Commissioner of Income Tax v. M/S Jindal Steel & Power Limited Through Its Managing Director

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 2. Core issue raised in this batch of civil appeals being identical, those were heard together and are being disposed of by this common judgme nt 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 Appea l No.9917 of 2017 (A ssistant 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., recomputat ion 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 di stributing 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 co re 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 e tc. Assessment year under consideration is 2001-2002. Since electricity supplied by the State Electricity Board was inadequate to meet the requireme nts of its industrial units, the assessee set up captive power ge nerating units to supply electricity to its industrial units. Surplus power was supplied by the assessee to the State Electricity Board. The assesse e 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.] 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. Duri ng 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 it s captive power plants at Raigarh (Chhattisgarh) was primarily used by it for i ts 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 u nder 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 unit s 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 uni t 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 assesse e 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 indus trial 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 Sectio n 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 befor e the fi rst appellate authority i.e. Commissioner of Inco me 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.] 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 an d 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 de cision 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 cla imed by the assessee under Section 80 IA of the Act should be computed by ta king 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 th e price of Rs. 3.72 per unit being charged by the State Electricity Board for s upply 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 pro curement of surplus power from the captive power plants in the State b y 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 powe r plants by the manufacturing units for the purpose of meeting their power requirement subject to the terms and conditions imposed. The surplus power, if a ny, 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.] 11.4. In terms of the Electricity (Supply) Act, 1948 read with t he provisions of the power purchase agreement entered in to 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 maintainin g separate accounts for both the units. Supply of electricity from the cap tive 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 manu facturing 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 E lectricity 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 rat e 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 495 the agreement which could not be treated as the market value of power in as much as the State Electricity Board was the o nly buyer of the surplus power. 11.7. The above stand of the assessee was not accep ted by the assessing offi cer who held that the inter unit tran sfer of power by the assessee from its power plants to its industrial un its should have been Rs. 2.32 per unit being the price at which power wa s 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 trea ting Rs. 2.32 as the market value of electricity per unit and conseq uently reduced the deduction under Section 80 IA. 11.8. After referring to the provisions of Section 8 0 IA of the Act, more particularly to sub-section (5) and sub-sectio n (8) thereof, it is contended by the respondent that the price at which goods are transferred from one business of the assessee to another busine ss should be at arm’s length i.e. the same should correspond to the marke t value of such goods for computing the profi ts of eligible business. In this connection, reference has been made to the expression “market v alue” 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 val ue” 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 r eferring to Circular No.169 dated 23.06.1975 of the Central Board of Dir ect Taxes (CBDT), respondent assessee has contended that sub-section (8) of Section 80 IA seeks to provide that the profi ts of the eligibl e 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 c ase laws on such meaning. Assessee has contended that in order to deter mine 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 situati on, the price determined COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] by the market forces of demand and supply is the ma rket price of such goods. However, in case of any transaction of purchas e 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 t he surplus power to the State Electricity Board at the price mandated by t he Board. Adverting to the power purchase agreement, it is stated that the power generated by the captive power plants was required to be consum ed 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 tr ansmission system of the grid. 11.11. The rate of purchase of power by the State Electricity Boar d from the assessee was determined and dictated by the po wer purchase agreement. In case such rate was not accepted by the assesse e, the power purchase agreement was not forthcoming. The power generated by t he 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 St ate Electricity Board to the industrial consumers including the assessee. 11.12. Electricity was supplied by the State Electricity Boar d 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 sta te 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 m arket for sale and purchase of electricity. The rate prescribed by the State Electricity Board was the price imposed upon the assessee as a condition p recedent 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.] 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 c orrect 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 appea ls 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 electri city 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 ele ment 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 “ma rket 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 electric ity 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 d etermined by reference to the price which a willing vendor might reasonably e xpect to obtain from a willing purchaser. Though that was a case relat ing 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.] 