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Facts
The appeals involved three assessment years (2014-15 to 2016-17) and contested the deletion of additions made by the AO on account of royalty payments and corporate guarantee payments. The core dispute revolved around whether the royalty paid for the use of the 'CRI' trademark was an allowable expenditure and the arm's length price for corporate guarantee services.
Held
The Tribunal held that royalty paid for the use of the 'CRI' trademark was a revenue expenditure and an allowable deduction, upholding the CIT(A)'s decision. Regarding corporate guarantees, the Tribunal upheld the CIT(A)'s direction to allow the corporate guarantee at 1% and re-determine the ALP accordingly. The issue of power generation and sale was also decided in favor of the assessee, following Supreme Court precedents.
Key Issues
Whether royalty payments for trademark usage are allowable as revenue expenditure and the correct determination of arm's length price for corporate guarantee services.
Sections Cited
40A(2)(b), 92CA(3), 80IA(8)
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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI AMITABH SHUKLA
(प्रत्यर्थी/Respondent) (अपीलार्थी/Appellant) अपीलार्थी की ओर से/ Assessee by : Shri N. Arjun Raj, Advocate प्रत्यर्थी की ओर से /Revenue by : Shri Saujanya Ranjan, IRS सुनवाई की तारीख/Date of Hearing : 06.05.2025 घोषणा की तारीख /Date of Pronouncement : 07.05.2025 आदेश / O R D E R PER BENCH:
The below mentioned three appeals have been filed by the appellant Revenue for AY-2014-15 to AY-2016-17 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 / 250 / 2024-25 / 1070548988(1) dated 1 2014-15 M/s. CRI Pumps Joint / Chny / 22.11.2024 Private Limited, Commissio 2025 No.7/46-1, ner of Keeranatham Road, Income DIN & Order No. ITBA / APL / Saravanampatty Tax(OSD), S / 250 / 2024-25 / Post, 2 2015-16 / Chny / Corporate 1070549379(1) dated Coimbatore, 2025 Circle-1, 22.11.2024 Tamil Nadu- 641 035. Coimbatore [PAN: AAACC9497N] DIN & Order No. ITBA / APL / ITA No. 267 S / 250 / 2024-25 / 3 2016-17 / Chny / 1070549661(1) dated 2025 22.11.2024 All the above appeals are centering around common issues and hence for the purposes of convenience were heard and are adjudicated together.
2.0 The first common issue raised by the Revenue in 266 & 267 for AY-2014-15 to 2016-17 is regarding the action of the Ld.CIT(A) in deleting the addition made by the Ld. AO on account of Royalty payment u/s 40A(2)(a) of the Act. The appellant revenue has conceded that the addition to all the three years is resting on identical facts . Therefore , as the issue is common to all the three years and is resting on identical facts, we will consider the figures for the AY-2015-16 as lead year. The decision of AY-2015-16 shall apply mutatis mutandis in both the ITA 265 & 267 also.
Page - 2 - of 15 3.0 The Ld. DR relied upon the order of the Ld.AO for the reasons mentioned therein. 4.0 The Ld. Counsel for the assessee submitted that the Ld.AO had made an addition of Rs.4,35,41,770/- on account of Royalty payment to M/s.CRI amalgamation private limited being the holding company, for use of trade mark “CRI”. The Ld. AO had premised that assessee was the owner of the trade mark for more than three decades and therefore the payment of Royalty was not in order. The Ld. Counsel submitted that the Ld. AO had rejected their arguments that the impugned trade mark was vesting with M/s.CRI amalgamation private limited and that the assessee was only using it. The Ld. AR submitted that the trade mark had actually been transferred from the assessee to M/s.CRI amalgamation private limited by way of a family settlement. 5.0 The Ld. Counsel argued that the Ld CIT (A) has discussed the issue vividly in para 4.2 on page 14 of his order. The Ld. CIT(A) deleted the addition by relying upon the decision of this tribunal in its own case for AY-2013-14 dated 18.11.2022 in ITA No.430/Chny/2018. 6.0 We have heard rival submissions in the light of material available on records. We have noted with deference the decision of this tribunal in assessee’s own case for AY-2013-14 dated 18.11.2022 in ITA No.430/Chny/2018. In the impugned case, the Hon’ble Coordinate Bench of this tribunal held as under:- Page - 3 - of 15 “….