Section 80-IA deduction upheld for captive power use, but electricity must be valued at open market price.

An assessee remains entitled to deduction under Section 80-IA even where electricity generated by its eligible undertaking is wholly consumed by another business of the same assessee, because internal use does not by itself defeat eligibility. However, for Section 80-IA(8), the transferred electricity must be valued at its open market price, namely the rate a generating company could ordinarily fetch, and not at the consumer tariff charged to the assessee's manufacturing unit. The deduction is therefore admissible in principle, but the quantum must be recomputed on the correct market value basis and the matter remitted for fresh computation.

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Issues: (i) whether an assessee is entitled to deduction under Section 80-IA where power generated by its eligible undertaking is wholly consumed by its other business; (ii) whether, for computing deduction under Section 80-IA(8), the electricity should be valued at the rate charged by the distribution utility to the assessee's manufacturing unit or at the market value applicable to sale by a generating company.

Issue (i): whether an assessee is entitled to deduction under Section 80-IA where power generated by its eligible undertaking is wholly consumed by its other business.

Analysis: Section 80-IA contemplates an eligible business transferring goods or services to another business of the same assessee, and the fact that the power generated was consumed internally does not by itself defeat eligibility. The provision promoting generation of power must be construed liberally to advance the object of industrial growth. Internal use of the electricity only means that the power requirement of the other business was met by the eligible undertaking.

Conclusion: The assessee remains entitled to claim deduction under Section 80-IA; this issue is decided against the Revenue.

Issue (ii): whether, for computing deduction under Section 80-IA(8), the electricity should be valued at the rate charged by the distribution utility to the assessee's manufacturing unit or at the market value applicable to sale by a generating company.

Analysis: The market value under Section 80-IA(8) is the price the goods or services would ordinarily fetch in the open market. For electricity generated by a captive power unit, the relevant benchmark is not the consumer tariff paid by the manufacturing unit, but the rate at which a generating company could sell power in the open market, having regard to the tariff structure applicable to generation and distribution. The rate charged by the distribution utility to a consumer was therefore an incorrect basis for valuation.

Conclusion: The electricity cannot be valued at the consumer tariff of the assessee's manufacturing unit; this issue is decided in favour of the Revenue.

Final Conclusion: The deduction is admissible in principle, but its quantum must be recomputed on the basis of the proper market value of electricity. The appeal succeeds only to that extent, and the matter is sent back for fresh computation in accordance with law.

Ratio Decidendi: For Section 80-IA(8), internal consumption of power by another business of the assessee does not negate eligibility, but the transfer must be valued at the open market price applicable to a generating company, not at the consumer tariff paid by the assessee's end-use unit.

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