COMMISSIONER OF INCOME TAXversusM/S JINDAL STEEL & POWER LIMITED THROUGH ITS MANAGING DIRECTOR

                [2023] 16 S.C.R. 484 : 2023 INSC 1053



                           CASE DETAILS

                COMMISSIONER OF INCOME TAX
                                    v.
    M/S JINDAL STEEL & POWER LIMITED THROUGH ITS
                 MANAGING DIRECTOR
                    (Civil Appeal No.13771 of 2015)
                         DECEMBER 06, 2023
        [B. V. NAGARATHNA AND UJJAL BHUYAN, JJ.]
                             HEADNOTES
      Issue for consideration: All the appeals are by the revenue assailing
orders of various high courts dismissing its appeals filed u/s. 260A of the
Income Tax Act, 1961 – The core and common issue raised in all the appeals
is the recomputation of deduction u/s. 80 IA of the Income Tax Act, 1961
by the assessing officer which was set aside by the Income Tax Appellate
Tribunal and upheld by the High Courts by accepting the contention of the
assessee.
      Income Tax Act, 1961 – s.80-IA – The assessing officer accepted
the claim of the assessee for deduction u/s. 80-IA of the Income Tax
Act, 1961, 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 u/s.
80-IA of the Act – Propriety:
    Held: In the instant case, since electricity from the State Electricity
Board to the industrial units of the assessee was inadequate, the assessee
                                   484
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had set up captive power plants to supply electricity to its industrial units
– For disposal of the surplus electricity, the assessee could not supply the
same to any third-party consumer – Therefore, in terms of the provisions
of s.43A of the Electricity (Supply) Act, 1948 the assessee had entered
into an agreement with the State Electricity Board as per which, the
assessee had supplied the surplus electricity to the State Electricity Board
at the rate of Rs. 2.32 per unit determined as per the agreement – Thus,
for the assessment year under consideration, the assessee was paid at the
rate of Rs. 2.32 per unit for the surplus electricity supplied to the State
Electricity Board – It may also be mentioned that the State Electricity
Board had supplied power (electricity) to the industrial consumers at
the rate of Rs. 3.72 per unit – The price for supply of electricity by the
assesse to the State Electricity Board was fixed at Rs.2.32 per unit as per
contract and there was no elbow space for negotiation – Market value
of the power supplied by the assessee to its industrial units should be
computed by considering the rate at which the State Electricity Board
supplied power to the consumers in the open market and not comparing
it with the rate of power when sold to a supplier i.e., sold by the assessee
to the State Electricity Board as this was not the rate at which an
industrial consumer could have purchased power in the open market –
Assessee had also computed the 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 – Thus, this Court is of the view that the market value
of the power supplied by the State Electricity Board to the industrial
consumers should be construed to be the market value of electricity – It
should not be compared with the rate of power sold to or supplied to the
State Electricity Board since the rate of power to a supplier cannot be
the market rate of power sold to a consumer in the open market – The
State Electricity Board’s rate when it supplies power to the consumers
have to be taken as the market value for computing the deduction u/s.
80-IA of the Act – Issue answered in favour of the assesse and against
the revenue. [Paras 17, 20, 28, 30]
     Words and Phrases – ‘Market Value’ – Discussed.
     Income Tax Act, 1961 – Income Tax Rules, 1962 – r.5 - Whether the
Tribunal could ignore compliance to the statutory provisions relating
486         SUPREME COURT REPORTS                      [2023] 16 S.C.R.


