TaxTMI 
TaxTMI 
2026 (5) TMI 1203
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....g downward adjustment of Rs. 39,79,08,552/- in respect of transfer value of power by the captive power plants at Mangalpur & Jamuria. 4. Facts in brief are that, the assessee had set up three captive power plants, with one located in Mangalpur and two located in Jamuria in order to meet the power requirements of its manufacturing units at the same location. The assessee claimed tax holidays as per section 80IA in respect of their profits from generation of electricity from captive power plants. The details of the transactions were duly mentioned in Form 3CEB filed by the assessee. The assessee company had originally claimed deduction of Rs. 216,44,56,783/- u/s. 80IA of the Act for the eligible units against the specified domestic transactions, whose details are as follows:- Name of the Units Original claim (Amount in Rs. ) Mangalpur unit - CPP-II 36,08,61,694 Jamunia unit - JPP-I 50,08,45,741 Jamuria unit - JPP-II 130,27,49,348 TOTAL 216,44,56,783 5. The above claim was subsequently revised to Rs. 196,83,82,588/-. As per the revised working, the assessee benchmarked the transfer of power from the eligible units to the assessee on the tariffs char....
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.... 10. After hearing the rival submissions of the parties and perusing the material available on record including the decision of the coordinate bench of the Tribunal in the case of Shyam Sel & Power Ltd (supra), we note that the facts of the assessee are identical to the facts considered in the case of Shyam Sel & Power Ltd (supra) and, therefore, the issue is squarely covered in favour of the assessee. The operative part of the order of the coordinate bench of the Tribunal read as under :- "22. After hearing the rival contentions and perusing the material on record, we observe that the issue of determining the claim of the assessee u/s 80IA in respect of CPPs which were supplying power to other non eligible units were determined on the basis of electricity at which the power was procured by the assessee from the Indian Power Corporation Ltd. We find that the case is squarely covered by the decision of Hon'ble Apex Court in the case of CIT vs. M/s Jindal Steel & Power Ltd. 460 ITR 162 (SC)wherein the identical issue has been decided in favour of the assessee by holding that the rate at which the electricity board supplied/sold power to various customers has to be taken to ....
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....per unit was the market value of electricity and on that basis, reduced the profits and gains of the assessee thereby restricting the claim of deduction of the assessee under section 80-IA of the Act. 20. We have already analyzed Section 80-IA of the Act. There is no dispute that respondent-assessee is entitled to deduction under section 80-IA of the Act for the relevant assessment year. The only issue is with regard to the quantum of profits and gains of the eligible business of the assessee and the resultant deduction under section 80-IA of the Act. The higher the profits and gains, the higher would be the quantum of deduction. Conversely, if the profits and gains of the eligible business of the assessee is determined at a lower figure, the deduction under section 80-IA would be on the lower side. Assessee had computed the profits and gains by taking Rs. 3.72 as the price of electricity per unit supplied by its captive power plants to its industrial units. The basis for taking this figure was that it was the rate at which the State Electricity Board was supplying electricity to its industrial consumers. Assessing officer repudiated such claim. According to him, the rate ....
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....ion "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80-IA would mean the price of such goods determined in an environment of free trade or competition. "Market value" is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate t....
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.... and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80-IA of the Act. .... Considering the facts of the assessee in the light of the aforesaid decision we are of the considered opinion that the case of the assessee is squarely covered by the decision of the Hon'ble Apex Court and therefore we are inclined to dismiss the appeal of the revenue by upholding the order of ld CIT(A) on this issue." 11. Besides, the case is also covered by the decision of Hon'ble Supreme Court in the case of Jindal Steel & Power Ltd (supra) which has finally settled the issue in which, similar issue has been decided by the Hon'ble Apex Court in favour of the assessee. It ....
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....and the Rules and Regulations made thereunder and to any consumer subject to Regulations made under Sub Section 2 of Section 42. Sub Section 2 of Section 9 states that every person, who has constructed a Captive Generating Plant and maintains and operates such plant shall have the right to open access for the purpose of carrying electricity from his Captive Generating Plant to the destination of his use. Section 42 of the Act deals with duties of the distribution licensees and open access. Thus, the scheme of the Act is that a person may construct, maintain or operate a Captive Generating Plant and dedicated transmission lines and captive plants will have the right to open access for the purpose of carrying electricity from captive plants to the destination of its use and no surcharge is leviable in case open access is provided to captive units by the central or state transmission utility or the transmission licensee involved in the distribution/transmission of power. Further the provision make it clear that there is no embargo to other power generating companies to directly sell the power to such consumer at mutually agreed rate. This being not the legal position when the decision....
