Viking Textiles (P) Ltd., Tiruppur v. DCIT, Tiruppur

ITA 1570/CHNY/2011 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 157021714 RSA 2011
Assessee PAN AAACV7564P
Bench Chennai
Appeal Number ITA 1570/CHNY/2011
Duration Of Justice 2 month(s) 11 day(s)
Appellant Viking Textiles (P) Ltd., Tiruppur
Respondent DCIT, Tiruppur
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 30-11-2011
Assessment Year 2007-2008
Appeal Filed On 19-09-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER I.T.A. NO. 1570/MDS/2011 (ASSESSMENT YEAR : 2007-08) M/S VIKING TEXTILES (P) LTD. 505 AVINASHI ROAD TIRUPUR. PAN : AAACV7564P (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX COMPANY CIRCLE TIRUPUR. (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI K.E.B. RA NGARAJAN JUNIOR STANDING COUNSEL DATE OF HEARING : 30.11.2011 DATE OF PRONOUNCEMENT : 30.11.2011 O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE ITS GRIEVAN CE IS THAT THE A.O. ADOPTED THE PRICE OF THE ELECTRICITY CAPTIVELY CONSUMED BY IT AT THE RATE AT WHICH IT HAD SOLD THE ELECTRICITY GENER ATED FROM ITS WINDMILLS TO THE TAMIL NADU ELECTRICITY BOARD AND N OT AT THE RATE AT I.T.A. NO. 1570/MDS/11 2 WHICH IT HAD PURCHASED SUCH ELECTRICITY FOR CONSUMP TION FROM TAMIL NADU ELECTRICITY BOARD. THE ISSUE RELATES TO CLAIM FOR DEDUCTION UNDER SECTION 80-IA OF INCOME-TAX ACT 1961 (IN SHO RT THE ACT) IN RESPECT OF ELECTRICITY GENERATED BY THE ASSESSEE FR OM ITS WINDMILLS AND CAPTIVELY USED BY IT FOR ITS YARN MANUFACTURING BUSINESS. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE WHICH IS IN THE BUSINESS OF MANUFACTURING OF YARN HAD ALSO INSTALLED THREE WINDMILLS FOR WHICH IT HAD ADOPTED IMPUGNED ASSESSMENT YEAR AS THE INIT IAL ASSESSMENT YEAR FOR THE PURPOSE OF CLAIM OF DEDUCTION UNDER SE CTION 80-IA OF THE ACT. WHILE MAKING THE CLAIM FOR DEDUCTION UNDER SE CTION 80-IA OF THE ACT IN RESPECT OF THE POWER PRODUCED BY THE WINDMIL LS ASSESSEE ADOPTED THE RATE AT WHICH THE POWER WAS SOLD BY M/S TAMIL NADU ELECTRICITY BOARD TO IT. THE WINDMILLS OF THE ASSE SSEE WERE DISPARATELY SITUATED VIS--VIS ITS YARN MANUFACTURING ACTIVITY. THE ELECTRICITY BOARD PURCHASED POWER PRODUCED BY THE WINDMILLS OF THE ASSESSEE AT THE RATE OF ` 2.70 PER UNIT AND WHEN IT SOLD THE ELECTRICITY TO ITS TEXTILE UNITS IT HAD CHARGED THE ASSESSEE AT THE RATE OF ` 3.50 PER UNIT AFTER MAKING ADJUSTMENTS FOR THE UNITS GENERATED BY THE A SSESSEE. I.T.A. NO. 1570/MDS/11 3 ASSESSEE WHILE COMPUTING ITS CLAIM FOR DEDUCTION U NDER SECTION 80- IA OF THE ACT IN RESPECT OF THE WINDMILLS HAD ADOP TED THE PRICE OF ` 3.50 PER UNIT. ACCORDING TO ASSESSEE THIS WAS THE RATE AT WHICH THE ELECTRICITY BOARD SUPPLIED POWER TO ITS TEXTILE YAR N MANUFACTURING UNITS AND THE ADJUSTMENT OF QUANTUM OF POWER IN THE BILLS RAISED BY THE ELECTRICITY BOARD WAS ONLY A BARTER ARRANGEMENT DON E BY THE BOARD FOR CONVENIENCE. HOWEVER THE A.O. DID NOT ACCEPT THIS