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 ca se, he submits that the price at which surplus electricity w as 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 exce ss 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. In this connection, learned counsel has also placed reliance on Circular No.5/2010 dated 03.06.2010 of the Central Board of Direct Taxes which clarifi es that the explanation to sub-section (8) of Section 80 IA has been amended retrospectively from 01.04.2003 onwards to the eff ect that Section 80 IA would not apply to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person including the central or state government and executed by an undertaking or enterprise referred to in sub-section (1). He therefore submits that both the Tribunal and the High Court fell in error in accepting the contentions of the assessee that Rs. 3.72 per unit was the market value of electricity supplie d by its captive generating plants to its own industrial units. 12.8. Learned counsel has placed reliance on a deci sion of the Calcutta High Court in Commissioner of Income Tax Vs. I.T.C. Limited, (2015) 64 Taxman.com 214, and submits therefrom tha t the assessee’s generating units cannot claim any benefi t under Section 80 IA of the Act computed on the basis of rates chargeable by the di stributable licensee from the consumer. The benefi t can only be claimed on the basis of rates fi xed by the tariff regulatory commission for sale of electricity by the generating companies. According to him, in so far t he present case is concerned, instead of the tariff regulatory commiss ion, it would be the rate fi xed by the power purchase agreement. 12.9. He, therefore, submits that the order passed by the High Court affi rming the decision of the Tribunal is liable to be set aside and the order 501 passed by the assessing offi cer as affi rmed by the CIT(A) is liable to be restored. Consequently, the civil appeals should be allowed. 13. Per contra, learned senior counsel for the respondent assessee submits that there is no merit in all the appeals fi led by the revenue on the issue of deduction under Section 80 IA of the A ct. It is submitted that revenue is not justifi ed in treating the price of electricity paid by the State Electricity Board to the assessee for supply of surplus electricity by the assessee to the said electricity board as the market value replacing the market value of electricity per unit projected by the assessee. As a result of such erroneous decision, revenue had redu ced the profi ts of the assessee and consequently the quantum of deduct ion under Section 80 IA of the Act. Tribunal was justifi ed in acceptin g the contention of the assessee that the rate of electricity at which electricity was supplied by the State Electricity Board to the industrial consum ers including the assessee was in fact the market value of electricity per unit and thereby restoring the claim of the assessee. 13.1. Learned senior counsel submits that Section 80 IA provides for deduction in respect of profi ts and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Ass essee has industrial units for which uninterrupted power supply was required. Power supply by the State Electricity Board was found to be inadequate. Therefore, assessee had set up its own captive power plants to supply electricity to its industrial units. Surplus power was supplied to the state grid for which a power purchase agreement was entered into by the assessee with the State Electricity Board. Assessee had claimed deduction under this provision and while computing the deduction had taken the price at which electricity was supplied by the State Electricity Board to the industrial consumers including the assessee as the market value and not the price paid by the State Electricity Board to the assessee for the supply of surplus electricity. 13.2. It is pointed out that there is a power purchase agreement between the assessee and the State Electricity Board as per which the surplus power was supplied by the assessee to the state grid for which Sta te Electricity Board paid Rs. 2.32 per unit to the assessee. Revenue had qu estioned computation of market value of electricity supplied by the captive generating plants of the assessee to its industrial units as being on the higher side and COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] thereafter contended that the rate at which the assessee sold surplus power to the State Electricity Board was the market value of electricity. 13.3. Reverting back to Section 80 IA of the Act, learned counsel has drawn the attention of the court to clause (iv) of sub-section (4) and submits that an undertaking involved in generation or distribution of power is entitled to claim deduction under Section 80 IA of the Act. Respondent a ssessee fulfi ls the conditions for claiming such deduction and is, therefore, entitled to claim such deduction. Sub-section (8) of Section 80 IA provides that for the purpose of deduction under Section 80 IA, profi ts and gains of eligible business are to be computed as if the transfer was done on the market value on that date. Proviso to Section 80 IA(8) requires the assessing offi cer to compute the profi ts and gains in the manner provided. If the assess ing offi cer fi nds diffi culty while computing in such manner, he is empowered to compute profi ts and gains on such reasonable basis as he may deem fi t. Referring to the explanation below the proviso to sub-section (8) of Section 80 IA, he submits that the market value as contemplated in sub-section (8) would mean the price that such goods would ordinarily fetch on sale in the open market. 13.4 Adverting to the facts of the present case, learned counsel submits that adoption of the rate of Rs. 2.32 per unit by the revenue was purely on a presumptive basis. He submits that the industrial units of the assessee arethe consumers. The captive power plants of the a ssessee supplies electricity to the industrial units. Had the industrial uni ts not obtained power from the captive power plants of the assessee, then it w ould have had to purchase power from the State Electricity Board. Stat e Electricity Board was supplying electricity to the industrial consumers at the rate of Rs. 3.72 per unit. Therefore, the industrial units of the assessee would have had to pay the aforesaid amount for electricity. In such situation, Tribunal was fully justifi ed in holding that the rate at which electricity was supplied by the State Electricity Board to the industrial consumers was the market value of electricity supplied by the captive power plants of the assessee to its industrial units. He further submits that the rate at which the assessee had supplied surplus electricity to the State Electricity Board i.e. Rs. 2.32 per unit could not be termed as the market value in as much as that was the contracted price as per the power purchase agreement. Being a contracted 503 price, the power tariff between the assessee and the State Electricity Board as per the power purchase agreement was not worked out in a competitive environment. 