to exercise of option to adopt Written Down Value (WDV) method
in place of the straight line method while computing depreciation
on the assets used for power generation:
      Held: The assessing officer held that since the assessee did not
exercise the option of adopting WDV method, therefore, in view
of the provision of Rule 5 of the Rules’, it would be entitled to
depreciation on the straight line method – As against the depreciation
claim of the assessee of Rs.2,85,37,634.00, the assessing officer
allowed depreciation to the extent of Rs.1,59,10,047.00 –However,
the Tribunal and the High Court held it in favour of assessee – In
the instant case, there is no dispute that the assessee had claimed
depreciation in accordance with sub-rule (1) read with Appendix-I
before the due date of furnishing the return of income – Applying
the principle laid down in CIT vs. GR Govindarajulu [2015] 9 SCR
289 to the facts of the present case, this Court is in agreement with
the view expressed by the Tribunal and the High Court that there is
no requirement under the second proviso to sub-rule (1A) of Rule
5 of the Rules that any particular mode of computing the claim of
depreciation has to be opted for before the due date of filing of the
return – All that is required is that the assessee has to opt before
filing of the return or at the time of filing the return that it seeks to
avail the depreciation provided in Section 32 (1) under sub-rule (1) of
Rule 5 read with Appendix-I instead of the depreciation specified in
Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee
has done. [Para 45]
       LIST OF CITATIONS AND OTHER REFERENCES
    M/s Printers House Private Limited Vs. Mst. Saiyadan [1993]
3 Suppl. SCR 296: (1994) 2 SCC 133:; Commissioner of Income
Tax Vs. I.T.C. Limited (2015) 64 Taxman.com 214; CIT Vs. GR
Govindarajulu, (2016) 16 SCC 335: [2015] 9 SCR 289; ACIT Vs. M/s
Godawari Power and Ispat Pvt. Ltd. Civil Appeal No. 9917/2017;
ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd. Civil Appeal No.
8983/2017 – referred to.
      Black Law Dictionary 10 th edition – referred to.
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 487
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      OTHER CASE DETAILS INCLUDING IMPUGNED
             ORDER AND APPEARANCES
     CIVIL APPELLATE JURISDICTION : Civil Appeal No.13771 of 2015.
     From the Judgment and Order dated 02.09.2008 of the High Court of
Punjab & Haryana at Chandigarh in ITA No.53 of 2008]
     With
     Civil Appeal Nos.13773 of 2015, 5524 of 2017, 7425 of 2019, 7977
of 2023, 13775, 13774 of 2015, 9920, 6986 of 2016, 9781-9782, 9917 Of
2017, 941 Of 2020, 7976, 7978 Of 2023, 8983 Of 2017 And 1805 Of 2020
     Appearances:
      Balbir Singh, A.S.G., Gopal Jain, Arijit Prasad, S. Ganesh, Percy
Pardiwala, Sr. Advs., Naveen Kumar, Ms. Stuti Bisht, Nitesh Bhandari,
Shourajeet Chakravarty, Prabhat Kumar Rai, Ms. Aprajita Bhardwaj, Ms.
Kavita Jha, Anant Mann, Raj Bahadur Yadav, Mrs. Alka Agarawal, Mrs.
Gargi Khanna, Rupesh Kumar, H R Rao, V C Bharathi, Prahlad Singh,
Debojyoti Mukhopadhyay, Mrs. Swayam Prabha Das, Ms. Ankita A. Singh,
Deepak Kumar, Mrs. Anil Katiyar, Rohit Jain, Aniket D. Agrawal, Venkatesh,
Ashutosh K. Srivastava, Nihal Bhardwaj, Amar Dave, S. Ravi Shankar, Mrs.
Yamunah Nachiar, Ms. Meghna Mukherjee, M/s. Khaitan & Co., Mrs. Vanita
Bhargava, Ajay Bhargava, Shantanu Chaturvedi, D Nageswar Rao, Ambhoj
Kumar Sinha, Akshay Uppal, V. Lakshmi Kumaran, S. Vasu Devan, Tanmay
Bhatnagar, Shivam Gupta, Ms. Charanya Lakshmikumaran, Nageswar
Rao, Pukhrambam Ramesh Kumar, Akshay Uppal, Karun Sharma, K. R.
Sasiprabhu, Amit Mathur, Vishnu Sharma A.S., Punit Dutt Tyagi, Advs. for
the appearing parties.
      JUDGMENT / ORDER OF THE SUPREME COURT

                             JUDGMENT

     UJJAL BHUYAN, J.
    There are three special leave petitions in this batch, viz., SLP (C)
No.15564 of 2020, SLP (C) No.5871 of 2020 and SLP (C) No.792 of 2021.
Leave in these special leave petitions are therefore granted.
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     2. Core issue raised in this batch of civil appeals being identical, those
were heard together and are being disposed of by this common judgment
and order.
     3. We have heard Mr. Rupesh Kumar, learned counsel for the revenue
representing the appellants; Mr. S. Ganesh and Mr. Percy Pardiwala, learned
senior counsel as well as Mr. D. Nageswar Rao, learned counsel for the
respondent assessee.
      4. All the appeals are by the revenue assailing orders of various high
courts dismissing its appeals filed 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 officer 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 officer was interfered with by the Income
Tax Appellate Tribunal and affirmed by the High Courts without appreciating
the fact that the profits of eligible business of captive power generation plants
of the assessees were inflated 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 first 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 officer
which was affirmed by the first appellate authority i.e., Commissioner of
Income Tax (Appeals). On appeal by the assessee, the Income Tax Appellate
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 489
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


Tribunal set aside the order of the Commissioner of Income Tax (Appeals)
which decision has been affirmed by the High Court. The third additional
issue relates to what is called carbon credit – whether it is a capital or revenue
receipt. This additional issue has been raised in Civil Appeal No.9917 of
2017 (Assistant Commissioner of Income Tax Vs. M/s Godawari Power
and Ispat Pvt. Ltd.) and also in Civil Appeal No.8983 of 2017 (Assistant
Commissioner of Income Tax Chhattisgarh Vs. M/s Godawari Power and
Ispat Pvt. Ltd.)
    RECOMPUTATION OF DEDUCTION UNDER SECTION 80 IA
OF THE INCOME TAX ACT, 1961.
     5. At the outset let us deal with the core issue i.e., recomputation of
deduction claimed by the assessee under Section 80 IA of the Income Tax
Act, 1961 (briefly ‘the Act’ hereinafter).
      6. Though this issue has been raised and urged in all the civil appeals,
Civil Appeal No.13771 of 2015 was argued and taken up as the lead case.
Since the issue raised is common to all the appeals, it is not necessary to
refer to the factual details of each of the appeals separately though the price
per unit of electricity supplied by the assessee to the power distributing
companies/ State Electricity Boards and to their captive plants are different.
However, that would not have any material bearing on the analysis as the
question of law is identical in all the appeals. Since we have taken Civil
Appeal No.13771 of 2015 as the lead appeal insofar the core issue is
concerned, all reference for the sake of convenience would be to the facts
of this appeal.
      7. In this appeal, the assessee is M/s Jindal Steel and Power Ltd,
Hisar. The assessee is a public limited company engaged in the business
of generation of electricity, manufacture of sponge iron, M.S. Ingots etc.
Assessment year under consideration is 2001-2002. Since electricity supplied
by the State Electricity Board was inadequate to meet the requirements
of its industrial units, the assessee set up captive power generating units
to supply electricity to its industrial units. Surplus power was supplied
by the assessee to the State Electricity Board. The assessee which is the
respondent in this appeal filed 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
490          SUPREME COURT REPORTS                          [2023] 16 S.C.R.