CONTENTION. ACCORDING TO HIM COST REDUCTION ACHIEVED DUE TO PR ODUCTION OF ELECTRICITY FROM THE WINDMILLS WAS ENJOYED BY THE Y ARN MANUFACTURING UNITS. AS PER A.O. IT WOULD RESULT IN ENHANCEMENT OF PROFITABILITY OF SPINNING MILLS AND NOT THE WINDMILLS. A.O. ALSO MA DE NOTE OF THE FACT THAT POWER PRODUCED BY THE ASSESSEE WAS REGULARLY S UPPLIED TO TAMIL NADU ELECTRICITY BOARD AT THE PRICE DETERMINED BY T HE SAID BOARD BY VIRTUE OF TAMIL NADU ELECTRICITY ACT AND THEREFORE MARKET VALUE FOR SUCH A COMMODITY COULD NOT BE DETERMINED AS PRESCRI BED UNDER SUB- SECTION (8) OF SECTION 80-IA OF THE ACT. RELYING O N THE DECISION OF HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA V. CIT (317 ITR 218) A.O. WAS OF THE OPINION THAT ASSESSEE COULD NOT BE PERMITTED TO INFLATE THE PROFIT FROM ITS WINDMILLS UNIT AND HE THEREFORE ADOPTED THE I.T.A. NO. 1570/MDS/11 4 PRICE OF ` 2.70 FIXED BY THE TAMIL NADU ELECTRICITY BOARD FOR PURCHASE OF POWER FROM WINDMILLS TO BE THE CORRECT PRICING FOR COMPUTING THE PROFITS OF THE WINDMILLS. BECAUSE OF THIS DIFFEREN CE IN FIXATION OF TRANSFER PRICE OF THE ELECTRICITY THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80-IA CAME TO BE SUBSTANTIA LLY REDUCED. IT IS ALSO NECESSARY TO MENTION HERE THAT ASSESSING OFFIC ER HAD IN FACT DISALLOWED THE WHOLE OF THE CLAIM SINCE THERE WAS NO PROFIT LEFT ACCORDING TO HIM AFTER SETTING OFF THE NOTIONAL CA RRY FORWARD LOSSES AND DEPRECIATION. 3. IN THE FIRST APPEAL CIT(APPEALS) ALLOWED THE CL AIM OF THE ASSESSEE WITH REGARD TO SET-OFF OF NOTIONAL CARRIED FORWARD LOSSES AND DEPRECIATION FOLLOWING THE DECISION OF HON'BLE JURI SDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS V. ACI T (231 ITR 368). THIS LEFT THE ISSUE REGARDING TRANSFER PRICE OPEN AND ON THIS LD. CIT(APPEALS) REFUSED TO INTERFERE FOR ACCORDING T O HIM THE A.O. HAD ADOPTED A CORRECT APPROACH WHILE CONSIDERING THE RA TE OF ` 2.70 PER UNIT FOR THE PURPOSE OF CALCULATION OF DEDUCTION I N RESPECT OF THE WINDMILLS UNDER SECTION 80-IA OF THE ACT. I.T.A. NO. 1570/MDS/11 5 4. WHEN THE APPEAL CAME UP FOR HEARING NOBODY APPE ARED ON BEHALF OF ASSESSEE. THOUGH AN ADJOURNMENT APPLICAT ION HAS BEEN FILED BY M/S C. RAMASAMY & B. SRINIVASAN CHARTERED ACCOUNTANTS THERE WAS NO REPRESENTATION OF ANY PERSON ON BEHALF OF THE SAID FIRM WHEN THE CASE WAS CALLED UP. 5. LEARNED D.R. SUPPORTING THE ORDERS OF THE AUTHOR ITIES BELOW SUBMITTED THAT ADMITTEDLY ASSESSEE HAD SOLD ELECTRI CITY GENERATED FROM WINDMILLS AT ` 2.70 PER UNIT TO THE ELECTRICITY BOARD THOUGH THE ELECTRICITY SO SOLD WAS REPURCHASED BY THE ASSESSEE FROM ELECTRICITY BOARD FOR CONSUMPTION OF ITS SPINNING UNITS AT ` 3.50 PER UNIT. IN SO FAR AS THE WINDMILLS WERE CONCERNED ITS PROFITS HA D TO BE WORKED OUT TAKING ` 2.70 PER UNIT AT WHICH IT HAD SOLD THE ELECTRICITY TO TAMIL NADU ELECTRICITY BOARD. ACCORDING TO HIM MARKET RATE A PPLICABILITY AS CONTEMPLATED UNDER SECTION 80-IA(8) WOULD NOT BE AP PROPRIATE WHEN THE POWER WAS REGULATED BY ELECTRICITY BOARD. THE MOST APPROPRIATE RATE WOULD BE THE RATE AT WHICH THE ELECTRICITY WAS PURCHASED BY TAMIL NADU ELECTRICITY BOARD FROM THE ASSESSEE. THEREFOR E ACCORDING TO HIM THE ORDERS OF THE AUTHORITIES BELOW NEEDED TO BE CONFIRMED. I.T.A. NO. 1570/MDS/11 6 6. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTENT ION OF LEARNED D.R. THE SHORT QUESTION ARISING HERE IS WH ETHER THE PER UNIT RATE OF ELECTRICITY FOR THE PURPOSE OF COMPUTING T HE PROFITS OF THE WINDMILLS OF THE ASSESSEE HAS TO BE TAKEN AT ` 2.70 OR AT ` 3.50. ` 2.70 WAS THE PRICE GIVEN BY ELECTRICITY BOARD TO TH E ASSESSEE FOR THE ELECTRICITY GENERATED BY THE WINDMILLS BUT SUCH EL ECTRICITY WHEN SUPPLIED BY THE ELECTRICITY BOARD TO THE YARN MANUF ACTURING UNIT OF THE ASSESSEE THEY HAD CHARGED FROM THE ASSESSEE ` 3.50 PER UNIT. THERE IS NO DISPUTE THAT THE POWER MANUFACTURED BY THE ASSESSEE FROM ITS WINDMILLS THOUGH MEANT FOR THE USE OF CAPT IVE CONSUMPTION IN ITS YARN MANUFACTURING UNIT WAS NOT PHYSICALLY THE SAME AS WAS ACTUALLY USED BY THE YARN MANUFACTURING UNITS. THE WINDMILLS WERE DISPARATELY SITUATED VIS--VIS THE YARN MANUFACTURI NG UNIT. ASSESSEE WAS LEFT WITH NO GO OTHER THAN SUPPLY THE ELECTRICI TY TO THE ELECTRICITY BOARD. IT IS NOT THAT THE SAME POWER THAT WAS PROD UCED BY THE ASSESSEE WAS SUPPLIED BY THE ELECTRICITY BOARD TO I TS YARN MANUFACTURING UNIT. THE ADJUSTMENT IN THE BILLS AS A BARTER ARRANGEMENT WAS THEREFORE ONLY FOR THE CONVENIENC E OF THE I.T.A. NO. 1570/MDS/11 7 ELECTRICITY BOARD. SUB-SECTION (8) OF SECTION 80-I A PROVIDES THAT WHERE AN ASSESSEE WHICH IS ELIGIBLE FOR 80-IA BENE FITS TRANSFERRED ITS GOODS OR SERVICE TO ITS BUSINESS OTHER THAN THE ELI GIBLE BUSINESS THE CONSIDERATION IF ANY RECORDED FOR SUCH TRANSFER IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS SHOULD CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES. OSTENSIBLY IN THIS CASE THE A .O. WAS OF THE OPINION THAT THE CONSIDERATION FOR TRANSFER OF POWE R TO CAPTIVE CONSUMPTION TO THE YARN MANUFACTURING UNIT WAS RECO RDED AT A CONSIDERATION WHICH DID NOT CORRESPOND TO ITS MARKE T VALUE. IN OTHER WORDS A.O. PERCEIVED ` 2.70 AS THE MARKET VALUE BEING THE PRICE AT WHICH ASSESSEE SOLD POWER TO ELECTRICITY BOARD AND NOT ` 3.50 PER UNIT AT WHICH ASSESSEE IN TURN PURCHASED THE POWE R FROM THE ELECTRICITY BOARD FOR ITS YARN MANUFACTURING UNIT. IN TERMS OF ELECTRICITY (SUPPLY) ACT 1948 LEGISLATURE HAS PUT RESTRICTION S ON ESTABLISHMENT OF POWER GENERATING UNITS AND THEIR FUNCTIONING. P OWER GENERATING CONCERNS ARE ALLOWED TO USE POWER FOR CAPTIVE CONSU MPTION OF THEIR OTHER UNITS AND THE SURPLUS IF ANY HAS TO BE SUP PLIED OR TRANSFERRED TO STATE ELECTRICITY BOARDS. SECTION 43 OF ELECTRI CITY (SUPPLY) ACT 1948 AUTHORIZES STATE ELECTRICITY BOARD TO ENTER IN TO ARRANGEMENTS FOR I.T.A. NO. 1570/MDS/11 8 PURCHASE AND SALE OF ELECTRICITY UNDER