13.5 Referring to the provisions of the Electricity (Supply) Act, 1948 as well as the successorElectricity Act, 2003, learned counsel for the assessee submits that under the statutory regim e prevalent at the relevant point of time, the State Electricity Board had virtual monopoly in the matter of generation and distribution of elect ricity. Though there was provision for generation of electricity for sel f-consumption, the power purchase agreement entered into between the a ssessee and the State Electricity Board is traceable to such statut ory framework. Such a contract can be termed as a captive contract as t he assessee had no other option but to accept the terms and conditions including the rate off ered by the State Electricity Board. In such a captive contract, the State Electricity Board is certainly the dominant partner . The price as per such contract, therefore, cannot be termed as the market value of electricity. In fact, the explanation below the proviso to sub-section ( 8) of Section 80 IA defi nes the market value as the price at which the goods in question would ordinarily fetch in the open market. Therefore , the market value in such circumstances can only be the rate at which the State Electricity Board was supplying electricity to the industrial c onsumers including the assessee. Elaborating further, he submits that the value of transaction of electricity between the two units of the assesse e should be at arm’s length which would mean that the price in such a transac tion should be such as between unrelated persons in an uncontrolle d condition. 13.6 After referring to relevant provisions of the Act including Section 80J and Section 80A of the Act and the rela ted Circular No. 169 of the CBDT, learned counsel has referred to the me aning of “market value” as per various dictionaries. Reliance has be en placed on several judicial pronouncements to highlight the signifi cance of the expression “market value”. Finally, learned counsel for the as sessee submits that the view taken by the revenue is erroneous and, the refore, the Tribunal and the High Court were justifi ed in deciding the issue in favour of the respondent assessee. The civil appeals being devoid of any merit are thus liable to be dismissed. COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] 14. Submissions made by learned counsel for the parties have received the due consideration of the Court. 15. Since the core issue is relatable to Section 80-IA of the Act, it would be apposite to advert to and analyse the aforesaid provision. Section 80-IA deals with deductions in respect of profi ts and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Let us fi rst take up sub-section (1), which reads as under: (1) Where the gross total income of an assessee includes any profi ts and gains derived from any business of an industrial undertaking or an enterprise referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this se ction, be allowed, in computing the total income of the assessee, a deduct ion from such profi ts and gains of an amount equal to hundred per cent of profi ts and gains derived from such business for the fi rst fi ve assessment years commencing at any time during the periods as specifi ed in sub- section (2) and thereafter , twenty-fi ve per cent of the profi ts and gains for further fi ve assessment years : Provided that where the assessee is a company, the provisions of this sub-section shall have eff ect as if for the words "twenty-fi ve per cent", the words "thirty per cent" had been substituted. 15.1. From the above, what is evident is that where the gross total income of an assessee includes any profi ts and gains derived from an y business of an industrial undertaking or an enterprise which are referr ed to in sub-section (4), referred to as eligible business, this section provides that a deduction shall be allowed in computing the total inco me. Such deduction shall be allowed from the profi ts and gains of an amount which is equivalent to hundred percent of the profi ts and gains derived from such business for the fi rst fi ve assessment years as specifi ed in sub-section (2) and thereafter twenty fi ve percent of the profi ts and gains for a further period of fi ve assessment years. As per the proviso, if the assessee is a company, then the benefi t for the further fi ve years would be thirty percent instead of twenty fi ve percent. 15.2. Since there is a reference to sub-section (2) in sub-section (1), we may mention that as per sub-section (2), the deduction specifi e d in 505 sub-section (1) may be claimed by the assessee at its opt ion for any ten consecutive assessment years out of fi fteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or generates power or commences transmission or distribution of power. In the proviso, there is a reference to clause (b) of the explanation to clause (i) of sub-section (4). Where the assessee begins operating and maintaining any infrastructure facility referred to in the said provision, the benefi t can be availed of by the assessee for twenty years in place of fi fteen years. 15.3. Sub-section (4) of Section 80-IA has some relevance to th e present proceeding. Therefore, the same is extracted as under: (4) This section applies to— (i) any enterprise carrying on the business of (i) dev eloping, (ii) maintaining and operating or (iii) developing, main taining and operating any infrastructure facility which fulfi ls all the f ollowing conditions, namely :— (a) it is owned by a company registered in India or by a consortium of such companies; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructu re facility subject to the condition that such infrast ructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (c) it has started or starts operating and maintain ing the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferr ed on or after the 1st day of April, 1999 by an enterprise w hich developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (h ereafter in this COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] section referred to as the transferee enterprise) for t he purpose of operating and maintaining the infrastructure facilit y on its behalf in accordance with the agreement with the Central G overnment, State Government, local authority or statutory body , the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the ded uction from profi ts and gains would be available to such transfere e enterprise for the unexpired period during which the transfero r enterprise would have been entitled to the deduction, if the t ransfer had not taken place. Explanation .—For the purposes of this clause, "infrastructure facility" means,— (a) a road, bridge, airport, port, inland waterways and inland ports, rail system or any other public facility of a similar nature as may be notifi ed by the Board in this behalf in the Offi cial Gazette; (b) a highway project including housing or other activities being an integral part of the highway project; and (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (ii) any undertaking which has started or starts pr oviding telecommunication services whether basic or cellular, including radio paging, domestic satellite service or network of trunking and electronic data interchange services at any time on or after the 1st day of April, 1995, but before the 31st day of March, 2000. Explanation .