Act. Since there was substantial book profit of the assessee, net book profit
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 filed by the assessee was processed by the
assessing officer 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 clarification which were complied with by the assessee. During the
assessment proceedings, the issue relating to deduction under Section 80
IA of the Act came up for consideration. Assessee had claimed deduction
under the said provision of a sum amounting to Rs.80,10,38,505.00. The
deduction claimed under Section 80 IA related to profits of the power
generating units of the assessee. It was noticed that the assessee had shown
a substantial amount of profit in its power generating units. The power
generated was used for its own consumption and also supplied to the State
Electricity Board in the State of Chhattisgarh and prior to the creation of
the State of Chhattisgarh, to the State Electricity Board of the State of
Madhya Pradesh. The electricity generated by the assessee in its captive
power plants at Raigarh (Chhattisgarh) was primarily used by it for its
own consumption in its manufacturing units; while the additional/surplus
electricity was supplied to the State Electricity Board. Assessee had entered
into an agreement on 15.07.1999 with the State Electricity Board as per
which assessee had supplied the surplus electricity to the State Electricity
Board at the rate of Rs.2.32 per unit. Thus, for the assessment year under
consideration, the assessee was paid at the rate of Rs.2.32 per unit for the
surplus electricity supplied to the State Electricity Board.
      7.2. It was further noticed by the assessing officer that the assessee had
supplied power (electricity) to its industrial units for captive consumption at
the rate of Rs.3.72 per unit. Assessing officer took the view that the assessee
had declared inflated profits 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 officer, there was no justification to claim electricity charge
at the rate of Rs.3.72 per unit for supply to its own industrial units when
the assessee was supplying power to the State Electricity Board at the rate
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 491
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


of Rs.2.32 per unit. Assessing officer observed that the profit calculated by
the assessee (power generating units) at the rate of Rs.3.72 per unit was
not the real profit; the price per unit was inflated so that profit attributable
to the power generating units could qualify for deduction from the taxable
income under the Act. Thus, it was held to be a colourable device to reduce
taxable income. On such an assumption, the assessee was asked to explain
its claim of deduction under Section 80 IA of the Act which the assessee
complied with.
      7.3. Response of the assessee was considered by the assessing officer.
By the assessment order dated 26.03.2004 passed under Section 143 (3) of
the Act, the assessing officer held that Rs.3.72 claimed by the assessee as
the rate at which power was supplied by it to its own industrial units was
not the true market value.According to the assessing officer, 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 profit of the power generating units, the
selling rate of power per unit was taken at Rs.2.32. On that basis, assessing
officer 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 officer worked out the excess deduction claimed by the assessee
under Section 80 IA at Rs.31,98,66,505.00. Therefore, the assessing officer
restricted the claim of deduction of the assessee under Section 80 IA at
Rs.48,11,72,000.00 (Rs.80,10,38,505.00 – Rs.31,98,66,505.00).
     8. Aggrieved by the aforesaid reduction in the claim of deduction
under Section 80 IA of the Act, the assessee preferred appeal before the
first appellate authority i.e. Commissioner of Income Tax (Appeals),
Rohtak (referred to hereinafter as ‘CIT (A)’).By the appellate order dated
16.05.2005, CIT (A) held that the action of the assessing officer 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 justified and hence confirmed 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 (briefly
‘the Tribunal’ hereinafter) which was registered as ITA No.3485/Delhi/05
492           SUPREME COURT REPORTS                         [2023] 16 S.C.R.


for the assessment year 2001-02. We may also mention that revenue had
filed a cross appeal arising out of the same order before the Tribunal but on
a different 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 affirming the reduction of
deduction under Section 80 IA of the Act made by the assessing officer 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 profits 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 difference
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 officer to allow
relief to the assessee under Section 80 IA as claimed.
      10. Aggrieved by the aforesaid finding rendered by the Tribunal,revenue
preferred appeal before the High Court of Punjab and Haryana under Section
260 A of the Act which was registered as Income Tax Appeal No.53 of 2008.
The High Court in its order dated 02.09.2008 disposed of the appeal by
following its order dated 02.09.2008 passed in the connected ITA No.544
of 2006 (Commissioner of Income Tax, Hisar Vs. M/s Jindal Steel and
Power Ltd). That was an appeal by the revenue on the same issue against
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 493
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


the order dated 31.3.2006 passed by the Tribunal in the case of the assessee
itself i.e. ITA No.3663/Del/2005 for the assessment year 2000-2001. Insofar
allowance of deduction under Section 80 IA of the Act is concerned, the
High Court answered the question against the revenue as it was submitted
at the bar that the issue already stood covered by the previous decision
against the revenue.
      11. Respondent assessee has filed counter affidavit. It has contended
that the only issue to be considered is whether deduction claimed by the
assessee under Section 80 IA of the Act should be computed by taking
Rs. 2.32 per unit being the price at which electricity was sold to the State
Electricity Board as the market value of the electricity or the price of Rs.
3.72 per unit being charged by the State Electricity Board for supply of
electricity to the industrial consumers including the assessee.
      11.1. Assessee had claimed deduction under Section 80 IA in
respect of its two undertakings engaged in generation of power at Raigarh
(Chhattisgarh). Power produced in the captive power plants was primarily for
use by the respondent assessee in its steel plants. Availability of electricity
from the state grid was not adequate to meet the requirements of the assessee.
In order to ensure uninterrupted power supply which was crucial for attaining
operational efficiency, 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 fixed for procurement
of surplus power from the captive power plants in the State by the State
Electricity Board.
     11.3. Generation and sale of power was a monopoly of the State.
Approval was granted for setting up of captive power plants by the
manufacturing units for the purpose of meeting their power requirement
subject to the terms and conditions imposed. The surplus power, if any,
could be sold under a power purchase agreement entered into between the
captive power producer and the State Electricity Board.
494           SUPREME COURT REPORTS                        [2023] 16 S.C.R.