CERTAIN COND ITIONS MENTIONED THEREIN. SECTION 43A OF THE SAID ACT ALSO LAYS DOW N RULES AND CONDITIONS FOR DETERMINING TARIFF FOR THE SALE OF E LECTRICITY BY A GENERATING COMPANY TO STATE ELECTRICITY BOARDS. TH E TARIFF IS DETERMINED ON THE BASIS OF VARIOUS PARAMETERS MENTI ONED THEREIN. A PRIVATE PERSON REQUIRES A SPECIFIC CONSENT TO SET U P A POWER GENERATING UNIT AND IT HAS TO COMPLY WITH THE RESTR ICTIONS FOR USE OF POWER GENERATED AND THE TARIFF AT WHICH THE POWER C AN BE SUPPLIED TO ELECTRICITY BOARD. THUS THE DETERMINING OF TARIFF BETWEEN ASSESSEE AND ELECTRICITY BOARD CANNOT BE CONSIDERED AS AN EX ERCISE UNDERTAKEN IN A COMPETITIVE ENVIRONMENT AND UNDER M ARKET CONDITIONS. PRICE DETERMINED IN SUCH A SCENARIO CA NNOT BE EQUATED WITH A SITUATION WHERE THE PRICE IS DETERMINED IN T HE NORMAL COURSE OF COMPETITIVE ENVIRONMENT. THUS THE PRICE AT WHICH ASSESSEE SOLD ITS POWER TO THE ELECTRICITY BOARD CANNOT BE EQUATED WI TH MARKET RATE AS UNDERSTOOD FOR THE PURPOSE OF SECTION 80-IA(8) OF T HE ACT. NOW THE QUESTION THAT REMAINS IS WHETHER THE PRICE RECORDED BY THE ASSESSEE AT ` 3.50 PER UNIT FOR PURCHASING POWER FROM THE ELECTR ICITY BOARD FOR ITS YARN MANUFACTURING UNIT CAN BE CONSIDERED THE M ARKET VALUE. I.T.A. NO. 1570/MDS/11 9 ASSESSEE UNDOUBTEDLY IS AN INDUSTRIAL CONSUMER AND THE BOARD SUPPLIES POWER TO SUCH INDUSTRIAL CONSUMERS AT THE RATE OF ` 3.50 PER UNIT. HAD THE ASSESSEE NOT BEEN SADDLED WITH THE R ESTRICTIONS OF SUPPLYING SURPLUS POWER TO THE STATE ELECTRICITY BO ARD IT WOULD HAVE SUPPLIED THE POWER TO ULTIMATE CUSTOMERS AT A PRICE NOT LESS THAN ` 3.50 PER UNIT BEING THE RATE CHARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS. THUS UNDER THE GIVEN CIRCUMSTANCES IT WOULD BE APPROPRIATE TO HOLD THAT THE CONSIDERATION RECORDED BY THE ASSESSEE FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION WHIC H IS AT THE RATE OF ` 3.50 PER UNIT CORRESPONDS TO THE MARKET VALUE OF S UCH POWER. THOUGH THE LD. CIT(APPEALS) HAD UPHELD ORDER OF THE A.O. RELYING ON THE DECISION OF DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF ADDL. CIT V. JINDAL STEEL AND POWER LTD. (2007) (16 SOT 509) WE ARE OF THE OPINION THAT THIS DECISION BETTER SUPPORTS THE CASE OF THE ASSESSEE. IN TAKING THIS WE ARE ALSO ROBORANTED BY THE DECIS ION OF BOMBAY BENCH OF THIS TRIBUNAL IN THE CASE OF WEST COAST PA PER MILLS LTD. V. JCIT 100 TTJ (MUMBAI) 833. WE ARE THEREFORE OF T HE OPINION THAT ASSESSEE HAS TO SUCCEED IN ITS APPEAL AND PROFITS O F ELIGIBLE I.T.A. NO. 1570/MDS/11 10 UNDERTAKING HAS TO BE DETERMINED ON THE BASIS OF AN NUAL LANDING COST OF ELECTRICITY PURCHASED BY THE ASSESSEE FROM TNEB. 7. IN THE RESULT APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 30 TH NOVEMBER 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 30 TH NOVEMBER 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II COIMBATORE (4) CIT-III COIMBATORE (5) D.R. (6) GUARD FILE