Section 80-IA captive power valuation must use consumer tariff, not lower surplus sale rate, for deduction computation.

For deduction under Section 80-IA, electricity generated by an assessee for captive consumption must be valued at the consumer tariff, being the open market rate a consumer would pay to the distribution company, rather than the lower rate at which surplus power is sold back to that company. The relevant issue is the quantum of profit derived from the eligible business, and the market value adopted must reflect ordinary procurement cost in the course of business. On that basis, the lower captive valuation was rejected and the deduction was to be computed using the consumer rate.

---

---

Issues: Whether, for computing deduction under Section 80-IA, the electricity generated by the assessee for captive consumption had to be valued at the rate at which the distribution company supplied power to consumers or at the lower rate at which surplus power was sold to the distribution company.

Analysis: The eligible business was entitled to deduction under Section 80-IA for the relevant assessment year, and the dispute was confined to the quantum of profit derived from that business. The valuation of electricity supplied to the assessee's captive unit had to reflect the open market rate at which a consumer would purchase power from the distribution company, not the contracted rate at which surplus electricity was sold back to the distribution company. The binding decisions relied upon held that the relevant market value is the consumer tariff, because that is the price an industrial unit would pay if it had to procure power from the distribution system in the ordinary course.

Conclusion: The lower rate of Rs. 2.86 per unit could not be adopted for captive consumption. The assessee was entitled to compute deduction under Section 80-IA on the basis of the consumer rate of Rs. 7.49 per unit, and the disallowance was unsustainable.

---