      11.4. In terms of the Electricity (Supply) Act, 1948 read with the
provisions of the power purchase agreement entered into between the
assessee and the State Electricity Board, the surplus power that was not
captively consumed could not be sold in the open market to any third party
consumer except with the prior permission of the State Electricity Board,
that too, subject to technical feasibility and on the terms and conditions
imposed by the State Electricity Board. In view of the restrictions imposed
by the State Electricity Board, it was not economically viable for any third
party consumer to purchase power generated by the captive power plants
owned by the assessee. The same necessarily had to be sold to the State
Electricity Board.
      11.5. It is stated that the assessee had been maintaining separate
accounts for both the units. Supply of electricity from the captive power
plants to its manufacturing units was made and recorded at the price at which
electricity was sold by the State Electricity Board to the manufacturing
units owned by the respondent assessee and to other industrial consumers,
being the fair market value of electricity in terms of Section 80 IA (8) of
the Act. According to the respondent, the determination of profits eligible
for computation of deduction under Section 80 IA was supported by the
following:
      (a)   Computation of profits under Section 80 IA with details of captive
            revenue of the power undertaking;
      (b)   Copy of unitwise profitability of the Raigarh division;
      (c)   Power purchase agreement entered into with the State Electricity
            Board; and
      (d)   Copies of electricity bills received from the State Electricity
            Board for electricity supply to the industrial consumers.
      11.6. Respondent has stated that since part of the electricity produced
was captively consumed by the manufacturing units owned by it, the rate
of transfer of power was recorded at the market rate i.e. the rate at which
electricity was supplied by the State Electricity Board to the industrial
consumers i.e. Rs. 3.72 per unit. The transfer was not recorded at the rate
at which the surplus electricity was sold by the respondent assessee to the
State Electricity Board i.e. Rs. 2.32 per unit since that was the price as per
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 495
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the agreement which could not be treated as the market value of power
in as much as the State Electricity Board was the only buyer of the
surplus power.
     11.7. The above stand of the assessee was not accepted by the
assessing officer who held that the inter unit transfer of power by the
assessee from its power plants to its industrial units should have been
Rs. 2.32 per unit being the price at which power was sold to the State
Electricity Board and not Rs. 3.72 being the price charged by the State
Electricity Board. Assessing officer therefore recomputed the deduction
claimed by the assessee under Section 80 IA by treating Rs. 2.32 as
the market value of electricity per unit and consequently reduced the
deduction under Section 80 IA.
     11.8. After referring to the provisions of Section 80 IA of the Act,
more particularly to sub-section (5) and sub-section (8) thereof, it is
contended by the respondent that the price at which goods are transferred
from one business of the assessee to another business should be at arm’s
length i.e. the same should correspond to the market value of such
goods for computing the profits of eligible business. In this connection,
reference has been made to the expression “market value” as has been
defined in the explanation below the proviso to sub section (8) of Section
80 IA. It is stated that the expression “market value” would mean the
price that such goods would ordinarily fetch in the open market. It
is submitted that sub-section (8) of Section 80 IA is pari-materia to
sub-section (6B) of Section 80J of the Act. After referring to Circular
No.169 dated 23.06.1975 of the Central Board of Direct Taxes (CBDT),
respondent assessee has contended that sub-section (8) of Section 80
IA seeks to provide that the profits of the eligible business should be
computed by reckoning inter unit transfer of goods and services at the
price such goods would ordinarily fetch on sale in the open market.
      11.9. Thereafter, respondent assessee has referred to the meaning
of the expression “market price” and also various case laws on such
meaning. Assessee has contended that in order to determine the market
price of any goods or services, open market conditions must exist. In other
words, there must be willingness on the part of the buyer to purchase
and the seller to sell the goods. In such a situation, the price determined
496          SUPREME COURT REPORTS                          [2023] 16 S.C.R.


by the market forces of demand and supply is the market price of such
goods. However, in case of any transaction of purchase and sale taking
place on account of certain obligations on the part of either side affecting
the determination of the price of the goods, such a price cannot be said to
be the market price.
      11.10. Elaborating further, respondent assessee has stated that under
the Electricity (Supply) Act, 1948, generation and distribution of power is
the monopoly of the State. As per the power purchase agreement, captive
producers of power were allowed to sell the same in the open market subject
to stringent conditions making it unviable for third party consumers to
purchase surplus power from captive power plants. In the absence of any
willing purchaser, the surplus power i.e. power in excess of the requirement
of the manufacturing units had to be fed into the state grid which is governed
by the agreement entered into with the State Electricity Board. It is contended
that the same virtually amounted to a forced sale as the assessee was not in
a position to bargain for the rate at which surplus power should have been
otherwise sold. On the contrary, assessee was obliged to sell the surplus
power to the State Electricity Board at the price mandated by the Board.
Adverting to the power purchase agreement, it is stated that the power
generated by the captive power plants was required to be consumed by
its manufacturing units at Raigarh. The agreement stipulated that assessee
could not sell surplus power generated by it to other consumers except on
the terms and conditions stipulated by the Board thereby making third party
sale of surplus power unviable. In these circumstances, the surplus electricity
generated by the captive power plants had to be fed into the transmission
system of the grid.
      11.11. The rate of purchase of power by the State Electricity Board
from the assessee was determined and dictated by the power purchase
agreement. In case such rate was not accepted by the assessee, the power
purchase agreement was not forthcoming. The power generated by the
captive power plants, surplus to the requirement of the manufacturing units
of the assessee, would in such circumstances not realise any value. It is thus
contended that the said sale rate i.e. the rate at which the surplus power was
supplied by the assessee to the State Electricity Board was not the rate at
which the power was available in the open market. As a matter of fact, this
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 497
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


