The court emphasized that deductions under tax laws for captive energy generation must reflect market rates, not merely contractual obligations.

THE HON’BLE SRI JUSTICE P.SAM KOSHY AND THE HON’BLE SRI JUSTICE NARSING RAO NANDIKONDA INCOME TAX TRIBUNAL APPEAL NO.251 OF 2014 JUDGMENT:(per Hon’ble Sri Justice Narsing Rao Nandikonda)

This appeal has been filed under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act, 1961’) aggrieved by the order, dated 20.07.2012 in ITA No.1095/Hyd/2009, dated 20.07.2012, passed by the Income-Tax Appellate Tribunal, Bench ‘B’, Hyderabad, (for short, ‘the Tribunal’) for the Assessment Year 2006-2007.

2. Brief facts of the case are that the assessee is a limited company engaged in the business of manufacture of Ferro alloys, sugar, fabrication of equipment and generation of power. For the Assessment Year 2006-2007, the assessee filed its returnliss showing income of Rs.1,71,89,000/- and in the said returns, the assessee has claimed deduction of Rs.44,91,17,391/- under Section 80-IA of the Act, 1961 in respect of profits from power generation units of different Villages. In support of deduction, the assesse has filed Form No.10 CCB, dated 27.11.2006, for each unit. During the assessment proceedings by the Assessing Officer, the assessee claimed 100% deduction under Section 80-IA of the Act, 1961, under which the parties can claim only for captive consumption and not for sale of power to any outside party. In the Assessment Order for the Assessment Years 2004-2005 and 2005-06, the claim of deduction under Section 80-IA of the Act, 1961 was disallowed as assessee is not eligible for deduction under Section 80-IA of the Act, 1961 to a tune of Rs.37,34,55,899/- in respect of captive power plants for this assessment year. Further, the Assessing Officer has restricted the deduction claimed by the assessee under Section 80-IA of the Act, 1961 from Rs.44,92,04,891/- to Rs.7,57,48,992/- by invoking the provisions of Section 80-IA (8) and Section 80- IA(10) of the Act, 1961 and also observed that the Power Plants, which were set up are only for Captive Consumption and that the APSEB has granted sanction only for the purpose of Captive Consumption. Since the main objective for setting up of power plant is for Captive Consumption, the Assessing Officer disallowed the entire claim of deduction under Section 80-IA of the Act, 1961. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-V, Hyderabad. The CIT(A) vide order dated 24.08.2009 in ITA No.0169/DC-16(1)/CIT(A)-V/2008-09, keeping in view 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 sale 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 ( ITA T).

3. The learned ITAT vide its consolidated order, dated

20.07.2012 disposed of the appeals granting relief to the assessee directing the Assessing Officer to re-compute the deduction allowable under Section 80-IA of the Act, 1961 by adopting Rs.2.53 per unit as per prevailing market rate. Further, the ITAT also held that the assesse is entitled for deduction as per the provisions of sub-Section (8) of Section 80- 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. The main contention of the appellant is that the Assessing Officer restricted t