Gujarat High Court
Commissioner Of Income Tax I vs Gujarat Alkalies And Chemicalsltd on 17 September, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 817 of 2013
With
R/TAX APPEAL NO. 818 of 2013
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COMMISSIONER OF INCOME TAX I
Versus
GUJARAT ALKALIES AND CHEMICALSLTD
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Appearance:
KARAN G SANGHANI(7945) for the Appellant(s) No. 1
MR MANISH J SHAH(1320) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 17/09/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel Mr.
Karan Sanghani for the appellants and learned
advocate Mr. Manish Shah for the respondent.
2. These appeals are filed under Section 260A of
the Income tax Act, 1961 (for short 'the Act')
and following substantial questions of law are
framed while admitting the Appeals:
TAX APPEAL NO. 817 OF 2013:
{A} "Whether, on the facts and circumstances
of the case, the Tribunal was right in law in
allowing the deduction u/s. 80IA (4) of the
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Act without appreciating that the assessee
had captive power generation plant and
therefore, the claim u/s. 80IA (4) of the Act
was not allowable as held by the ITAT, Bench-
A, Chennai vide in the case of Chettinand
Cement Corporation Limited in ITA No. 1026
(Mds)/2005 ?"
{B} "Whether, on the facts and circumstances
of the case, the Tribunal was right in law in
allowing the claim u/s. 80IA (4) as claimed
by the assessee on the basis of purchase
price of power from GEB ie., Rs. 4.55 per
unit without appreciating the fact that A.O
had rightly calculated the amount eligible
for deduction u/s. 80IA after applying the
rate at Rs. 2.11 per unit, which became 'Nil'
after set-off of brought forward loss of Rs.
15005.66 lacs for the captive power plant
unit on actual basis ?"
TAX APPEAL NO. 818 OF 2013:
{1} "Whether, on the facts and circumstances
of the case, the Appellate Tribunal was right
in law in deleting the addition made on
account of expenses incurred for replacement
of membrance cells, treating the same as
capital expenditure, by following the rule of
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consistency and without considering the
issues on merits and also failed to observe
that perpetuation of an error is no justice?"
{2} "Whether, on the facts and circumstances
of the case, the Tribunal was right in law in
allowing the deduction u/s. 80IA of the Act
without appreciating that the assessee had
captive power generation plant and therefore
the claim u/s. 80IA(4) of the Act was not
allowable as held by the ITAT, Bench-A,
Chennai vide in the case of Chettinand Cement
Corporation Limited in Income-tax Act, 1961
No. 1026 (Mds)/2005 ?"
{3} Whether, on the facts and circumstances
of the case, the Tribunal was right in law in
allowing the claim u/s. 80IA (4) as claimed
by the assessee on the basis of purchase
price of power from GEB ie., Rs. 4.55 per
unit without appreciating the fact that A.O
had rightly calculated the amount eligible
for deduction u/s. 80IA after applying the
rate at Rs. 2.11 per unit, which became 'Nil'
after set-off of brought forward loss of Rs.
15005.66 lacs for the captive power plant
unit on actual basis ?"
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3. So far as the question of deduction under
Section 80IA of the Act for generation of power
for captive consumption is concerned, the same is
answered by the Hon'ble Apex Court in favour of
the assessee in case of Commissioner of Income
Tax v. Jindal Steel and Power Ltd., reported in
460 ITR 162. Therefore, Question No. A in Tax
in Tax Appeal No. 818 of 2013 are answered,
accordingly, in favour of the assessee and
against the revenue.
4. So far as Question No.B regarding the rate on
which the power generating Company supply the
power is concerned, the same is answered in
favour of the assessee by the Hon'ble Apex Court
in case of Commissioner of Income Tax v. Jindal
Steel and Power Ltd.(Supra) as under:
"18. There is also no dispute that the
assessee or rather, the captive power plants
of the assessee are entitled to deduction
under section 80-IA of the Act. For the
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purpose of computing the profits and gains of
the eligible business, which is necessary for
quantifying the deduction under section 80-
IA, the assessee bad recorded in its books of
accounts that it had 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 officer accepted the
claim of the assessee for deduction under
section 80-IA, he, however, did not accept
the profits and gains of the eligible
business computed by the assessee on the
ground that those were inflated by showing
supply of power to its own industrial units
for captive consumption at the rate of Rs.
3.72 per unit. Assessing officer took the
view that there was no justification on the
part of the assessee to claim electricity
charge at the rate of Rs. 3.72 for supply to
its own industrial units when the assessee
was supplying surplus power to the State
Electricity Board at the rate of Rs. 2:32 per
unit. Finally, the assessing officer held
that Rs. 2.32 per unit was the market value
of electricity and on that basis, reduced the
profits and gains of the assessee thereby
restricting the claim of deduction of the
assessee under section 80-IA of the Act.
