M/s Sri Velayudhaswamy Spinning Mills (P) LTd., Tiruppur v. DCIT, Tiruchengode

ITA 850/CHNY/2011 | 2007-2008
Pronouncement Date: 13-07-2011 | Result: Allowed

Appeal Details

RSA Number 85021714 RSA 2011
Assessee PAN AADCS0676C
Bench Chennai
Appeal Number ITA 850/CHNY/2011
Duration Of Justice 2 month(s) 7 day(s)
Appellant M/s Sri Velayudhaswamy Spinning Mills (P) LTd., Tiruppur
Respondent DCIT, Tiruchengode
Appeal Type Income Tax Appeal
Pronouncement Date 13-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 13-07-2011
Assessment Year 2007-2008
Appeal Filed On 06-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI B E F O R E DR. O.K.NARAYANAN VICE PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER .. ITA NO.850(MDS)/2011 ASSESSMENT YEAR: 2007-08 M/S. SRI VELAYUDHASWAMY SPINNING MILLS (P) LTD. 207/86 MANGALAM ROAD KARUVAMPALAYAM TIRUPUR. PAN AADCS0676C. VS. THE DEPUTY COMMISSIONER OF INCOME-TAX COMPANY CIRCLE TIRUPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.BANUSEKAR C.A. RESPONDENT BY: SHRI ANIRUDH RAI CIT DR. O R D E R PER DR.O.K.NARAYANAN VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE - - ITA NO.850(MDS)/20 11 2 ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I I AT CHENNAI DATED 22-2-2011 AND ARISES OUT OF THE ASSES SMENT COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX AC T 1961. 2. THE ASSESSEE IS A TEXTILE MANUFACTURING COMPANY . IT IS HAVING A WINDMILL UNDERTAKING AS AN INDEPENDE NT DIVISION. THE WINDMILL UNDERTAKING IS ENTITLED FOR THE BENEFI T AVAILABLE UNDER SECTION 80IA OF THE ACT. THE ASSESSEE ACCORD INGLY CLAIMED DEDUCTION FOR THE IMPUGNED ASSESSMENT YEAR. 3. THE ELECTRICITY GENERATED BY THE WINDMILL ESTABLISHMENT OF THE ASSESSEE IS COLLECTED BY THE T AMIL NADU ELECTRICITY BOARD ON A SPECIAL ARRANGEMENT. THE TA MIL NADU ELECTRICITY BOARD COLLECTED THE ELECTRICITY FROM TH E GENERATING POINT OF THE ASSESSEE AND RELEASES TO THE ASSESSEE COMPANY WHENEVER REQUIRED. THIS PRACTICE IS FOLLOWED BY TH E TAMIL NADU ELECTRICITY BOARD TO PROMOTE THE INVOLVEMENT OF IND USTRIES IN GENERATING POWER NECESSARY FOR THEIR UNITS. THE TA MIL NADU ELECTRICITY BOARD IS COLLECTING THE ELECTRICITY FRO M THE GENERATION POINT OF A PARTICULAR INDUSTRIAL UNIT AND SUPPLIES TO THE SAME UNIT AT THE TIME OF REQUIREMENT. THE ASSESSEE ALSO HAD ENTERED INTO SUCH AN AGREEMENT WITH THE TAMIL NADU ELECTRICITY B OARD. - - ITA NO.850(MDS)/20 11 3 4. WHEN TAMIL NADU ELECTRICITY BOARD TAKES OVER TH E ELECTRICITY GENERATED BY THE ASSESSEE UNIT IT PAYS FOR THE POWER AT THE RATE OF ` . 2.70 PER UNIT. TAMIL NADU ELECTRICITY BOARD CHARGES AT THE RATE OF ` . 