2025 (2) TMI 766 - HC - Income Tax

Assessee wins partial appeal: market value for section 80-IA deduction is SEB industrial tariff for captive electricity

HC allowed assessee's appeal in part, holding that market value of electricity for computing deduction under section 80-IA must be the rate charged by the ... Computation of deduction u/s 80-IA - quantum of deduction which the assessee would be entitled to claim u/s 80IA - AO did not accept the case of the assessee that the market value of the electricity should be computed based on the rates fixed by the State Electricity Board for the electricity which is purchased by the assessee and held that there was excessive claim of deduction on captive consumption and restricted the deduction claimed by the appellant u/s 80IA of the Act. HELD THAT:- For the purpose of taking a decision on merits, we need not labour much as we are guided by the decision of the Hon’ble Supreme Court in Jindal Steel and Power Limited. [2023 (12) TMI 417 - SUPREME COURT] as held that 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. 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. Decided against revenue. The issues presented and considered in the judgment are as follows:1. Whether the Income Tax Appellate Tribunal was justified in upholding the internal Comparable Uncontrolled Price (CUP) applied by the assessee to benchmark the transaction (sale of power) to its Associated Enterprise (AE) and in computing the deduction under section 80-IA of the Income Tax Act, 1961Rs. 2. Whether the Income Tax Appellate Tribunal was justified in not appreciating the finding of the Transfer Pricing Officer (TPO) that the assessee's generating unit cannot claim any benefit under section 80IA of the Income Tax Act based on rates charged by the distribution licensee from the consumer, but should be based on rates fixed by the tariff regulation commission for the sale of electricity by generating companies to the distribution companyRs.The court considered the appeal filed by the revenue under Section 260A of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal. The Tribunal had followed the assessee's own case for a previous assessment year, which was not challenged by the revenue at that time. The legal issue involved was settled by the Supreme Court in a similar case involving the market value of electricity supplied by a captive power generating unit.The court referred to the Supreme Court's decision in Commissioner of Income Tax Vs. Jindal Steel and Power Limited, where it was held that the market value of power supplied by the assessee to its industrial units should be computed based on the rate at which the State Electricity Board supplied power to consumers in the open market. The court emphasized that the rate at which power was supplied to a supplier could not be considered the market rate of electricity purchased by a consumer in the open market. Therefore, the market value for computing deduction under section 80-IA of the Act should be based on the rate charged by the State Electricity Board to industrial consumers.Based on the Supreme Court's decision, the court concluded that the appeal filed by the revenue must fail. The substantial questions of law were answered against the revenue, and the appeal was dismissed.The significant holdings of the judgment include the court's reliance on the Supreme Court's interpretation regarding the computation of the market value of electricity supplied by a captive power plant and its application to the case at hand. The core principle established is that the market value should be determined based on the rate charged by the State Electricity Board to industrial consumers. The final determination was to dismiss the revenue's appeal and answer the substantial questions of law against the revenue.