# CASE DETAILS COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LIMITED THROUGH ITS MANAGING DIRECTOR

- **Citation:** 2023 INSC 1053
- **Court:** Supreme Court of India
- **Decided:** 2023-12-06
- **Case number:** Civil Appeal No.13771 of 2015
- **Bench:** B. V. Nagarathna, Ujjal Bhuyan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-commissioner-of-income-tax-v-m-s-jindal-steel-power-limited-37176
- **Pages:** 41

## Headnote

Issue for consideration: All the appeals are by the revenue assailing
orders of various high courts dismissing its appeals fi led u/s. 260A of the
Income Tax Act, 1961 - The core and common issue raised in all the appeals
is the recomputation of deduction u/s. 80 IA of the Income Tax Act, 1961
by the assessing offi cer which was set aside by the Income Tax Appellate
Tribunal and upheld by the High Courts by accepting the contention of the
assessee.
Income Tax Act, 1961 - s.80-IA - The assessing offi cer accepted
the claim of the assessee for deduction u/s. 80-IA of the Income Tax
Act, 1961, he, however, did not accept the profi ts and gains of the
eligible business computed by the assessee on the ground that those
were infl ated by showing supply of power to its own industrial units
for captive consumption at the rate of Rs. 3.72 per unit - Assessing
offi cer took the view that there was no justifi cation on the part of the
assessee to claim electricity charge at the rate of Rs. 3.72 for supply to
its own industrial units when the assessee was supplying surplus power
to the State Electricity Board at the rate of Rs 2.32 per unit - Finally,
the assessing offi cer held that Rs. 2.32 per unit was the market value
of electricity and on that basis, reduced the profi ts and gains of the
assessee thereby restricting the claim of deduction of the assessee u/s.
80-IA of the Act - Propriety:
Held: In the instant case, since electricity from the State Electricity
Board to the industrial units of the assessee was inadequate, the assessee
485
had set up captive power plants to supply electricity to its industrial units
- For disposal of the surplus electricity, the assessee could not supply the
same to any third-party consumer - Therefore, in terms of the provisions
of s.43A of the Electricity (Supply) Act, 1948 the assessee had entered
into an agreement with the State Electricity Board as per which, the
assessee had supplied the surplus electricity to the State Electricity Board
at the rate of Rs. 2.32 per unit determined as per the agreement - Thus,
for the assessment year under consideration, the assessee was paid at the
rate of Rs. 2.32 per unit for the surplus electricity supplied to the State
Electricity Board - It may also be mentioned that the State Electricity
Board had supplied power (electricity) to the industrial consumers at
the rate of Rs. 3.72 per unit - The price for supply of electricity by the
assesse to the State Electricity Board was fi xed at Rs.2.32 per unit as per
contract and there was no elbow space for negotiation - Market value
of the power supplied by the assessee to its industrial units should be
computed by considering the rate at which the State Electricity Board
supplied power to the consumers in the open market and not comparing
it with the rate of power when sold to a supplier i.e., sold by the assessee
to the State Electricity Board as this was not the rate at which an
industrial consumer could have purchased power in the open market -
Assessee had also computed the profi ts and gains by taking Rs.3.72 as
the price of electricity per unit supplied by its captive power plants to
its industrial units - Thus, this Court is of the view that the market value
of the power supplied by the State Electricity Board to the industrial
consumers should be construed to be the market value of electricity - It
should not be compared with the rate of power sold to or supplied to the
State Electricity Board since the rate of power to a supplier cannot be
the market rate of power sold to a consumer in the open market - The
State Electricity Board's rate when it supplies power to the consumers
have to be taken as the market value for computing the deduction u/s.
80-IA of the Act - Issue answered in favour of the assesse and against
the revenue. [Paras 17, 20, 28, 30]
Words and Phrases - 'Market Value' - Discussed.
Income Tax Act, 1961 - Income Tax Rules, 1962 - r.5 - Whether the
Tribunal could ignore compliance to the s

## Text

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[2023] 16 S.C.R. 484 : 2023 INSC 1053
484
CASE DETAILS
COMMISSIONER OF INCOME TAX
v.
M/S JINDAL STEEL & POWER LIMITED THROUGH ITS
MANAGING DIRECTOR
(Civil Appeal No.13771 of 2015)
DECEMBER 06, 2023
[B. V. NAGARATHNA AND UJJAL BHUYAN, JJ.]