was also not the rate at which electricity was sold by the State Electricity
Board to the industrial consumers including the assessee.
      11.12. Electricity was supplied by the State Electricity Board to the
assessee and similar other industrial consumers at the rate of Rs. 3.72 per
unit. As against this, the State Electricity Board fixed the rate payable to
the assessee for the surplus power generated and fed into the state grid at
Rs. 2.32 per unit for the financial year 2000-2001 corresponding to the
assessment year 2001-2002.
      11.13. In the above context, respondent assessee has asserted that the
rate fixed 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 fixed by the agreement. It is mentioned that during the
period under consideration, there was monopoly of State Electricity Board
as far as power supply was concerned and there was no open market for
sale and purchase of electricity. The rate prescribed by the State Electricity
Board was the price imposed upon the assessee as a condition precedent
to sell excess power to the only purchaser i.e. State Electricity Board. It is
the price at which assessee had to supply electricity to the State Electricity
Board under compulsion. Such a price cannot be regarded as determined by
the market forces which is the sine qua non for determining market value.
      11.14. Respondent has also mentioned that for the assessment year
2000-2001, the assessing officer had sought to disturb the book profits
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 officer in
seeking to disturb the computation of book profit 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 affirming 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 justified in reversing
the finding of CIT (A) who had affirmed the decision of the assessing officer.
Reasonings given by the Tribunal for discarding the rate of Rs. 2.32 as the
498           SUPREME COURT REPORTS                         [2023] 16 S.C.R.


market value of the surplus electricity per unit supplied by the assessee to the
State Electricity Board and in accepting the rate adopted by the assessee i.e.
Rs. 3.72 at which rate the State Electricity Board was supplying electricity
to the industrial consumers including the respondent assessee are correct
and justified. The High Court had rightly upheld the order of the Tribunal.
No case for interference is made out. Therefore, all the civil appeals filed
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 inflated its profits 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 profits 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 officer was fully
justified in holding that Rs. 3.72 per unit shown by the assessee as the rate at
which it was supplying electricity to its captive industrial units, was not the
true market value. Refuting the contention of the assessee, it is contended that
the rate of Rs. 3.72 charged by the State Electricity Board from its consumers
could not be treated as the true market value because the State Electricity
Board had to take into account various factors while determining the rate of
electricity. This included distribution losses, expenses on infrastructure for
distribution of power, subsidy allowed to some categories of consumers like
farmers, other administrative and management expenses including expenses
on collection of bills etc.
      12.3. He further submits that supply of surplus electricity by the
assessee to the State Electricity Board was governed by an agreement entered
into between the assessee and the State Electricity Board. This agreement
was voluntarily entered into by the two parties i.e. the assessee and the State
Electricity Board. It was a voluntarily agreement without any element of
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 499
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


compulsion or force. Nobody had compelled the assessee to agree to the price
fixed 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
officer was justified 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 definition of “market value” as appearing in sub-section
(8) of Section 80 IA has to be given a reasonable meaning. He has referred
to Section 80 IA of the Act as it stood at the relevant point of time, more
particularly to sub-section (8) thereof. He also lays emphasis on the proviso
to sub-section (8) and the explanation below the proviso. Thereafter, learned
counsel has referred to the dictionary meaning of the expression “market
value” and how the same is to be determined.
      12.5. Adverting to the provisions of the Electricity (Supply) Act, 1948,
learned counsel submits that under Section 43 thereof, the State Electricity
Board may enter into agreements with any person producing electricity
within the state for the purchase of the same by the said board of any surplus
electricity which that person may be able to dispose of, on such terms as may
be agreed upon. Such a provision, he submits, finds manifestation in Section
43A whereby and whereunder a generating company has been given the
liberty to enter into a contract for the sale of electricity generated by it with
the State Electricity Board. He submits that under the successor Electricity
Act, 2003, there is also provision for captive generation of electricity.
      12.6. Learned counsel has referred to a decision of this Court in M/s
Printers House Private Limited Vs. Mst. Saiyadan, (1994) 2 SCC 133,
to buttress the point that market value of a thing has to be determined by
reference to the price which a willing vendor might reasonably expect to
obtain from a willing purchaser. Though that was a case relating to land
acquisition, he submits that the principle laid down therein for computation
of market value would hold good for the present case as well. He submits
that market value or market price is relatable to the price at which the goods
are available in the open market where prices are determined by the laws
of supply and demand.
      12.7. Learned counsel has also referred to Section 80A more
particularly to sub-section (6) thereof which he submits is pari-materia to
500          SUPREME COURT REPORTS                         [2023] 16 S.C.R.


