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Facts
The Revenue appealed against the CIT(A)'s order, which granted relief to the assessee by relying on the decision in Jindal Steel. The core issue was the determination of the price at which electricity generated by the assessee's Wind Energy Unit was transferred to its Textile unit for claiming deduction under Section 80IA.
Held
The Tribunal held that the market value for computing the deduction under Section 80IA should be the price at which the State Electricity Board supplies power to industrial consumers, not the price at which power is sold to the electricity board or determined by Arm's Length Price (ALP) in all cases, especially when the power is for captive consumption.
Key Issues
Whether the market value for computing deduction under Section 80IA for captive consumption of electricity should be based on the rate at which the State Electricity Board supplies power to consumers or determined using Arm's Length Price (ALP).
Sections Cited
80IA, 80IA(8)
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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI ABY T VARKEY & SHRI AMITABH SHUKLA
for AY-2017 and 2018 contesting the order of Ld. First Appellate Authority indicated Column-E, herein below:-
S. Appeal AYs Appellant CIT(A) Order Details Respondent No. Nos. A B C D E F DIN & Order No.ITBA / APL / S Joint / 250 / 2024-25 / M/s.Premier Mills Pvt. / Chny / Commissioner 1 2017-18 1071250349(1) dated Ltd, of Income Tax 2025 RR Landmark, 1E-1, 16.12.2024 (OSD), Nava India Road, Corporate DIN & Order No.ITBA / APL / S Coimbatore, Circle-1, / 250 / 2024-25 / Tamil Nadu-641 028. 2 2018-19 Coimbatore. / Chny / 1071250985(1) dated [PAN: AABCP5924C] 2025 16.12.2024 2.0 At the outset, the Ld.DR for the Revenue confirmed that the facts of both the appeals are common. Accordingly, as both the appeals are centering around a common issue and hence for the purposes of convenience were heard and are being adjudicated together by this common order. For the purposes of this adjudication the facts and figures for AY-2017-18 have been taken. The decision for AY-2017-18 shall apply mutatis mutandis for appeal AYs-2018-19 also. 3.0 The Ld.DR submitted that for AY-2017-18 and 2018-19 the Revenue is contesting the action of Ld.CIT(A) in giving relief to the assessee by relying upon the decision of Hon’ble Apex Court in the case of Jindal Steel and Power Limited. It was argued that the decision in the impugned case is distinguished on account of difference in contemporaneous statutory prescription. The Ld. DR took us through the brief factual matrix of this case. It was submitted that in this case the Ld.AO had, based upon recommendation of the Ld.TPO, made an downward adjustment of Rs.18,17,90,215/- to the assessee’s claim of deduction u/s 80IA of the Act. The assessee was having two units being Wind Energy Unit and a Textile unit. The main issue at hand was determination of price at which Wind Energy power was to be transferred to the Textile unit of the assessee. Whereas the assessee had taken the Page - 2 - of 10 price at which Tamil Nadu Government Electricity Department supplied power to its customers, the Ld.AO / TPO held the view that it should adopt the price at which the Government Department purchases its power. The Ld.CIT(A) held the view that the facts of assessee’s case were identical to those pronounced in the case of Jindal Steel by Hon’ble Apex Court and also to the decision of this tribunal in the case of Eveready Spilling Mills Private Limited IT(TP)/No.2/Chny/2022 dated 30.03.2023. 4.0 Per contra, the Ld.DR relied upon the order of the Ld.AO. He vehemently argued against the decision of Ld.CIT(A) submitting that the cited decisions were distinguished. It was urged that the decision of Hon’ble Hyderabad tribunal as at IT(TP)A No.104 / Hyd / 2022 in the case of Sanghi Industries Limited supports Revenue’s case that the decision in the case of Jindal Steel by Hon’ble Apex Court is not applicable in such cases. 5.0 The Ld.Counsel for the assessee forcefully argued in favour of the order of the Ld.CIT(A). Written Submissions were also filed. It was argued that the decision of Ld.CIT(A) is based upon correct understanding of facts and analysis of available judicial pronouncements by the Hon’ble Supreme Court as well as this tribunal. It was stated that the decisions of this tribunal in India Cements IT(TP)A No.66 / Chny / 2022, Eveready Spinning Mills IT(TP)A No.2/Chny/2022, and of Reliance Page - 3 - of 10 Industries 421 ITR 686, of Hon’ble Delhi Court in the case of DCM Sriram Limited etc fully support its case. It was urged that to the extent it is a covered matter. As regards Revenue’s reliance upon the decision of Hyderabad tribunal in Sanghi Industries, the Ld.Counsel argued that the decisions of Hon’ble Delhi tribunal, Delhi High Court and Mumbai tribunal have succeeded Sanghi Industries and therefore the impugned decision cannot be relied upon. 6.0 We have heard the rival submissions in the light of material available on records. We have noted that the issue at hand of determining the price of the power produced is no more res integra and is settled decision. We have noted that this tribunal in the case of Prabhu Spinning Mills in & 435 / Chny / 2025 have ruled as under:- “……35. In other words, but for the mere inclusion of applicability of Arm’s Length Price mechanism for determining market value for specified domestic transactions for determining the deduction u/s.80-IA, to say that the usage of the said term in the judgement of the Hon’ble Supreme Court is not in context of section 92F of the Act would be incorrect. Having said so, we are of the view that the usage of the terms Market Value and Arm’s Length Price interchangeably in its decision and thereafter arriving at the conclusion that the rate at which State Electricity Board supplied electricity to industrial consumers would have to be taken as market value for computing deduction u/s.80-IA of the Act would be appropriate for determination of quantum of deduction u/s.80-IA in the instant case.