3.50 PER UNIT WHEN POWER IS SUPPLIED TO INDUSTRIAL UNITS. ONE POINT IS TO BE REMEMBERED AT THIS JUNCTURE. AS FAR AS CAPTIVE CONSUMPTION OF POWER IS CONCERNED THE ASSESSEE HAS TO PAY NOTHING. IF THE ASSESSEE HAS G IVEN 100 UNITS OF ELECTRICITY TO THE TAMIL NADU ELECTRICITY GRID THE ASSESSEE CAN TAKE BACK 100 UNITS OF POWER WITHOUT MAKING ANY PAYMENT. THAT IS THE ASSESSEE HAS NOTHING TO PAY FOR CAPTIV E CONSUMPTION. IF THE TAMIL NADU ELECTRICITY BOARD I S PAYING ` . 2.70 PER UNIT THE ASSESSEE ALSO HAS TO PAY ONLY ` . 2.70 PER UNIT FOR CAPTIVE CONSUMPTION. BUT IF THE ASSESSEE IS CONSUMING MORE THAN ITS CONTRIBUTION THEN THE TAMIL NADU ELE CTRICITY BOARD CHARGES ` . 3.70 PER UNIT. IN THE PRESENT CASE THE ASSESSEE HAS CONSUMED POWER MORE THAN ITS CONTRIBUTION. THEREFO RE IN ALL SUCH EXCESS CONSUMPTIONS THE ASSESSEE HAS PAID ` . 3.50 PER UNIT TO THE TAMIL NADU ELECTRICITY BOARD. 5. IN THE ABOVE BACKGROUND THE ASSESSEE COMPUTED ITS PROFIT ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80IA ADOPTING - - ITA NO.850(MDS)/20 11 4 THE MARKET PRICE OF THE POWER GENERATED BY IT AT ` . 3.50 PER UNIT. THIS IS ON THE GROUND THAT THE TAMIL NADU ELECTRICI TY BOARD IS SUPPLYING POWER AT THE RATE OF ` .3.50 PER UNIT AND IN THE ABSENCE OF ANY OTHER QUOTED RATE IN THE MARKET THE SAME SH OULD BE CONSIDERED AS THE SALE PRICE OF THE POWER IN THE MA RKET. ACCORDINGLY THE ASSESSEE COMPANY COMPUTED THE ELIGI BLE PROFIT ADOPTING THE MARKET RATE OF ENERGY PRODUCED BY IT A T THE RATE OF ` .3.50 PER UNIT. 6. BUT THE ASSESSING OFFICER HELD THE VIEW THAT WH ILE THE ASSESSEE IS DELIVERING THE POWER TO THE TAMIL N ADU ELECTRICITY BOARD THE ASSESSEE IS PAID ONLY ` . 2.70 PER UNIT AND THEREFORE THAT PRICE OF ` .2.70 PER UNIT SHOULD BE TAKEN AS THE MARKET PRICE OF THE POWER GENERATED BY THE ASSESSEE . THE ASSESSING OFFICER COMPUTED THE ELIGIBLE PROFIT OF T HE ASSESSEE COMPANY ON THE BASIS OF THE PRICE OF THE POWER AT ` . 2.70 PER UNIT. THE ASSESSING OFFICER REDUCED THE SALE PRICE OF THE POWER AT 80 PAISE PER UNIT. TO THAT EXTENT THE QUANTUM O F THE ELIGIBLE PROFIT OF THE ASSESSEE HAS COME DOWN. THIS GRIEVAN CE OF THE ASSESSEE WAS TAKEN IN FIRST APPEAL BUT NOT SUCCESSF UL. THE ASSESSEE IS AGGRIEVED AND THEREFORE IN APPEAL BEFOR E US. - - ITA NO.850(MDS)/20 11 5 7. WE HEARD SHRI T.BANUSEKAR THE LEARNED CHARTERE D ACCOUNTANT APPEARING FOR THE ASSESSEE AND SHRI ANIR UDH RAI THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR T HE REVENUE. 8. THE ASSESSING AUTHORITY HAS ADOPTED THE PRICE O F POWER AT ` . 2.70 PER UNIT IN THE LIGHT OF THE PROVISIONS OF L AW STATED IN SECTION 80IA(8). SUB-SECTION(8) OF SECTI ON 80IA PROVIDES THAT WHERE ANY GOODS ARE TRANSFERRED TO AN Y OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR ANY GOODS AR E TRANSFERRED TO THE ELIGIBLE BUSINESS IN EITHER CAS E THE CONSIDERATION FOR THE TRANSFER RECORDED IN THE BOOK S OF ACCOUNTS IF NOT CORRESPONDS TO THE MARKET VALUE OF SUCH GOODS THE ASSESSING AUTHORITY SHALL COMPUTE THE ELIGIBLE PROF IT ON THE BASIS OF THE MARKET VALUE OF SUCH GOODS. IT MEANS THAT S UB-SECTION(8) OF SECTION 80IA DOES NOT ALLOW AN ASSESSEE TO INFLA TE THE PROFIT OF ITS ELIGIBLE UNIT BY OVER INVOICING THE GOODS TRANS FERRED OR UNDER- INVOICING OF GOODS BOUGHT IN. IT IS A SAFEGUARD AG AINST MISUSE OF THE EXISTING PROVISION. THE ASSESSING OFFICER TOOK THE MARKET VALUE OF THE POWER GENERATED BY THE ASSESSEE AT ` .2.70 PER UNIT AND NOT ` . 