HEADNOTES
Issue for consideration: All the appeals are by the revenue assailing
orders of various high courts dismissing its appeals fi led u/s. 260A of the
Income Tax Act, 1961 - The core and common issue raised in all the appeals
is the recomputation of deduction u/s. 80 IA of the Income Tax Act, 1961
by the assessing offi cer which was set aside by the Income Tax Appellate
Tribunal and upheld by the High Courts by accepting the contention of the
assessee.
Income Tax Act, 1961 - s.80-IA - The assessing offi cer accepted
the claim of the assessee for deduction u/s. 80-IA of the Income Tax
Act, 1961, he, however, did not accept the profi ts and gains of the
eligible business computed by the assessee on the ground that those
were infl ated by showing supply of power to its own industrial units
for captive consumption at the rate of Rs. 3.72 per unit - Assessing
offi cer took the view that there was no justifi cation on the part of the
assessee to claim electricity charge at the rate of Rs. 3.72 for supply to
its own industrial units when the assessee was supplying surplus power
to the State Electricity Board at the rate of Rs 2.32 per unit - Finally,
the assessing offi cer held that Rs. 2.32 per unit was the market value
of electricity and on that basis, reduced the profi ts and gains of the
assessee thereby restricting the claim of deduction of the assessee u/s.
80-IA of the Act - Propriety:
Held: In the instant case, since electricity from the State Electricity
Board to the industrial units of the assessee was inadequate, the assessee
485
had set up captive power plants to supply electricity to its industrial units
- For disposal of the surplus electricity, the assessee could not supply the
same to any third-party consumer - Therefore, in terms of the provisions
of s.43A of the Electricity (Supply) Act, 1948 the assessee had entered
into an agreement with the State Electricity Board as per which, the
assessee had supplied the surplus electricity to the State Electricity Board
at the rate of Rs. 2.32 per unit determined as per the agreement - Thus,
for the assessment year under consideration, the assessee was paid at the
rate of Rs. 2.32 per unit for the surplus electricity supplied to the State
Electricity Board - It may also be mentioned that the State Electricity
Board had supplied power (electricity) to the industrial consumers at
the rate of Rs. 3.72 per unit - The price for supply of electricity by the
assesse to the State Electricity Board was fi xed at Rs.2.32 per unit as per
contract and there was no elbow space for negotiation - Market value
of the power supplied by the assessee to its industrial units should be
computed by considering the rate at which the State Electricity Board
supplied power to the consumers in the open market and not comparing
it with the rate of power when sold to a supplier i.e., sold by the assessee
to the State Electricity Board as this was not the rate at which an
industrial consumer could have purchased power in the open market -
Assessee had also computed the profi ts and gains by taking Rs.3.72 as
the price of electricity per unit supplied by its captive power plants to
its industrial units - Thus, this Court is of the view that the market value
of the power supplied by the State Electricity Board to the industrial
consumers should be construed to be the market value of electricity - It
should not be compared with the rate of power sold to or supplied to the
State Electricity Board since the rate of power to a supplier cannot be
the market rate of power sold to a consumer in the open market - The
State Electricity Board's rate when it supplies power to the consumers
have to be taken as the market value for computing the deduction u/s.
80-IA of the Act - Issue answered in favour of the assesse and against
the revenue. [Paras 17, 20, 28, 30]
Words and Phrases - 'Market Value' - Discussed.
Income Tax Act, 1961 - Income Tax Rules, 1962 - r.5 - Whether the
Tribunal could ignore compliance to the statutory provisions relating
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR
486
SUPREME COURT REPORTS
[2023] 16 S.C.R.
