The Supreme Court's decision mandates that market value for tax deductions must reflect rates charged to consumers, not sale prices to supply boards.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned Senior Standing Counsel Mr. Karan Sanghani for the appellants and learned advocate Mr. Manish Shah for the respondent.

2. These appeals are filed under Section 260A of the Income tax Act, 1961 (for short ‘the Act’) and following substantial questions of law are framed while admitting the Appeals:

TAX APPEAL NO. 817 OF 2013:

{A} “Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing the deduction u/s. 80IA (4) of the Act without appreciating that the assessee had captive power generation plant and therefore, the claim u/s. 80IA (4) of the Act was not allowable as held by the ITAT, Bench- A, Chennai vide in the case of Chettinand Cement Corporation Limited in ITA No. 1026 (Mds)/2005 ?”

{B} “Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing the claim u/s. 80IA (4) as claimed by the assessee on the basis of purchase price of power from GEB ie., Rs. 4.55 per unit without appreciating the fact that A.O had rightly calculated the amount eligible for deduction u/s. 80IA after applying the rate at Rs. 2.11 per unit, which became ‘Nil’ after set-off of brought forward loss of Rs. 15005.66 lacs for the captive power plant unit on actual basis ?”

TAX APPEAL NO. 818 OF 2013:

{1} “Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in deleting the addition made on account of expenses incurred for replacement of membrance cells, treating the same as capital expenditure, by following the rule of consistency and without considering the issues on merits and also failed to observe that perpetuation of an error is no justice?” {2} “Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing the deduction u/s. 80IA of the Act without appreciating that the assessee had captive power generation plant and therefore the claim u/s. 80IA(4) of the Act was not allowable as held by the ITAT, Bench-A, Chennai vide in the case of Chettinand Cement Corporation Limited in Income-tax Act, 1961 No. 1026 (Mds)/2005 ?”

{3} Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing the claim u/s. 80IA (4) as claimed by the assessee on the basis of purchase price of power from GEB ie., Rs. 4.55 per unit without appreciating the fact that A.O had rightly calculated the amount eligible for deduction u/s. 80IA after applying the rate at Rs. 2.11 per unit, which became ‘Nil’ after set-off of brought forward loss of Rs. 15005.66 lacs for the captive power plant unit on actual basis ?”

3. So far as the question of deduction under Section 80IA of the Act for generation of power for captive consumption is concerned, the same is answered by the Hon’ble Apex Court in favour of the assessee in case of Commissioner of Income Tax v. Jindal Steel and Power Ltd., reported in 460 ITR 162. Therefore, Question No. A in Tax Appeal No. 817 of 2013 and Question Nos. 2 and 3 in Tax Appeal No. 818 of 2013 are answered, accordingly, in favour of the assessee and against the revenue.

4. So far as Question No.B regarding the rate on which the power generating Company supply the power is concerned, the same is answered in favour of the assessee by the Hon’ble Apex Court in case of Commissioner of Income Tax v. Jindal Steel and Power Ltd.(Supra) as under:

“18. There is also no dispute that the assessee or rather, the captive power plants of the assessee are entitled to deduction under section 80-IA of the Act. For the purpose of computing the profits and gains of the eligible business, which is necessary for quantifying the deduction under section 80- IA, the assessee bad recorded in its books of accounts that it had suppli