Transfer pricing for captive power transfers supports industrial consumer tariff as the benchmark for electricity valuation.

Inter-unit transfer of electricity from a captive power plant is a specified domestic transaction to be valued under the market value concept in section 80-IA(8) read with transfer pricing principles. The accepted benchmark is the tariff at which the distribution company supplies electricity to industrial consumers, not the price at which it procures power from generators. Electricity is treated as a standardised commodity for this comparison, and functional differences between generation and distribution do not defeat comparability. The assessee's consumer-tariff benchmark was therefore upheld and the revenue's adjustment was rejected as unsustainable.

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Issues: Whether the arm's length price of inter-unit transfer of electricity from the captive power plant to the assessee's other units could be benchmarked with the industrial consumer tariff of the distribution company, and whether the revenue's adjustment to such transfer price was sustainable.

Analysis: The transfer of electricity constituted a specified domestic transaction and its valuation had to be examined in the light of the market value concept in section 80-IA(8) read with the transfer pricing provisions. The accepted benchmark was the rate at which electricity was supplied by the State Electricity Board or distribution company to industrial consumers, not the rate at which distribution companies procured power from generators. Electricity was treated as a standardized commodity for this purpose, and the functional differences between generation and distribution did not displace the comparability of the consumer tariff relied upon by the assessee. The Tribunal also followed the binding and persuasive precedents relied upon by the first appellate authority and the later coordinate-bench view supporting the same benchmark.

Conclusion: The assessee's benchmark was upheld, the revenue's adjustment was rejected, and the addition was not sustainable.

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