—For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park notifi ed by the Central Government in accordance with the scheme framed and notifi ed by that Government for the period beginning on the 1st day o f April, 1997 and ending on the 31st day of March, 2002 : 507 Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 and transfers the operation and maintenance of such industrial park to another un dertaking (hereafter in this section referred to as the transferee undertaking) the deduction under subsection (1), shall be allowed to such transfe ree undertaking for the remaining period in the ten consecutive assessment years in a manner as if the operation and maintenance were not so transferred to the transferee undertaking; (iv) an industrial undertaking which,— (a) is set up in any part of India for the generation or gener ation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2003; (b) starts transmission or distribution by laying a network o f 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: Provided that the deduction under this section to an indust rial undertaking under sub-clause (b) shall be allowed only in relation to the profi ts derived from laying of such network of ne w lines for transmission or distribution. 15.4. 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 1 st day of April 1993 and ending on the 31 st 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 1 st day of April, 1999 and ending on the 31 st day of March, 2003. Proviso below clause (iv) says that such deduction shall be allowed only in relation to the profi ts derived from laying of such network of new lines for transmission or distribution. 15.5. Crucial to the present discourse is sub-section (8) of Section 80- IA. Sub-section (8) reads as under: COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] (8) Where any goods held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on b y the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value o f such goods as on the date of the transfer , then, for the purpo ses of the deduction under this section, the profi ts and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the Assessing Offi cer, the computation of the profi ts and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Offi cer may compute such profi ts and gains on such reasonable basis as he may deem fi t. Explanation.— For the purposes of this sub-section, "market value", in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market. 15.6. Sub-section (8) says that where any goods hel d for the purposes of the eligible business are transferred t o any other business carried on by the assessee or where any goods held for the purposes of any other business carried on by the assessee ar e transferred to the eligible business but the consideration for such tr ansfer as recorded in the accounts of the eligible business does not corr espond to the market value of such goods as on the date of the transfer, then for t he purposes of deduction under Section 80-IA, the profi ts and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods as on that date. The proviso says that if the assessing offi cer fi nds exceptional diffi culties in computing the profi ts and gains of the eligible business in the manner specifi ed in sub-section (8), then in such a case, the assessing offi cer may compute such profi ts and gains on such reasonable basis as he may deem fi t. The ex planation below the proviso defi nes “market value” for the purpose of sub-section (8). It says that market value in relation to any goods means the price that such goods would ordinarily fetch on sale in the op en market. 509 15.7 . Thus,Section 80IA (8) provides that where goods o r services held for the purposes of eligible business are tran sferred to any other business carried on by the assessee, the price char ged for such transfer should correspond to the market value of such goods or services as on the date of transfer. If the price of goods or s ervices transferred is overstated in comparison to the market value, th e assessing offi cer has the competence to recompute the profi t by subst ituting the market value of such goods. The explanation below sub-section ( 8) defi nes the expression “market value” to mean the price that su ch goods or services would ordinarily fetch in the open market. That takes us to the expression “open market” which is however not defi ned. 15.8. Since the expression “open market” is not defi ned, we will analyze the said expression in conjunction with the expr ession “market value”, though at a subsequent stage of the judgmen t. 16. We may also advert to the relevant provisions o f the Electricity (Supply) Act, 1948 (briefl y “the 1948 Act” hereinaf ter), which was the enactment governing the fi eld at the relevant p oint of time. As per Section 43 of the 1948 Act, the State Electricity Board was empowered to enter into arrangements for purchase or sale of electricity under certain conditions. Sub-section (1) says that the State Ele ctricity Board may enter into arrangements with any person producing e lectricity within the State for purchase by the State Electricity Boa rd on such terms as may be agreed upon of any surplus electricity which that person may be able to dispose of. Thus, what sub-section (1) pr ovides is that if any person who produces electricity has surplus electricity , he may dispose of such surplus electricity by entering into an arr angement with the State Electricity Board for supply of such surplus electricity by him and purchase thereof by the State Electricity Board. 16.1. Section 43A provides for the terms, conditions and tariff for sale of electricity by a generating company. It say s that a generating company may enter into a contract for the sale of e lectricity generated by it with the State Electricity Board of the State in which the generating station owned or operated by the generating company is located or with any other person with the consent of the competent government. COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] 16.2. As per Section 44, no person can establish or acquire a generating station or generate electricity without the previous consent in writing of the State Electricity Board. However, such an embargo would not be applicable to the Central Government or any corporation created by a central act or any generating company. As per Section 45, the State Electricity Board has been empowered to enter upon and shut down a generating station if the same is in operation contravening certain provisions of the 1948 Act. 17. In so far facts of the present case are concerned, the re is no dispute. Since electricity from the State Electricity Board to the industrial units of the assessee was inadequate, the assessee 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 Section 43A o f the 1948 Act, the assessee had entered into an agreement dated 15.07.1999 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 asses sment 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. We may mention that the State Electricity Board had supplied power (electricity) to the industrial consumers at the rate of Rs. 3.72 per unit 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 profi ts and gains of the eligible business, which is necessary for quantifying the deduct ion under Section 80-IA, the assessee had recorded in its books of accounts that it had supplied power to its industrial units at the rate of Rs. 3.72 per unit which rate is disputed by the revenue as not being the market value of electricity. 