to exercise of option to adopt Written Down Value (WDV) method
in place of the straight line method while computing depreciation
on the assets used for power generation:
Held: The assessing officer held that since the assessee did not
exercise the option of adopting WDV method, therefore, in view
of the provision of Rule 5 of the Rules', it would be entitled to
depreciation on the straight line method - As against the depreciation
claim of the assessee of Rs.2,85,37,634.00, the assessing officer
allowed depreciation to the extent of Rs.1,59,10,047.00 -However,
the Tribunal and the High Court held it in favour of assessee - In
the instant case, there is no dispute that the assessee had claimed
depreciation in accordance with sub-rule (1) read with Appendix-I
before the due date of furnishing the return of income - Applying
the principle laid down in CIT vs. GR Govindarajulu [2015] 9 SCR
289 to the facts of the present case, this Court is in agreement with
the view expressed by the Tribunal and the High Court that there is
no requirement under the second proviso to sub-rule (1A) of Rule
5 of the Rules that any particular mode of computing the claim of
depreciation has to be opted for before the due date of filing of the
return - All that is required is that the assessee has to opt before
filing of the return or at the time of filing the return that it seeks to
avail the depreciation provided in Section 32 (1) under sub-rule (1) of
Rule 5 read with Appendix-I instead of the depreciation specified in
Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee
has done. [Para 45]
LIST OF CITATIONS AND OTHER REFERENCES
M/s Printers House Private Limited Vs. Mst. Saiyadan [1993]
3 Suppl. SCR 296: (1994) 2 SCC 133:; Commissioner of Income
Tax Vs. I.T.C. Limited (2015) 64 Taxman.com 214; CIT Vs. GR
Govindarajulu, (2016) 16 SCC 335: [2015] 9 SCR 289; ACIT Vs. M/s
Godawari Power and Ispat Pvt. Ltd. Civil Appeal No. 9917/2017;
ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd. Civil Appeal No.
8983/2017 - referred to.
Black Law Dictionary 10th edition - referred to.
487
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION : Civil Appeal No.13771 of 2015.
From the Judgment and Order dated 02.09.2008 of the High Court of
Punjab & Haryana at Chandigarh in ITA No.53 of 2008]
With
Civil Appeal Nos.13773 of 2015, 5524 of 2017, 7425 of 2019, 7977
of 2023, 13775, 13774 of 2015, 9920, 6986 of 2016, 9781-9782, 9917 Of
2017, 941 Of 2020, 7976, 7978 Of 2023, 8983 Of 2017 And 1805 Of 2020
Appearances:
Balbir Singh, A.S.G., Gopal Jain, Arijit Prasad, S. Ganesh, Percy
Pardiwala, Sr. Advs., Naveen Kumar, Ms. Stuti Bisht, Nitesh Bhandari,
Shourajeet Chakravarty, Prabhat Kumar Rai, Ms. Aprajita Bhardwaj, Ms.
Kavita Jha, Anant Mann, Raj Bahadur Yadav, Mrs. Alka Agarawal, Mrs.
Gargi Khanna, Rupesh Kumar, H R Rao, V C Bharathi, Prahlad Singh,
Debojyoti Mukhopadhyay, Mrs. Swayam Prabha Das, Ms. Ankita A. Singh,
Deepak Kumar, Mrs. Anil Katiyar, Rohit Jain, Aniket D. Agrawal, Venkatesh,
Ashutosh K. Srivastava, Nihal Bhardwaj, Amar Dave, S. Ravi Shankar, Mrs.
Yamunah Nachiar, Ms. Meghna Mukherjee, M/s. Khaitan & Co., Mrs. Vanita
Bhargava, Ajay Bhargava, Shantanu Chaturvedi, D Nageswar Rao, Ambhoj
Kumar Sinha, Akshay Uppal, V. Lakshmi Kumaran, S. Vasu Devan, Tanmay
Bhatnagar, Shivam Gupta, Ms. Charanya Lakshmikumaran, Nageswar
Rao, Pukhrambam Ramesh Kumar, Akshay Uppal, Karun Sharma, K. R.
Sasiprabhu, Amit Mathur, Vishnu Sharma A.S., Punit Dutt Tyagi, Advs. for
the appearing parties.
JUDGMENT / ORDER OF THE SUPREME COURT
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.
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR
488
SUPREME COURT REPORTS
[2023] 16 S.C.R.
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 fi led 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 offi cer 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 offi cer was interfered with by the Income
Tax Appellate Tribunal and affi rmed by the High Courts without appreciating
the fact that the profi ts of eligible business of captive power generation plants
of the assessees were infl ated 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 fi rst 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 offi cer
which was affi rmed by the fi rst appellate authority i.e., Commissioner of
Income Tax (Appeals). On appeal by the assessee, the Income Tax Appellate
489
Tribunal set aside the order of the Commissioner of Income Tax (Appeals)
which decision has been affi rmed 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 (briefl y '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 diff erent.
However, that would not have any material bearing on the analysis as the
question of law is identical in all the appeals. Since we have taken Civil
Appeal No.13771 of 2015 as the lead appeal insofar the core issue is
concerned, all reference for the sake of convenience would be to the facts
of this appeal.
