Calcutta High Court
Principal Commissioner Of Income Tax … vs Rungta Mines Limited on 9 July, 2025
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam
ITAT NOS. 215, 216 AND 217 OF 2024
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IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
RESERVED ON: 23.06.2025
DELIVERED ON:09.07.2025
CORAM:
THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
ITAT/215/2024
(IA NO: GA/2/2024)
PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL- 1, KOLKATA
VERSUS
RUNGTA MINES LIMITED
ITAT/216/2024
(IA NO: GA/2/2024)
PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL- 1, KOLKATA
VERSUS
RUNGTA MINES LIMITED
ITAT/217/2024
(IA NO: GA/2/2024)
PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL- 1, KOLKATA
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VERSUS
RUNGTA MINES LIMITED
Appearance:-
Mr. Prithu Dudhoria, Adv.
.....For the Appellant.
Mr. Subhas Agarwal, Adv.
Mr. Rajarshi Chatterjee, Adv.
Ms. S. Sahani, Adv.
Mr. Amit Shaw, Adv.
.....For the Respondent.
JUDGMENT
(Judgment of the Court was delivered by T.S. Sivagnanam, CJ.)
1. These appeals have been filed by revenue under Section 260A of the
Income Tax Act, 1961 (the Act) questioning the correctness of the order
passed by the Income Tax Appellate Tribunal, “A” Bench Kolkata in ITA Nos.
801, 802, 286/Kol/2023 for the assessment years 2017-2018, 2018-2019,
2019-2020. The revenue has raised the following substantial questions of
law for consideration:-
(a) Whether on the facts and in the circumstances of
the case, the Learned Income Tax Appellate Tribunal
was justified in law in relying on the decision of the
Hon’ble Apex Court in case of Jindal Steel and Power
Limited in Civil Appeal No. 13771 of 2015 in the
present case whereas the facts and circumstances of
both the cases are distinguishable?
(b) Whether on the facts and in the circumstances of
the case, the Learned Income Tax Appellate Tribunal
was justified in law in not considering the provisions
of Income Tax Act, 1961 where it has been mandatedPage 2 of 22
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in cases of transaction between eligible units and
non-eligible units of an undertaking, in explanation
(iii) of sub section (6) of Section 80A, that the express
“market value” in relation to any goods or services
sold, supplied or acquired means the “arm’s length
price” as defined in clause (ii) of section 92F of such
goods or services, if it is a specified domestic
transaction referred to in section 92BA?
(d) Whether on the facts and in the circumstances of
the case, the order of the Learned Income Tax
Appellate Tribunal is perverse on the ground that the
Transfer Pricing Officer has not applied external CUP
method, which is one of the several methods for
determining Arm’s Length Price as laid down in the
Act and the Hon’ble ITAT has not discussed in the
body of the order as to why the same is not the most
appropriate method?
(e) Whether in facts of the case and in law, the
Hon’ble Income Tax Appellate Tribunal order is
perverse in not appreciating:
(i) that the assessee’s generating unit (the
CPP) cannot as such claim any amount of
benefit under Section 80-IA of the I.T. Act
computed on the basis of rates charged by
the distribution licensee from the consumer.
The benefit can only be claimed on the basis
of the rates fixed by the tariff regulation
commission for sale of electricity by the
generating companies to the distribution
company.
(ii) that when a captive power plant in an
industry supplies electricity to its own
manufacturing unit, there is no distribution
costs involved and thus there is significant
difference between distribution tariff and
generation tariff and such cost differences
are real and not imaginary.
(iii) that in applying the ratio of a decision
which was based on laws and market
conditions which have since been changed
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and thereby ignoring the clear provisions of
the Rule 10B(2)(d) of the Income Tax Rules,
1962 which consider the conditions
prevailing in the market including law and
government orders in force to be essential
comparability factors.
(iv) that the landed rate at which non-eligible
unit purchases power from SEB as
comparable rate under arm’s length
standards without appreciating the fact that
the said rate is regulated and therefore
cannot be said to represent an uncontrolled
transaction.
(v) that considering assessee’s benchmarking
taking external CUP as Most appropriate
method when the internal CUP i.e. rate at
which CPP sold surplus power to unrelated
parties was available.
(f) Whether in facts of the case and in law, the Hon’ble
ITAT was not justified in upholding the method adopted
by the assesse to benchmark the transaction wherein
average annual landed cost of electricity purchased by
the consuming unit from SEB is taken as ‘Market Value’
whereas as per explanation to section 801A(8) of the Act,
“market value”, in relation to any goods or services,
means-
(i) the price that such goods or services would
ordinarily fetch in the open market; or
(ii) the arm’s length price as defined in clause
(ii) of section 92F, where the is a specified
domestic transaction referred to in section
92BA“.
