Itta/639/2016 Of The Commissioner Of Income Tax - Iv v. Nava Bharat Ventures Ltd

IN THE HIGH COURT FOR THE STATE AT HYDERABAD FRIDAY, THE TWENTIETH DAY OF JUNETWO THOUSAND AND TWENTY FIVE PRESENT THE HONOURABLE SRI JUSTICE P.SAM KOSHYANDTHE HONOURABLE SRI JUSTICE NARSING RAO NANDIKONDA INCOME TAX TRIBUNAL APPEAL Nos.579 and 639 OF 2016 INCOME TAX TRIBUNAL APPEAL NO: 579 OF 2016 Income Tax Tribunal Appeal Under Section 2604 [of ]the lncome [Tax ][Act,1 ][961]against the Order dated 20.07.2012 [passed ]in ITA No.61/Hyd/2009 for theAssessment Year 2005-2006 on the file of the lncome Tax Appellate Tribunal,Hyderabad Bench ['B', ]Hyderabad. Between: The Commissioner of lncome-Tax-lV, Hyderabad, Hyderabad ...Appellant AND M/S Nava Bharat Ventures Ltd., 6-3-1 109/1 , Navabharat Chambers, Somajiguda,Raj Bhavan Road, Hyderabad, ...Respondent INCOME TAX TRIBUNAL APPEAL NO: 639 OF 2016 lncome Tax Tribunal Appeal Under Section 2604 of the lncome Tax [Act,1 ][961]against the Order dated 20.07 .2012 [passed ]in ITA [No.1 ][.l ]08/Hyd/2009 [for ]theAssessment Year 2006-2007 on the file of the lncome Tax Appellate [Tribunal,]Hyderabad Bench 'B', Hyderabad. Between: The Commissioner of lncome Tax - lV, Hyd ...Appellant AND Nava Bharat Ventures Ltd, [6-3-1 ][109/1 ], [Navabharat Chamb(-'rs Somajiguda, Raj]Bhavan Road, Hyd....Respondent Counsel for the Appellants [in both ][ITTAs ][: SRI ] [SUOHAKAR REDDY(SC FOR]lNcoME TAX) Counsel for the Respondents [in both ][ITTAs ][: ] The Court delivered the [following: ][Judgment] -:--:1!r- THE HONOURABLE SRIJUSTICE P.SAM KOSHYANDTHE HONOURABLE SRIJUSTICE NARSING RAONANDIKONDA ITTA Nos.579 & 639 OF 2016 JUDGMENT. Qter Hon'hla Sri.lustice P.Sam Koshy) Heard Mr. K.Sudhakar Redd1,, learned Senior Standing Counseltbr the Income Tax Department for the appellant andMr.C.V.Narasimham, learned counsel for the respondcnt. Perused therecord. 2. 2. In the light of the judgmenr passed by this Bench on 18.06.2025in ITTA No.25 I of 20 14. being dismissed of vide separate order, thepresent appeals are also dismissed in terms of the afbresaid judgment,There shall be no order as to costs. Consequcntly, rniscellancous petitions pcnding, if any, shall stand olosed. SD/. N. EPUTY SECTION ,TTRUE To, The lncome lncome [Tax ][Appellate ][Tribunal' ][Hyderaba-d Bench ]['B" ][Hyderabad][[INC^OME ]][[TAX) ]][[oPUc]] 1The lncome lncome 2one cc to [SRt K ][suDHAKAtHrcioviic ][FoR ][[INC^OME ]][[TAX) ]][[oPUc]]J5'#6E i; [siii ] [v ][GnnsrrtaunM' ][Advocate ][[oPUC]] 2 Two CD [CoPies] 4 ADK/gh Along [with ][a ][copy ][of ][Judgment ][in ][|TTA ][No 251 ][of ][2014] w HIGH COURT DATED:2010612025 . -. - . __-::_- l.-.,... [t : Sra)\]JUDGMENT1fl l;EP 206lTTA.Nos.S79 and 639 of 2016.u,:: //*', JUDGMENT DISMISSING THE BOTH ITTAsWITHOUT COSTS ^tr..de/d1.9' [\]Par : I ,/)/ THE HON'BLE SRI WSTICE P.SAM KOSHYANDTHE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDAINCOME TA)( TRIBUNAL APPEAL NO.251 OF 2OL4 JUDGMENT: lper Hon'ble Sri .frzstice No,rsin.g Rao Nandikonda) This appeal has been filed under Section 260A of the Income Tax Act, 1961 (for short, 'the Act, 1961) aggrieved bythe order, dated 20.07.2012 tn ITA No.lO95/Hyd/2009, dated2O.O7.20L2, passed by the lncome-Tax Appellate Tribunal,Bench B', Hyderabad, (for short, 'the Tribunal') for theAssessment Year 2006-2007 [.] w HIGH COURT DATED:2010612025 . -. - . __-::_- l.-.,... [t : Sra)\]JUDGMENT1fl l;EP 206lTTA.Nos.S79 and 639 of 2016.u,:: //*', JUDGMENT DISMISSING THE BOTH ITTAsWITHOUT COSTS ^tr..de/d1.9' [\]Par : I ,/)/ THE HON'BLE SRI WSTICE P.SAM KOSHYANDTHE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDAINCOME TA)( TRIBUNAL APPEAL NO.251 OF 2OL4 JUDGMENT: lper Hon'ble Sri .frzstice No,rsin.g Rao Nandikonda) This appeal has been filed under Section 260A of the Income Tax Act, 1961 (for short, 'the Act, 1961) aggrieved bythe order, dated 20.07.2012 tn ITA No.lO95/Hyd/2009, dated2O.O7.20L2, passed by the lncome-Tax Appellate Tribunal,Bench B', Hyderabad, (for short, 'the Tribunal') for theAssessment Year 2006-2007 [.] 