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 had been considered by the Tribunal in assessee’s own case for assessment year 200809 in where the Tribunal considering relevant agreement between the parties, for payment of royalty to holding company for using brand name CRI and also by following certain judicial precedence including the decision of Hon’ble Madras High Court in the Scheme of Amalgamation between group companies including assessee, held that royalty paid by the assessee is of revenue in nature, which is an allowable expenditure. The relevant findings of the Tribunal are as under: 4.5 :-9-: ITA. No:430/Chny/2018 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. We have also perused the paper book filed by the assessee, wherein, the assessee has filed copy of the assignment deed, user agreement, order of the Hon’ble High Court sanctioning the Scheme of Amalgamation and also written submission filed by the Sr. AR of the Department Shri R. Duraipandian, JCIT. In this case, the assessee paid 0.5% of its turnover as royalty for the trade mark “CRI” which was assigned to M/s. CRI Amalgamations through assignment deed executed between CRI Industries Pvt. Ltd. & CRI Amalgamation Pvt. Ltd. The Scheme of Amalgamation was duly sanctioned by the Hon’ble Madras High Court vide its order dated 25.09.2007 w.e.f. 31.03.2007. While approving the Scheme of Amalgamation, the Hon’ble High Court has specifically provided that the transfer of all assets of the transferor companies to the transferee company, except those set out in clause 5.6 of Schedule G of the Scheme. As per Assignment Deed executed on 31.03.2007, the assignor M/s. CRI Industries Private Limited consist of several manufacturing and non-manufacturing companies have agreed to give away the trade mark “CRI” for a consideration of ₹.1,000/- to M/s. CRI Amalgamation Pvt. Ltd. However, the damages proposed to be paid by M/s. CRI Amalgamation Pvt. Ltd. for using the trade mark “CRI” was not mentioned in the assignment deed. However, through a User Agreement executed on 02.04.2007 between the CRI Amalgamations Pvt. Ltd. and the assessee have agreed for payment of royalty to the proprietor with effect from 01.04.2007 a sum equal to 0.50% of monthly turnover arising out of the sale of the User Goods. Once the Proprietor and the User have agreed and fixed the rate of royalty, no provisions of section of Income Tax Act or Income Tax Rules shall interfere either to reduce or enhance the rate of royalty. 4.6 The Assessing Officer simply comparing the payment of royalty with the consideration paid towards acquiring the trade mark “CRI” by the proprietor to whom the royalty was paid. If any claim of expenditure made without any evidence or found false or bogus, then the Assessing Officer has every right to reject the claim after recording salient findings. What is required to be expended has to be seen from the businessmen point of view and not from the view of the Assessing Officer. In this case, the Hon’ble Madras High Court has sanctioned the Scheme of Merger vide its order dated 25.09.2007 w.e.f. :-10-: ITA. No:430/Chny/2018 31.03.2007 between CRI Industries and five group concerns along with the assessee provided specifically for the transfer of all assets of the transferor companies to the transferee company, except those set out in Schedule G of the Scheme as per clause 5.6 (page 22 of the Hon’ble High Court order), wherein it has been stated as under: “The trade mark belonging to various transferor companies as are specifically enumerated in Schedule G hereto are already the subject matter of an agreement of assignment in favour of M/s. CRI Amalgamations Private Limited, to Page - 4 - of 15 be effective from 31.03.2007, and so these Trade Marks shall not stand transferred to or vested in the Transferee Company”. After carefully perusing the order of the Hon’ble Madras High Court, it is clear that all the assets of the transferor companies were amalgamated with transferee company, except the Trade Mark. Therefore, the Assessing Officer was factually not correct to conclude that after merger, the trade mark “CRI” was the property of the assessee company. 