Captive power transfer pricing under section 80IA(8) must use the consumer-side electricity rate as the market benchmark.

For section 80IA(8), inter-unit electricity transfers must be valued at market value, and where the transfer is a specified domestic transaction, at arm's length price. The Tribunal treated the captive manufacturing unit as the relevant market context because the captive power plant existed to meet its own power needs and reduce purchase cost. It rejected comparison with regulated generator-to-distribution tariffs, which reflect a different market setting, and accepted the rate the manufacturing unit would pay the State Electricity Board as the more reliable comparable under similar conditions. The transfer pricing adjustment reducing the deduction was deleted.

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Issues: Whether, for the purpose of computing deduction under section 80IA(8), the market value of electricity transferred by a captive power plant to the assessee's non-eligible unit should be benchmarked with the rate at which the non-eligible unit would purchase electricity from the State Electricity Board, or with the rate at which power generating companies sell electricity to distribution companies.

Analysis: Section 80IA(8) requires inter-unit transfers to be valued at market value, and where the transfer is a specified domestic transaction, market value is the arm's length price. The transfer pricing exercise therefore had to identify the proper comparable under the Comparable Uncontrolled Price method. The Tribunal held that the relevant business context was that of the captive consumer, because the captive power plant was established to meet the manufacturing unit's own power requirements and to save the cost of purchased electricity. The rates at which generators sell to distribution licensees are regulated and reflect a different market setting from the price paid by industrial consumers for their own consumption. After the Electricity Act, 2003, captive generation and open access enabled supply to consumers on mutually agreed terms, and the rate paid by the manufacturing unit to the State Electricity Board was treated as the more reliable comparable under similar market conditions.

Conclusion: The assessee's benchmarking was accepted, and the transfer pricing adjustment reducing the section 80IA deduction was deleted.

Ratio Decidendi: For section 80IA(8), the market value of electricity transferred from a captive power plant to a captive consumer is to be determined by reference to the rate the consumer would pay for power in the open market under comparable conditions, not by the regulated generator-to-distribution-company tariff.

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