3.50 PER UNIT AS CLAIMED BY THE ASSESSEE AND THER EBY - - ITA NO.850(MDS)/20 11 6 THE ASSESSEE HAS OVERSTATED THE PRICE OF THE GOODS SOLD BY IT SO AS TO BOOST THE PROFIT OF ITS ELIGIBLE UNIT WHICH IN THIS CASE IS WINDMILL UNIT. 9. THE RULE APPLICABLE IN DETERMINING THE MARKET V ALUE IN A SIMILAR CONTEXT HAS BEEN DISCUSSED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME- TAX MADURAI VS. THIAGARAJAR MILLS LTD. KAPPALUR MADURAI. WHILE DELIVERING THE JUDGMENT IN TAX CASE(APPEAL) NOS.68 TO 70 OF 2010 DATED 7-6-2010 THEIR LORDSHIPS HAVE HELD AS UN DER:- 9. THEREFORE THERE IS NO DIFFICULTY IN HOLDING TH AT CAPTIVE CONSUMPTION OF THE POWER GENERATED BY THE ASSESSEE FROM ITS OWN POWER PLANT WOULD ENABLE THE RESPONDENT/ASSESSEE TO DERIVE PROFIT AND GAINS BY WORKING OUT THE COST OF SUCH CONSUMPTION OF POWER INASMUCH AS THE ASSESSEE IS ABLE TO SAVE TO THAT EX TENT WHICH WOULD CERTAINLY BE COVERED BY SECTION 80IA(1) . WHEN SUCH WILL BE THE OUTCOME OUT OF OWN CONSUMPTIO N OF THE POWER GENERATED AND GAINED BY THE ASSESSEE B Y SETTING UP ITS OWN POWER PLANT WE DO NOT FIND ANY LACK OF - - ITA NO.850(MDS)/20 11 7 MERIT IN THE CLAIM OF THE RESPONDENT/ASSESSEE WHEN IT CLAIMED BY RELYING UPON SECTION 80IA(1) OF THE INCO ME- TAX ACT BY WAY OF DEDUCTION OF THE VALUE OF SUCH UN ITS OF POWER CONSUMED BY ITS OWN PLANT BY WAY OF PROFIT AN D GAINS FOR THE RELEVANT ASSESSMENT YEARS. 10. A CAREFUL READING OF THE ABOVE PARAGRAPH BRING S HOME THE POINT THAT THE HONBLE HIGH COURT HAS LOOK ED INTO THE POINT OF SAVINGS MADE BY THE ASSESSEE BY USING ITS OWN POWER AND THE VALUATION OF THAT SAVINGS MADE ON THE BASIS OF THE PRICE OTHERWISE THE ASSESSEE SHOULD HAVE PAID. THE RATIO IS VERY CLEAR. THE VALUE OF THE POWER GENERATED AND CONSUM ED BY THE ASSESSEE WILL BE THAT VALUE THAT SHOULD HAVE BEEN P AID BY THE ASSESSEE IF THE POWER WAS BOUGHT FROM OPEN MARKET. WHEN THE ABOVE CASE IS APPLIED TO THE PRESENT CASE THE CASE OF THE ASSESSEE HAS TO BE ACCEPTED THAT THE MARKET VALUE S HOULD BE TREATED AS ` .3.50 PER UNIT OF ELECTRICITY. 11. EXACTLY THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH-I OF THE TRIBUNAL IN THE CASE OF ADDITIONAL C OMMISSIONER OF INCOME-TAX VS. JINDAL STEEL & POWER LTD. 16 SOT 50 9. IN THAT - - ITA NO.850(MDS)/20 11 8 CASE ALSO ONE OF THE ISSUES RAISED WAS VALUATION OF THE POWER GENERATED BY THE ELIGIBLE UNIT. IN THAT CASE THE P OWER GENERATED BY THE ASSESSEE WAS USED BY IT FOR OWN CONSUMPTION AS WELL AS FOR SALE TO THE STATE ELECTRICITY BOARD. THE TRIBU NAL HELD THAT THE RATE AT WHICH THE STATE ELECTRICITY BOARD SUPPLIES POWER TO ITS CONSUMERS IS TO BE CONSIDERED TO BE THE MARKET VALU E FOR TRANSFER OF POWER BY THE ASSESSEES ELECTRICITY GEN ERATING UNDERTAKING FOR CAPTIVE CONSUMPTION FOR THE PURPOSE S OF SECTION 80IA(8) AND NOT THE PRICE AT WHICH POWER IS SUPPLIE D BY THE ASSESSEE TO THE BOARD. 