["open]market" to mean a market in [which ][goods ][are ][availabie ][to ][be]bought and sold by anyone [who ][cares ][to. ][Prices ][in ][an ][open]market are determined by the [laws of ][supply and ][demand.] "24. B1.ack's Law Dictionary, 10th [Edition, ][defrnes ][the]expression ''open market" to [mean ][a ][market ][in ][which ][any buyer]or seller may trade ald in [which ][prices and ][product ][availability]are determined by free competition. [P. ][Ramalatha ][Aiyer's]Advanced Law Lexicon has also [defined tJle ][expression ]["open]market" to mean a market in [which ][goods ][are ][availabie ][to ][be]bought and sold by anyone [who ][cares ][to. ][Prices ][in ][an ][open]market are determined by the [laws of ][supply and ][demand.] 25. Therefore, the expression ["market value" ][in ][relalion ][to]any goods as dehned by [the ][explanation ][below ][the ][proviso ][to]sub-section [(8) ]of Section 80 [IA would ][mean ][t1.e ][price ][of ][such]goods determined in an environment of free trade [or ][competition.]'Murket [value" ][is ][an ][expression ][which ][denotes ][the price ][of ][a]good arrived at between a buyer and a seller [in ][tlte ][open ][market]r-e., where the transaction [takes place ][in ][the normal ][course of]trading. Such [pricing is ][unfettered by ][any control or ][regulation;]rather, it is determined [by the economics ][of ][demald ][and ][supply.] 26. Under the electricity [regime ][in ][force, ][an ][industrial]consumer could [purchase electricity ][from ][the ][State ][Electricity]Board or avarl electricity [produced ][by ][its ][own ][captive ][power]generating unit. No other [entity ][could supply electricity ][to ][any]consumer. A [pnvate ][person ][could ][set ][up ][a ][power generating ][unit]having restrictions [on ][the ][use ][of ][power ][generated ][ald ][at ][the]same time, the [tariff ][at ][which the ][said power ][plant ][could supply]surplus power [to ][the ][State ][Electricity ][Board was ][a-1so ][liable ][to ][be] '(zoza) [+oo ][trR ][tsz] tuo 251 2014 determined in [accordance ][with ][th]statutory requirements. [In]the present [case, ][as ][the ][electrici]from the State [Electricity]Board was inadequate [to ][meet]ower requirements [of ][the]industrial units of [the ][assessee, ][it ][s]t up captive [power ]Plants [to]supp v electriclty tortS induStrialnits. However, the [captrve]po\!'er p ants of theASsesSee cousell or supply the [surplus]e ectnc tv [aft][er][ S][u][pp ])4ng[ e][ ec][tn]c tto its industrial units) [to the]State Electricity Board [onlY ][and ][n]t to any other authoritY [or]person. Therefore, the surPlus [el]city had to be comPulsorilYsupplied by the assessee [to ][the]SElectricity Board [and ][in]terms of Sections [43 ][and 43A of]e 1948 Act, a contract [was]entered into between [the ][assess]and the State [ElectricitY]Board for supplY [of ][the ][surPlus ][e]ctricity by the [former ][to ][the]latter. The [price ][for ][supply ][of such]lectricity by the [assessee ][to]the State Electricity [Board was fixe]at Rs. 2.32 Per [unit ][as ]Perthe contract. [This ][price ][is, ][therefore]a contracted Price. [Further,]there was no room [or ][anY ][elbow ][s]e for negotiatron [on the ]Partin of the assessee. [Under ][the ][sta]tory regime Place, [the]assessee had no [other ][a-lternativ]but to sell or [suPPlY ][the]surplus electricitY [to][ the ][State ][E]ectricity Board. [Being ][in ][a]dominant [positron, the ][State ][EIec]ty Board could [frx the ]Priceto which the assessee [reallY ][had]little or no scoPe [to ][either]oppose or negotiate. [Therefore, ][it ][is]ent that determination [of]tariff between the [assessee ][and]the State ElectricitY [Board]cannot be said [to ][be ][an ][exercise ][be]en a buyer and [a ][seller ][in]a competiLive environment [or ][in ][the]ordinary course [of trade ][and]business i.e., [in ][the ][oPen ][market.]ch a price cannot [be ][said ][to]the normal course [of ][trade]be the [price ][which ][is ][determined]and competition. 