the provision of sub-section (8) of Section 80 IA including the explanation
thereto. He submits that the expression “market value” has been defined in
relation to any goods or services sold or supplied to mean the price that such
goods or services would fetch if those were sold by the undertaking or unit
or enterprise or eligible business in the open market, subject to statutory or
regulatory restrictions. Applying the above provision to the present case,
he submits that the price at which surplus electricity was supplied by the
assessee to the State Electricity Board was subject to the power purchase
agreement which was a statutory arrangement. Therefore, the price paid by
the State Electricity Board to the assessee for supply of excess electricity
would be the market value which would mean that Rs. 2.32 per unit would
be the market value of electricity supplied by the assessee to its captive
industrial units. 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 clarifies that the explanation to sub-section (8) of Section 80 IA has
been amended retrospectively from 01.04.2003 onwards to the effect 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 supplied by its
captive generating plants to its own industrial units.
      12.8. Learned counsel has placed reliance on a decision of the
Calcutta High Court in Commissioner of Income Tax Vs. I.T.C. Limited,
(2015) 64 Taxman.com 214, and submits therefrom that the assessee’s
generating units cannot claim any benefit under Section 80 IA of the Act
computed on the basis of rates chargeable by the distributable licensee
from the consumer. The benefit can only be claimed on the basis of rates
fixed by the tariff regulatory commission for sale of electricity by the
generating companies. According to him, in so far the present case is
concerned, instead of the tariff regulatory commission, it would be the
rate fixed by the power purchase agreement.
    12.9. He, therefore, submits that the order passed by the High Court
affirming the decision of the Tribunal is liable to be set aside and the order
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 501
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


passed by the assessing officer as affirmed 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 filed by the revenue on
the issue of deduction under Section 80 IA of the Act. It is submitted
that revenue is not justified 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 reduced the profits of
the assessee and consequently the quantum of deduction under Section
80 IA of the Act. Tribunal was justified in accepting the contention of
the assessee that the rate of electricity at which electricity was supplied
by the State Electricity Board to the industrial consumers 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 profits and gains from industrial undertakings
or enterprises engaged in infrastructure development etc. Assessee 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 State Electricity
Board paid Rs. 2.32 per unit to the assessee. Revenue had questioned
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
502          SUPREME COURT REPORTS                          [2023] 16 S.C.R.


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 assessee
fulfils 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, profits 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 officer to
compute the profits and gains in the manner provided. If the assessing
officer finds difficulty while computing in such manner, he is empowered
to compute profits and gains on such reasonable basis as he may deem fit.
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 assessee supplies
electricity to the industrial units. Had the industrial units not obtained
power from the captive power plants of the assessee, then it would have
had to purchase power from the State Electricity Board. State 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 justified 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
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 503
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


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 regime prevalent at the
relevant point of time, the State Electricity Board had virtual monopoly
in the matter of generation and distribution of electricity. Though there
was provision for generation of electricity for self-consumption, the
power purchase agreement entered into between the assessee and the
State Electricity Board is traceable to such statutory framework. Such
a contract can be termed as a captive contract as the assessee had no
other option but to accept the terms and conditions including the rate
offered 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 defines 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 consumers including
the assessee. Elaborating further, he submits that the value of transaction
of electricity between the two units of the assessee should be at arm’s
length which would mean that the price in such a transaction should be
such as between unrelated persons in an uncontrolled condition.
      13.6 After referring to relevant provisions of the Act including
Section 80J and Section 80A of the Act and the related Circular No. 169
of the CBDT, learned counsel has referred to the meaning of “market
value” as per various dictionaries. Reliance has been placed on several
judicial pronouncements to highlight the significance of the expression
“market value”. Finally, learned counsel for the assessee submits that
the view taken by the revenue is erroneous and, therefore, the Tribunal
and the High Court were justified in deciding the issue in favour of the
respondent assessee. The civil appeals being devoid of any merit are
thus liable to be dismissed.
504          SUPREME COURT REPORTS                         [2023] 16 S.C.R.


     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 profits and gains from industrial
undertakings or enterprises engaged in infrastructure development etc. Let
us first take up sub-section (1), which reads as under:
      (1) Where the gross total income of an assessee includes any profits
      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 section, be
      allowed, in computing the total income of the assessee, a deduction
      from such profits and gains of an amount equal to hundred per cent of
      profits and gains derived from such business for the first five assessment
      years commencing at any time during the periods as specified in sub-
      section (2) and thereafter, twenty-five per cent of the profits and gains
      for further five assessment years :
      Provided that where the assessee is a company, the provisions of this
      sub-section shall have effect as if for the words "twenty-five 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 profits and gains derived from any
business of an industrial undertaking or an enterprise which are referred
to in sub-section (4), referred to as eligible business, this section provides
that a deduction shall be allowed in computing the total income. Such
deduction shall be allowed from the profits and gains of an amount which
is equivalent to hundred percent of the profits and gains derived from such
business for the first five assessment years as specified in sub-section (2)
and thereafter twenty five percent of the profits and gains for a further period
of five assessment years. As per the proviso, if the assessee is a company,
then the benefit for the further five years would be thirty percent instead of
twenty five 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 specified in
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 505
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


sub-section (1) may be claimed by the assessee at its option for any ten
consecutive assessment years out of fifteen 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 benefit can be availed of by the assessee for twenty years in
place of fifteen years.
     15.3. Sub-section (4) of Section 80-IA has some relevance to the
present proceeding. Therefore, the same is extracted as under:
     (4) This section applies to—
     (i) any enterprise carrying on the business of (i) developing, (ii)
     maintaining and operating or (iii) developing, maintaining and
     operating any infrastructure facility which fulfils all the following
     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 infrastructure
           facility subject to the condition that such infrastructure
           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 maintaining the
           infrastructure facility on or after the 1st day of April, 1995:
     Provided that where an infrastructure facility is transferred on or
     after the 1st day of April, 1999 by an enterprise which developed
     such infrastructure facility (hereafter referred to in this section as
     the transferor enterprise) to another enterprise (hereafter in this
506           SUPREME COURT REPORTS                         [2023] 16 S.C.R.


      section referred to as the transferee enterprise) for the purpose of
      operating and maintaining the infrastructure facility on its behalf
      in accordance with the agreement with the Central Government,
      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 deduction from
      profi ts and gains would be available to such transferee enterprise
      for the unexpired period during which the transferor enterprise
      would have been entitled to the deduction, if the transfer 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 notified by the Board in this behalf in the Official 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 providing
           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 notified by the Central
            Government in accordance with the scheme framed and notified
            by that Government for the period beginning on the 1st day of
            April, 1997 and ending on the 31st day of March, 2002 :
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 507
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


     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 undertaking
     (hereafter in this section referred to as the transferee undertaking) the
     deduction under subsection (1), shall be allowed to such transferee
     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 generation
            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 of 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 industrial
     undertaking under sub-clause (b) shall be allowed only in relation
     to the profits derived from laying of such network of new 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 1st day of April 1993 and ending
on the 31st 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 1st day of April, 1999 and ending on the 31st day
of March, 2003. Proviso below clause (iv) says that such deduction shall be
allowed only in relation to the profits 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:
508           SUPREME COURT REPORTS                          [2023] 16 S.C.R.