19. While the assessing offi cer accepted the claim of the assessee for deduction under Section 80-IA, 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 511 units when the assessee was supplying surplus power to the State Electricity Board at the rate of Rs 2.32 per unit. Finally, the assessi ng 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 under Section 80-IA of the Act. 20. We have already analyzed Section 80-IA of the Act. There is no dispute that respondent-assessee is entitled to deduction under Section 80-IA of the Act for the relevant assessment year. The only issue i s with regard to the quantum of profi ts and gains of the eligible business of the assessee and the resultant deduction under Section 80 IA of t he Act. The higher the profi ts and gains, the higher would be the quantum of deduction. Conversely, if the profi ts and gains of the eligible business of the assessee is determined at a lower fi gure, the deduction under Section 80-IA would be on the lower side. Assessee had computed the profi ts and gains by taking Rs. 3.72 as the price of electricity per unit supplied by its c aptive power plants to its industrial units. The basis for taking this fi gure was that it was the rate at which the State Electricity Board was supplying electricity to its industrial consumers. Assessing offi cer repudiated such claim. According to him, the rate at which the assessee had supplied the su rplus electricity to the State Electricity Board i.e., Rs. 2.32 per unit, should be the market value of electricity. Assessee cannot claim two rates for the same good i.e., electricity. When it supplies electricity to the State Electricity Board at the rate of Rs. 2.32 per unit, it cannot claim Rs. 3.72 per unit for supplying the same electricity to its sister concern i.e., the industrial units. This view of the assessing offi cer was confi rmed by the CIT (A). 21. We have noticed that the Tribunal had rejected such contention of the revenue which has been affi rmed by the High Court. In this proceeding, we are called upon to decide as to which of the two views is the correct one. 22. Reverting back to sub-section (8) of Section 80-IA, it is seen that if the assessing offi cer disputes the consideration for supply of any goods by the assessee as recorded in the accounts of the eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under Section 80-IA, the profi ts and gains of such eligible business shall be computed by adopting arm’s length pricing. In other words, if the asses sing offi cer COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defi nes market value in relation to any goods to mean the price that such goods would ordinaril y fetch on sale in the open market. Thus, as per this defi nition, the market value of any goods would mean the price that such goods would ordinarily fetch on sale in the open market. 23. This brings to the foreas to what do we mean by the expression “open market” which is not a defi ned expression. 24. Black’s Law Dictionary, 10 th Edition, defi nes the expression “open market” to mean a market in which any buyer or seller may t rade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer’s Advanced Law Lexicon has also defi ned the expression “open market” to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression “market value” in relation to any goods as defi ned by the explanation below the proviso to sub-section (8) of Section 80 IA would mean the price of such goods determined in an environment of free trade or competition. “Market value” is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirem ents of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants 513 of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity ha d to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entere d into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fi xed at Rs. 2.32 per unit as per the contract. This price is, therefore, a c ontracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in plac e, the assessee had no other alternative but to sell or supply the surplus electr icity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fi x the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition. 27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the capt ive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the St ate Electricity Board at the same rate at which the State Elec tricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit. 28. Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at whi ch 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 suppl ier 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. It is clear that the rate at which power was s upplied to a supplier could not be the market rate of electricity purchased by a consumer in the COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specifi c consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus powe r to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise betwee n a buyer and a seller under a competitive environment or a transaction carried out i n the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Consequently, the pric e determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of Section 80IA (8). On the contrary, the rate at which State Electricity Board suppl ied electricity to the industrial consumers would have to be taken as the market value for computing deduction under Section 80 IA of the Act. 30. Thus on a careful consideration, we are 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 S tate 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 515 Board’s rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the cap tive 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 industr ial consumers. Therefore, the High Court was fully justifi ed in deciding the appeal against the revenue. 