(g) Whether on the facts and in the circumstances of the
case, the Learned Income Tax Appellate Tribunal was
justified in law in no appreciating that a manufacturer
cannot be compensated based on rates meant for
distributors and thereby ignoring the clear provisions of
Rule 10B(2)(b) of the Income Tax Rules, 1962 which
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specify functions, assets and risks to be essential
comparability factors for reference?
2. Since the issue which falls for consideration in all the appeals are
identical and the substantial questions of law raised are also identical, they
were heard together and are disposed of by this common judgement and
order.
3. ITAT No. 215 of 2024 is taken as the lead case which relates to the
assessment year 2017-2018. The respondent assessee is engaged in iron ore
and manganese ore mining having mines in Orissa and Jharkhand and they
also produce sponge iron, billets and power during the years under
consideration.
4. For the assessment year 2017-2018, original return of income was
filed showing total income of Rs. 934,43,95,510/- and subsequently revised
on the identical sum and once again revised at total income of Rs.
934,43,99,430/-. The case was selected for scrutiny and notice under
Section 143(2) was issued and subsequently notice under Section 142(1)
along with questionnaire was served on the assessee. Thereafter another
notice under Section 142(1) was issued giving opportunity of hearing to the
assessee. It is not in dispute that the assessee responded to the notice and
complied with the directions contained therein. The assessee participated in
the hearing and was represented by their authorized representatives. The
assessee was called upon to furnish various details and documents on
various issues. However, in these appeals the issue which falls for
consideration is the correctness of the addition on the Transfer Pricing
Adjustment (TPA) made by the assessing officer. The assessment for the year
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2017-2018 was completed under Section 143(3) of the Act by order dated
09.02.2021. Aggrieved by the same, the assessee preferred appeal before the
Commissioner of Income Tax (Appeals), Kolkata [CIT(A)]. The assessee
contested the addition of Transfer Pricing Adjustment (TPA) by contending
that the assessing officer/TPO erred in rejecting the economic analysis
document as part of the Transfer Pricing Study Report undertaken by the
assessee to determine the Arm’s Length Price (ALP) for sale of power by
Captive Power Plant (CPP) to non-eligible units in accordance with the
provision of the Act read with the Income Tax Rules.
5. It was contended that the cost of the power generated by CPP and
transferred to non-eligible units should be based on average annual landed
cost of electricity purchased by the assessee from the respective State
Electricity Boards (SEBs). Further that the assessing officer/TPO erred in
not appreciating the “comparability analysis” undertaken by the assessee
between the transaction price for the purchase of power by non-eligible unit
from CPP and the rate of power applied by the respective SEBs to its
customers. Further the assessing officer/TPO erred in not appreciating the
commercial and economic circumstances surrounding the transaction which
justified the transaction price paid by the non-eligible units to CPP for
supply of power. The assessing officer/TPO erred in considering the
purchase price of power by the respective SEBs to be the market rate as per
Section 80IA (8), whereas judicial precedences indicate that the market rate
would be the selling price of the respective state SEBs. Further it was
contended that the decision of this court in the case of Commissioner of
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Income Tax Versus ITC Limited 236 Taxman 612 (Kolkata) which
related to a case arising for the assessment year 2002-2003 is not applicable
as it was rendered prior to the coming into force of the Electricity Act, 2003
which liberalized the regulatory provision governing generation and
distribution of power. In support of their contention, reliance was placed on
the decision in CIT Versus Godavari Power and Ispat Limited 1; CIT
Versus Reliance Industries Limited 2, DCIT Versus M/s. Kesoram
Industries Limited ITA No. 1722/Kol/2012. Apart from the above
decisions, several decisions of the Coordinate Bench of the tribunal were
also relied on.
