[BREAKING] Relief to Jindal Steel: Supreme Court dismisses Revenue Appeal, upholds computation of Market Value of Electricity for Deduction u/s 80IA [Read Judgement]

In a major relief to Jindal Steel and Power, the Supreme Court has upheld the computation of market value of electricity for deduction under Section 80IA of the Income Tax Act, 1961.

The issue at hand, common to several civil appeals, was addressed primarily through the lead case. While the pricing per unit of electricity varies across appeals, it does not significantly impact the core legal question, the Supreme Court outlined.

Since the electricity supplied by the State Electricity Board was inadequate to meet the requirements of its industrial units, the assessee set up captive power generating units to supply electricity to its industrial units.

The surplus power was supplied by the assessee to the State Electricity Board. The assessee which is the respondent in this appeal filed return of income on 29.10.2001 declaring nil income. The total income computed by the assessee at nil was arrived at after claiming various deductions, including under Section 80 IA of the Income Tax Act.

Since there was substantial book profit of the assessee, net book profit being Rs.1,11,43,36,230.00, income tax was levied under Section 115 JB of the Act at the rate of 7.5 per cent along with surcharge and interest.

Section 80 IA of the Income Tax Act outlines deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

As per sub-section (4) (iv), Section 80-IA is applicable to an industrial undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period commencing on the 1st day of April 1993 and ending on the 31st day of March, 2003; and starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2003.

Proviso below clause (iv) of Section 80IA(4) says that such deduction shall be allowed only in relation to the profits derived from laying of such a network of new lines for transmission or distribution.

During the assessment proceedings, the issue relating to deduction under Section 80 IA of the IT Act came up for consideration. Jindal Steel and Power had claimed deduction under the said provision of a sum amounting to Rs.80,10,38,505.00. The deduction claimed under Section 80 IA related to profits of the power generating units of the assessee.

It was further noticed by the assessing officer that the assessee had supplied power (electricity) to its industrial units for captive consumption at the rate of Rs.3.72 per unit. Assessing officer took the view that the assessee had declared inflated profits by showing supply of power at the rate of Rs.3.72 per unit to its sister units i.e., for captive consumption.

The AO noted that the price per unit was inflated so that profit attributable to the power generating units could qualify for deduction from the taxable income under the Income Tax Act.

Thus, it was held to be a colourable device to reduce taxable income. On such an assumption, the assessee was asked to explain its claim of deduction under Section 80 IA of the Act which the assessee complied with.

In appeal, the Tribunal upheld the stand of the assessee and set aside the order of CIT (A) by directing the assessing officer to allow relief to the assessee under Section 80IA as claimed.

Aggrieved by the aforesaid finding rendered by the Tribunal, the revenue had preferred an appeal before the High Court of Punjab and Haryana under Section 260A of the Income Tax Act.

The High Court, in its order, disposed of the appeal by following its order dated Commissioner of Income Tax, Hisar Vs. M/s Jindal Steel and Power Ltd. That was an appeal by the revenue on the same issue against the order passed by the Tribunal in the case of the assessee itself for the assessment year 2000-2001.

Insofar as the allowance of deduction under Section 80IA of the Income Tax Act is concerned, the High Court answered the question against the revenue as it was submitted at the bar that the issue already stood covered by the previous decision against the revenue, the Apex Court observed.

The State Electricity Board’s rate when it supplies power to the consumers has to be taken as the market value for computing the deduction under Section 80-IA of the Act, the apex court noted.

That being the position, the Supreme Court Bench of Justice B V Nagarathna and Justice Ujjal Bhuyan held that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers.

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