7. In this appeal, the assessee is M/s Jindal Steel and Power Ltd,
Hisar. The assessee is a public limited company engaged in the business
of generation of electricity, manufacture of sponge iron, M.S. Ingots etc.
Assessment year under consideration is 2001-2002. Since 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. Surplus power was supplied
by the assessee to the State Electricity Board. The assessee which is the
respondent in this appeal fi led 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
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]
490
SUPREME COURT REPORTS
[2023] 16 S.C.R.
Act. Since there was substantial book profi t of the assessee, net book profi t
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.
7.1. The return of income fi led by the assessee was processed by the
assessing offi cer under Section 143 (1) of the Act. After such processing,
certain refund was made to the assessee. Thereafter, the case was selected
for scrutiny following which statutory notices under Section 143 (2) and
142 (1) of the Act were issued calling upon the assessee to furnish details
for clarifi cation which were complied with by the assessee. During the
assessment proceedings, the issue relating to deduction under Section 80
IA of the Act came up for consideration. Assessee 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 profi ts of the power
generating units of the assessee. It was noticed that the assessee had shown
a substantial amount of profi t in its power generating units. The power
generated was used for its own consumption and also supplied to the State
Electricity Board in the State of Chhattisgarh and prior to the creation of
the State of Chhattisgarh, to the State Electricity Board of the State of
Madhya Pradesh. The electricity generated by the assessee in its captive
power plants at Raigarh (Chhattisgarh) was primarily used by it for its
own consumption in its manufacturing units; while the additional/surplus
electricity was supplied to the State Electricity Board. Assessee had entered
into an agreement on 15.07.1999 with the State Electricity Board as per
which assessee had supplied the surplus electricity to the State Electricity
Board at the rate of Rs.2.32 per unit. Thus, for the assessment year under
consideration, the assessee was paid at the rate of Rs.2.32 per unit for the
surplus electricity supplied to the State Electricity Board.
7.2. It was further noticed by the assessing offi cer that the assessee had
supplied power (electricity) to its industrial units for captive consumption at
the rate of Rs.3.72 per unit. Assessing offi cer took the view that the assessee
had declared infl ated profi ts by showing supply of power at the rate of
Rs.3.72 per unit to its sister units i.e., for captive consumption. According
to the assessing offi cer, there was no justifi cation to claim electricity charge
at the rate of Rs.3.72 per unit for supply to its own industrial units when
the assessee was supplying power to the State Electricity Board at the rate
491
of Rs.2.32 per unit. Assessing offi cer observed that the profi t calculated by
the assessee (power generating units) at the rate of Rs.3.72 per unit was
not the real profi t; the price per unit was infl ated so that profi t attributable
to the power generating units could qualify for deduction from the taxable
income under the 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.
7.3. Response of the assessee was considered by the assessing offi cer.
By the assessment order dated 26.03.2004 passed under Section 143 (3) of
the Act, the assessing offi cer held that Rs.3.72 claimed by the assessee as
the rate at which power was supplied by it to its own industrial units was
not the true market value.According to the assessing offi cer, the rate of
Rs.2.32 per unit agreed upon between the assessee and the State Electricity
Board and at which rate surplus electricity was supplied by the assessee to
the State Electricity Board was the market value of electricity. Therefore,
for the purpose of computing the profi t of the power generating units, the
selling rate of power per unit was taken at Rs.2.32. On that basis, assessing
offi cer held that there was an excessive claim of deduction of Rs.1.40 per
unit on captive consumption (Rs.3.72 - Rs.2.32), following which the
assessing offi cer worked out the excess deduction claimed by the assessee
under Section 80 IA at Rs.31,98,66,505.00. Therefore, the assessing offi cer
restricted the claim of deduction of the assessee under Section 80 IA at
Rs.48,11,72,000.00 (Rs.80,10,38,505.00 - Rs.31,98,66,505.00).
8. Aggrieved by the aforesaid reduction in the claim of deduction
under Section 80 IA of the Act, the assessee preferred appeal before the
fi rst appellate authority i.e. Commissioner of Income Tax (Appeals),
Rohtak (referred to hereinafter as 'CIT (A)').By the appellate order dated
16.05.2005, CIT (A) held that the action of the assessing offi cer in restricting
deduction under Section 80 IA in respect of 22,84,76,505 units by Rs.1.40
per unit (Rs.3.72 - Rs.2.32) was justifi ed and hence confi rmed the reduction
of deduction under Section 80 IA.