4.7 The Assignment Deed was executed on 31.03.2007 between the CRI Industries Ltd. and CRI Amalgamation Pvt. Ltd., by which, the latter become the proprietor of the trade mark on the consideration duly agreed by both assignee company and assignor. Further, the User Agreement was executed on 02.04.2007 between the Proprietor of the trade mark viz., CRI Amalgamations Pvt. Ltd. and User i.e., assessee by agreeing for payment of royalty, a sum equal to 0.50% of monthly turnover by the User company for using the trade mark “CRI”. In the earlier years the assessee has been paying royalty to M/s. CRI Industries regularly and was accepted by the Department and allowed it as revenue expenditure. M/s. C.R.I. Industries, the receipt of royalty payments till assessment year 2007-08 has been offering the same to tax which was accepted by the Department. Moreover, for the assessment year 2008-09, the royalty recipient company M/s. C.R.I. Amalgamations (P) Ltd. has offered to tax the royalty received from the assessee of ₹.1,60,97,339/-. 4.8 The main contention of the ld. DR is that the sum of royalty paid by the assessee attracts the provisions of section 40A(2)(b) of the Act without giving any appropriate reasons. Just because the Assessing Officer was of the opinion that such :-11-: ITA. No:430/Chny/2018 expenditure is excessive or unreasonable, the expenses towards royalty, deduction cannot be denied. The provisions of section referred to by the ld. DR relates and shall have effect notwithstanding anything to the contrary contained in any other provision of the Income Tax Act relating to the computation of income under the head “Profits and gains of business or profession”, where the assessee incurs any expenditure in respect of which payment has been made to any person referred to in clause (b) of sub-section (2) to section 40A of the Act and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The case of the assessee does not come under the purview of any person referred to in clause (b) of sub-section (2) to section 40A of the Act. Accordingly, we reject the contention of the ld. DR. 4.9 In the case of ACIT v. Shriram Transport Finance Co. Ltd. [2011] 9 ITR (Trib) 543 (Chennai), the Coordinate Bench of the Tribunal has observed that the payment for nonexclusive user of logo based on turnover and not lump sum payment should be treated as revenue expenditure. In the present case, the assessee paid the royalty for exclusively using the trade mark “CRI” based on monthly turnover at the rate of 0.50%, which was duly agreed and executed a User Agreement between the proprietor and user. Therefore, the expenses incurred towards payment of royalty should be treated as revenue expenditure. 4.10 In the case of CIT v. Sharda Motor Industrial Ltd. 319 ITR 109, the Hon’ble Delhi High Court has held that the finding of the ld. CIT(A) that the payment of royalty was purely a revenue expenditure, which was annual expenditure depending upon the quantum of production in the relevant year was a finding of fact rightly arrived at. In the Page - 5 - of 15 present case also, the User being assessee shall pay a royalty to the Proprietor [M/s. C.R.I. Amalgamations Pvt. Ltd.] with effect from 01.04.2007, a sum equal to 0.50% of monthly turnover arising out of the sale of the user goods during the term of the agreement. Under the above facts and circumstances and in view of various decisions (supra), we hold that the royalty paid by the assessee is of revenue in nature, which is an allowable expenditure in the hands of the assessee. Therefore, the ld. CIT(A) has rightly directed the Assessing Officer to allow the expenditure paid as royalty. Thus, the ground raised by the Revenue is dismissed.”
8. In this view of the matter and consistent with the view taken by the co-ordinate bench in assessee’s own case for earlier assessment years, we are of the considered view that the assessee is entitled for deduction towards royalty payment to holding company for using brand name CRI and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the Revenue…..”
7.0 We have also noted that the facts of the present appeals are identical to those adjudicated by this tribunal in Supra. Accordingly, in respectful compliance to the decision above, we are of the considered view that there is no case for intervention in the order of the Ld.CIT(A). The findings of the Ld.CIT(A) are upheld and all the grounds of appeal raised by the Revenue on this Royalty issue are dismissed.
8.0 Since the facts are identical, the decision in for AY- 2014-15 shall apply mutatis mutandis to & 267 for AY-2015- 16 to 2016-17 and therefore findings of the Ld.CIT(A) for these appeals are also upheld and all the grounds of appeal raised by the Revenue on this Royalty issue are dismissed.