6. As could be seen from the assessment order dated 09.02.2021, the
assessing officer confirmed the downward adjustment proposed by the TPO
and made addition of Rs. 51,44,54, 814/-. The CIT(A) examined the facts
and found that there is no dispute that both the CPPs qualified as eligible
units under Section 80-IA of the Act. The CPPs transfer power to the
manufacturing units and the transfer rate was ascertained by the assessee
at the rate of Rs. 6.32 and Rs. 5.67 per units respectively. Since the transfer
of power was between related entities the same qualified as specified
domestic transaction under Section 92 BA read with Section 80IA (8) of the
Act. The CIT(A) noted that the assessee conducted a Transfer Pricing Study
for the same which revealed that after undertaking FAR analysis, it was
concluded that the CPPs were electricity providers to the manufacturing
units bearing normal risk associated with the said activity and that the
1
(223 Taxman 234) (Chattisgarh HC)
2
(421 ITR 686 ) (Bom HC)
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manufacturing units besides obtaining power from CPPs also bought power
from the State Electricity Boards (SEB) at tariff at which such power was
available to industry in their states. The CIT(A) took note of the assertion of
the assessee that the CPPs could be expected to charge the same rate for
supply of power by them which the non-eligible /manufacturing units were
paying to unrelated independent third parties. It was further noted that the
per unit charge by SEB for supply of power for industrial usage which
requires high voltage of power lines was compared with the rates at which
the CPPs transfer power to the manufacturing units which was reported to
Arm’s Length Price (ALP) in the Transfer Pricing Study Report (TPSR). The
assessee had contended that as the transfer rates charged by the CPPs were
comparatively lower than the ALP, the Specified Domestic Transactions in
question were to be considered to be at Arm’s Length.
7. As mentioned above, the TPO rejected the Bench Marking Analysis
done by the assessee as according to the TPO this was in contravention to
the judgment of this court in the case of ITC Limited (236 Taxman 612)
rendered for the assessment year 2002-2003. This led to issuance of show
cause notice to the assessee observing that the transfer of power between
eligible and non-eligible units cannot be made at the rate computed on the
basis of landed cost of SEBs which were distribution entities and not power
generating companies. According to the TPO, the functions performed by
CPPs were those of the manufacturers of power and not those of a
distributor. Therefore, the TPO was of the view that the appropriate
Comparable Uncontrolled Price (CUP) for bench marking the said
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transaction is the average rate at which the distribution companies in the
state procured power from the generating companies. The TPO found that
the bench marking exercise of the assessee unsuitable as in his view, a
distribution company incurs several additional costs in terms of aggregate
technical and commercial losses like theft, wheeling charges, cross subsidy
charges, customer servicing charges etc. which are not incurred by power
generators. The TPO also observed that there is a Tariff Regulatory
Commission which arrives at separate power tariff for both power generators
and power distributors while the former is generally fixed by Tariff
Regulatory Commission by way of negotiation which is based on an in-built
mechanism that ensures permissible profits to the power generator.
Therefore, the TPO held that the benefit under Section 80IA of the Act can
accordingly be claimed only on the basis of the rates charged for sale of
power by the generating companies to the distribution companies. With
certain other observations, the TPO substituted ALP determined by the
assessee in the Transfer Pricing Study Report for the power transferred from
the two eligible units with the ALP of Rs. 4.18 per unit instead of Rs. 6.32
per unit and Rs. 4.80 per unit instead Rs. 5.67 per unit respectively.
8. The appellant contested the finding recorded by the TPO by stating
that the market conditions under which the power generating stations
operate are significantly different from those of the Captive Power Units
operated within the industries. The intent and purpose behind the setting
up of CPPs by a manufacturing industry by explaining that the power tariff
charged from the industrial customers by SEBs is different from that of the
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domestic and agricultural consumers as the higher rate charged from the
former subsidized the rate charged from the latter group of consumers.
Therefore, power tariff in the case of manufacturing industry are very high.
Further the Captive Power Plant (CPP) is set up with a dominant intent to
save power costs, which the manufacturing unit is otherwise forced to incur
and pay to SEBs and at the same time to ensure stable supply of
uninterrupted power for smooth production of goods and resulted in cost
savings to the company. Further it was contended that the assessee was
also procuring power from SEBs beside getting from CPPs and they used
landed rate at which the manufacturing units is procuring power from SEB
as the comparable rate under the Arm’s Length Standards. Further even the
notified tariff orders which were referred to by the TPO are regulated and are
ascertained by the State Electricity Commission after taking into account
several socio-political considerations that have nothing to do with free
market operation which fact is evident from the tariff order itself. Further
the fact that the rates at which SEBs supplies power is regulated is of no
consequences, as it is not the case of the TPO that this rate has been fixed
by SEBs exclusively for the appellant as the SEB supplies power at the same
tariff rate to all industrial consumers in the state which according to the
assessee represents the prevailing market rate. The assessee also faulted the
TPO for relying on the tariff order as it operated in all-together different
market which is the business to business commonly known as (B2B) model.