9. Assailing the order of CIT (A), assessee preferred further appeal
before the Income Tax Appellate Tribunal, Delhi Bench - I, Delhi (briefl y
'the Tribunal' hereinafter) which was registered as ITA No.3485/Delhi/05
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]
492
SUPREME COURT REPORTS
[2023] 16 S.C.R.
for the assessment year 2001-02. We may also mention that revenue had
fi led a cross appeal arising out of the same order before the Tribunal but on
a diff erent issue which may not be necessary to be gone into for the purpose
of the present appeal. The grievance of the assessee before the Tribunal in
its appeal was against the action of CIT (A) in affi rming the reduction of
deduction under Section 80 IA of the Act made by the assessing offi cer at
Rs.48,11,72,000.00 as against Rs.80,10,38,505.00claimed by the assessee.
9.1. In its order dated 07.06.2007, Tribunal noted that the dispute
between the parties related to the manner of computing profi ts of the
undertaking of the assessee engaged in the business of generation of power
for the purpose of relief under Section 80 IA of the Act. The diff erence
between the assessee and the revenue was with regard to the determination of
the market value of electricity per unit so as to compute the income accrued
to the assessee on supply made by it to its own manufacturing units. After
referring to the provisions of Section 80 IA of the Act, more particularly to
sub-section (8) of Section 80 IA and also upon an analysis of the meaning
of the expression "market value", Tribunal came to the conclusion that the
price at which electricity was supplied by the assessee to the State Electricity
Board could not be equated with the market value as understood for the
purpose of Section 80 IA (8) of the Act. In this regard, Tribunal also analysed
various provisions of the Electricity (Supply) Act, 1948 and the agreement
dated 15.07.1999 entered into between the assessee and the State Electricity
Board.Consequently, Tribunal was of the view that the stand of the revenue
could not be approved whereafter it was held that the price recorded by the
assessee at Rs.3.72 per unit was the market value for the purpose of Section
80 IA (8) of the Act. Thus, the Tribunal upheld the stand of the assessee and
set aside the order of CIT (A) by directing the assessing offi cer to allow
relief to the assessee under Section 80 IA as claimed.
10. Aggrieved by the aforesaid fi nding rendered by the Tribunal,revenue
preferred appeal before the High Court of Punjab and Haryana under Section
260 A of the Act which was registered as Income Tax Appeal No.53 of 2008.
The High Court in its order dated 02.09.2008 disposed of the appeal by
following its order dated 02.09.2008 passed in the connected ITA No.544
of 2006 (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
493
the order dated 31.3.2006 passed by the Tribunal in the case of the assessee
itself i.e. ITA No.3663/Del/2005 for the assessment year 2000-2001. Insofar
allowance of deduction under Section 80 IA of the 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.
11. Respondent assessee has fi led counter affi davit. It has contended
that the only issue to be considered is whether deduction claimed by the
assessee under Section 80 IA of the Act should be computed by taking
Rs. 2.32 per unit being the price at which electricity was sold to the State
Electricity Board as the market value of the electricity or the price of Rs.
3.72 per unit being charged by the State Electricity Board for supply of
electricity to the industrial consumers including the assessee.
11.1. Assessee had claimed deduction under Section 80 IA in
respect of its two undertakings engaged in generation of power at Raigarh
(Chhattisgarh). Power produced in the captive power plants was primarily for
use by the respondent assessee in its steel plants. Availability of electricity
from the state grid was not adequate to meet the requirements of the assessee.
In order to ensure uninterrupted power supply which was crucial for attaining
operational effi ciency, the captive power generating units were set up by
the assessee to meet the power requirements of its manufacturing units.
11.2. It is stated that power generated from the captive power generating
units of the assessee were consumed in its manufacturing units. In the event
of surplus power being generated, that was supplied to the Madhya Pradesh
Electricity Board (later on to the Chhattisgarh State Electricity Board after
creation of the State of Chhattisgarh) at the price fi xed for procurement
of surplus power from the captive power plants in the State by the State
Electricity Board.
11.3. Generation and sale of power was a monopoly of the State.
Approval was granted for setting up of captive power plants by the
manufacturing units for the purpose of meeting their power requirement
subject to the terms and conditions imposed. The surplus power, if any,
could be sold under a power purchase agreement entered into between the
captive power producer and the State Electricity Board.
