ITAT Upholds SEB Rates for Benchmarking Captive Power Plants Under Section 80-IA [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata Bench, dismissed the Revenue’s appeal, ruling that the transfer price of electricity supplied by Captive Power Plants (CPPs) to manufacturing units must be benchmarked based on the rate at which State Electricity Boards (SEBs) supply power to industrial consumers, not the rate at which surplus power is sold back to the SEB.

The Revenue contested the Transfer Pricing Officer’s (TPO) downward adjustment to the deduction claimed under Section 80-IA of the Income Tax Act. The TPO had attempted to benchmark the power transfer at the rate notified by the State Electricity Commission for sales to distribution companies, rather than the consumer tariff adopted by the assessee.

The assessee , Shyam Sel & Power Ltd. and Shyam Metalics & Energy Ltd., argued that the issue was covered by the decision of the coordinate bench in its own case for earlier assessment years. The assessee relied on the Supreme Court’s decision in CIT v. Jindal Steel & Power Ltd., which held that the "market value" of electricity for computing Section 80-IA deduction must be the rate at which the SEB supplies power to consumers in the open market, not the contracted rate for supplying surplus power to the SEB.

The Departmental Representative supported the orders passed by the lower authorities.

The bench comprising Rajesh Kumar (Accountant Member) and Pradip Kumar Choubey (Judicial Member) noted that the facts of the case were identical to the assessee's own case for earlier years. The Tribunal observed that the Supreme Court in Jindal Steel & Power Ltd. had clearly established that the rate at which power is supplied to a supplier cannot be the market rate for a consumer in the open market.

Regarding the allocation of common expenses, the Tribunal held that the Assessing Officer (AO) was unjustified in departing from the "Fixed Asset Ratio" previously accepted in the assessee's own case to adopt a "Profitability Ratio." The ITAT observed:

“The Assessing Officer was unjustified in departing from his own stand consistently followed in the earlier years and allocating the common expenses in the ratio of profitability... using profitability as a basis for allocating common expenses is fundamentally flawed.”

The Tribunal upheld the CIT(A)’s order deleting the transfer pricing adjustment and dismissed the Revenue's appeals.

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