Captive power valuation under section 80-IA follows open-market industrial consumer rates, and consistent expense allocation cannot be changed without cause.

For section 80-IA valuation, electricity generated by a captive power plant and used by eligible manufacturing units is to be benchmarked at the price an industrial consumer would pay in the open market, not at the lower regulated rate for surplus sale to the electricity board. The transfer pricing adjustment on this basis was rejected. On allocation of common head office expenses, a consistently accepted apportionment by fixed assets could not be replaced with a profitability-based ratio without a material change in facts or law. The further allocation made by the Assessing Officer was therefore disallowed, and the relief granted by the first appellate authority was upheld on both issues.

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Issues: (i) Whether the transfer price of power supplied by captive power plants to eligible manufacturing units for deduction under section 80-IA had to be benchmarked at the rate charged by the State electricity board to industrial consumers or at the lower rate at which surplus power was sold to the electricity board. (ii) Whether common head office expenses attributable to eligible units could be re-allocated by the Assessing Officer from the fixed-asset ratio to a profitability-based ratio.

Issue (i): Whether the transfer price of power supplied by captive power plants to eligible manufacturing units for deduction under section 80-IA had to be benchmarked at the rate charged by the State electricity board to industrial consumers or at the lower rate at which surplus power was sold to the electricity board.

Analysis: The eligible business was entitled to deduction under section 80-IA, and the dispute concerned only the valuation of power transferred from captive generation units to the assessee's own manufacturing units. The controlling principle applied was that, where electricity is used for captive consumption, its market value for section 80-IA purposes is the price at which an industrial consumer would ordinarily buy power in the open market. The rate at which surplus electricity is compulsorily or contractually supplied to the electricity board is not the relevant market value, because that is a supply-side price in a regulated setting and does not reflect the price available to a consumer in the open market. The issue was treated as covered by binding precedent on identical facts.

Conclusion: The transfer pricing adjustment on this count was rightly deleted and the Revenue's challenge failed.

Issue (ii): Whether common head office expenses attributable to eligible units could be re-allocated by the Assessing Officer from the fixed-asset ratio to a profitability-based ratio.

Analysis: The assessee had consistently allocated common expenses on the basis of fixed assets, and that method had been accepted in earlier assessments. In a recurring factual matter, a departure from the earlier accepted basis required a demonstrated change in facts or law. No such change was shown. The profitability method was not accepted as a sound basis on these facts, while allocation by assets was treated as reasonable and consistent with the past approach.

Conclusion: The further allocation made by the Assessing Officer was rejected and the Revenue's ground failed.

Final Conclusion: The common order upheld the relief granted by the first appellate authority on both disputed issues, with no interference called for in any of the Revenue's appeals.

Ratio Decidendi: For section 80-IA purposes, the market value of power from a captive power plant is the price an industrial consumer would pay in the open market, not the regulated sale price of surplus power to the electricity board; and in recurring assessments, a consistent and previously accepted method of allocating common expenses cannot be altered without a material change in facts or law.

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