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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 is with
regard to the quantum of profits and gains of
the eligible business of the assessee and the
resultant deduction under section 80-IA of
the Act. The higher the profits and gains,
the higher would be the quantum of deduction.
Conversely, if the profits and gains of the
eligible business of the assessee is
determined at a lower figure, the deduction
under section 80-IA would be on the lower
side. Assessee had computed the profits and
gains by taking Rs. 3.72 as the price of
electricity per unit supplied by its captive
power plants to its industrial units. The
basis for taking this figure was that it was
the rate at which the State Electricity Board
was supplying electricity to its industrial
consumers. Assessing officer repudiated such
claim. According to him, the rate at which
the assessee had supplied the surplus
electricity to the State Electricity Board
ie, Rs. 2.32 per unit, should be the market
value of electricity. Assessee cannot claim
two rates for the same good ie.. electricity.
When it supplies electricity to the State
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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 ie, the industrial units. This view
of the assessing officer was confirmed by the
CIT (A)
21. We have noticed that the Tribunal had
rejected such contention of the revenue which
has been affirmed by the High Court. In this
proceeding, we are called upon to decide as
to which of the two views is the correct
one."
5. So far as the question of applicability of
the market rate for the purpose of allowing
deduction of Section 80IA, the issue of
allowability of the market rate is also decided
by the Apex Court in case of the aforesaid
decision of Jindal Steel and Power Ltd.(Supra)as
under:
"28. Thus, market value of the power supplied
by the assessee to its industrial units
should be computed by Considering the rate at
which the State Electricity Board supplied
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power to the consumers in the open market and
not comparing it with the rate of power when
sold to a supplier i.e., sold by the assessee
to the State Electricity Board as this was
not the rate at which an industrial consumer
could have purchased power in the open
market. It is clear that the rate at which
power was supplied to a supplier could not be
the market rate of electricity purchased by a
consumer in the 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 434 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 specific 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
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surplus power 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 between a buyer and a seller under a
competitive environment or a transaction
carried out in 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 price
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
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Section 80IA (8). On the contrary, the rate
at which State Electricity Board supplied
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 he
construed to be the market value of
electricity. It should not be compared with
the rate of power sold to or supplied to the
State Electricity Board since the rate of
power to a supplier cannot be the market rate
of power sold to a consumer in the open
market. The State Electricity Board's rate
when it supplies power to the consumers have
to be taken as the market value for computing
the deduction 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 captive
power plants of the assessee to its
industrial units after comparing it with the
rate of power available in the open market
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Le., the price charged by the State
Electricity Board while supplying electricity
to the industrial consumers. Therefore, the
High Court was fully justified in deciding
the appeal against the revenue.
32. Revenue has relied upon the decision of
the Calcutta High Court in ITC Ltd. (supra).
In that case, the High Court rejected the
first contention of the revenue that the
assessee therein was not entitled to the
benefit 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 profits and gains of the
eligible business against the assessee. On
going through the judgment, we find 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 officer 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
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assessee entirely to its paper unit. There
was no surplus 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 whereunder, 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 fixing the rates for sale and purchase of
electricity by the distribution licensee.
Thus it was noted that there is an inbuilt
mechanism to ensure permissible profit 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 benefit
under section 80-IA of the Act computing the
profits and gains on the basis of the rate
chargeable by the distribution licensee from
the consumer and that the benefit could only
be claimed on the basis of the rates fixed by
the tariff regulatory commission for sale of
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electricity by the generating company. Facts
being clearly distinguishable, this decision
can be of no assistance to the revenue."
6. So far as the question No.1 in Tax Appeal No.
818 of 2013 as to whether the expenses incurred
for replacement of membrance cells is capital or
revenue, it is already held in favour of the
assessee by the decision of this Court in case of
Commissioner of Income Tax I v. Gujarat Alkalies
and Chemicals Ltd., reported in [2015] 372 ITR
237 (Guj)
"8. We may record that in the decision of the
Apex Court in case of Saravana Spinning Mills
P.Ltd. (supra), the Apex Court observed at
para 13 on page 208 and 209, the relevant of
which, reads as under:-
"An allowance is granted by clause (i)
of Section 31 in respect of amount
expended on current repairs to
machinery, plant or furniture used for
the purposes of business, irrespective
of whether the assessee is the owner of
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the assets or has only used them. The
expression "current repairs" denotes
repairs which are attended to when the
need for them arises from the viewpoint
of a businessman. The word "repair"
involves renewal. However, the words
used in Section 31(i) are "current
repairs". The object behind Section
31(i) is to preserve and maintain the
asset and not to bring in a new asset.
