Transfer pricing on captive power electricity failed where no 80-IA deduction was claimed and industrial tariff was the proper benchmark.

Where no deduction under section 80-IA was actually claimed because the assessee's income was fully absorbed by brought-forward losses, a transfer pricing adjustment for electricity transferred from captive power and wind power plants could not be sustained and was deleted. For section 80-IA valuation, the appropriate arm's length benchmark for electricity transferred between eligible and non-eligible units was the tariff charged by the State electricity distribution company to industrial consumers, not a different regulated procurement rate, so the assessee's adopted price was accepted. The modified return filed after amalgamation approval was also required to be considered for taxable income and carry-forward claims, with the rectification request directed to be dealt with in accordance with law.

---

---

Issues: (i) Whether transfer pricing adjustment made for electricity transferred from the assessee's captive power plant and wind power plant could survive when no deduction under section 80-IA was claimed because the assessee's income had already been fully absorbed by brought forward losses; (ii) whether the arm's length price of electricity transferred within the assessee's eligible and non-eligible units should be benchmarked with the tariff charged by the State electricity distribution company to industrial consumers; (iii) whether the modified return filed under section 119(2)(b) had to be taken into account for computation of taxable income and related carry-forward claims.

Issue (i): Whether transfer pricing adjustment made for electricity transferred from the assessee's captive power plant and wind power plant could survive when no deduction under section 80-IA was claimed because the assessee's income had already been fully absorbed by brought forward losses.

Analysis: The adjustment was linked to computation of deduction under section 80-IA. The assessee had not actually claimed that deduction in the year because the returned income stood absorbed by brought forward losses. The reasoning followed the earlier decision in the assessee's own case, where it was held that an adjustment on this count could not be sustained unless the deduction was actually claimed or the addition resulted in positive income capable of such deduction. The record showed no contrary higher-court decision upsetting that view.

Conclusion: The issue was decided in favour of the assessee and the transfer pricing adjustment on this ground was deleted.

Issue (ii): Whether the arm's length price of electricity transferred within the assessee's eligible and non-eligible units should be benchmarked with the tariff charged by the State electricity distribution company to industrial consumers.

Analysis: The decision turned on the statutory meaning of market value and arm's length price for section 80-IA purposes as applicable after the amendment making reference to section 92F(ii). The electricity market was regulated, but the relevant comparable was the price at which the State electricity distribution company supplied power to industrial consumers, not the rate at which power was procured in regulated transactions from generators. The rate charged to the assessee by the distribution company for supply to its cement plant, and the corresponding credit rate for wind power, was treated as the appropriate benchmark. The Tribunal also distinguished the authorities relied upon by the revenue on the basis of the applicable statutory regime and the later amended definition of market value.

Conclusion: The arm's length price adopted by the assessee was accepted and the adjustment was held unsustainable.

Issue (iii): Whether the modified return filed under section 119(2)(b) had to be taken into account for computation of taxable income and related carry-forward claims.

Analysis: The modified return was filed after approval obtained for giving effect to amalgamation, and the assessment order itself noted its filing. Since the assessee had also sought rectification before the jurisdictional authority, the correct course was to have that application disposed of in accordance with law after considering the modified return and the facts noted by the Tribunal.

Conclusion: The issue was decided in favour of the assessee for statistical purposes with a direction to consider the rectification request in accordance with law.

Final Conclusion: The assessee succeeded on the substantive transfer pricing and computation issues, and the matter was disposed of by granting relief in part with the remaining computational aspect left to be addressed through the rectification mechanism.

Ratio Decidendi: Where no deduction under section 80-IA is actually claimed because the assessee's income is fully absorbed by losses, a transfer pricing adjustment for captive power transfer cannot be sustained; for section 80-IA valuation, the appropriate benchmark is the tariff charged by the State electricity distribution company to industrial consumers as the market value of electricity.

---