SHAHI EXPORTS PRIVATE LIMITED,NEW DELHI vs. ASSISSTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 8, DELHI, DELHI

The AO thereafter, passed the final assessment order u/s 143(3) r.w.s 144C(3) of the Act dated 25.10.2024 wherein total income of the assessee is assessed at INR 3,18,97,42,955/- by making adjustment towards reduction in assessee’s claim of deduction u/s 80IA of the Act as per TPO’s order.

Against such order, the present appeal filed by the assessee before Tribunal.

In Ground No.1, the assessee has challenged the action of AO/TPO/DRP in reduction the claim of deduction of INR 33,59,64,275/-. 7. Brief facts of the case are leading to this issue are that the assessee has entered into specified domestic transaction of inter unit transfer of steam generated from boiler by the eligible unit to non-eligible unit where the assessee has benchmarked the transaction by applying CUP method. The assessee calculated the electricity generated from steam and by considering the price charged by the electric distribution company / state electric boards from its consumers worked out the ALP. The TPO asked the assessee to show cause as to why not the transaction be benchmarked by using CUP method and by considering the rate/average rate charged by the power generation companies working in the areas and States where the boilers were located, worked out the amount of adjustment and reduced the amount of deduction u/s 80IA of the Act by INR 33,59,64,275/-. 8. At the outset, Ld.AR drew our attention to the judgement of Hon’ble Delhi High Court in assessee’s own case in dated 17.01.2022 wherein the Hon’ble High Court Page | 3 while admitting the appeal of the revenue observed that the substantial questions of law raised by the revenue in question 2.6 to 2.8 are squarely covered by the decision of Hon’ble Supreme Court in the case of CIT vs Jindal Steel & Power Ltd. (2023 SCC OnLine SC 1632) and thus not admitted these questions for consideration.

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 difference between the transactions being benchmarked, which is supply of electricity by captive units, and the transaction of supply of electricity by distribution companies/corporations. The power distribution companies enjoy a near monopoly status. The tariffs charged by such companies are regulated tariffs. However, we accept that there is a sufficient degree of similarity between the said transaction for reasonably determining the ALP by using the CUP method." Page | 4

He further placed reliance on the recently judgement of Coordinate Jaipur Bench of ITAT in the case of ACIT vs. Wonder Cement Ltd. reported in [2025] 172 taxmann.com 549 where on similar issues for Assessment Year 2020-21 the coordinate bench has also followed the judgment of Hon'ble Supreme Court in the case of Jindal Steel & Power Ltd. (supra) for the determination of eligible profits in the case of captive power units even after judicially noticing the provisions of Section 80A(6) read with Explanation and Section 80IA(8) with Explanation thereto.

The Ld. AR finally submits that this issue is settled by the Hon’ble High Court in assessee’s own case and also in other cases as stated above, therefore, the adjustments made by reducing the deduction claimed u/s 80IA of the Act on account of transfer of steam deserves to be deleted.

On the other hand, Ld. CIT DR for the Revenue supported the orders of the lower authorities and submits that TPO has taken the correct view that the price at average rate charged by Electricity Boards is to be considered and thus he prayed for confirmation of the orders of lower authorities.

We have heard the contentions of both the parties and perused the material available on record. In the instant case, the solitary issue of dispute is with regard to the price on which the electricity generated from steam is transferred from eligible unit to non-eligible unit. In the instant case, the appellant had installed the 1boilers for the generation of steam only meant for captive consumption and not otherwise. The appellant did not sell any steam to the outsiders. The generation of electricity and its supply are controlled by the Electricity Act, 2003 and the Electricity (Supply) Act, 1948. As per the Act, no person without a license can trade in the electricity. The generation companies are different from the distribution companies. The generation companies, 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.

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 irrespective of the value assigned in the books of account. The expression 'market value' in Section 80A(6) of the Act has been defined in the Explanation attached thereto. Under the Explanation, the market value has Page | 6 been explained in two types of cases. Clause (i) and clause (ii) of the Explanation deal with the cases where the profit must be determined with an application of the transfer pricing provisions. Clause (iii) of the Explanation deals with the cases where the inter- se transactions are considered as specified domestic transactions in terms of Section 92BA of the Act. Clause (iii) of the Explanation states that if the transactions are specified domestic transactions as referred to in Section 92BA, then the market value of the goods remains the ALP as defined in clause (ii) of Section 92F of the Act.

We observed that similar provisions are contained in Section 80IA(8) of the Act where the clause (ii) of Explanation to Section 80IA(8) also states that the market value in relation to any goods transferred means an arm's length price as defined in clause (ii) of Section 92F of the Act where the transfer of such goods is a specified domestic transaction in Section 92BA of the Act. Both clause (ii) of the Explanation to Section 80A(6) as well as clause (i) of the Explanation to Section 801A(8) have been brought to the statute book by the Finance Act, 2012 with effect from 1st April 2013.

Now coming to the facts of the present case where the TPO had evaluated and compared the transactions with reference to the average price paid to the power generating companies, who did not sell the electricity in the open market on account of the restrictions made in the Electricity Act, and are bound to sell the electricity only to the State Electricity Board as per the contractual terms who in turn supplied the electricity in the open market to end consumers. The coordinate bench of ITAT Jaipur in the case of Wonder Cement Ltd. (supra) after considering these facts did not accept the TPO's Page | 7 order. The coordinate bench in paragraph 14 of its order has made following observations: "14. Evaluating this in light of the meaning of arm's length price i.e. a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions, it is evident that the transaction 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."

In the appellant's own case for Assessment Year 2016-17, the coordinate bench of Tribunal vide 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.