      (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 by
      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 of
      such goods as on the date of the transfer, then, for the purposes of
      the deduction under this section, the profits 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 Officer, the
      computation of the profits and gains of the eligible business in the
      manner hereinbefore specified presents exceptional difficulties,
      the Assessing Officer may compute such profits and gains on such
      reasonable basis as he may deem fit.
      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 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 by the assessee are transferred to the
eligible business but the consideration for such transfer as recorded in
the accounts of the eligible business does not correspond to the market
value of such goods as on the date of the transfer, then for the purposes
of deduction under Section 80-IA, the profits 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
officer finds exceptional difficulties in computing the profits and gains
of the eligible business in the manner specified in sub-section (8), then
in such a case, the assessing officer may compute such profits and gains
on such reasonable basis as he may deem fit. The explanation below
the proviso defines “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 open market.
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 509
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


     15.7. Thus,Section 80IA (8) provides that where goods or services
held for the purposes of eligible business are transferred to any other
business carried on by the assessee, the price charged 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 services transferred
is overstated in comparison to the market value, the assessing officer
has the competence to recompute the profit by substituting the market
value of such goods. The explanation below sub-section (8) defines the
expression “market value” to mean the price that such goods or services
would ordinarily fetch in the open market. That takes us to the expression
“open market” which is however not defined.
     15.8. Since the expression “open market” is not defined, we will
analyze the said expression in conjunction with the expression “market
value”, though at a subsequent stage of the judgment.
      16. We may also advert to the relevant provisions of the Electricity
(Supply) Act, 1948 (briefl y “the 1948 Act” hereinafter), which was
the enactment governing the field at the relevant point 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 Electricity Board may
enter into arrangements with any person producing electricity within
the State for purchase by the State Electricity Board 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) provides is that if any
person who produces electricity has surplus electricity, he may dispose
of such surplus electricity by entering into an arrangement 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 says that a generating
company may enter into a contract for the sale of electricity 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.
510           SUPREME COURT REPORTS                          [2023] 16 S.C.R.


      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, there 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 of
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 assessment year
under consideration, the assessee was paid at the rate of Rs. 2.32 per unit
for the surplus electricity supplied to the State Electricity Board. 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 profits and gains of the
eligible business, which is necessary for quantifying the deduction 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 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
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 511
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


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.
      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 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 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.
      22. Reverting back to sub-section (8) of Section 80-IA, it is seen that
if the assessing officer 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 profits and gains of such eligible business shall be computed
by adopting arm’s length pricing. In other words, if the assessing officer
512          SUPREME COURT REPORTS                          [2023] 16 S.C.R.


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 defines market value in
relation to any goods to mean the price that such goods would ordinarily
fetch on sale in the open market. Thus, as per this definition, 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 defined expression.
     24. Black’s Law Dictionary, 10th Edition, defines the expression “open
market” to mean a market in which any buyer or seller may trade and in
which prices and product availability are determined by free competition. P.
Ramanatha Aiyer’s Advanced Law Lexicon has also defined 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 defined 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 requirements
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
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 513
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


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 had 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 entered
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 fixed at
Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted
price. Further, there was no room or any elbow space for negotiation on
the part of the assessee. Under the statutory regime in place, the assessee
had no other alternative but to sell or supply the surplus electricity to the
State Electricity Board. Being in a dominant position, the State Electricity
Board could fix 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 captive
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 State
Electricity Board at the same rate at which the State Electricity 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 which the
State Electricity Board supplied power to the consumers in the open market
and not comparing it with the rate of power when sold to a supplier i.e.,
sold by the assessee to the State Electricity Board as this was not the rate
at which an industrial consumer could have purchased power in the open
market. 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
514          SUPREME COURT REPORTS                         [2023] 16 S.C.R.


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 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 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 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 be construed to be the market value of electricity. It should
not be compared with the rate of power sold to or supplied to the State
Electricity Board since the rate of power to a supplier cannot be the market
rate of power sold to a consumer in the open market. The State Electricity
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 515
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


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 i.e., 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 CIT Vs. 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 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 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 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
516           SUPREME COURT REPORTS                          [2023] 16 S.C.R.


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
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 definition
of the expression “market value” as defined 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 effect 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 VALUE
METHOD.
      35. We may now take up the first 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 depreciation 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 justified 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 assessment order dated
26.03.2004 passed under Section 143(3) of the Act is that the assessee
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 517
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


had purchased twenty five MV turbines on and around 08.07.1998 for
the purpose of its eligible business. Assessee claimed depreciation on
the said turbines at the rate of 25% on WDV basis. On perusal of the
materials on record, assessing officer 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 assessee would be entitled
to depreciation on straight line method in respect of assets acquired on
or after 01.04.1997 as per the specified percentage in terms of Rule 5
(1A) of the Income Tax Rules, 1962. Assessing officer however noted
that the assessee did not exercise the option of claiming depreciation on
WDV basis. Therefore, it would be entitled to depreciation on straight
line method.
      36.1. After obtaining the clarification of the assessee, assessing officer
held that since the assessee did not exercise the option of adopting WDV
method, therefore, in view of the provision of Rule 5 (1A) of the Income
Tax Rules, 1962 (briefly ‘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 officer
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 officer 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) confirmed the
disallowance of depreciation made by the assessing officer.
      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 affirmed 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.
518          SUPREME COURT REPORTS                          [2023] 16 S.C.R.