Further, at this stage, we find it necessary to refer to the decision of the Mumbai Bench of the Tribunal in the case of Tata Chemicals Ltd. relied upon by the Ld.AR wherein in effect it was held that since clauses (i) or (ii) of explanation to section 80-IA(8) are separated by an “or”, an interpretation that only clause (ii) of explanation to section 80-IA(8) has to be used for determination of specified domestic transaction would render clause (i) of explanation to section 80-IA(8) otiose and redundant which is not a permissible rule of interpretation. It would be relevant to point out that the Tribunal therefore concluded that so long as both
Page - 4 - of 10 clauses exist, one has to see if market value is discernible from the price for such goods which it would ordinarily fetch in the open market 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. 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.
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 is captively consumed by the assessee’s own manufacturing divisions.
We also note that the decisions of the Hon’ble Calcutta High Court relied upon by the Ld.AR in the case of Star Paper Mills Ltd. which has been followed in the case of Birla Corporation Ltd. and also Rungta Mines Ltd. are all binding on us since all of these decisions have been rendered by higher courts and have considered the issue in hand, i.e., the determination of quantum of deduction in respect of inter-unit transfer of electricity, after taking into consideration the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd., the relevant provisions of the Electricity Act and also the amendment in explanation to section 80-IA(8) of the Act.
We may particularly draw reference to the decision of the Hon’ble Calcutta High Court in the case of PCIT v Rungta Mines Ltd. [TS-402-HC-202(CAL)-TP] wherein it was held as under: “14. It is not in dispute that the main business of the assessee is not generating power to sell the same to distribution companies/SEBs. It is also not in dispute that the Captive Power Plants (CPPs) were established by the assessee for its own need, i.e. for supply of uninterrupted power to its manufacturing units as well as to save the cost of power purchased from SEBs. If such be the factual position the Arm’s Length Price 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. Therefore, the Arm’s Length Price has to be determined bearing in mind the reason behind establishment of the CPPs namely to ensure uninterrupted power and to save on cost of electricity which otherwise has to be paid to the State Electricity Board.” Page - 5 - of 10
From the above, it is quite clear that the Hon’ble Calcutta High Court has clearly observed that in case of an assessee who is not in the business of selling power to distribution companies or State Electricity Board, the Arm’s Length Price cannot be determined by taking the average market rates of power supply units to distribution companies but by bearing in mind the reason behind establishment of the captive power plants (CPPs) namely to ensure uninterrupted power and to save on cost of electricity which otherwise has to be paid to the State Electricity Board.
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 the appeals filed by the revenue.”
Thus, in our considered view, we hold that the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd. referred to supra would apply even after the amendment made to Explanation to section 80-IA(8) of the Act. Also, the decision of the Hon’ble Calcutta High Court in Rungta Mines Limited and Star Paper Mills Ltd. referred to supra rendered after considering the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd. referred to supra and after taking into account the amendment made to Explanation to section 80-IA(8) of the Act would apply to the facts and circumstances of the instant case. The ALP in the instant case would thus have to be the price at which electricity is supplied by the State Electricity Board (TANGEDCO in the instant case) to end consumers in open market. Therefore, we direct the AO to recompute the ALP considering the rate adopted by the assessee as per the market price. …”
7.0 Again this tribunal in its decision in the case of India Cements vide IT(TP)A No.66 / Chny / 2022 held as under:-
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“…..7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for assessment year 201314 in where the Tribunal under identical set of facts and also by following certain judicial precedents, including the decision of Hon’ble High Court of Bombay in the case of CIT vs Reliance Industries Ltd (Supra) held that while computing deduction u/s. 80IA of the Act for power generation companies for captive consumption, the rate charged by electricity distribution companies to its consumers should be considered instead of rate at which the power generating companies supply power to the electricity distribution companies. The relevant findings are as under: 18.5 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for assessment year 2011- 12 in dated 12.12.2019, where the Tribunal under identical set of facts by following certain judicial precedents including the decision of Hon’ble Bombay High Court in the case of Reliance Industries Ltd., and the decision of Hon’ble Chhattisgarh High Court in the case of M/s.Godavari Power and Ispat Ltd., supra held that while computing deduction u/s.80IA for generation of power for captive consumption, the rate at which electricity board supply power to its consumers should be considered instead of the rate at which the power generating companies supply its power to the electricity board. The relevant findings of the Tribunal are as under:- “31. We have considered the rival submission and perused the materials available on record.