2. Brief facts of the case are that the assessee is aIimited company engaged in the business of manufacture ofFerro alloys, sugar, fabrication of equipment and [generation ]ofpower. For the Assessment Year 2006-2007, the assessee filedits returnliss showing income of Rs.1,71,89,OOO/- and in thesaid returns, the assessee has claimed deduction ofRs.44,91,I7,391/- under Section 8O-IA of the Act, 1961 inrespect of profits from power generation units of differentVillages. In support of deduction, the assesse has filed FormNo.lO CCB, dated 27.11.2006, for each unit. During theassessment proceedings by the Assessing Ofhcer, the assessee 'tlIt.d 251 2014 claimed 1t)0('/o deduction under Section 80-lA of the Act, 1961,under which the parties can claim only for captive consurnptionand not for sale of power to any outside partv. In theAssessmerrt C)rder for the Assessment Years 2004-2005 and2005 06, thc claim of deduction under Section 80 IA of tl-re Act,1961 was disallowecl as assessee is not eligible for deductionunder Se ction B0 IA of the Act, 196I to a tune ofRs.37,34,5i5.899/ - in respect of captive power plants for thisassessmerrt vear. Further, the Assessing Officcr has restrictedthe deduc ion claimed by the assessee under Section 80 IA ofthe Act, 1961 from Rs.44,92,O4,89I/- to Rs.7,57,4U,99'2 l- byinvoking the provisions of Section 80-IA(8) ar.rd Section 8O-IA(10) of the Act, 1961 and also observed that tlre Porver Plants,which wer: set up are only for Captive Consurnption and thatthe APSEB has granted sanction only for the purpose of CaptiveConsumpt on. Since the main objective for setr ing up of powerplant is for Captive Consumption, the Assessitrg Ofhcerdisallowed the entire claim of deduction under Section 80-lA ofthe Act, 19,61. Aggrieved by the order of the Ar;sessing Ofhcer,the assessee preferred an appeal before the C ommissioner ofIncome Tax (Appeals) V, Hyderabad. The CII(A) uide order PSA & NNRJItto 25L 2014 dated 24.O8.20O9 in ITA No. 0 1 69 / DC- 1 6(11 / cIT (A)-v / 2oo8-o9,keeping in view the decision of the Hon'ble jurisdictional HighCourt held that it would be just and fair to adopt the prevailingrate of Rs.2 . 1 2 per unit which was adopted in the precedingyear, and thus directed to compute the sale proceeds arisingCourt held that it would be just and fair to adopt the prevailingrate of Rs.2 . 1 2 per unit which was adopted in the precedingyear, and thus directed to compute the sale proceeds arisingfrom consumption of power in own unlts. Aggrieved by the saidorder of the CIT (A), the Department as well as the assesseepreferred appeals before the learned Income Tax AppellateTribunal (ITAT).order of the CIT (A), the Department as well as the assesseepreferred appeals before the learned Income Tax AppellateTribunal (ITAT). 3. The learned ITAT vide its consolidated order, dated2O.O7.2O12 disposed of the appeals granting relief to theASSCSSEC directing the Assessing Officer to re-compute thededuction allowable under Section B0-lA of the Act, 1961 byadopting Rs.2.53 per unit as per prevailing market rate.Further, the ITAT a-lso held that the assesse is entitied fordeduction as per the provisions of sub Section (8) of Section 80-IA of the Act, 1961, in spite of the fact that major portion of thepower generated by the assesse is utilized for captiveconsumption ald only a small portion of the power is sold to APTRANSCO and thereby the appeal filed by therevenue wasdismissed. Itto 251 2014 4. The main contention of the appellant is that theAssessing Of{icer restricted