9.0 The next common issue raised by the Revenue in 266 for AY-2014-15 to 2015-16 is regarding the action of the Ld.CIT(A) in deleting the addition made by the Ld. AO/TPO on account of Page - 6 - of 15 Corporate Guarantee payment. The appellant revenue has conceded that the addition in all the two years is resting on identical facts . Therefore , as the issue is common to both the years and is resting on identical facts, we will consider the figures for the AY-2014-15 as lead year. The decision of AY-2014-15 shall apply mutatis mutandis in the ITA 266 for AY-2015-16 also. 10.0 The Ld. DR relied upon the order of the Ld.AO for the reasons mentioned therein. 11.0 The Ld. Counsel for the assessee submitted that the assessee has entered into international transaction for availing marketing and Consultancy Services with its AEs. Based upon the recommendations of the Ld. TPO vide his order dated 31.10.2017 u/s 92CA(3), the Ld.AO made an addition of Rs.50,95,500/-. The Ld. Counsel submitted that Ld.CIT(A) has extensively dealt with this issue in para 4.1.1 to para 4.1.6 of his order. Before the Ld. CIT(A) the appellant had proceeded with additional ground to allow Corporate Guarantee between 0.75% and 1%. It was contended that the Ld.CIT(A) has rightly directed the Ld.AO to allow the Corporate Guarantee @ 1% and re-determine ALP accordingly. 12.0 We heard rival the rival submissions in the light of material available on records. We have noted that the Ld.CIT(A) has extensively dealt the impugned issue in page 13 – 14 of his order. For the purposes of clarity the same is reproduced hereunder:- Page - 7 - of 15 “…4.1.4. The appellant has raised an additional ground that the rate of corporate guarantees should be restricted to 0.75% to 1% as per the internal comparison available for the appellant. The appellant has obtained bank guarantee @ 0.75% to 1% from IDBI and requested the same to be adopted as MAM under the CUP method. As the additional ground is relevant for a fair adjudication of the issue at hand, the same is admitted. 4.1.5 Regarding the additional ground of the appellant that the fees on CG should be in the range of 0.75% to 1%, the appellant submitted copy of sanction letter of IDBI bank dated 15.07.2013 wherein bank guarantee commission is charged @ 0.75% to 1% p.a. plus applicable service tax. The TPO observed on the basis of external CUP method that the arithmetic mean of the rates of bank guarantees was 2.19% and valued the additional risk assumed by the appellant at a conservative figure of 2% of the value of corporate guarantee. The appellant stated that it enjoyed an excellent credit score with zero defaults in the repayment of credit facilities availed and hence the rates obtained by the TPO based on external CUP will not be a good comparable as the financial bank guarantees are dependent on the credit worthiness of the customer. It was further submitted that when an internal comparable transaction is available, such transaction should be given preference in benchmarking. I have considered these submissions. It has been held in a plethora of decisions that bank guarantees are not akin to corporate guarantees. TPO cannot determine arm's length price of corporate guarantee by mechanically picking up bank guarantee rates from the public domain; however, said rates may turn out to be appropriate CUPs if they are properly benchmarked after making due adjustments in accordance with provisions of Rule 10B of 1962 Rules as has been held by the Hon’ble Mumbai Tribunal in the case of Glenmark Pharmaceuticals Ltd. [2014] 43 taxmann.com 191 (Mumbai - Trib.). In the case before me, the rate of bank guarantee commission charged from the appellant considers various factors such as the credit profile and standing, financial strengths etc and therefore satisfies the parameters as per Rule 10B. On careful consideration of the submissions of the appellant, I am of the view that as the appellant has now produced an internal CUP data namely the rate of bank guarantees availed by it from IDBI Bank, the same needs to be adopted. In the facts and circumstances of the case, it is held that the ALP of the international transaction for issuance of corporate guarantee is to be adopted as 1%. The Page - 8 - of 15 AO/TPO is directed to charge the corporate guarantee @1% and determine the ALP accordingly. 4.1.6 In view of the above discussions, the ground no 1 and the additional ground of appeal are partly allowed…”.
