TaxTMI 
TaxTMI 
2025 (7) TMI 1369
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....rments. The assessee had also entered into specified domestic transaction of transfer of steam generated from boilers at eligible units running in the State of Haryana, Karnataka, Tamil Nadu and Andhra Pradesh to own eligible units. The price for such transfer of steam is determined on the basis of electricity generated and sold by the State Electric Boards to consumers. The return of income for the year under appeal was filed on 15.03.2022, declaring total income at INR 2,89,33,64,450/- and the book profit u/s 115JB of the Act was declared at INR 4,45,44,28,246/-. The return of income was revised on 30.03.2022 at an income of INR 2,85,37,78,680/- and book profit remained at INR 4,45,44,28,246/-. Since the assessee has entered into the specified domestic transactions with its Associate Enterprises ("AEs"), a reference was made to the TPO u/s 92CA of the Act on 05.09.2022. The TPO vide its order dated 31.10.2023 u/s 92CA(3) of the Act, proposed the reduction in the claim of deduction u/s 80IA at INR 33,59,64,275/- by holding that the inter unit transfer of power and steam at the value declared by the assessee is not correct and accordingly, had made the adjustment on this account. T....
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....32) and thus not admitted these questions for consideration. 9. With regard to application of the provisions of section 80IA(6) of the Act, ld. AR placed reliance on the recent judgement of hon'ble jurisdictional High Court in the case of CIT Vs, DCM Shriram Ltd. reported in (2025) 170 Taxmann.com 631 wherein for the appeal for AY 2014-15, i.e. after the amendments made by the Finance Act, 2012 with effect from 1st April 2013 in the Explanations to Section 80A(6) as well as Section 80IA(8) of the Act, on the issue "whether the determination of eligible profits of the captive power consumption units would be worked out with reference to the prices which are at the rate charged by State Electricity Boards / Distribution Companies used to supply electricity to the end users in the open market in spite of the fact that the business of electricity supply is a regulated business", the Hon'ble Delhi High Court in paragraph 56 of the order, observed as under: "56. Undoubtedly, there is a degree of similarity between the transaction of supply of electricity by SEBs to the Assessee and the supply of electricity by the Assessee's eligible units. However, there is a differe....
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....panies, as per the statutory mandate, are bound to sell electricity to the distribution companies and the price thereof is determined as per the formula given in the Electricity Act and the contracts as executed in between the generation companies and distribution companies. In the open market, none of the generation companies can supply the electricity. So, the end consumers always remain served by the electricity supplied by the distribution companies. The eligible units of the appellant are also involved in supply of steam converted into electric units to the non-eligible units for the consumption. The non-eligible units are the end user of the supplies made by the eligible units. 14. Now question comes at what rate it should be charged/ priced when transferred to other unit. On perusal of the provisions of sub- section (6) of Section 80A and Section 80IA(8) of the Act, it is clear that in case where the goods of the eligible business are transferred to the non-eligible units of the assessee itself meant for consumption in non-eligible units, then the profits of the eligible units have to be worked out, thereby taking into account the market value of the goods so transferred ....
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....n of purchase of electricity by State Electricity Boards from independent power producers is a regulated activity, being subject to approval of SERC, and therefore is not a transaction undertaken in uncontrolled conditions. Thus, the transaction between power producers and state electricity board is not fit to be considered comparable to the tested transaction of sale of electricity by eligible unit to non-eligible unit. Thus, the average rate of Rs 4.57 per unit, being the price for transfer of electricity by power producers to third party customers cannot be treated as arm's length price as it is a price under controlled conditions." 17. In the appellant's own case for Assessment Year 2016-17, the coordinate bench of Tribunal vide ITA No. 843/ Del/2021 accepted the appellant's contention and directed the Assessing Officer to re- compute eligible profits in reference to Section 80IA(8) of the Act with reference to rates at which the respective State Electricity Boards/distribution companies, wherever eligible units were located, supplied electricity to the end consumers in open market. 18. This proposition is further supported by the Hon'ble Supreme Court in the ....
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....mpared with the power supplied by a SEB. 49. It is not disputed that IEX is a platform, which is used by power producing units to sell surplus power for short term requirements. IEX is not a platform for sourcing continuous power for power consuming units. It is also pointed out that there is a high level of volatility in the IEX rates as it depends on immediate availability of surplus electricity. 50. It is also contended by the Assessee that the rates quoted on IEX are in respect of power supplied and not the power that is consumed and therefore, there is a material difference between the power that is purchased from IEX and the power which is supplied by the SEBs or power distribution companies. The said submission is also not controverted. The Assessee claims that it had on occasions purchased power from IEX. 51. We find considerable merit in the Assessee's contention that the transactions of sale and purchase of power on the IEX is not comparable to the regular supply of power by the SEB or the power distribution companies. Undisputedly, IEX is not a source for uninterrupted power on the basis of which any power consumer can set up its unit. It i....
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....transaction for reasonably determining the ALP by using the CUP method. 57. We also consider it apposite to refer to the recent decision of the Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Limited. The principal issue involved in the said decision was the determination of market value of goods and services. In terms of Clause (i) of Explanation to Sub-section (8) of Section 80IA of the Act, the market value in relation to goods and services would mean the price that such goods or services would ordinarily fetch in the open market. In the aforesaid context, the Supreme Court had considered the question of what would constitute an open market in the context of determining the market value of electricity supplied by captive power units of the assessee in that case. In that case, the assessee had entered into an agreement with the SEB of State of Madhya Pradesh to supply surplus electricity at the rate of Rs.2.32 per unit. However, the Assessee had (2024) 460 ITR 162 computed the revenue from supply of electricity to its own unit at the rate of Rs.3.72 per unit. It was the Assessee's case that the market value of the electricity was Rs.3.72 per uni....
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....uirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State El....
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....ical circumstances has dismissed the appeal of the revenue by making following observations: "9. In this regard we have gone through a later judgment of the Hon'ble Calcutta High Court in the case of CIT v. Star Paper Mills Ltd. [2025] 172 taxmann.com 391 filed by the assessee [Page 1-19 of the Judicial PB]. In the decided case the assessee who was engaged in manufacture of paper had set up a captive power plant to supply power to its paper manufacturing units. The assessee had benchmarked the transfer of power from its power unit to its manufacturing unit at the price at which the paper manufacturing unit was procuring power from the State Electricity Board. In this decided case also, the TPO had benchmarked the transfer of power at which the power generating stations was supplying power to the State Electricity Board by following the earlier decision of Hon'ble Calcutta High Court in the case of ITC Ltd (supra). On appeal, the Hon'ble ITAT, Kolkata following their earlier decision rendered for AY 2016-17 in Star Paper Mills Ltd. v. Dy. CIT [2022] 134 taxmann.com 177 upheld the benchmarking methodology adopted by the assessee to value the transfer of power at ....