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]
494
SUPREME COURT REPORTS
[2023] 16 S.C.R.
11.4. In terms of the Electricity (Supply) Act, 1948 read with the
provisions of the power purchase agreement entered into between the
assessee and the State Electricity Board, the surplus power that was not
captively consumed could not be sold in the open market to any third party
consumer except with the prior permission of the State Electricity Board,
that too, subject to technical feasibility and on the terms and conditions
imposed by the State Electricity Board. In view of the restrictions imposed
by the State Electricity Board, it was not economically viable for any third
party consumer to purchase power generated by the captive power plants
owned by the assessee. The same necessarily had to be sold to the State
Electricity Board.
11.5. It is stated that the assessee had been maintaining separate
accounts for both the units. Supply of electricity from the captive power
plants to its manufacturing units was made and recorded at the price at which
electricity was sold by the State Electricity Board to the manufacturing
units owned by the respondent assessee and to other industrial consumers,
being the fair market value of electricity in terms of Section 80 IA (8) of
the Act. According to the respondent, the determination of profi ts eligible
for computation of deduction under Section 80 IA was supported by the
following:
(a)
Computation of profi ts under Section 80 IA with details of captive
revenue of the power undertaking;
(b) Copy of unitwise profi tability of the Raigarh division;
(c)
Power purchase agreement entered into with the State Electricity
Board; and
(d) Copies of electricity bills received from the State Electricity
Board for electricity supply to the industrial consumers.
11.6. Respondent has stated that since part of the electricity produced
was captively consumed by the manufacturing units owned by it, the rate
of transfer of power was recorded at the market rate i.e. the rate at which
electricity was supplied by the State Electricity Board to the industrial
consumers i.e. Rs. 3.72 per unit. The transfer was not recorded at the rate
at which the surplus electricity was sold by the respondent assessee to the
State Electricity Board i.e. Rs. 2.32 per unit since that was the price as per
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the agreement which could not be treated as the market value of power
in as much as the State Electricity Board was the only buyer of the
surplus power.
11.7. The above stand of the assessee was not accepted by the
assessing offi cer who held that the inter unit transfer of power by the
assessee from its power plants to its industrial units should have been
Rs. 2.32 per unit being the price at which power was sold to the State
Electricity Board and not Rs. 3.72 being the price charged by the State
Electricity Board. Assessing offi cer therefore recomputed the deduction
claimed by the assessee under Section 80 IA by treating Rs. 2.32 as
the market value of electricity per unit and consequently reduced the
deduction under Section 80 IA.
11.8. After referring to the provisions of Section 80 IA of the Act,
more particularly to sub-section (5) and sub-section (8) thereof, it is
contended by the respondent that the price at which goods are transferred
from one business of the assessee to another business should be at arm's
length i.e. the same should correspond to the market value of such
goods for computing the profi ts of eligible business. In this connection,
reference has been made to the expression "market value" as has been
defi ned in the explanation below the proviso to sub section (8) of Section
80 IA. It is stated that the expression "market value" would mean the
price that such goods would ordinarily fetch in the open market. It
is submitted that sub-section (8) of Section 80 IA is pari-materia to
sub-section (6B) of Section 80J of the Act. After referring to Circular
No.169 dated 23.06.1975 of the Central Board of Direct Taxes (CBDT),
respondent assessee has contended that sub-section (8) of Section 80
IA seeks to provide that the profi ts of the eligible business should be
computed by reckoning inter unit transfer of goods and services at the
price such goods would ordinarily fetch on sale in the open market.
11.9. Thereafter, respondent assessee has referred to the meaning
of the expression "market price" and also various case laws on such
meaning. Assessee has contended that in order to determine the market
price of any goods or services, open market conditions must exist. In other
words, there must be willingness on the part of the buyer to purchase
and the seller to sell the goods. In such a situation, the price determined
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]
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[2023] 16 S.C.R.
by the market forces of demand and supply is the market price of such
goods. However, in case of any transaction of purchase and sale taking
place on account of certain obligations on the part of either side aff ecting
the determination of the price of the goods, such a price cannot be said to
be the market price.