the deduction ,:laimed by theassessee under Section 8O-IA of the Ar;t, 1961 fromRs.44,92,O4,891/- to Rs.7,57,48,992/- by invoking theprovisions of Section B0-IA(8) and Section 80-IA (10) of the Act,1961. He further submitted that the Assessing Officer observedthat the power plants were set up for Captive C,tnsumption andthe APStrE; has granted sanction only for the purpose of CaptiveConsumption. Since the main objective for setting up of powerplant is for captive consumption, the As sessing Ofhcerdisallowed the entire claim of deduction under Section 8O-lA ofthe Act, 19 61. 5. On the other hand, learned counset for respondentthe other hand, learned counset for respondentother hand, learned counset for respondenthand, learned counset for respondentlearned counset for respondentcounset for respondentfor respondentrespondentwhile supporting the orders passed by the CIT rA) and the ITATcontending; that the power which was transfer red from powerunit to ferro is to be charged with recovery ra-e of power andnot at wt.ich the power purchased by AP ['IRANSCO ]fromassessee. He further argued that the power generatingcompanies are supplying power at rates vrrrying betweenRs.2.21 to 3.15 per unit. He further contended that the CIT(A)agreed wil h the assessee's contention that the assesse is On the other hand, learned counset for respondentthe other hand, learned counset for respondentother hand, learned counset for respondenthand, learned counset for respondentlearned counset for respondentcounset for respondentfor respondentrespondent PSKJ & NNNItto 251 2014Itto 251 2014 entitled to avail deduction under Section 8O-I of the Act, 1961on the proflt earned from the captive consumption power plant.Though the CIT has not accepted, there is contention that theon the proflt earned from the captive consumption power plant.Though the CIT has not accepted, there is contention that theassesse during the relevant assessment year has supplied thepower for Rs.2.53 per unit. In support of his contentions healso placed reliance on the judgment of the Hon'ble Supremepower for Rs.2.53 per unit. In support of his contentions healso placed reliance on the judgment of the Hon'ble SupremeCourt in Commissioner of Income Tax v. Jindal Steel andPower Limited (and connected appeals)1, wherein atPower Limited (and connected appeals)1, wherein atparagraphs 24,25,26,27 ar,d28 it was held as under: "2+. Black's Law Dictionary, lOth Edition, defines theexpression "open market" to mean a market in which aly buyeror seller may trade and in which prices and product avajlabilityare deterrnined by free competition. P. Ramanatha Aiyer,sAdvanced Law Lexicon has also defined the expression [.open]market" to mean a market in which goods are available to be.bought and sold by anyone who caJes to. Prices rl an openmarket are determined by the laws of supply and demand. "2+. Black's Law Dictionary, lOth Edition, defines theexpression "open market" to mean a market in which aly buyeror seller may trade and in which prices and product avajlabilityare deterrnined by free competition. P. Ramanatha Aiyer,sAdvanced Law Lexicon has also defined the expression [.open]market" to mean a market in which goods are available to be.bought and sold by anyone who caJes to. Prices rl an openmarket are determined by the laws of supply and demand. 25. Therefore, the expression "market value" in relation toany goods as defined by the explanation below the proviso tosub-section (8) of Section 8O IA would mean the price of suchgoods determined in an environment of free trade or competition.'Market value' is al expression which denotes the price of agood arrived at between a buyer and a seller in the open marketi.e., where the transaction takes place in the normal course oftrading. Such pncing is unfettered by any control or regulation;rather, it is determined by the economics of demand and supply. 