12. FURTHER AS FAR AS CAPTIVE CONSUMPTION OF POWE R IS CONCERNED THE ASSESSEE IS NEITHER SELLING NOR BUYI NG ELECTRICITY. THE QUANTUM OF POWER CONTRIBUTED BY THE ASSESSEE TO THE TAMIL NADU ELECTRICITY BOARD CAN BE AVAILED AS SUCH BY TH E ASSESSEE FOR WHICH NO ADDITIONAL PAYMENT IS TO BE MADE. IF THE ASSESSEE HAS RECEIVED ` . 2.70 PER UNIT THE ASSESSEE HAS TO PAY ONLY ` . 2.70 PER UNIT. IT IS A KIND OF COMMODITY BANKING OR IN ECONOMIC TERM BARTER EXCHANGE OF SAME GOOD. THERE FORE DEFACTO SPEAKING THERE IS NO SALE AND PURCHASE. I N SUCH CIRCUMSTANCES THERE IS NO MARKET PRICE AT ALL. - - ITA NO.850(MDS)/20 11 9 13. MARKET PRICE COMES INTO PLAY ONLY WHEN THE ASSESSEE IS BUYING POWER FROM THE TAMIL NADU ELECTR ICITY BOARD JUST LIKE ANY OTHER CONSUMER. TAMIL NADU ELECTRICI TY BOARD IS THE SUPPLIER AND THE ASSESSEE IS THE CONSUMER AND THERE IS NO QUESTION OF COMMODITY BANKING OR BARTER EXCHANGE. TAMIL NADU ELECTRICITY BOARD SELLS POWER TO THE ASSESSEE IN TH E USUAL COURSE OF ITS BUSINESS AND THE ASSESSEE BUYS THE POWER LIK E ANY OTHER CONSUMER IN THE MARKET. IT IS IN THAT CONTEXT THAT THE QUESTION OF MARKET PRICE ARISES. IN SUCH A SCENARIO WHAT IS TH E PRICE COLLECTED BY THE TAMIL NADU ELECTRICITY BOARD? THE PRICE IS ` .3.50 PER UNIT. THEREFORE IT IS OBVIOUS THAT THE M ARKET PRICE OF THE POWER GENERATED BY THE ASSESSEE IS ` .3.50 PER UNIT. THE EXPRESSION USED IN SECTION 80IA(8) IS MARKET VALUE . MARKET VALUE MEANS THE VALUE DETERMINED BY MARKET FORCES. IN THE CAPTIVE CONSUMPTION OF POWER GENERATED BY THE ASSES SEE COMPANY NO MARKET FORCE IS OPERATING. MARKET FORCE S COME INTO PICTURE ONLY WHEN THE ASSESSEE BUYS POWER FROM TAMI L NADU ELECTRICITY BOARD LIKE ANY OTHER CONSUMER. THE VAL UE PAID FOR SUCH CONSUMPTION IS THE MARKET VALUE. IN THE PRESE NT CASE THAT IS ` . 3.50 PER UNIT. - - ITA NO.850(MDS)/20 11 10 14. THEREFORE WE ACCEPT THE CONTENTION OF THE ASSE SSEE AND SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES O N THIS ISSUE. THE ASSESSING AUTHORITY IS DIRECTED TO RECOMPUTE TH E PROFIT AND GAINS OF THE ELIGIBLE UNIT FOR THE PURPOSE OF SECTI ON 80IA ON THE BASIS OF THE UNIT PRICE OF ELECTRICITY GENERATED BY THE ASSESSEE COMPANY AT ` . 3.50 PER UNIT. 15. IN RESULT THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY THE 13 TH DAY OF JULY 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI DATED THE 13 TH JULY 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.