13.0 We have noted that the Ld.First Appellate Authority has comprehensively analyzed the facts of the case in the light of decision of Hon’ble Mumbai Tribunal in the case of Glenmark Pharmaceutical Limited 43 Taxman.com 191. We have found sufficient force in the decision of the Ld.CIT(A) and do not find any need to interfere with the same. Accordingly, we uphold the decision of the Ld.CIT(A) and dismiss all the grounds of appeal raised by the Revenue on the issue of Corporate Guarantee. 14.0 Since the facts are identical, the decision in for AY- 2014-15 shall apply mutatis mutandis to for AY-2015-16 and therefore findings of the Ld.CIT(A) for these appeals are also upheld and all the grounds of appeal raised by the Revenue on this Corporate Guarantee issue are also dismissed. 15.0 The next issue raised by the appellant Revenue vide ITA No.267 for AY-2016-17 is regarding action of the Ld.CIT(A) in deleting the addition of Rs.2,20,47,276/- on transfer of service u/s 80IA(8) of the Act. The Ld. Counsel submitted that the assessee owned wind mills which generated power energy. The energy so generated is adjusted with the Page - 9 - of 15 energy consumed by the high tension services of the manufacturing division of the company. Profit of the wind mill undertaking was claimed as deduction u/s 80IA. The assessee had entered into a “Energy Wheeling Agreement” with Tamil Nadu Electricity Board for Wheeling and Banking the surplus energy. 16.0 The Ld. DR submitted that the reliance of Ld.CIT(A) upon the decision of the Hon’ble Apex Court in the case of Jindal Steel and Power Limited
16. SOT 509 was misplaced and that the relief has been wrongly given. The Ld. DR vehemently argued that the decision of Jindal Steel is not applicable to Electricity Act of 2003 which provides sale of electricity to private persons also. 17.0 The Ld. Counsel for the assessee argued that there is no change in the electricity act regulation and that the decision of Jindal Steel is squarely applies to its case. In support of its contentions, the Ld. Counsel for the assessee relied upon the decision in the case of SJLT Textiles vide 687 & 688/Chny/2023 for Assessment Years: 2015-16, 2017-18 & 2018-19 dated 17.05.2024 of this tribunal. It was contended that the impugned decision has been taken after full consideration of various facets of the electricity act, fair market value of energy produced as well as the decision of Jindal Steel supra.
Page - 10 - of 15 18.0 We have heard the rival submissions in the light of material available on records. We have noted that in the SJLT Textiles case supra, the Hon’ble coordinate bench of this tribunal has held as under :- “……Heard both the parties and perused the materials available on record. We note that the assessee utilized the power produced by its windmills for its own consumption. The assessee produced 78,10,153 units by its windmills. The market value as adopted by the assessee for the purpose of computing deduction under section 80IA of the Act at the average rate of ₹.5.60 per unit which was arrived on the total charges paid by the assessee towards electricity purchased from Tamilnadu Electricity Board and other private power producers. According to the Assessing Officer, the average rate adopted by the assessee at ₹.5.60 per unit is not market value and was of the opinion, that the tariff fixed by Tamilnadu Electricity Board for procurement of power generated from windmills can alone be taken as market value. Accordingly, the Assessing Officer fixed the rate at ₹.2.75 per unit as against ₹.5.60 per unit as adopted by the assessee. We note that the assessee made claim of ₹.3,40,61,684/- [78,10,153 units x ₹.5.60 per unit] and the Assessing Officer restricted the same to an extent of ₹.1,33,92,247/- [78,10,153 units x ₹.2.75 per unit]. Therefore, we have to decide as to which price as adopted by the assessee or the Assessing Officer really represent the market price. With regard to market price of electricity, the Assessing Officer placed reliance in the case of CIT v. ITC Limited (supra) of Hon’ble High Court of Calcutta. The ld. AR supported the findings of the ld. CIT(A) in holding that the said decision is not applicable to the case on hand as it is prior to coming into existence of new Electricity Act, 2003. We note that the ld. CIT(A) discussed the same in page No. 14 of the impugned order and was of the opinion that the said decision was rendered while interpreting Income Tax Act as well as the regulation surrounding sale of electricity as they stood before 2003. Further, after 2003, the law relating to generation and sale of electricity have undergone significant amendment, whereby, it is noted that until 2003, the price of electricity was controlled and there was free market price in view of the Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948.
Coming to the present case, after coming into existence of new Electricity Act, 2003, the issue in this regard about determining the market value is settled. The ld. CIT(A), in his order, referred to the decision of Hon’ble High Court of Chhattisgarh and Gujarat in the case of CIT v. Godawari Power & Ispat Ltd. [2014] 42 taxmann.com 551] and PCIT v. Gujarat Alkalies & Chemicals Limited [2017] 88 taxmann.com 722] respectively. Further, he also referred to the decision of the Hon’ble High Court of Bombay in the case of CIT v. Reliance Industries Ltd. [2020] 421 ITR 686 and held that the rate at which the state electricity board or power generation and distribution companies sell power to industrial and consumers should be adopted as open market value so as to determine the market value of electricity transferred. The ld. AR placed on record the recent decision of the Hon’ble Supreme Court in the case of CIT v. Jindal Steel & Power Limited in Civil appeal No. 13771 of 2015 dated 06.12.2023. The relevant portion of the above judgement from para 25 to 31 are reproduced herein below: 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 Page - 11 - of 15 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 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.