11.10. Elaborating further, respondent assessee has stated that under
the Electricity (Supply) Act, 1948, generation and distribution of power is
the monopoly of the State. As per the power purchase agreement, captive
producers of power were allowed to sell the same in the open market subject
to stringent conditions making it unviable for third party consumers to
purchase surplus power from captive power plants. In the absence of any
willing purchaser, the surplus power i.e. power in excess of the requirement
of the manufacturing units had to be fed into the state grid which is governed
by the agreement entered into with the State Electricity Board. It is contended
that the same virtually amounted to a forced sale as the assessee was not in
a position to bargain for the rate at which surplus power should have been
otherwise sold. On the contrary, assessee was obliged to sell the surplus
power to the State Electricity Board at the price mandated by the Board.
Adverting to the power purchase agreement, it is stated that the power
generated by the captive power plants was required to be consumed by
its manufacturing units at Raigarh. The agreement stipulated that assessee
could not sell surplus power generated by it to other consumers except on
the terms and conditions stipulated by the Board thereby making third party
sale of surplus power unviable. In these circumstances, the surplus electricity
generated by the captive power plants had to be fed into the transmission
system of the grid.
11.11. The rate of purchase of power by the State Electricity Board
from the assessee was determined and dictated by the power purchase
agreement. In case such rate was not accepted by the assessee, the power
purchase agreement was not forthcoming. The power generated by the
captive power plants, surplus to the requirement of the manufacturing units
of the assessee, would in such circumstances not realise any value. It is thus
contended that the said sale rate i.e. the rate at which the surplus power was
supplied by the assessee to the State Electricity Board was not the rate at
which the power was available in the open market. As a matter of fact, this
497
was also not the rate at which electricity was sold by the State Electricity
Board to the industrial consumers including the assessee.
11.12. Electricity was supplied by the State Electricity Board to the
assessee and similar other industrial consumers at the rate of Rs. 3.72 per
unit. As against this, the State Electricity Board fi xed the rate payable to
the assessee for the surplus power generated and fed into the state grid at
Rs. 2.32 per unit for the fi nancial year 2000-2001 corresponding to the
assessment year 2001-2002.
11.13. In the above context, respondent assessee has asserted that the
rate fi xed by the State Electricity Board for purchase of surplus power from
the assessee cannot be treated as the market price of power. Assessee was
under an obligation to sell the excess power to the State Electricity Board
and at such a rate fi xed by the agreement. It is mentioned that during the
period under consideration, there was monopoly of State Electricity Board
as far as power supply was concerned and there was no open market for
sale and purchase of electricity. The rate prescribed by the State Electricity
Board was the price imposed upon the assessee as a condition precedent
to sell excess power to the only purchaser i.e. State Electricity Board. It is
the price at which assessee had to supply electricity to the State Electricity
Board under compulsion. Such a price cannot be regarded as determined by
the market forces which is the sine qua non for determining market value.
11.14. Respondent has also mentioned that for the assessment year
2000-2001, the assessing offi cer had sought to disturb the book profi ts
computed under Section 115 JA of the Act by substituting Rs.2.32 per unit
as the price for sale of power generated including for the power captively
consumed by the manufacturing units of the respondent. The Tribunal and
the High Court did not approve of the decision of the assessing offi cer in
seeking to disturb the computation of book profi t under Section 115 JA of
the Act. Revenue preferred Special Leave Petition (SLP (C)...CC No.10935
of 2009) against the decision of the High Court affi rming the order of the
Tribunal. However, the same was dismissed by this court vide the order
dated11.09.2009.
11.15. In these circumstances, Tribunal was fully justifi ed in reversing
the fi nding of CIT (A) who had affi rmed the decision of the assessing offi cer.
Reasonings given by the Tribunal for discarding the rate of Rs. 2.32 as the
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]
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SUPREME COURT REPORTS
[2023] 16 S.C.R.
market value of the surplus electricity per unit supplied by the assessee to the
State Electricity Board and in accepting the rate adopted by the assessee i.e.
Rs. 3.72 at which rate the State Electricity Board was supplying electricity
to the industrial consumers including the respondent assessee are correct
and justifi ed. The High Court had rightly upheld the order of the Tribunal.
No case for interference is made out. Therefore, all the civil appeals fi led
by the revenue on this issue may be dismissed.
12. Mr. Rupesh Kumar, learned counsel for the appellant vehemently
argued that the assessee had deliberately infl ated its profi ts on account of
generation of electricity only with a view to claim higher deduction under
Section 80 IA of the Act. Firstly, the Tribunal and thereafter the High Court
had failed to appreciate this aspect of the matter.