In our view, Section 31(i) limits the
scope of allowability of expenditure as
deduction in respect of repairs made to
machinery, plant or furniture by
restricting it to the concept of
"current repairs". All repairs are not
current repairs. Section 37(1) allows
claims for expenditure which are not of
capital nature. However, even Section
37(1) excludes those items of
expenditure which expressly falls in
Sections 30 to 36. The effect is to
delimit the scope of allowability of
deductions for repairs to the extent
provided for in Sections 30 to 36. To
decide the applicability of Section
31(i) the test is not whether the
expenditure is revenue or capital in
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nature, which test has been wrongly
applied by the High Court, but whether
the expenditure is "current repairs".
The basic test to find out as to what
would constitute current repairs is that
the expenditure must have been incurred
to "preserve and maintain" an already
existing asset, and the object of the
expenditure must not be to bring a new
asset into existence or to obtain a new
advantage."
After observing the aforesaid, when the
Apex Court further examined the facts of
the said case, it was found that each
machine including the Ring Frame was an
independent and separate machine capable
of independent and specific function
and, therefore, treated the expenditure
as capital in nature. Such is not the
fact situation in the present case
because no material is referred to by
the A.O. nor by the C.I.T. (Appeals)
leading to the conclusion that the
membrane itself can be treated as a
separate and independent machine. Under
these circumstances, it appears to us
that reliance placed upon the decision
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by the A.O. while making departure from
the earlier view taken was erroneous.
9. The Tribunal in the impugned order at
paragraph No.11.1 has observed thus:-
"11.1. The aforesaid decision has been
followed by the Hon'ble jurisdictional
High Court in their subsequent decision
in Lalludas Children Trust V/s. C.I.T.,
251 ITR 50(Guj). Similar view has been
taken in the other decisions relied upon
on behalf of the assessee as also in
several cases including in Arihant
Builders Developers & Investors (P) Ltd.
v. ITAT (2005) 277 ITR 239 (MP), Asstt.
C.I.T. V/s. Gendalal Hazarilal & Co.
(2003) 263 ITR 679 (MP), C.I.T. V/s. Neo
Poly Pack (P) Ltd. (2000) 245 ITR 492
(Delhi), 4. Dhansiram Agarwalla V/s.
C.I.T. (1996) 217 ITR 4 (Gauhati).
C.I.T. V/s. Shiv Sagar Estate (2002) 257
ITR 59 (SC). Union of India V/s. Satish
Pannalal Shah (2001) 249 ITR 221 (SC).
In the case of CWT V/s. M.K. Gupta
(1990) 185 ITR 393 (Delhi). Since in the
case under consideration, the AO himself
has allowed the claim in the AY 1993-94,
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creating the expenditure revenue in
nature while no change of facts and
circumstances have been pointed out on
behalf of the Revenue in the years under
consideration, we are of the opinion
that the AO is not justified in
departing from his previous decision in
the AY 1993-94, in the absence of
material circumstances or reasons for
such departure. Therefore, ground no.4
in the appeal for the AY 1999-2000 &
ground no.2 in the AY 2000-01 are
allowed."
10. If the observations are further
considered in light of the abovereferred
decision of the Apex Court in case of
Excel Industries Ltd. (supra), we do not
find that the approach on the part of
the department to take up a different
stand in absence of any material or
valid reason could be said as justified.
The consistency expected on the part of
the Revenue in taxation matter is not
unknown but rather is expected so as to
make the Assessee aware about the
taxable liability. We do not mean to say
that if the legal position is changed or
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there is cogent material available, the
Revenue cannot take a different stand or
make a valid departure but at the same
time, in absence of any such
circumstances, namely, any material
leading to different conclusion or
change in legal position, the
consistency on the part of the Revenue
should be adhered to.
11. The Tribunal has taken the same view
on the part of the consistency of the
department. Hence, we find that the same
cannot be faulted with.
12. The attempt to contend that life of
membrane would be spread over from 3 to
5 years or that the amount involved for
replacement of membrane is huge and,
therefore, the departure on the part of
the Revenue could be said as justified,
in our view, cannot be countenance for
two reasons. One is that the amount
involved would not make difference for
chargability of the tax but the nature
of expenditure would be relevant for the
chargability of tax. It hardly matters
whether the amount is more or less.
Further, on the aspect of life of the
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membrane, nothing is referred to by the
A.O. nor by C.I.T. (Appeals) that
earlier, such aspect, namely, life of
the membrane spread over from 3 to 5
years was not considered or it had
missed or otherwise."
7. It is also pointed out that the Hon'ble Apex
Court has dismissed the SLP (C) No. 8554 of 2016
arising out of the aforesaid decision in case of
Commissioner of Income Tax I v. Gujarat Alkalies
and Chemicals Ltd.(Supra) on 17.5.2023.
8. In view of the above decisions, the question
is answered in favour of the assessee and against
the revenue.
The appeals are, accordingly, dismissed.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
SAJ GEORGE
