TaxTMI 
TaxTMI 
2025 (8) TMI 1750
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....e Act"). 3. The brief facts of the case are that the assessee is a company, the return of income filed was selected for scrutiny and the matter was referred to the Transfer Pricing Officer (TPO) by the Assessing Officer (AO) in terms of section 92CA(1) of the Act. The TPO in accordance with section 80-IA(8) was required to determine the price at which electricity should be taken as transferred from the windmill unit to the textile unit of the assessee. The assessee has a windmill unit as also a textile unit and entire electricity generated by the windmill unit is captively consumed only by the textile unit. There is no transfer of electricity by the assessee's windmill unit either to TANGEDCO or any other person and the entire electricity generated by the windmill undertaking is captively consumed by the textile undertaking. 4. The TPO on the basis of section 80-IA(8) held that the average selling price by an assessee to TANGEDCO should be based on the tariff rates fixed by Tamil Nadu Electricity Regulatory Commission (TNERC) for purchase of electricity generated by a windmill undertaking which during the year would have been as follows: Sl.No o. Name of wind energy....
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.... the amendment of section 80-IA(8) wherein the definition of the term market value underwent a change and that the ld. CIT(A) had not taken into consideration the said change in law. 9. The Ld. DR during the course of hearing through his written submissions relied on the decision of the Hyderabad Bench of the Income Tax Appellate Tribunal in the case of Sanghi Industries Limited v. DCIT in IT(TP) No. 14/Hyd/2022 for the assessment year 2017-18 which dealt with the issue of benchmarking of transaction pertaining to sale of power between eligible and non-eligible unit and consequent deduction u/s. 80-IA of the Act after considering the decision of the Hon'ble Supreme Court in Jindal Steel and Power Ltd. which pertained to assessment year 2001-02, which was rendered before the amendment to the definition of the term Market Value in explanation to section 80-IA(8) that came into effect from 01.04.2013, i.e., assessment year 2013-14 onwards. 10. The relevant portion with reference to the above-mentioned issue is as under: "43 ....... Interestingly, much water has been flown after A. Y. 2017-18 by way of insertion of the Explanation to Section 80IA(8) of the Act whereb....
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....cision of the Hyderabad Bench of the Tribunal in the case of M/s. Sanghi Industries Limited referred to supra is not applicable in the instant case as in that case there was sale of electricity to third parties and not merely a captive consumption as is the case of the assessee, where the assessee has captively consumed the entire electricity generated by the windmill undertaking. The Ld.AR further submitted that the decision in M/s. Sanghi Industries Limited referred to supra is clearly distinguishable since in that case, there was supply of electricity to outside parties by the assessee and that the electricity generated was not merely captively consumed. 13. The Ld.AR further pointed out that the Ld. DR through his written submissions submitted that one cannot take the selling price of TANGEDCO as the market value of electricity since there were expenses to be incurred by TANGEDCO which do not exist in case of captive consumption. In the case of M/s. Sanghi Industries Ltd. referred to supra, the assessee was engaged in the sale of electricity to 14 independent third-party consumers at an average rate of Rs.2.97 per unit, while simultaneously captively consuming power at a rat....
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....eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under section 80-IA, the profits and gains of such eligible business shall be computed by adopting arm's length pricing. In other words, if the assessing officer rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price that such goods would ordinarily fetch on sale in the open market. Thus, as per this definition, the market value of any goods would mean the price that such goods would ordinarily fetch on sale in the open market." 17. After referring to the above, the Ld.AR stated that in the above decision, the Hon'ble Supreme Court has used the term Market Value & Arm's Length Price interchangeably. He further drew our attention to the provisions of section 80-IA(8) which reads as follows: "(8) Where any goods or services held for the purposes of the eligible business are transferred to any ot....
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....on the decision of the Mumbai Bench of the Tribunal in M/s. Tata Chemicals Ltd. v DCIT in ITA No. 468/Mum/2022 - Mumbai ITAT which has elaborately discussed this aspect, relevant portion of which can be found in paras 14 & 15 of the said order of the Tribunal which is reproduced below: "14. In our opinion it will be too myopic view to give an interpretation that all the transaction covered u/s. 80IA(8) has to be compulsorily determined under transfer pricing provision, cannot be accepted. Because, the statute has clearly provided two options or two manner in which market value of the goods and services can be determined. The phrase "or" does not give mean that the second mechanism provided in clause (ii) of Explanation alone can be applied after introduction of SDT from 01.04.2013. The use of the word "or" can be interpreted as, firstly, both manner are available with the assessee to demonstrate that market value of the goods and services has to be either by showing that the price of such goods and services is in consonance with the price available in the open market; or if assessee is not able to establish the price available in the open market, then the price of goods an....
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....rket and only in a case where such price is not available, the market value has to be determined as per ALP. In doing so, the Mumbai Bench of the Tribunal followed the decision of the Hon'ble Supreme Court in Jindal Steel & Power Ltd referred to supra as also the decision of the Hon'ble Gujarat High Court in the case of PCIT v Gujarat Fluorochemicals Ltd. and the Hon'ble Bombay High Court in CIT v Reliance Industries Ltd. to hold that the selling price of the State Electricity Board to high tension industrial consumers can be taken as market value in accordance with section 80-IA(8) of the Act. 21. The Ld. AR also submitted that similar views were taken in the following cases: ● ITO v SJLT Textiles in ITA Nos.686, 687 & 688 /Chny/2023 - Chennai ITAT ● JCIT (OSD) v M/s. CRI Pumps Private Limited in ITA Nos.265, 266 & 267/Chny/2025 - Chennai ITAT ● DCIT v Phillips Carbon Black Ltd. [2025] 175 taxmann.com 352 (Kol Trib.) ● Even the Dispute Resolution Panel, Bengaluru in the case of Sulochana Cotton Spinning Mills (P.) Ltd. for the assessment year 2020-21 vide its directions dated 28.06.2024 has taken the same v....
