1. Captive power generation — Deduction under Section 80 IA, Income Tax Act — Dispute over market value of electricity for inter-unit transfer — Depreciation method — Professional expenditure claims. (Para 4 , 7 , 35 , 46 )
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2023 Supreme(SC) 1201
SUPREME COURT OF INDIA
B.V. NAGARATHNA, UJJAL BHUYAN, JJ.
Commissioner of Income Tax – Appellant
Versus
M/s Jindal Steel & Power Limited, Through its Managing Director – Respondent
Civil Appeal No. 13771 of 2015 With Civil Appeal No. 13773 of 2015, Civil Appeal No. 5524 of 2017, Civil Appeal No. 7425 of 2019, Civil Appeal No. ... of 2023 (Arising from SLP (Civil) No. 15564 of 2020), Civil Appeal No. 13775 of 2015, Civil Appeal No. 13774 of 2015, Civil Appeal No. 9920 of 2016, Civil Appeal No. 6986 of 2016, Civil Appeal Nos. 9781-9782 of 2017, Civil Appeal No. 9917 of 2017, Civil Appeal No. 941 of 2020, Civil Appeal No. ... of 2023 (Arising out of SLP (Civil) No. 5871 of 2020), Civil Appeal No. ... of 2023 (Arising out of SLP (Civil) No. 792 of 2021), Civil Appeal No. 8983 of 2017, Civil Appeal No. 1805 of 2020
Decided On : 06-12-2023
Advocates appeared:
For the Parties : Mr. Arvind P. Datar, Sr. Adv. Ms. Kavita Jha, AOR Mr. Anant Mann, Adv. Mr. Balbir Singh, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mrs. Alka Agarawal, Adv. Mrs. Gargi Khanna, Adv. Mr. Rupesh Kumar, Adv. Mr. H R Rao, Adv. Mr. V C Bharathi, Adv. Mr. Prahlad Singh, Adv. Mrs. Anil Katiyar, AOR Mr. Gopal Jain, Sr. Adv. Mr. Naveen Kumar, AOR Ms. Stuti Bisht, Adv. Mr. Nitesh Bhandari, Adv. Mr. Shourajeet Chakravarty, Adv. Ms. Aprajita Bhardwaj, Adv. Mr. Prabhat Kumar Rai, Adv. Mr. Amar Dave, Adv. Mr. S. Ravi Shankar, AOR Mrs. Yamunah Nachiar, Adv. Mr. S. Ganesh, Sr. Adv. Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, AOR Mr. Rohit Jain, Adv. Mr. Aniket D. Agrawal, Adv. Mr. Abhisek Singhvi, Adv. Mr. Shri Venkatesh, Adv. Mr. Ashutosh K. Srivastava, Adv. Mr. Nihal Bhardwaj, Adv. M/S. Khaitan & Co., AOR Mrs. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Mr. V. Lakshmikumaran, Adv. Mr. S. Vasudevan, Adv. Mr. Tanmay Bhatnagar, Adv. Mr. Shivam Gupta, Adv. Ms. Charanya Lakshmikumaran, AOR Mr. Punit Dutt Tyagi, AOR Mr. Nageswar Rao, Adv. Mr. Pukhrambam Ramesh Kumar, AOR Mr. Aksahy Uppal, Adv. Mr. Parth, Adv. Mr. Karun Sharma, Adv. Mr. Percy Pardiwala, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Amit Mathur, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Tushar Bhardwaj, Adv. Mr. Nageswar Rao, Adv. Mr. Ambhoj Kumar Sinha, AOR Mr. Parth, Adv. Ms. Mehar Verma, Adv.