32. Revenue has relied upon the decision of the Calcutta High Court in CIT Vs. ITC Ltd. ( supra ). In that case, the High Court rejected the fi rst contention of the revenue that the assessee therein was not e ntitled to the benefi t under Section 80-IA of the Act because the power generated was consumed at home or by other business of the assessee. After holding so , the High Court however,answered the question on the point of computation of profi ts and gains of the eligible business against the assessee. On going through the judgment, we fi nd that facts of that case are clearly distinguishable from the facts of the present batch of appeals. It is noticeable that though an opportunity was granted by the assessing offi cer to the assessee to adduce evidence to justify the price of electricity sold by it to its paper unit, the same could not be availed of by the assessee. The electricity generated was sold by the assessee entirely to its paper unit. There was no surplu s electricity to be supplied to the State Electricity Board and consequently, there was no contract between the assessee and the State Electricity Board determining the rate of tariff for the electricity supplied by the assessee to the State Electricity Board. On the other hand, it was noticed that the Electricity Act, 2003 had come into force whereby and where under, the rate at which electricity could be supplied is determined, notably by Sections 21 and 22 thereof. That apart, there is the tariff regulatory commission which has the mandate for fi xing the rates for sale and purchase of electricity by the distribut ion licensee. Thus it was noted that there is an inbuilt mechanism to ensure permissible profi t both to the generating companies and to the distribution licensees. Therefore, it was held by the High Court that the assessee’s generating unit could not claim any benefi t under Section 80-IA of the Act computing the profi ts and gains on the basis of the rate chargeable by the distribution COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] licensee from the consumer and that the benefi t could only be claimed on the basis of the rates fi xed by the tariff regulatory commission for sale of electricity by the generating company. Facts being clearly distinguishable, this decision can be of no assistance to the revenue. 33. Before parting with this issue, we may mention that reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the defi nition of the expression “market value” as defi ned in the explanation below sub- section (6) of Section 80 A of the Act is totally misplaced inasmuch as sub- section (6) was inserted in the statute with eff ect from 01.04.2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne. 34. That being the position, we have no hesitation in answering this issue in favour of the assessee and against the revenue. EXERCISE OF OPTION TO ADOPT WRITTEN DOWN V ALUE METHOD. 35. We may now take up the fi rst of the three additional issues. As we have noted at the very outset, the issue is or the question raised by the revenue is whether the Tribunal could ignore compliance to the statutory provisions relating to exercise of option to adopt Written Down Value (WDV) method in place of the straight line method while computing deprecia tion on the assets used for power generation. This issue has been raised by the revenue in Civil Appeal No. 13771/2015 (CIT Vs. M/s Jindal Steel and Power Ltd.) in the following manner: Whether on the facts and in the circumstances of the case, the High Court was justifi ed in upholding the order of the Tribunal that compliance to statutory provisions of exercising option to adopt WDV method in place of straight line method prescribed under the statutory provision on the assets used for power generation can be waved in the case of the assessee? 36. This issue arises in the case of the respondent-assessee M/s Jindal Steel and Power Ltd., Hisar for the assessment year 2001-2002. While dealing with the core issue, we have already made a brief description of the status of the assessee. It is, therefore, not necessary for a repetition of the same. What is however discernible from the asse ssment order dated 26.03.2004 passed under Section 143(3) of the Act i s that the assessee 517 had purchased twenty fi ve MV turbines on and around 08.07.1998 for the purpose of its eligible business. Assessee clai med depreciation on the said turbines at the rate of 25% on WDV basis. On perusal of the materials on record, assessing offi cer held that in view of the change in the law with regard to allowance of depreciation on the assets of the power generating unit w.e.f. 01.04.1997, the assess ee would be entitled to depreciation on straight line method in respect of assets acquired on or after 01.04.1997 as per the specifi ed percentage in terms of Rule 5 (1A) of the Income Tax Rules, 1962. Assessing offi cer however noted that the assessee did not exercise the option of cl aiming depreciation on WDV basis. Therefore, it would be entitled to depre ciation on straight line method. 36.1. After obtaining the clarifi cation of the assessee, assessing offi cer held that since the assessee did not exercise the option of adoptin g WDV method, therefore, in view of the provision of Rule 5 (1A) of the Income Tax Rules, 1962 (briefl y ‘the Rules’ hereinafter), it would be entitled to depreciation on the straight line method. On that basis, as against the depreciation claim of the assessee of Rs. 2,85,37,634.00, the assessing offi cer allowed depreciation to the extent of Rs. 1,59,10,047.00. 37. In the appeal before the CIT (A), the assessee contended that the assessing offi cer had erred in limiting the allowance of depreciation on the turbines to Rs. 1,59,10,047.00 as against the claim of Rs. 2,85,37,634.00. However, vide the appellate order dated 16.05.2005, CIT (A) confi rmed the disallowance of depreciation made by the assessing offi cer. 38. On further appeal by the assessee before the Tribunal, vide the order dated 07.06.2007, the Tribunal on the basis of its previous decision in the case of the assessee itself for the assessment year 2000-2001 answered this question in favour of the assessee. 