12.1. He submits that while the assessee was selling power to the State
Electricity Board at Rs. 2.32 per unit, it was selling the very same power to
its sister concern (industrial units) for self-consumption at a much higher
price of Rs. 3.72 per unit. It was thus clear that assessee was showing higher
receipts and thereby higher profi ts from power generation which in turn was
used to claim higher deduction under Section 80 IA of the Act.
12.2. Learned counsel has referred to the assessment order dated
26.03.2004 and submits therefrom that the assessing offi cer was fully
justifi ed in holding that Rs. 3.72 per unit shown by the assessee as the rate at
which it was supplying electricity to its captive industrial units, was not the
true market value. Refuting the contention of the assessee, it is contended that
the rate of Rs. 3.72 charged by the State Electricity Board from its consumers
could not be treated as the true market value because the State Electricity
Board had to take into account various factors while determining the rate of
electricity. This included distribution losses, expenses on infrastructure for
distribution of power, subsidy allowed to some categories of consumers like
farmers, other administrative and management expenses including expenses
on collection of bills etc.
12.3. He further submits that supply of surplus electricity by the
assessee to the State Electricity Board was governed by an agreement entered
into between the assessee and the State Electricity Board. This agreement
was voluntarily entered into by the two parties i.e. the assessee and the State
Electricity Board. It was a voluntarily agreement without any element of
499
compulsion or force. Nobody had compelled the assessee to agree to the price
fi xed by the State Electricity Board. He submits that there is no evidence to
prove that the contracted rate of electricity of Rs. 2.32 per unit was imposed
upon the assessee by the State Electricity Board. Therefore, the assessing
offi cer was justifi ed in treating Rs. 2.32 per unit as the fair market rate.
12.4. Elaborating on this aspect, Mr. Rupesh Kumar, learned counsel
submits that the defi nition of "market value" as appearing in sub-section
(8) of Section 80 IA has to be given a reasonable meaning. He has referred
to Section 80 IA of the Act as it stood at the relevant point of time, more
particularly to sub-section (8) thereof. He also lays emphasis on the proviso
to sub-section (8) and the explanation below the proviso. Thereafter, learned
counsel has referred to the dictionary meaning of the expression "market
value" and how the same is to be determined.
12.5. Adverting to the provisions of the Electricity (Supply) Act, 1948,
learned counsel submits that under Section 43 thereof, the State Electricity
Board may enter into agreements with any person producing electricity
within the state for the purchase of the same by the said board of any surplus
electricity which that person may be able to dispose of, on such terms as may
be agreed upon. Such a provision, he submits, fi nds manifestation in Section
43A whereby and whereunder a generating company has been given the
liberty to enter into a contract for the sale of electricity generated by it with
the State Electricity Board. He submits that under the successor Electricity
Act, 2003, there is also provision for captive generation of electricity.
12.6. Learned counsel has referred to a decision of this Court in M/s
Printers House Private Limited Vs. Mst. Saiyadan, (1994) 2 SCC 133,
to buttress the point that market value of a thing has to be determined by
reference to the price which a willing vendor might reasonably expect to
obtain from a willing purchaser. Though that was a case relating to land
acquisition, he submits that the principle laid down therein for computation
of market value would hold good for the present case as well. He submits
that market value or market price is relatable to the price at which the goods
are available in the open market where prices are determined by the laws
of supply and demand.
12.7. Learned counsel has also referred to Section 80A more
particularly to sub-section (6) thereof which he submits is pari-materia to
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER
LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]
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[2023] 16 S.C.R.
the provision of sub-section (8) of Section 80 IA including the explanation
thereto. He submits that the expression "market value" has been defi ned in
relation to any goods or services sold or supplied to mean the price that such
goods or services would fetch if those were sold by the undertaking or unit
or enterprise or eligible business in the open market, subject to statutory or
regulatory restrictions. Applying the above provision to the present case,
he submits that the price at which surplus electricity was supplied by the
assessee to the State Electricity Board was subject to the power purchase
agreement which was a statutory arrangement. Therefore, the price paid by
the State Electricity Board to the assessee for supply of excess electricity
would be the market value which would mean that Rs. 2.32 per unit would
be the market value of electricity supplied by the assessee to its captive
industrial units.