A perusal of the facts in the present case clearly shows that the assessee has been captively consuming the electricity generated from its wind mill as also the Heat Waste Recovery Treatment Plant. Admittedly, the assessee is entitled to the deduction u/s.80IA of the Act in respect of the electricity generated and consumed. This is not in dispute. The dispute has risen for computing the deduction u/s.80IA of the Act. The issue admittedly is covered by the decision of the Co-ordinate Bench of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax referred to supra and as also the decision in the case of Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra. A similar view has also been taken in the case of M/s. Saranya Textiles vs. The Assistant Commissioner of Income Tax, wherein one of us is a party. This view of ours is also supported by the decision of the Hon’ble Gujarat High Court in the case of Commissioner of Income Tax vs. Gujarat Alkalies Chemicals Limited reported in 395 ITR 247(Guj.), wherein it has been held that the deduction u/s.80IA was allowable to the for generation of power for captive consumption and that the rate of power generation at which the electricity board supplied power to its consumers rather than the Page - 7 - of 10
rate at which the power generating companies supply its power to the electricity board was to be taken as the price. Further, this view has been supported by the decision of the Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Reliance Industries Limited in dated 0.01.2019 and as also the decision of the Hon’ble Chhattisgarh High Court in the case of Godavari power and Ispat Limited reported in [2014] 42 Taxman.com 551 (Chhattisgarh). As it is noticed that the learned CIT(A) has followed judicial discipline by following the decision of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax and Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra, as it is noticed this view has also been approved by the Hon’ble High Courts referred to supra, we find no error in the order of the learned CIT(A) which calls for any interference. It may be mentioned here that the deduction u/s.80IA is the deduction from the total income of the assessee the profits and gains of an eligible undertakings. The Hon’ble Gujarat High Court has categorically admitted that the deduction u/s.80IA is permissible for captive consumption and even the rate at which the deduction is to be computed. Consequently, the issue is held in favour of the assessee and against the Revenue.”
18.6 In the present case, the facts are identical with that of the facts considered by the Tribunal in earlier year. The CIT(A) after considering relevant facts and also by following the decision of the ITAT, Chennai in the case of Eveready Spinning Mills (P) Ltd., vs. ACIT, (2012) 17 taxmann.com 254 and the decision in the case of Shri Velayudhaswamy Spinning Mills (P) Ltd., vs. DCIT, (2012) 19 taxmann.com 28 has deleted additions made by the AO by holding that market value of the power captively consumed should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power at which power could have been sold to SEBs because this is not the rate for which a consumer could have purchased power in the open market. Therefore, we are of the considered view that there is no error in the finding recorded by the ld.CIT(A) to delete additions made by the AO towards TP adjustment on deduction claimed u/s.80IA of the Act. Hence, we reject the ground taken by the Revenue.”
In this view of the matter and consistent with view taken by the coordinate bench, we are of the considered view that the DRP has completely erred in sustaining the additions made by the Assessing Officer towards downward adjustment to the transactions of inter unit transfer of power from captive power generating unit to the assessee company. Thus, we direct the Assessing Officer to delete additions made towards TP adjustment in respect of deduction claimed u/s. 80IA of the Act….”.
Page - 8 - of 10 8.0 We have noted that the facts of the present case for AY-2017-18 are identical to those discussed in decisions examined above. We have also noted that the decision of Hyderabad tribunal has also been analyzed as also the contemporaneous relevance of decision of Hon’ble Apex Court in Jindal Steels. Accordingly, we are of the considered view that the decision of Ld.CIT(A) is based upon correct understanding and interpretation of facts of the case and therefore does not require any intervention at this stage. Consequently, we sustain the order of the Ld.CIT(A) and dismiss all the grounds of appeal raised by the Revenue. 9.0 In the result, the appeal of Revenue vide / Chny / 2025 is dismissed. 10.0 As the facts of Revenue’s appeal in / Chny / 2025 for AY-2018-19 are identical to those in / Chny / 2025 supra, the appeal of the Revenue for ITA No.514 / Chny / 2025 for AY-2018-19 is also dismissed. Order pronounced on 21st , November-2025 at Chennai. Sd/- Sd/- (एबी टी. वर्की) (अधमताभ शुक्ला) (ABY T VARKEY) (AMITABH SHUKLA) न्याधयक सदस्य / Judicial Member लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 21st , November-2025. KB/-
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