For the Parties : Mr. Arvind P. Datar, Sr. Adv. Ms. Kavita Jha, AOR Mr. Anant Mann, Adv. Mr. Balbir Singh, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mrs. Alka Agarawal, Adv. Mrs. Gargi Khanna, Adv. Mr. Rupesh Kumar, Adv. Mr. H R Rao, Adv. Mr. V C Bharathi, Adv. Mr. Prahlad Singh, Adv. Mrs. Anil Katiyar, AOR Mr. Gopal Jain, Sr. Adv. Mr. Naveen Kumar, AOR Ms. Stuti Bisht, Adv. Mr. Nitesh Bhandari, Adv. Mr. Shourajeet Chakravarty, Adv. Ms. Aprajita Bhardwaj, Adv. Mr. Prabhat Kumar Rai, Adv. Mr. Amar Dave, Adv. Mr. S. Ravi Shankar, AOR Mrs. Yamunah Nachiar, Adv. Mr. S. Ganesh, Sr. Adv. Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, AOR Mr. Rohit Jain, Adv. Mr. Aniket D. Agrawal, Adv. Mr. Abhisek Singhvi, Adv. Mr. Shri Venkatesh, Adv. Mr. Ashutosh K. Srivastava, Adv. Mr. Nihal Bhardwaj, Adv. M/S. Khaitan & Co., AOR Mrs. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Mr. V. Lakshmikumaran, Adv. Mr. S. Vasudevan, Adv. Mr. Tanmay Bhatnagar, Adv. Mr. Shivam Gupta, Adv. Ms. Charanya Lakshmikumaran, AOR Mr. Punit Dutt Tyagi, AOR Mr. Nageswar Rao, Adv. Mr. Pukhrambam Ramesh Kumar, AOR Mr. Aksahy Uppal, Adv. Mr. Parth, Adv. Mr. Karun Sharma, Adv. Mr. Percy Pardiwala, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Amit Mathur, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Tushar Bhardwaj, Adv. Mr. Nageswar Rao, Adv. Mr. Ambhoj Kumar Sinha, AOR Mr. Parth, Adv. Ms. Mehar Verma, Adv.
Important Points
IMPORTANT POINTS
(1) Recomputation of deduction – State Electricity Board’s rate when it supplies power to consumers have to be taken as the market value for computing deduction under Section 80-IA of Income Tax Act.
(2) Any particular mode of computing claim of depreciation has to be opted for before due date of filing of return.
(1) Recomputation of deduction – State Electricity Board’s rate when it supplies power to consumers have to be taken as the market value for computing deduction under Section 80-IA of Income Tax Act.
(2) Any particular mode of computing claim of depreciation has to be opted for before due date of filing of return.
Subject
Taxation Law - INCOME TAX
Act Referred
Headnote
Income Tax Act, 1961 – Section 80 IA – Income Tax Rules, 1962 – Rule 5 (1A) – Recomputation of deduction – Market value of power supplied by State Electricity Board to industrial consumers should be construed to be market value of electricity – It should not be compared with rate of power sold to or supplied to State Electricity Board since rate of power to a supplier cannot be market rate of power sold to a consumer in open market – State Electricity Board’s rate when it supplies power to consumers have to be taken as the market value for computing deduction under Section 80-IA of the Act – Law does not mention any specific mode of exercising such option – Only requirement is that option has to be exercised before filing of return – Any particular mode of computing claim of depreciation has to be opted for before due date of filing of return – There is no admissible material to deny claim of expenditure made by assessee. (Paras 30, 44, 45 and 52)
Result : Civil Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Revenue contends market value is the contracted rate with State Electricity Boards; Assessee argues it is the rate charged to industrial consumers — Dispute over depreciation options. (Para 12 , 13 , 36 )
3. Market value requires free competition; contracted rates with state monopolies are not open market prices — Depreciation options can be exercised via the return — Retracted statements require cross-examination. (Para 24 , 25 , 26 , 28 , 44 , 51 )
4. Market value under Section 80 IA(8) denotes prices determined by free competition, excluding contracted rates under state monopolies — Statutory options are exercised by filing returns. (Para 25 , 30 , 44 )
5. Civil appeals dismissed; findings of the Tribunal and High Courts upheld in favor of the assessees. (Para 34 , 45 , 52 , 56 )
6. How is market value determined for inter-unit transfers under Section 80 IA(8) of the Income Tax Act?
Market value is the price goods would ordinarily fetch in an open market determined by free competition and laws of supply and demand. Contracted prices under a state monopoly, where the seller has no bargaining power, do not constitute market value. (Para 24 , 25 , 26 , 28 , 29 , 30 )
7. Is a specific formal mode required to exercise the option for the Written Down Value (WDV) method of depreciation under Rule 5(1A)?