27 . Another waY of [looking ][at]e issue is, if the [industrial]units of the [assessee ][did not ][have]e option of obtaining Powerfrom the caPtive Power Plants [of]assessee, then [in ][that ][case]it would have had [to ]Purchaetectricity from the [State]Electricity Board. [In ][such ][a ][scen]o, the industrial [units ][of the]assessee would [have ][had ][to ]Phase power [from ][the ][State]Electricity Board at [the ][same rate]t which the State [Electricrty]Board supplied to [the ][industrial]sumers i.e., [Rs. ][3.72 ]Perunit.28. Thus, market [value ][of]e power [suPPlied ][bY ][the]assessee to its [industrial ][unit]should be [comPuted ][bY]considering the rate [at ][which]e State ElectricirY [Board]supplied [power ]to [the ][consumers]in the oPen [market ][and ][not]comparing [it ][with ][the ][rate ][of ]Pwhen sold to [a ][suPPlier i.e.,]Board [as ][this ][was]sold by the assessee [to ][the ][State]ctricity not the rate at [which ][alr ][indu]trial consumer [could ][have]purchased power in ttre [oPen ][mar]t. It is cleal that [the rate ][at]which power u/as supplied [to ][a ][su]lier could not be [the market]rate of electricitypuTchased by ansumer in the oPen [market.]On the contrary,-46e [rate ][at ][whi]the State Electricity [Board] t\ supptied power to the [industrial ][consumers ][has ][to ][be ][taken ][as]the market value for [computing deduction ][under ][Section 80 IA ][of]the Act...." Learned counsel for the respondent [has ][further] 6. contended that if the [assessee ][company involved ][in]manufacture of Ferro Alloys, [sugar, fabrication ][of ][equipment]and generation of [power, ]the [assessee ][is ][entitled ][for]disallowance of claim of deduction [under ][Section ][80-IA ][of ][the]Act, 1961. 7. Having consideqed the entire material [placed ][before]this Court and also the ratio laid [down by ][the ][Hon'ble ][Supreme]Court in Jindal Steel and Power [Limited's ][case ][(supra), this]Bench opines that there is force [in ][the ][argument ][of ][learned]counsel for the respondent that [power ][plant ][has ][been ][set ][up ][for]generating captive consumption of [power ][for ][its ][own ][Ulits ][and]not to make prohts out of its own consumption. [The ][learned]Commissioner of Income Tax (Appeals)-V, [Hyderabad ][has]rightly considered the factual aspects of the [case ][and ][adopted]the rate at Rs.2.53 per unit, as [per ]the [market rate ][for ][the]current year in respect of power consumed [internally ][and ][the]sarne was confirmed [by the ][Income Tax ][Department, ][Hyderabad] \ t I To, 1fto_251 2014 and directed the [Assessing ][Office]to change rate [from ][Rs.2.53]per unit as per Section 80-IA [of ][th]Act, 1961. 8. Considering the entireaterial placed on record [and]the [judgment ]of the [Hon1cle ][SuP]me Court referred to [above,]this Bench [oPines ][that ][the ][aPP]lalt has not made [out ][any]valid ground calling [interference]f the impugned [order. ][The]question of law stalds [decided ][i]favour of the assessee [and]against the aPPellant. [For ][the]said reasons, there [are ][no]grounds to interfere [with' ][the ][im]ed order ald accordinglY,the appeal is [liable to ][be ][dismisse] 9. AccordinglY, the [aPPe]is dismissed. [There ][shall ][be] no order as [to ][costs.] Miscellaneous Petitions, [if]any, pending in [this ][aPPeal] Sd/- K. SRINIVASA JOINT REGISTRAR sha,ll stand [closed] //TRUE [C]PYII SECTION OFFICER The lncome-tax [Appellate ][Tribunal' ][Be]ch - B, Hyderabad 1 The Commissioner [of ][lncome{ax ][(Ap]als - V), HYderabad 2 The Dy. Commissioner [of lncome-tax,]ircle - 16(1), [HYderabad] 3 One CC to (Sr SC FOR INCO[/E [TAX) Advocate]toPUCltoPUCl 4 5. One CC [to ] [A]vocate 6. Two CD [CoPies] HIGH COURT DATED:1810612025 JUDGMENTlTTA.No.251 of 2014 DISMISSING THE APPEAL )/ ,i 16i-. [\](C($(oJ13 AUE =[66)tDA.s FATc