Market Value for S. 80-IA Deductions Should Be Based on Industrial Consumer Rate not Power Supplied to SEBs : Calcutta HC [Read Order]

The Revenue - appellant, has appealed against the order passed by ITAT,Kolkata Bench for the Assessment Year 2017-2018. In this case,Rungta Mines Limited, respondent-assessee, was engaged in mining of iron ore and manganese ore in Orissa and Jharkhand, and also produced sponge iron, billets, and power during the relevant years.

Want a deeper insight into the Income Tax Bill, 2025? Click here

For the assessment year 2017-2018, it filed the original return declaring income of ₹934.43 crore, which was later revised twice with a final declared income of ₹934.44 crore. The case was selected for scrutiny, and notices under Sections 143(2) and 142(1) along with a questionnaire were issued. The assessee responded and participated in the proceedings through authorised representatives, submitting the required details.

The assessment was completed under Section 143(3) on 09.02.2021. The main issue in appeal was the addition made on account of Transfer Pricing Adjustment (TPA). Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of IncomeTax(Appeals)[CIT(A)].

The assessee challenged the addition made by the TPO for transfer pricing adjustment on power supplied by its Captive Power Plants (CPPs) to its noneligible units. It argued that the transfer price was based on the average cost of electricity purchased from SEBs, and the benchmarking followed the Comparable Uncontrolled Price (CUP) method. The assessee compared the rate charged by CPPs with the rate at which SEBs supplied power to industrial consumers.

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

The TPO rejected this approach and used the price at which SEBs purchased power from generating companies as the benchmark. The TPO reduced the ALP to ₹4.18 and ₹4.80 per unit, instead of ₹6.32 and ₹5.67 reported by the assessee, leading to an addition of ₹51.44 crore.

The assessee explained that CPPs were set up to reduce power costs and ensure uninterrupted supply, and that SEB rates for industrial users reflected the actual market price. Since the manufacturing units purchased power from both CPPs and SEBs, the assessee claimed the CUP method and choice of internal data were appropriate.

The CIT(A) accepted the assessee’s explanation, holding that electricity was a standard product with no variation in quality, and the internal CUP method was more reliable. It also held that the manufacturing units were rightly taken as the tested party. The CIT(A) found the earlier ITC Ltd. decision relied on by the TPO not applicable, as it was issued before the Electricity Act 2003.

The tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal. The matter was then taken to the High Court.

 Clear all Your Doubts on RCM, TCS, GTA, OIDAR, SEZ, ISD Etc... Click Here

The Division Bench comprising Chief Justice T.S Sivagnanam and Justice Chitali Chatterjee (Das) noted that the assessee was not in the business of selling power to distribution companies or SEBs. The Captive Power Plants (CPPs) were set up to ensure uninterrupted power supply and reduce electricity costs for its own manufacturing units. Therefore, the Arm’s Length Price (ALP) could not be based on average market rates charged by suppliers to distribution companies.

It referred to the Electricity Act, 2003, which allowed a person to set up captive plants for self-use without needing a licence, and granted the right to use transmission lines without surcharge. It held that CPPs operated under a different framework and couldn’t be compared with regular power suppliers.

The tribunal had accepted the internal CUP method used by the assessee, benchmarking the power supply at the average cost paid to SEBs. This view was supported by an earlier decision in Star Paper Mills Ltd., which was upheld by the High Court.

 Know Tax Planning Real Estate Transactions Click here

The Court also relied on the Supreme Court’s decision in Jindal Steel and Power Ltd., where it was held that the market value of power for Section 80-IA deductions should be based on the rate at which SEBs supplied power to industrial consumers not the rate at which power was sold to SEBs.

Applying these principles, the Court held that the Tribunal had rightly dismissed the department’s appeals.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates