High Court · 2025

SRI. K SUDH KAR REDDY (Sr SC FOR TNCOME Counsel for the Respondent : C V NARA IMHAM The Court made the following: ORDER -) THE HON'BLE SRI WSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA INCOME 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 the Income Tax Act, 196 I (for short, the Act, 196 1') aggrieved by the order, dated 20.O7.2012 in ITA No. 1095 /Hyd/2OO9, dated 2O.O7.2O12, passed by the Income-Tax Appellate Tribunal, Bench 'B', Hyderabad, (for short, 'the Tribunal') for the Assessment Y ex 2006-2007 .

2. Brief facts of the case are that the assessee is a limited company engaged in the business of manufacture of Ferro al1oys, sugar, fabrication of equipment and generation of power. For the Assessment Year 2006-2O07, the assessee hled its returnliss showing income of Rs. 1 ,7 1,89 ,OOO I - and in the said returns, the assessee has claimed deduction of Rs.44,91,17,39 1/- under Section 80-IA of the Act, 196 1 in respect of profits from power generation units of different Villages. In support of deduction, the assesse has filed Form No.lO CCB, dated 27.1L.2OO6, for each unit. During the assessment proceedings by the Assessing Officer, the assessee 2 tfto 251 2074 claimed 100% deduction under Se tion 8O-IA of the Act, 1961, under which the Parties can claim and not for sale of Power to nly for captive consumPtion 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 under Section 80-IA of the Rs.37,34,55,899 l- in resPect of is not eligible for deduction ct, 7961 to a tune 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 n 8O-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. Since the main ob ctive for setting uP of Power plant 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, the assessee Preferred al aPPeai before the Commissioner of Income Tax (APPeals)-V, HYdera ad. The CIT(A) uide order ,l 3 lno 251 2014 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 High Court held that it would be just and fair to adopt the prevailing rate of Rs.2.12 per unit which was adopted in the preceding year, and thus directed to compute the sa_le proceeds arising from consumption of power in own units. Aggrieved by the said order of the CIT (A), the Department as well as the assessee preferred appeals before the learned Income Tax Appellate Tribunal (ITAT).

3. The learned ITAT vide its consolidated order, dated 2O.O7.2O12 disposed of the appeals granting relief to the assessee directing the Assessing Officer to re-compute the deduction allowable under Section 8O-IA of the Act, 196 1 by adopting Rs.2.53 per unit as per prevailing market rate. Further, the ITAT also held that the. assesse is entitled for deductiorr 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 the power generated by the assesse is utilized for captive consumption and only a small portion of the power is sold to AP TRANSCO and thereby the appeal filed by the revenue was dismissed 4 .- PSN & NNRI lfto 251 2014

4. The main contention the appellant is that the Assessing Officer restricted the deduction clairned by the assessee under Section 8O-IA Rs.44,92,O4,8911- to Rs.7,57,4 of the Act, 1961 from ,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 observed that the power plants were set uP r Captive ConsumPtion and the APSEB has granted sanction o ly for the pufpose of CaPtive Consumption. Since the main obj tive for setting uP of Power plant is for captive. consumP n, 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 Passe by the CIT (A) and the ITAT contending that the Power which wad transferred from Power unit to ferro is to be charged wi recovery rate of Power and not at which the Power Purch ed by AP TRANSCO from assessee. He further argued at the power generattng companies are supplying Power at rates varying between Rs.2.21 to 3.15 per unit. He agreed willAhe assessee's con ntion that the assesse rs er contended that the CIT(A) 5 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.

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 6 tuo 251 2014 c S c t S indu S determined in accordance with th the present case, as the electrici Board was inadequate to meet industrial units of the assessee, it s cl ty to supp v ele ts of the AS sesSee co u po\!'er p an c t tn v after Supp )4ng e ectn e e State Electricity Board onlY and n person. Therefore, the surPlus el supplied by the assessee to the terms of Sections 43 and 43A of entered into between the assess Board for supplY of the surPlus e latter. The price for supply of such the State Electricity Board was fixe the contract. This price is, therefore there was no room or anY elbow s of the assessee. Under the sta assessee had no other a-lternativ surplus electricitY to the State E dominant positron, the State EIec to which the assessee reallY had oppose or negotiate. Therefore, it is tariff between the assessee and cannot be said to be an exercise be a compe tiLive environment or in the business i.e., in the oPen market. be the price which is determined and competition. 27 . Another waY of looking at units of the assessee did not have from the caPtive Power Plants of it would have had to Purcha Electricity Board. In such a scen assessee would have had to P Electricity Board at the same rate Board supplied to the industrial unit. statutory requirements. In from the State Electricity ower requirements of the t up captive power Plants to nits. However, the captrve sell or supply the surplus to its industrial units) to the t to any other authoritY or city had to be comPulsorilY Electricity Board and in e 1948 Act, a contract was and the State ElectricitY ctricity by the former to the lectricity by the assessee to at Rs. 2.32 Per unit as Per a contracted Price. Further, e for negotiatron on the Part tory regime in Place, the but to sell or suPPlY the ectricity Board. Being in a ty Board could frx the Price little or no scoPe to either ent that determination of the State ElectricitY Board en a buyer and a seller in ordinary course of trade and ch a price cannot be said to the normal course of trade e issue is, if the industrial e option of obtaining Power assessee, then in that case etectricity from the State o, the industrial units of the hase power from the State t which the State Electricrty sumers i.e., Rs. 3.72 Per

28. Thus, market value of assessee to its industrial unit considering the rate at which supplied power to the consumers comparing it with the rate of P sold by the assessee to the State not the rate at which alr indu purchased power in ttre oPen mar which power u/as supplied to a su puTchased by a rate of electricity -46e rate at whi On the contrary, e power suPPlied bY the should be comPuted bY e State ElectricirY Board in the oPen market and not when sold to a suPPlier i.e., ctricity Board as this was trial consumer could have t. It is cleal that the rate at lier could not be the market nsumer in the oPen market. the State Electricity Board 7 Itto_251-2014 supptied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act...."

6. Learned counsel for the respondent has further 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 t \ not to make prohts out of its own consumption. The learned Commissioner of Income Tax (Appeals)-V, Hyderabad has \ t 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 8 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 entire aterial 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 sha,ll stand closed //TRUE C PYII Sd/- K. SRINIVASA RAO JOINT REGISTRAR SECTION OFFICER 1 2 3 4 The lncome-tax Appellate Tribunal' Be The Commissioner of lncome{ax (Ap The Dy. Commissioner of lncome-tax, One CC to SRI K SUDHAKAR REDD toPUCl

5. One CC to SRI C V NARASII/HAM A 6. Two CD CoPies ch - B, Hyderabad als - V), HYderabad ircle - 16(1), HYderabad (Sr SC FOR INCO[/E TAX) Advocate vocate [OPUC] I To, HIGH COURT DATED:1810612025 JUDGMENT lTTA.No.251 of 2014 i-. \ C( ,i 16 o J ($( 13 AUE [6 =6) t DA .s FATc DISMISSING THE APPEAL )/