Market value benchmark governs captive electricity transfers under section 80IA; delayed provident fund remittance remains disallowable.

For deduction under section 80IA, the value of electricity transferred from a windmill unit to a captive spinning division is to be benchmarked at the market value of power, i.e., the tariff at which the State Electricity Board supplies electricity to industrial consumers in the open market, rather than the rate at which it purchases power from generators. On the facts, the transfer price was below that consumer tariff, so the transfer pricing adjustment and related restriction of deduction were held unjustified on this issue. By contrast, belated remittance of employee provident fund contribution remained disallowable under the settled law governing such contributions, and relief was not available on that component.

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Issues: (i) Whether, for deduction under section 80IA, the value of electricity transferred from the windmill division to the captive spinning division had to be benchmarked at the rate at which the electricity board procured power or at the rate at which it supplied power to industrial consumers in the open market; and (ii) whether the disallowance for belated remittance of employee contribution to provident fund was sustainable.

Issue (i): Whether, for deduction under section 80IA, the value of electricity transferred from the windmill division to the captive spinning division had to be benchmarked at the rate at which the electricity board procured power or at the rate at which it supplied power to industrial consumers in the open market.

Analysis: The value of inter-unit electricity transfer has to be determined with reference to the market value of power. The binding Supreme Court ruling on section 80IA holds that the relevant benchmark is the rate at which the State Electricity Board supplies electricity to industrial consumers in the open market, not the price at which it purchases power from generators. That principle continues to apply even after the amendment to the explanation to section 80IA(8), and the same view has been followed in later appellate decisions dealing with captive power consumption. On the facts, the assessee's transfer price was below the open-market consumer tariff adopted by the electricity board.

Conclusion: The transfer pricing adjustment and related restriction of deduction under section 80IA were not justified. The issue is decided in favour of the assessee.

Issue (ii): Whether the disallowance for belated remittance of employee contribution to provident fund was sustainable.

Analysis: The delay in remitting employee contribution attracts disallowance under the settled legal position governing such contributions, and the assessee was not entitled to relief on this component.

Conclusion: The disallowance is upheld and this issue is decided against the assessee.

Final Conclusion: The assessee succeeds on the power-transfer valuation issue but fails on the provident fund disallowance issue, resulting in partial relief for the assessment year where both issues arose and full relief on the common transfer-pricing issue for the later assessment year.

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