      40. Rule 5 provides for the method of calculation of depreciation
allowed under Section 32 (1) of the Act. It says that such depreciation of
any block of assets shall be allowed, subject to provisions of sub-rule (2),
as per the specified percentage mentioned in the second column of the
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 assessee 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 section 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 specified in
      the second column of the Table in Appendix IA of these rules on the
      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 different assessment years shall not exceed the actual cost
      of the said asset:
      Provided further that the undertaking specified in clause (i) of sub-
      section (1) of section 32 of the Act may, instead of the depreciation
      specified 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 final 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 respect of
depreciation of assets acquired on or after the 1st day of April, 1997 shall be
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 519
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


calculated at the percentage specified in the second column of the table in
Appendix-IA to the Rules. As per the first proviso, the aggregate depreciation
of any asset should not exceed the actual cost of that asset. The second
proviso says that the undertaking specified in clause (i) of sub-section (1) of
Section 32 of the Act may instead of the depreciation specified in Appendix-
IA may opt for depreciation under sub-rule (1) read with Appendix-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
clarifies that any such option once exercised shall be final and shall apply
to all the subsequent assessment years.
       41. Before we proceed further, we may briefly 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 first column refers to the
block of assets, such as, tangible assets, including buildings, furniture and
fittings, 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 effect 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 assets
in terms of the second column of the table in Appendix 1, sub-rule (1A)
enables an assessee to seek allowance of depreciation of assets acquired
on or after the 1st day of April, 1997 as per the percentage specified in the
second column of the table in Appendix-1A on actual cost basis. However,
the second proviso to sub-rule (1A) clarifies 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.
520           SUPREME COURT REPORTS                           [2023] 16 S.C.R.


      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
officer as affirmed by the first appellate authority that the assessee should
opt for one of the two methods is not a statutory requirement. Therefore,
the revenue was not justified in reducing the claim of depreciation of the
assessee on the ground that the assessee had not specifically 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 specific mode of exercising such an option. The
only requirement is that the option has to be exercised before filing 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 income from
property held for charitable or religious purposes. This claim of the assessee
was denied by the assessing officer on the ground that no option for this
purpose was exercised by the assessee before filing 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 specific
mode of exercising the option. The only requirement is that the option has
to be exercised before filing of the return. This Court held that if the option
is exercised when the return is filed, 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 filing of the return.
All that is required is that the assessee has to opt before filing of the return or
at the time of filing the return that it seeks to avail the depreciation provided
in Section 32 (1) under sub-rule (1) of Rule 5 read with Appendix-I instead
of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 521
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


Rule 5 which the assessee has done. If that be the position, we find 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 officer
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 Ltd.
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 assessing
officer 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 recorded
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 officer 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 confirmed the disallowance of professional fee paid by the
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 filing an affidavit. He thereafter got his further
statement recorded where he reiterated his stand taken in the affidavit. In
view of the above, Tribunal set aside the order of the assessing officer as
affirmed 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
522          SUPREME COURT REPORTS                        [2023] 16 S.C.R.


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 find that the assessing officer
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 officer overlooked the fact that within a short span of time, Shri
S.K. Gupta had retracted from the said statements by filing an affidavit
on 05.02.2007. Thereafter, he reiterated the statements made by him in
the affidavit dated 05.02.2007 in a statement recorded on 08.02.2007. We
find that in the later statements, Shri S.K. Gupta had categorically stated
that he had rendered services to the assessee. He also mentioned that the
name of the assessee was not referred to as one of the beneficiaries of
the accommodation bills in his earlier statement. He had categorically
stated that he had rendered service to the assessee and that the assessee
had not obtained any bogus accommodation bills from him. Assessing
officer had dis-believed the affidavit as well as the subsequent statement
of Shri S.K. Gupta without any justifiable and cogent reason. That apart
when the revenue had relied upon the retracted statement 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. Thus, revenue
was not justified in disallowing the claim of professional expenses of
the assessee on account of payment to Shri S.K. Gupta 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 based on appreciation of
the materials on record. Tribunal had scrutinized the materials on record
and thereafter had recorded a finding of fact that there were sufficient
evidence to justify payment made by the assessee to Shri SK Gupta,
a consultant of the assessee, and that the assessing officer had wholly
relied upon the statement of Shri Gupta recorded during 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 assessee. Accordingly,
this issue is answered in favour of the assessee and against the revenue.
COMMISSIONER OF INCOME TAX v. M/S JINDAL STEEL & POWER 523
 LTD. THROUGH ITS MANAGING DIRECTOR [UJJAL BHUYAN, J.]


     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 issue 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 appeals,
revenue has raised the question as to whether receipts on sale of carbon
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 finding of
CIT (A) confirming the decision of the assessing officer 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 find that
the only issue raised by the revenue before the High Court was relating to
disallowance of deduction by the assessing officer 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
524            SUPREME COURT REPORTS                       [2023] 16 S.C.R.


from raising the said issue before this Court at the stage of final 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 the 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.


Headnotes prepared by:                                        Appeals dismissed.
Ankit Gyan