Graphite India Ltd. Vs CIT (Calcutta High Court)
The appeal under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2001–02 on multiple substantial questions of law relating to deductions, computation of profits, and treatment of incentives.
The assessee, engaged in manufacturing graphite electrodes, calcined petroleum coke, and generating power through captive units, claimed deductions under Section 80-IA on profits from power generation by valuing captively consumed electricity at rates charged by the Karnataka State Electricity Board (KSEB). The Assessing Officer (AO), however, rejected this valuation and adopted third-party sale rates, excluded electricity duty from the transfer price, reduced profits eligible for deduction under Section 80HHC by the amount of deduction under Section 80-IA, restricted export profit exclusion from book profits under Section 115JB to 80%, and treated sales tax remission as taxable revenue receipt.
On appeal, the Commissioner of Income Tax (Appeals) partly upheld and partly modified the AO’s findings. The ITAT affirmed the approach of excluding electricity duty from transfer price and addressed other issues. The matter then reached the High Court on five substantial questions of law.
On the first issue, relating to computation of transfer price of power for deduction under Section 80-IA, the Court relied on binding precedents, including decisions of the Supreme Court. It held that the market value of power should be determined based on the rate at which the State Electricity Board supplies electricity to industrial consumers in the open market. This rate includes components such as electricity duty, and therefore, the Tribunal was not justified in excluding the duty component. The issue was decided in favour of the assessee.
