“specified domestic transaction”
The decision most relied on for specified domestic transaction is CIT v. ITC Ltd. (236 Taxmann 612), cited in 108 judgments on BharatTax.
Leading authorities on specified domestic transaction
When computing deduction under Section 80IA, specifically for inter-unit transfer of power, the benefit cannot be claimed based on rates chargeable by distribution licensees to consumers. The deduction must be computed based on the rate fixed by the Tariff Regulation Commission for sale by electricity generating companies.
Inter-unit transfer of power by an industrial undertaking eligible for Section 80IA deduction constitutes a specified domestic transaction under Section 92BA, requiring valuation at arm's length. This decision clarifies the application of Section 80IA(8) and transfer pricing regulations for such transactions.
For Section 80IA deductions, the market value of electricity supplied by a captive power plant (eligible unit) to its industrial unit (non-eligible unit) must be computed by comparing prices in the open market and those charged by State Electricity Boards to industrial consumers.
The assessee bears the initial burden to maintain and produce authentic documentation under Section 92D and Rule 10D to justify transactions with related parties, especially concerning the arm's length price for such transactions under Section 40A(2)(b). The discharge of this statutory obligation to maintain accurate data is a mandatory requirement of law.
Deduction under Section 80IA is allowable for captive power generation. The price for calculating this deduction is the rate at which the electricity board supplies power to its consumers, rather than the rate at which power generating companies supply to the electricity board.
The Tribunal may allow adjustments for differences between the tested party and comparable companies to eliminate material differences, provided accurate and credible evidence is furnished.
Judgments in M/s. Shree Bhagwati Steel Rolling Mills and M/s. Fibre Boards have overruled earlier decisions, preventing assessees from relying on those overruled precedents.
The transfer price for intra-group services, specifically the sale of power from a captive power plant to a manufacturing unit, can be benchmarked based on the price at which the manufacturing unit procures power from the State Electricity Board, especially when it reflects a reasonable and arm's length price.