26. Under the electricit5r regime in force, an industnalconsumer could purchase electricity from the State Electricit5rBoard or avail electricity produced by its own captive powergenerating unit. No other entity could supply electricit5z to anyconsumer. A private person could set up a power generating unithaving restrictions on the use of power generated and at thesame time, the tariff at which the said power plant could supplysurpius power to the State Electricity Board was also liable to behaving restrictions on the use of power generated and at thesame time, the tariff at which the said power plant could supplysurpius power to the State Electricity Board was also liable to be Itto 251 2014 26. Under the electricit5r regime in force, an industnalconsumer could purchase electricity from the State Electricit5rBoard or avail electricity produced by its own captive powergenerating unit. No other entity could supply electricit5z to anyconsumer. A private person could set up a power generating unithaving restrictions on the use of power generated and at thesame time, the tariff at which the said power plant could supplysurpius power to the State Electricity Board was also liable to behaving restrictions on the use of power generated and at thesame time, the tariff at which the said power plant could supplysurpius power to the State Electricity Board was also liable to be Itto 251 2014 determined in accordalce with the statutory requirements. Inthe pr:sent case, as the electricity from the Sttte ElectricityBoard was inadequate to meet power requirernents of thethe pr:sent case, as the electricity from the Sttte ElectricityBoard was inadequate to meet power requirernents of theindust-ial units of the assessee, it set up captive p )wer plants tosupply electricity to its industrial units. Howeve r, the captivepower plalts of the assessee could sell or supplir the surpluselectri(ity (after supplying electricity to its industrirLl units) to theelectri(ity (after supplying electricity to its industrirLl units) to theState lllectncifir Board only and not to any othe- authority orperson Therefore, the surplus electricity had to br compulsorilyperson Therefore, the surplus electricity had to br compulsorilysupplie d by the assessee to the State trlectricity Board and interms ,)f Sections 43 and 43A of the 1948 Act, a contract wasterms ,)f Sections 43 and 43A of the 1948 Act, a contract wasentereci into between the assessee and the StiLte ElectricityBoard lor supply of the surplus electricity by the former to theIatter. ['lhe ]price for supply of such electricity by tlre assessee tothe State Electricity Board was fixed at Rs. 2.32 plr unit as perthe cor.tract. This price is, therefore, a contracted lrrice. Further,there uas no room or any elbow space for negotiation on the parto[ the assessee. Uncler rhe statutory regime in place, theBoard lor supply of the surplus electricity by the former to theIatter. ['lhe ]price for supply of such electricity by tlre assessee tothe State Electricity Board was fixed at Rs. 2.32 plr unit as perthe cor.tract. This price is, therefore, a contracted lrrice. Further,there uas no room or any elbow space for negotiation on the parto[ the assessee. Uncler rhe statutory regime in place, theassess(e had no other alternative but to sell c,r supply thesurplu:; electricity to the State Electricity Boarc. Berng in asurplu:; electricity to the State Electricity Boarc. Berng in adominant position, the State Electricity Board coul,l fix the priceto whir:h the assessee really had little or no scope to eitherto whir:h the assessee really had little or no scope to eitheroppose or negotiate. Therefore, it is endent that determination oftariff Letween the assessee and the State Ele< tricity Boardcannot be said to be an exercise between a buyer and a sel1er intariff Letween the assessee and the State Ele< tricity Boardcannot be said to be an exercise between a buyer and a sel1er ina competitive environment or in the ordinary coursr: of trade andbusines,s i.e., in the open market. Such a price cal eot be said tobe the price which is determined in the normal cr urse of tradeand cornpetition.and cornpetition. 