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.... also be found in PCIT v Birla Corporation Ltd. [2025] 175 taxmann.com 637 (Cal). 24. The Ld.AR during the course of hearing also relied upon the decision of the Hon'ble Calcutta High Court in PCIT v Rungta Mines Limited [TS-402-HC- 2025(CAL)-TP] which has again considered a similar issue. The Hon'ble Calcutta High Court at paras 14 to 18 observed that the assessee is not generating power to sell the same to distribution companies / State Electricity Boards and that the captive power plants were established only for assessee's own need (as in the instant case of the assessee before this Tribunal) and that in such a situation the ALP cannot be determined by taking the average market rates of power supply units to distribution companies as the assessee is not in the business of selling power to distribution companies. The Hon'ble Calcutta High Court in this case considered the provisions of the Electricity Act, 2003 and distinguished the decision in ITC Ltd. (236 taxman 612) as the same was rendered prior to the amendment made to the Electricity Act. 25. The Hon'ble Calcutta High Court following its own decision in Star Paper Mills Ltd. referred to supra as ....
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....referred to supra and all other High Court decisions following Star Paper Mills Ltd. which is a higher judicial forum than that of the Tribunal and also that this Tribunal cannot declare the decisions of the Hon'ble Calcutta High Court per incuriam. 28. The Ld. DR in reply firstly stated that the judgment of the Hon'ble Supreme Court in Jindal Steel & Power Ltd. referred to supra relates to AY 2001-02 and thus the term ALP used therein was not used in the context of section 92F of the Act. The Ld. DR further stated that the reliance on the decision of the Mumbai Bench of the Tribunal in M/s. Tata Chemicals Ltd., referred to supra is not in line with the language of the law as ALP is mentioned in the context of SDT in clause (ii) of explanation only and thus wherever the transaction is an SDT, only ALP has to be determined as per clause (ii) of the said explanation. 29. As regards the reliance of the Ld.AR on the decisions of the Hon'ble Calcutta High Court in Star Paper Mills Ltd., referred to supra, the Ld. DR submitted that the impact of clause (ii) of explanation to section 80-IA(8) does not seem to have been argued before the Hon'ble High Court and that th....
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....ection 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the ....
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....e said judgment of the Hon'ble Supreme Court, it was held as under: "22. Reverting back to sub-section (8) of Section 80-IA, it is seen that if the assessing officer disputes the consideration for supply of any goods by the assessee as recorded in the accounts of the eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under section 80-IA, the profits and gains of such eligible business shall be computed by adopting arm's length pricing. In other words, if the assessing officer rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price that such goods would ordinarily fetch on sale in the open market. Thus, as per this definition, the market value of any goods would mean the price that such goods would ordinarily fetch on sale in the open market." 34. On the basis of the above observation of the Hon'ble Supreme Court, one may note that as contended ....
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....ed the decision of the Hon'ble Supreme Court in Jindal Steel & Power Ltd referred to supra as also the decision of the Hon'ble Gujarat High Court in the case of PCIT v Gujarat Fluorochemicals Ltd. and the Hon'ble Bombay High Court in CIT v Reliance Industries Ltd. to hold that the selling price of the State Electricity Board to high tension industrial consumers can be taken as market value in accordance with section 80-IA(8) of the Act. Thus, even on this count, we do not find favour with the argument of the Ld. DR that the market value in respect of specified domestic transactions with respect to computation of deduction u/s. 80-IA(8) would have to be compulsorily determined by clause (ii) of explanation to section 80-IA(8), i.e., the Arm's Length Price. 37. We further state that the decision relied upon by the Ld. DR in the case of Sanghi Industries Ltd. decided by the Hyderabad Bench of the Tribunal is not applicable in the facts of the instant case for the reason that the assessee herein in the instant case has not undertaken any third-party sale of power as was the facts of that case and that the entire quantum of electricity generated by the windmill units ....
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....icity Board. 41. It is in this background that the Hon'ble Calcutta High Court after analysing the provisions of the Electricity Act, 2003, the decision in Star Paper Mills Ltd. and the decision of the Hon'ble Supreme Court in Jindal Steel & Power Ltd. concluded as under: "21. The Hon'ble Supreme Court after taking note of the relevant provisions of the Income Tax Act, and in particular Section 80IA held that the market value of the power supplied by State Electricity Board to the Industrial consumers should be construed to be the market value of electricity and it should not be compared with the rate of power sold to or supply to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. It was further held that the State Electricity Boards rate when it supplies power to the consumer have to be taken as market value for computing the deduction under Section 80IA of the Act. Thus, applying the decision of the Hon'ble Supreme Court in Jindal Steel and Power and in the light of the reasoning given in the preceding paragraphs, we hold that the learned tribunal rightly dismissed....