39. When the matter came up before the High Court in appeal by the revenue under Section 260A of the Act, the High Court referred to the proviso to sub-rule (1A) of Rule 5 of the Rules and affi rmed the view taken by the Tribunal. The High Court held that there was no perversity in the reasoning of the Tribunal and therefore, the question raised by the revenue could not be said to be a substantial question of law. COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] 40. Rule 5 provides for the method of calculation of depreciation allowed under Section 32 (1) of the Act. It says that such depreci ation of any block of assets shall be allowed, subject to provisions of sub-rule (2), as per the specifi ed percentage mentioned in the second column of th e table in Appendix-I to the Rules on the WDV of such block of assets as are used for the purposes of the business or profession of the ass essee during the relevant previous year. In so far the present case is concerned, it is not in dispute that sub-rule (2) has no application. We may, therefore, refer to sub-rule (1A) along with the provisos thereto which read as under: (1A) The allowance under clause (i) of sub-section (1) of sec tion 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specifi ed in the second column of the Table in Appendix IA of these rules on t he actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time during the previous year: Provided that the aggregate depreciation allowed in respect of any asset for diff erent assessment years shall not exceed the actual cost of the said asset: Provided further that the undertaking specifi ed in clause (i) of sub- section (1) of section 32 of the Act may, instead of the depreciation specifi ed in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before the due date for furnishing the return of incomes under sub-section (1) of section 139 of the Act, (a) for the assessment year 1998-99, in the case of an undertaking which began to generate power to prior 1st day of April, 1997; and b) for the assessment year relevant to the previous year in which it begins to generate power , in case of any other undertaking : Provided also that any such option once exercised shall be fi nal and shall apply to all the subsequent assessment years. 40.1. Thus, what is noticeable is that as per sub-rule (1A), the allowance under clause (i) of sub-section (1) of Section 32 of the Act in respe ct of depreciation of assets acquired on or after the 1 st day of April, 1997 shall be 519 calculated at the percentage specifi ed in the second column of the table in Appendix-IA to the Rules. As per the fi rst proviso, the aggregate depreciation of any asset should not exceed the actual cost of that asset. The second proviso says that the undertaking specifi ed in clause (i) of sub-section (1) of Section 32 of the Act may instead of the depreciation specifi ed in Appendix- IA may opt for depreciation under sub-rule (1) read with Appen dix-I but such option should be exercised before the due date for furnishing the return of income under sub-section (1) of Section 139 of the Act. The last proviso clarifi es that any such option once exercised shall be fi nal and shall apply to all the subsequent assessment years. 41. Before we proceed further, we may briefl y refer to the relevant Appendix-1 which was applicable for assessment years 1988-1989 to 2002- 2003 as well as to Appendix-1A. Appendix-1 provides for a table of rates at which depreciation is admissible. While the fi rst column refers to the block of assets, such as, tangible assets, including buildings, furniture and fi ttings, machinery and plant etc., and intangible assets, the second column mentions the relatable depreciation allowance as per percentage of WDV. On the other hand, Appendix-1A has been inserted by the Income Tax (Twelfth Amendment) Rules, 1997 with retrospective eff ect from 02.04.1997. While column one of Appendix-1A mentions about the class of assets, column two provides for the relatable depreciation allowance of such class of assets as per the percentage of actual cost. From a comparison of the two appendixes, it is evident that the depreciation allowance as per percentage of WDV in Appendix-1 is higher than the depreciation allowance as per percentage of actual cost under Appendix-1A. 42. From a conjoint reading of Rules 5(1) and (1A) of the Rules read with Appendix-1 and Appendix-1A, it is evident that while sub-rule (1) provides for allowance of depreciation in respect of any block of asset s in terms of the second column of the table in Appendix 1, sub-rule (1A) enables an assessee to seek allowance of depreciation of as sets acquired on or after the 1st day of April, 1997 as per the percentage specifi ed in the second column of the table in Appendix-1A on actual cost basis. However, the second proviso to sub-rule (1A) clarifi es that an assessee may opt for depreciation under Appendix-1 instead of Appendix-1A but such option has to be exercised before the due date for furnishing the return of income under sub-section (1) of Section 139 of the Act. COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] 43. 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. The view taken by the assessing offi cer as affi rmed by the fi rst appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Ther efore, the revenue was not justifi ed in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifi cally opted for the WDV method. 44. A similar issue was examined by this Court in CIT Vs. GR Govindarajulu, (2016) 16 SCC 335,wherein it has been held that the law does not mention any specifi c mode of exercising such an option. The only requirement is that the option has to be exercised before fi ling of the return. In that case, assessee had set apart a sum of Rs. 32 lakhs to be spent for charitable purposes in the following year and claimed deduction of the entire amount under Section 11 of the Act which deals with incom e from property held for charitable or religious purposes. This claim of the assessee was denied by the assessing offi cer on the ground that no option for this purpose was exercised by the assessee before fi ling of the return. Though the assessee had stated so in the return itself, that was not treated as exercising the option in a valid manner. All the appellate authorities answered this issue in favour of the assessee. When the revenue approached this Court by way of civil appeal, this Court opined that the law does not mention any specifi c mode of exercising the option. The only requirement is that the option has to be exercised before fi ling of the return. This Court held that if the option is exercised when the return is fi led, that would be treated as in conformity with the requirement of Section 11 of the Act. 45. Applying the aforesaid principle to the facts of the present case, we are 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 fi ling of the return. All that is required is that the assessee has to opt before fi ling of the return or at the time of fi ling 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 specifi ed in Appendix-1A in terms of sub-rule (1A) of 521 Rule 5 which the assessee has done. If that be the position, we fi nd no merit in the question proposed by the revenue. The same is therefore answered in favour of the assessee and against the revenue. DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO SHRI S.K. GUPTA AND HIS GROUP OF COMPANIES. 46. This brings us to the second of the additional issues which is the deletion of the addition of Rs. 3,39,95,000.00 made by the assessing offi cer on account of payment made by the assessee to Shri SK Gupta and his group of companies. This issue has been raised by the revenue in Civil Appeal No. 7425/2019 (CIT Vs. M/s Reliance Industries Ltd.). 