Consumer-side electricity tariff and restricted section 14A disallowance shaped the assessee's partial relief.

For captive electricity consumed internally by eligible power units, the market value for section 80IA computation is to be benchmarked at the consumer-side tariff charged by electricity distribution companies, not at a lower power-sale rate; the transfer pricing adjustment was therefore not sustainable. For section 14A read with Rule 8D, the disallowance is to be confined to investments that actually yielded exempt income and capped at the exempt income earned during the year, requiring recomputation on that restricted basis.

---

---

Issues: (i) Whether the value of electricity captively consumed by eligible power generating units for deduction under section 80IA had to be benchmarked at the rate charged by electricity distribution companies to consumers and whether the downward transfer pricing adjustment was sustainable; (ii) Whether the disallowance under section 14A read with Rule 8D had to be restricted to investments yielding exempt income and to the extent of exempt income earned during the year.

Issue (i): Whether the value of electricity captively consumed by eligible power generating units for deduction under section 80IA had to be benchmarked at the rate charged by electricity distribution companies to consumers and whether the downward transfer pricing adjustment was sustainable.

Analysis: The eligible power units supplied electricity for captive consumption by the assessee's cement units. The dispute concerned the proper market value for such inter-unit transfer. The Tribunal followed its own earlier decisions in the assessee's case and the settled view that, for captive consumption, the relevant benchmark is the price at which electricity is supplied by electricity distribution companies to consumers, not the lower tariff applicable to sale of power to electricity boards or third parties. Applying judicial discipline and the coordinate bench view, the Tribunal held that the benchmarking adopted by the assessee was correct and that the transfer pricing adjustment made by the lower authorities could not stand.

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

Issue (ii): Whether the disallowance under section 14A read with Rule 8D had to be restricted to investments yielding exempt income and to the extent of exempt income earned during the year.

Analysis: The assessee had earned exempt dividend income and the Assessing Officer applied section 14A and Rule 8D to make a larger disallowance. The Tribunal noted its earlier view that only those investments which actually yielded exempt income should form the base for the Rule 8D computation. It also directed that the disallowance should not exceed the exempt income actually earned for the year. The Tribunal therefore required the Assessing Officer to re-compute the disallowance by confining the exercise to exempt-income-yielding investments and subject to the ceiling of exempt income received during the year.

Conclusion: The issue was partly decided in favour of the assessee, with the disallowance directed to be recomputed on the restricted basis.

Final Conclusion: The appeal succeeded on the section 80IA transfer pricing issue and succeeded in part on the section 14A disallowance issue, resulting in partial relief to the assessee.

Ratio Decidendi: For captive power generation used internally by an eligible undertaking, the market value for section 80IA computation is to be taken with reference to the consumer-side electricity tariff, and for section 14A read with Rule 8D only investments yielding exempt income can be considered, with the disallowance capped at the exempt income actually earned.

---