TMI Blog2007 (6) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid short reasoning, we hereby affirm the decision of the CIT(A) and Revenue fails in its appeal. Deduction u/s 80-IA - Profits of the undertakings - Generation of Power - determination of the market value of power so as to record the income accrued to the assessee on supplies made to its own manufacturing units - HELD THAT:- In this case, the assessee received consent u/s 44A of the Electricity (Supply) Act, 1948 to establish and operate the captive power plant in terms of a Power Purchase- cum -Wheeling of Power Agreement entered between the State Electricity Board and the assessee. A perusal of Section 43A of the Electricity (Supply) Act, 1948, reveals that the tariff is determined on the basis of various parameters contained therein. Thus, it is evident that on one hand it is only upon granting of specific consent that a private person can set up a power generating unit having restrictions on the use of power generated and at the same time the tariff at which a power generating unit can supply power to the Electricity Board is also liable to be determined in accordance with the statutory requirements. In this context it can be safely deduced that determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue and the assessee by this common order, as these emanate from the same order of the CIT(A), Rohtak dated 16-5-2005 relating to assessment year 2001-02. 2. We shall first deal with the appeal of the Revenue wherein the solitary ground reads as follows : On the facts and in the circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs. 4,06,000 representing difference of deposits shown to have been received from S/Shri M.R. Kulkarni, Kanti Parshad, Smt. Padma and Smt. Lila Khanna ignoring the letters of confirmations received from these persons showing deposits of Rs. 35,000, Rs. 25,000 and Rs. 3,00,000 as against Rs. 65,000, Rs. 86,000, Rs. 50,000 and Rs. 6,00,000 shown by the assessee in its books of account. 3. The assessee is a public limited company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of generation of electric power, manufacture of sponge iron, M.S. Ingots etc. The Assessing Officer in the case of assessment proceedings for the assessment year under consideration i.e. 2001-02 carried out verification exercise of the deposits received by the assessee from public. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts rebuttal. In this manner, by adverting to the aforesaid short reasoning, we hereby affirm the decision of the CIT(A) and Revenue fails in its appeal. 7. In its appeal, the assessee has preferred five Grounds of appeal which we shall deal with in seriatim. In Ground No. 1, the grievance of the assessee is against the action of the CIT(A) in confirming the allowance of deduction under section 80-IA of the Act at Rs. 48,11,72,000 as against deduction of Rs. 80,10,38,505 claimed by the assessee. The background of the impugned dispute is as follows : The assessee had claimed deduction under section 80-IA in respect of two of its undertakings engaged in the business of generation of electric power at Raigarh (Chhattisgarh). The power generated by the assessee was used by it for own consumption as well as for sale to the State Electricity Board (in short, the Board ). The Assessing Officer noted that the assessee received Rs. 2.32 for each unit of electricity supplied to the Board whereas for the power supplied to its own units for captive consumption, the assessee recorded it at Rs. 3.72 per unit, in other words, the profits of the undertaking engaged in the generation of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that the State Electricity Boards were the only buyers of the electricity, yet the price offered by it can alone be liable to be treated as the market value of the goods in question. Against the aforesaid stand, the assessee is in appeal before us. 10. Before us, the ld. Counsel for the assessee has assailed the stand of the Revenue by pointing out that the price offered by the State Electricity Board has been erroneously equated with the market price of the power. According to the ld. Counsel, it is only the surplus of the electricity available with the assessee after meeting the captive consumption requirements that is sold to the Board in terms of a Power Purchase Agreement executed on 15-7-1999 - a copy whereof is placed on record. The ld. Counsel pointed out that in terms of the mandate of the Indian Electricity (Supply) Act, 1948, the assessee could not sell its surplus power to a third party and, therefore, it supplied power to the Board at the price determined by the buyer. The ld. Counsel pointed out that section 80-IA(8) of the Act only mandates that the transfer price should correspond to the market value and that such market value has to be determined having reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on supplies made to its own manufacturing units. As noted earlier, in this case, the assessee has utilized the power generated for its captive consumption by way of supplies to its other manufacturing units and also for sale to the State Electricity Board. The dispute essentially relates to the mechanism of section 80-IA(8) of the Act. Section 80-IA(8) provides that where an assessee, which is eligible for section 80-IA benefits, transfers its goods or services to a business other than the eligible 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. The said section authorizes the Assessing Officer that where the transfer as recorded in the accounts of the eligible business does not correspond to the market value, the profits declared of the eligible business can be adjusted by the Assessing Officer on such basis so as to ensure that goods or services transferred to its own unit is done at the market value of such goods or services. Ostensibly, in this case, the Assessing Officer was of the opinion that the consideration for transfer of power for captive co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price as would be fixed by negotiation and mutual agreement, after ample time to find a purchaser, as between a vendor who is will (but not compelled) to sell and a purchaser who desires to buy but is not compelled to take the particular article or piece of property. 