27 . Anothcr way of looking at the issue is, if [..he ]inCustrialunits or'the assessee did not have the option of ob _aining powerfrom the captive power plants of the assessee, ther. in that caseit wou.d have had to purchase electricity frorn the StateElectricity Board. In such a scenario, the industrial units of theassessee rvould have had to purchase power frcm the Stateit wou.d have had to purchase electricity frorn the StateElectricity Board. In such a scenario, the industrial units of theassessee rvould have had to purchase power frcm the StateEtectricity Board at the same rate at which the Strtte ElectricityBoard :;upplied to the industrial consumers i.e., Rs. 3.72 perunit.unit. 28. Thus, market value of the power supplied by theassesse 3 to its mdustria.l units should be ccmputed byconside:ing the rate at which the State Elecr ricitJz Boardsupplie<l po$,er to the consumers in the open ma rket arrd notcomparng it with the rate of power when sold to a supplier i.e.,sold by the assessee to the State Eiectricity Board as this wasnot the rate at which an industrial consumer could havepurchas ed power in the open market. It is clear th:it the rate atwhich power was supplied to a supplier could not be the marketrate of electricit5z purchased by a consumer in the ,rpen rnarket.On the contrary, the rate at which the State Electricitv Board III,|iI supplied power to the industrial consumers has to be taken asthe market value for computlng deduction under Section 80 IA ofthe Act. .. ." 6, Learned counsel for the respondent has furthercontended that if the assessee company involved inmanufacture of Ferro Alloys, sugar, fabrication of equipmentand generation of power, the assessee is entitled fordisallowance of claim of deduction under Section 8O-lA of theAct, 1961. 7. Having considered the entire material placed beforethis Court and also the ratio laid down by the Hon'lcle SupremeCourt in Jindal Steel and Power Limited's case (supra), thisBench opines that there is force in the argument of learnedcounsel for the respondent that power plant has been set up forgenerating captive consumption of power for its own Units andnot to make profits out of its own consumption. The learnedCommissioner of Income Tax (Appeals)-V, Hyderabad hasrightly considered the factual aspects of the case and adoptedthe rate at Rs.2.53 per unit, as per the market rate for thecurrent year in respect of power consumed internally and thesame was confirmed by the Income Tax Department, Hyderabad and dlrectr:d the Assessing Officer to change raLe from Rs.2.53per unit as per Section BO-IA of the Act, 1961 8. Considering the entire materlal placeC on record andthe judgmt:nt of the Hon'b1e Supreme Court relerred to above,this BencL. opines that the appellant has not made out anyvalid ground calling interference of the impugtred order. Thequestion of 1aw stands decided in favour of the assessee andagainst the appellant. For the said reasons, there are nogrounds to interfere with the impugned order and accorclingly,the appeal is iiabie to be dismissed. 9. Accordingly, the appeal is dismissed. There shall be no order as; to costs. Miscr:lianeous petitions, tf any , pending in this appealshall stand closed. JUSTICE P.SAM KOSHY Date:18.O6.2O25YVL JUSTICE NARSING RAO NANDIKONDA