This proposition is further supported by the Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd.(supra). The Hon’ble Jurisdictional High Court in the case of CIT Vs. DCM Shriram Ltd. in vide order dated 02.05.2024, held that Revenue has failed to controvert the assertions that rates in IEX are for power purchase and not for power consumption whereas electricity supply by power distribution company is charged on the basis of power consumed. The Hon’ble high Court further followed the Judgement of Hon’ble Supreme Court in the case of Jindal Steel Page | 8 & Power Ltd. (supra) and held the order of the Tribunal as reasonable order and confirmed the same. The observations of the Hon’ble high Court as contained in para 43 to 60 of the order are reproduced as under-

“In the present case, the question is to determine the market value or the ALP of power supplied by power plants established by the Assessee to its other units. Supplying of electricity is governed by the Electricity (Supply) Act, 1948 and Electricity Act, 2003. The transmission of electricity is also governed by the Electricity Rules, 2005.

Thus, the market for supply of electricity is regulated. Thus, to apply the CUP method, it would be necessary to ascertain the comparable transactions that are similar in material aspects and there is no difference between the transactions which has a bearing on the price of the power supplied.

The question whether the average IEX rate at which power is traded on IEX, is a comparable uncontrolled transaction, is required to be evaluated by determining whether there are any differences between the specified domestic transaction6 and the uncontrolled transaction of trade on the IEX. 46. The Assessee states - and the same is not controverted - that the availability of power on IEX is unpredictable and the supply of power is unreliable. 47. It is stated that in order for a party to purchase power from IEX, the said party has to participate in the bidding process. The same entails furnishing a bid in advance for supply of fifteen minutes slots. Illustratively, it is stated that if a party requires power supply for a period of four hours, it would be required to submit sixteen bids for fifteen minutes slots. Further, the bidder cannot resile from the bids furnished by it in advance. 48. In view of the above, it is contended that power traded on IEX cannot be compared 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.

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 is also not disputed that there is a wide fluctuation in the IEX rates. The Revenue has also not controverted the assertion that rates for power quoted on IEX are for power purchased and not for power consumed. Thus, if an entity bids for certain quantity of power on IEX and is successful, it is required to pay for the same. However, the electricity supplied by power distribution companies is charged on the basis of the power consumed, which is recorded in the metering devices.

It is also clear that the said material differences between the electricity supplied by SEBs or power distribution companies and those secured by bidding on IEX would have a significant bearing on the price of power.

As noted above, the CUP method is an appropriate method only in cases where there is sufficient degree of identity between the tested transactions and comparable uncontrolled transactions. The CUP method cannot be applied where there is significant dissimilarity between the comparable transactions and it is not feasible to determine an adjustment to eliminate the impact of the said differences on the prices of comparable transactions.

In the present case, the Assessee had supplied excess power to UPPCL in UP region at the rate of ₹4.39 per kWh. Thus, the said transaction was accepted by the learned DRP as well as the learned ITAT as an internal uncontrolled transaction. The rate at which such electricity was supplied by the Assessee being ₹4.39 per kWh, was rightly accepted as an ALP.

As noted above, the learned ITAT also accepted the rates at which electricity was supplied by the SEBs/power distribution companies to the Assessee in Gujarat and Rajasthan regions as the said rates was considered as an external CUP.

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 difference between the transactions being benchmarked, which is supply of electricity by captive units, and the transaction of supply of electricity by distribution companies/corporations. The power distribution companies enjoy a near monopoly status. The tariff charged by such companies are regulated tariffs. However, we accept that there is a sufficient degree of similarity between the said transaction for reasonably determining the ALP by using the CUP method.

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 ₹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 ₹3.72 per unit. It was the Assessee's case that the market value of the electricity was ₹3.72 per unit as that was the rate charged by the SEB for supply of electricity to industrial consumers including the Assessee. The learned ITAT had accepted the assessee's stand and had set aside the order passed by the CIT(A) rejecting the assessee's appeal in that regard. The High Court had also rejected the Revenue's appeal by referring to its earlier decision where the question of law had been answered against the Revenue and in favour of the Assessee.

The Revenue had approached the Supreme Court assailing the orders passed by the learned ITAT and the High Court. In the aforesaid context, the Supreme Court had held as under: "23. This brings to the fore as to what do we mean by the expression "open market" which is not a defined expression. 24. Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression "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.

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 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 Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition.

Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit.

Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold Page | 12 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." [emphasis added] 59. As is apparent from the above, the Supreme Court had accepted the rates at which electricity was supplied by the SEBs to industrial consumers as being the market value of the said supplies for the purposes of Sub- section (8) of Section 80IA of the Act.

In view of the above, the questions of law are answered in favour of the Assessee and against the Revenue.”

The Co-ordinate Bench of ITAT, Kolkata in the case of DCIT Vs. Philips Cabon Black Ltd. under identical 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 the rate at which the manufacturing unit was procuring power from the Grid. On further appeal by the Revenue, the Hon'ble Calcutta High Court after taking note of the decision of Jindal Steel & Power Ltd (supra) wherein their earlier decision in the case of ITC Ltd (supra) was reversed, since upheld the decision of the Hon'ble ITAT vide its recent order dated 05.02.2025 passed in ITAT/214/2024. It is also material to mention that the Hon'ble ITAT, Kolkata in ITC Ltd's own case for subsequent AY 2009-10 in & 1267/Kol/2014 read with MA Nos. 17-18/Kol/2019 have also expressed a divergent view as expressed in their own case by Hon'ble Page | 13

In view of the above facts, for the purposes of determination of the market value of the transfer of steam from eligible unit to non- eligible unit is to be taken at the market value at which the electricity company charges from consumers as has been requested by Ld.AR. Accordingly, we direct 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. With these direction Ground of appeal No.1 raised by the assessee is accordingly, partly allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 27.06.2025.