Section 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 Page - 12 - of 15 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 normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of Section 80IA (8). On the contrary, the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under Section 80 IA of the Act.
Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied 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. The State Electricity Board’s rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act.
That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied 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.
On careful reading of the above, we note that the Hon’ble Supreme Court held the expression “market value” in relation to any goods as defined by the explanation below to proviso to sub-section (8) of section 80IA of the Act, meaning the price of such goods determined in an environment of free trade or competition, is market value which 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.
Further, the Hon’ble Supreme Court held that the 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, but not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board. Thus, it is clear that the rate at which power was supplied to a supplier could not be a market rate of electricity purchased by a consumer in the open market, but, the rate at which the State Electricity Board supplied power to the industrial consumers is to be taken as market value. Further, the ld. AR brought to our notice that the Assessing Officer allowed the deduction under section 80IA of the Act for the initial year being assessment year 2011-12. Further, for the assessment year 2020- 21, the Assessing Officer allowed deduction under section 80IA of the Act in favour of the assessee. We note that the Revenue allowed the claim of the assessee for Page - 13 - of 15 computing deduction under section 80IA of the Act for initial year and the assessment year subsequent to the year under consideration.
In the present case as discussed above, the assessee adopted price at ₹.5.60 per unit which was arrived at on the total charges paid by the assessee towards electricity purchased from Tamilnadu Electricity Board and other price power purchaser. We find that the facts and circumstances of the present case are similar and identical to the facts and circumstances before the Hon’ble Supreme Court in the case of CIT 13 687 & 688/Chny/23 v. M/s. Jindal Steel & Power Limited (supra) and the ratio laid down by the Hon’ble Supreme Court is applicable to the facts on hand. Therefore, we hold that the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under section 80IA of the Act. By respectfully following the decision of the Hon’ble Supreme Court in the case of CIT v. M/s. Jindal Steel & Power Ltd. (supra), the claim of the assessee is allowed. The order of the ld. CIT(A) is justified and the grounds raised
by the Revenue are dismissed.
17. Now we shall take up appeal in for AY 2017-18:
18. Ground Nos. 1 to 3 raised by the Revenue is general in nature and requires no adjudication.
19. Grounds No. 4 & 5 raised by the Revenue are similar to the grounds No. 4 & 5 in for assessment year 2015-16, wherein, we took a view that the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as market value for computing deduction under section 80IA of the Act and the same is equally applicable to ground Nos. 4 & 5 of this appeal. Thus, the grounds raised by the Revenue are dismissed.
20. for AY 2018-19:
21. Ground Nos. 1 to 3 raised by the Revenue is general in nature and requires no adjudication.
22. Grounds No. 4 & 5 raised by the Revenue are similar to the grounds No. 4 & 5 in for assessment year 2015-16, wherein, we took a view that the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as market value for computing deduction under section 80IA of the Act and the same is equally applicable to ground Nos. 4 & 5 of this appeal. Thus, the grounds raised by the Revenue are dismissed.
23. In the result, all the three appeals filed by the Revenue are dismissed….”
19.0 We have noted that the issue of Power Generation and its sale adjudicated by this tribunal in the case of SJLT Textiles supra is identical to facts present in this case. The applicability of the decision in the case of Jindal Steel supra has also been found to be seminal to the issue at hand. Accordingly, in respectful compliance to the decision above, we are of the considered view that there is no case for intervention in the order of the Ld.CIT(A). The findings of the Ld.CIT(A) are upheld and all
Page - 14 - of 15 , 266 &267 /Chny/2025 the grounds of appeal raised by the Revenue on this downward adjustment issue u/s 80IA are dismissed.
20.0. In the result, the appeals of the Revenue are decided as detailed hereunder:-
Year Result / Chny / 2025 2014-15 Dismissed ITA No. 266 / Chny / 2025 Dismissed 2015-16 ITA No. 267 / Chny / 2025 Dismissed 2016-17 Order pronounced on 7th , May -2025 at Chennai.