47. Respondent assessee in this case is M/s Reliance Industries L td. and the assessment year under consideration is 2006-2007. Assessee claimed allowance of expenditure of about Rs. 3.39 crores on account of payments made to one Shri SK Gupta and his group of companies. The asses sing offi cer vide the assessment order dated 19.03.2008 passed under Section 143 (3) of the Act, referred to the statement of Shri S.K. Gupta recorde d during the search operations and held that the said person had not rendered any service to the assessee so as to receive such payments. Therefore, the assessing offi cer disallowed such claim of expenditure of the assessee and added the same to the income of the assessee. 48. On an appeal by the assessee, CIT(A) vide the order dated 27.01.2009 confi rmed the disallowance of professional fee paid by th e assessee to Shri S.K. Gupta and his group of companies. 49. On further appeal by the revenue, Tribunal vide the order dated 29.05.2015set aside the view taken by CIT (A). Tribunal on perusal of the materials on record, noted that Shri S.K. Gupta had retracted his statement within a short time by fi ling an affi davit. He thereafter got his further statement recorded where he reiterated his stand taken in t he affi davit. In view of the above, Tribunal set aside the order of the asses sing offi cer as affi rmed by the CIT (A) and allowed the claim of the assessee. 50. Revenue preferred appeal before the High Court of Bombay under Section 260A of the Act raising the above issue along with another issue. The High Court vide the order dated 30.01.2019 answered the above issue in COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] favour of the assessee and against the revenue by holding that no substantial question of law arose from the decision of the Tribunal. 51. From the materials on record, we fi nd that the assessing offi cer had solely relied upon the statements made by Shri S.K. Gupta on 12.12.2006 and 23.12.2006 during the course of the search. However, the assessing offi cer overlooked the fact that within a short span of time, Shri S.K. Gupta had retracted from the said statements b y fi ling an affi davit on 05.02.2007. Thereafter, he reiterated the stateme nts made by him in the affi davit dated 05.02.2007 in a statement recorded on 08.02.2007. We fi nd that in the later statements, Shri S.K. Gupta had categorically stated that he had rendered services to the assessee. He a lso mentioned that the name of the assessee was not referred to as one of the benefi ciaries of the accommodation bills in his earlier statement. H e had categorically stated that he had rendered service to the assessee and th at the assessee had not obtained any bogus accommodation bills from him. Assessing offi cer had dis-believed the affi davit as well as the subsequent statement of Shri S.K. Gupta without any justifi able and cogent reason. That apart when the revenue had relied upon the retracted stat ement of Shri S.K. Gupta, it ought to have provided an opportunity to the assessee to cross- examine Shri S.K. Gupta which was however denied. T hus, revenue was not justifi ed in disallowing the claim of profe ssional expenses of the assessee on account of payment to Shri S.K. Gup ta and his group of companies. 52. Therefore, we agree with the view taken by the High Court. As noted by the High Court, the entire issue is bas ed on appreciation of the materials on record. Tribunal had scrutinized t he materials on record and thereafter had recorded a fi nding of fact that there were suffi cient evidence to justify payment made by the assessee to Shri SK Gupta, a consultant of the assessee, and that the assessin g offi cer had wholly relied upon the statement of Shri Gupta recorded du ring the search operation which was retracted by him within a reasonable period. In these circumstances, we are of the view that there is no admissible material to deny the claim of expenditure made by the assess ee. Accordingly, this issue is answered in favour of the assessee an d against the revenue. 523 WHETHER CARBON CREDIT IS CAPITAL OR REVENUE RECEIPT. 53. This brings us to the last of the three additional issues i.e., whether carbon credit is capital or revenue receipt. This additional i ssue has been raised by the revenue in Civil Appeal No. 9917/2017 ( ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd.) and in Civil Appeal No. 8983/2017 (ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd.). In the two appe als, revenue has raised the question as to whether receipts on sale of ca rbon credit is a capital receipt whereafter assessee is not liable to pay any tax. 54. We may mention that before the Tribunal in Civil Appeal No. 9917/2017, the assessee had questioned amongst others the fi n ding of CIT (A) confi rming the decision of the assessing offi cer that an amount of Rs. 4,47,75,122.00 realised on account of carbon credit had no direct and immediate nexus with the income of the power division and hence did not qualify for deduction under Section 80-IA (4) (iv) of the Act. On due consideration, Tribunal vide the order dated 31.03.2016 held that carbon credit is generated under the Kyoto Protocol and because of international commitments. Carbon credit emanates out of such technology and plant and machinery which contribute to reduction of greenhouse gases. That apart, carbon credits are also meant to promote environmentally sound investments which are admittedly capital in nature. Therefore, Tribunal held that carbon credit is a capital receipt. 55. Against the aforesaid decision of the Tribunal, revenue preferred appeal before the High Court of Chhattisgarh under Section 260A of the Act. From a reading of the High Court order dated 15.11.2016, we fi nd that the only issue raised by the revenue before the High Court was relating to disallowance of deduction by the assessing offi cer under Section 80-IA (4) (iv) of the Act. Question of carbon credit being capital receipt or not was not raised. In other words, revenue had accepted the decision of the Tribunal as regards carbon credit and did not challenge the said decision before the High Court.In fact, in the proceedings dated 11.09.2009 it was agreed by both the sides (including the revenue) that the only question which arose for consideration of this Court was as regards interpretation of Section 80- IA of the Act. Therefore, the issue relating to carbon credit was not raised or urged by the revenue.If that be the position, revenue would be estopped COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.] from raising the said issue before this Court at the stage of fi nal hearing. That apart, there is no decision of the High Court on this issue against which the revenue can be said to be aggrieved and which can be assailed. In the circumstances, we decline to answer this question raised by t he revenue and leave the question open to be decided in an appropriate proceeding. 56. For the aforesaid reasons, the civil appeals are hereby dismissed. However, there shall be no order as to cost.