15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denotes a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition in contrast to a situation where the price is fixed between a buyer and a seller in a negotiation done under the shadow of legislatively mandated compulsion. In the case of the former, the price fixed between the buyer and seller can be understood as denoting market price since the elements of trading and competition exist. Whereas in the case of the latter situation, the price fixed between the buyer and seller cannot be understood as denoting the market price since the elements of trade and competition are conspicuous by their absence. 16. To understand the contrasting situations, let us analyze the situation on hand. In this case, the assessee received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make a gainful reference to the decision of the Hon ble Calcutta High Court in the case of CAIT v. Manmatha Nath Mukherjee [1958] 34 ITR 567, which has been relied on by the assessee before us. The issue before the Hon ble Calcutta High Court was in the context of the Bengal Agricultural Income-tax Act, 1944. Shorn of other details, the question considered by the Hon ble High Court, relevant for the present, was whether the procurement rate of paddy offered by the State could be considered to be the market value of paddy. In this background, the following observations of the Hon ble High Court are worthy of notice: A market connotes freedom of bargain. There may be a market, completely circumscribed as regards the rates by price control, but within the limit set by the relevant rule or order, the area of operation would still be a commercially free area. Even where a control price is fixed, it is generally the ceiling which is fixed and not an invariable price. Be that as it may, to say that when agents of the State seize paddy grown by subjects under the authority of some law or regulation and pay for it at some rate fixed by themselves and much below the rate in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the CIT(A) and direct the Assessing Officer to allow relief to the assessee under section 80-IA as claimed. Assessee succeeds on this ground. 19. In the second ground, the grievance of the assessee is against the sustenance of addition of Rs. 15,68,171 out of the expenditure on aircraft. The assessee had two aircrafts which it claimed to have used for the purposes of business. Out of the total expenditure, the Assessing Officer was of the view that a sum of Rs. 15,78,171 relatable to the journeys performed for non-business purposes was disallowable. The addition has also since been sustained by the CIT(A) against which the assessee is in appeal before us. 20. Before us, the plea of the assessee is that the journeys in question cannot be said to be unrelated to the business purposes. In this connection, the details of the journey as well as the purpose for the same have been tabulated in the following manner: DETAILS OF FLYING OF B-200 Particulars Hrs. Purpose Delhi-Pune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion in respect of power sale. 21. On the basis of aforesaid, it was contended that the entire expenditure was allowable while computing the income of the assessee. The ld. Counsel for the assessee specifically pointed out that that the visits to Bhuj and Bhavnagar were undertaken to facilitate relief work on the aftermath of earthquake. The expenditure is to be seen as incurred by the assessee as cost of social obligation. In support, reliance was placed on the following decisions : ( i ) CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 ( ii ) Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT [1988] 172 ITR 131 (MP); ( iii ) Hindustan Petroleum Corpn. Ltd. v. Dy. CIT [2005] 96 ITD 186 (Mum.). 22. On the other hand, the ld. D.R. has defended the orders of the lower authorities by placing reliance on the same. 23. We have carefully considered the submissions of both the parties. After perusing the details and the purpose for which the expenditure has been incurred, in our opinion, the case of the assessee cannot be shut out in entirety. In relation to the trips to Delhi-Tirupati and Guna, no purpose has been stated by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001 and entered the premises of the assessee on 16-3-2001 and the second excavator was, purchased on 30-3-2001 and entered the premises of the assessee on the same day. These facts were borne out from store receipts/reports which are placed in the paper book. The ld. Counsel for the assessee submitted that the assessee had also submitted certificate in this regard before the lower authorities. 27. On the other hand, the ld. D.R. has relied upon the order of the lower authorities in support of the case of the Revenue. 28. After considering the rival pleas on this issue and the material on record. We find that the issue in question is squarely covered by the decision of the Special Bench on of the Tribunal in the case of KCP Ltd. v. ITO [1991] 38 ITD 15 (Hyd.) wherein under similar situation depreciation was held as allowable. The Tribunal specifically noted that an excavator is a machine ready to be put to use just like a car is ready to be driven. Further, even in cases where an asset is kept ready for use, as a passive user, the depreciation in terms of section 32 has been held to be allowable. In this regard, a reference can be made to the decision of the Hon ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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