No specific mode is prescribed. The only requirement is that the option must be exercised before or at the time of furnishing the return of income. (Para 44 , 45 )
8. Can the revenue disallow expenditure based solely on statements recorded during search operations if those statements are subsequently retracted?
No. If statements are retracted and the revenue continues to rely on them, the assessee must be provided an opportunity to cross-examine the witness. Disallowance cannot be based on retracted statements without cogent reasons. (Para 51 )
JUDGMENT :
Ujjal Bhuyan, J.
There are three special leave petitions in this batch, viz., SLP (C) No.15564 of 2020, SLP (C) No.5871 of 2020 and SLP (C) No.792 of 2021. Leave in these special leave petitions are therefore granted.
2. Core issue raised in this batch of civil appeals being identical, those were heard together and are being disposed of by this common judgment and order.
3. We have heard Mr. Rupesh Kumar, learned counsel for the revenue representing the appellants; Mr. S. Ganesh and Mr. Percy Pardiwala, learned senior counsel as well as Mr. D. Nageswar Rao, learned counsel for the respondent assessee.
4. All the appeals are by the revenue assailing orders of various high courts dismissing its appeals filed under Section 260A of the Income Tax Act, 1961. The core and common issue raised in all the appeals is the recomputation of deduction under Section 80 IA of the Income Tax Act, 1961 by the assessing officer which was set aside by the Income Tax Appellate Tribunal and upheld by the High Courts by accepting the contention of the assessee. Revenue is aggrieved as it contends that the recomputation of deduction made by the assessing officer was interfered with by the Income Tax Appellate Tribunal and affirmed by the High Courts without appreciating the fact that the profits of eligible business of captive power generation plants of the assessees were inflated by adopting an excessive sale rate per unit for power supply to the assessees own industrial units for captive consumption as opposed to the rate per unit at which power was supplied by the assessees to the power distributing companies i.e. the State Electricity Boards which is contended to be the market rate.
4.1. Additionally, there are three other issues which were argued by learned counsel for the appellant at the time of hearing. The first additional issue is whether the Income Tax Appellate Tribunal could ignore compliance to statutory provision relating to exercise of option to adopt Written Down Value (WDV) method in place of straight line method while computing depreciation on the assets used for power generation. This additional issue has been raised by the revenue in Civil Appeal No.13771 of 2015 (Commissioner of Income Tax Vs. M/s Jindal Steel and Power Ltd.). Revenue has also raised the issue of expenditure in Civil Appeal No.7425 of 2019 (Commissioner of Income Tax Vs. M/s Reliance Industries Ltd.). The expenditure claimed by the assessee was disallowed by the assessing officer which was affirmed by the first appellate authority i.e., Commissioner of Income Tax (Appeals). On appeal by the assessee, the Income Tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals) which decision has been affirmed by the High Court. The third additional issue relates to what is called carbon credit – whether it is a capital or revenue receipt. This additional issue has been raised in Civil Appeal No.9917 of 2017 (Assistant Commissioner of Income Tax Vs. M/s Godawari Power and Ispat Pvt. Ltd.) and also in Civil Appeal No.8983 of 2017 (Assistant Commissioner of Income Tax Chhattisgarh Vs. M/s Godawari Power and Ispat Pvt. Ltd.)
RECOMPUTATION OF DEDUCTION UNDER SECTION 80 IA OF THE INCOME TAX ACT, 1961.
5. At the outset let us deal with the core issue i.e., recomputation of deduction claimed by the assessee under Section 80 IA of the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter).
6. Though this issue has been raised and urged in all the civil appeals, Civil Appeal No.13771 of 2015 was argued and taken up as the lead case. Since the issue raised is common to all the appeals, it is not necessary to refer to the factual details of each of the appeals separately though the price per unit of electricity supplied by the assessee to the power distributing companies/ State Electricity Boards and to their captive plants are different. However, that would not have any material bearing on the analysis as the question of law is identical in all the appe