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....;s generating unit cannot as such claim any benefit under section 80IA of the Income Tax Act computed on the basis of rates charged by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulation commission for sale of electricity by the generating companies to the distribution company? 20. The Court took note of the decision of the Hon'ble Supreme Court in Jindal Steel and Power Limited (supra). In the said case, the assessee having found that the electricity supplied by the State Electricity Board was inadequate and to meet the requirements of its industrial units, set up captive power generating units to supply electricity to its industrial units which was done at a particular rate. The surplus power if any, generated was to be wheeled out to the electricity board grid pursuant to an agreement between the State Electricity Board and the assessee at a rate fixed by the State Electricity Board. The question which arose of consideration is as to the quantum of deduction which the assessee would be entitled to claim under Section 80IA of the Act. The assessing officer held that the market value of ....
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....ed by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market, i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the Revenue." 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 pa....
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....(CPPs), to determine their true and accurate profitability. Such allocation must be carried out on a reasonable and judicious basis. From the records, it is noted that this issue had first arisen in the appellant's own case for Assessment Years (AYs) 2014-15 and2015-16, during which the Ld. AO had allocated the common expenses in proportion to the fixed assets, as reflected in the assessment orders passed under Section 143(3) of the Act. Taking cognizance of these past assessments, I find merit in the appellant's plea that, in the absence of any change in facts or legal position, the AO ought to have followed the same method of allocation for the present assessment year, in keeping with the principle of consistency. 3.13 The appellant's reliance on the decision of the Hon'ble Supreme Court in CIT v.Radhasoami Satsang [(1992) 193 ITR 321 (SC)] is found to be apt. In my considered view, the AO's departure from the previously accepted method of allocation-shifting from the fixed asset ratio to a profitability-based ratio- without demonstrating any change in the factual or legal matrix, is unjustified. While the rule of res judicata may not strictly apply to income-ta....
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.... with the ld. CIT(A) that, using profitability as a basis for allocating common expenses is fundamentally flawed. Ordinarily, the most prudent approach is to allocate the common expenses in the ratio of sales or in the ratio of assets. The latter methodology is commonly used in capital intensive industries, like that of the assessee. The ld. AR also showed us that, even if the common expenses are allocated in the ratio of sales, the quantum allocable would be lower than what has been allocated in the ratio of assets. For these reasons, we concur with the view expressed by the ld. CIT(A) in paras 3.11 to 3.14 of the appellate order and thus dismiss this ground of the Revenue. 17. In the result, the appeal of the Revenue in ITA No.2663/Kol/2025 is dismissed. ITA No.2600/KOL/2025 - AY 2021-22 (Revenue's appeal) 18. This issue raised in Ground Nos. 1 to 11 relate to transfer pricing adjustment made by the ld. TPO/AO to transfer value of power by the captive power plants at Jamuria. 19. Heard both the parties. The uncontroverted facts are that, the assessee had benchmarked the transfer price of power at Jamuria Units at the average landed cost of electricity of Rs. 4.80/unit....
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....eld. AO to re-compute the eligible deduction u/s 80-IA, as per the revised working furnished by the assessee by adopting the transfer price at Rs. 6.19/unit. 27. Heard both the parties. The issue raised in this appeal is similar to ground Nos. 1 to 11 in ITA No. 2663/KOL/2025 for A.Y. 2020-21 as decided by us (supra). Accordingly, our decision would, mutatis mutandis, apply to this appeal as well. We thus uphold the order of ld. CIT(A) and dismiss these grounds of the Revenue. 28. This issue raised in Ground No. 12 is against the action of ld. CIT(A) upholding the assessee's allocation of common expenses in the ratio of assets, as opposed to the profitability ratio adopted by the ld. AO. 29. The issue raised in this appeal is similar to ground no. 12 in ITA No. 2663/KOL/2025 for A.Y. 2020-21 as decided by us (supra). Accordingly, our decision would, mutatis mutandis, apply to this appeal of Revenue. Hence, the ground no.12is dismissed. 30. In the result, the appeal of the Revenue in ITA No. 2664/KOL/2025 is dismissed. ITA No. 2665/KOL/2025 - AY 2021-22 [Revenue's appeal] 31. This issue raised in Ground Nos. 1 to 11 relate to transfer pricing adjustment made by the....