That the application of CUP as made by the TPO has to fail as the market
condition of the comparable transaction cited by the TPO are not similar to
that of the assessee. Therefore, they justified the CUP parameters adopted
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by them. Further the assessee pointed out that the only purpose for which
the manufacturing units is taken as the tested parties was to determine the
market value at which the manufacturing units purchases power from
unrelated third parties and therefore, they were right in taking the
manufacturing units as tested party for the purpose of determination of
Arm’s Length Price (ALP) with most appropriate method (MAM) being the
Comparable Uncontrolled Price (CUP).
9. The CIT(A) embarked upon an enquiry or in other words a fact
finding exercise and called upon the assessee to explain why the CUP
method should be considered to be the most appropriate method for the
purpose of determining the sale price for the transfer of power from the
assessee’s eligible units namely the Captive Power Plant (CPPs) to the
assessee’s non eligible units namely the manufacturing units. The reply
given by the assessee found acceptance by the CIT(A). The assessee
submitted that the CUP method compares the price charged for
property/services transfers/rendered in a controlled transaction with the
price charged for similar property/services transfer/rendered in a
comparable uncontrolled transaction under comparable circumstances. The
assessee’s contention was that a transaction is considered comparable only
if, both, the property/services as well as the circumstances surrounding the
controlled transaction are substantially the same as though that exists in
uncontrolled transaction. The most important factor in determining the
comparability under the CUP method is the existence of similarity between
property/services in question. Further similarity of contractual terms and
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economic conditions such as geographic markets and the level of market are
also important, comparability factors to the open market under the CUP
method. The assessee justified their bench marking analysis by contending
that the same met the both the fair valuation standards as well as Transfer
Pricing Guidelines.
10. The CIT(A) found that there was no dispute between the assessee
and the TPO regarding the method to be used while bench marking the
transfer of power and the controversy has arisen only on account of the
difference in the manner of bench marking the transfer price of power under
the CUP method. The CIT(A) noted Rule 10B of the Income Tax Rules and
particularly Clause (a) of Sub Rule 1 of Rule 10B which explains
Comparable Uncontrolled Price (CUP) method. In terms of the said rule, the
application of CUP method requires strict product comparability which has
been transacted under similar conditions. This method can be applied where
associated enterprises buy or sell similar goods or services in comparable
transactions with unrelated enterprise or when unrelated enterprise buy or
sell similar goods or services under similar conditions as is being done
between the associated enterprises. The two broad classifications of the CUP
method was noted namely Internal CUP method and External CUP method.
Under the Internal CUP method, the controlled transaction between
associated enterprises involving buying or selling of goods is compared with
the transactions conducted by any of the associated enterprises with
unrelated parties for the same goods under similar circumstances. By
referring to the various judgments, it was pointed out that if reliable data is
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available then Internal CUP is most appropriate method. However, where
such reliable internal data is not available, resort has to be made to
External CUP method which involves comparison of prices paid / charged
for the same goods between two unrelated third parties, with the
comparable transaction conducted between the associated entities.
11. The CIT(A) agreed with the contention raised by the assessee after
noting that both non eligible units had also purchased power from the
respective State Electricity Boards apart from procuring power from their
Captive Power Plants and therefore accepted the applicability of Internal
CUP method as adopted by the assessee. The CIT(A) appears to have called
for various documents and took note of the sample copies of the bills
showing purchase of power by non-eligible units. Further the CIT(A) noted
that the availability of reliable data has not been disputed by the TPO.
Reference was made to the decision of the learned tribunal in the case of
M/s. Star Paper Mills Limited Versus DCIT in ITA No. 127/Kol/2021
dated 26.10.2021 and the decision in the case of Reliance Industries
Limited (supra). With regard to the product comparability and the choice of
the tested parties, the following findings was rendered by the CIT(A):-
Therefore, ‘product comparability’ is
undoubtedly of paramount importance and
therefore the choice of ‘tested party’ follows. In
the present case, it is noted that the product in
question is ‘power’. The manufacturing unit
procures power from the eligible CPPs as well
as the Grid and the said product viz., ‘power’
purchased from both these parties is strictly
comparable. Unlike other products where there
may be difference in quality, size etc., there is
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no such distinguishing qualitative feature of
‘power’ or ‘electricity’. Hence, once the ‘product’
comparability’ is established, then when the
choice of ‘tested party’ is available internally,
then it assumes significance over an external
‘tested party’.
Like in the present case, the manufacturing unit
is procuring the same product from the CPP and
the Grid and therefore the requirement of both
‘product comparability’ and availability of
‘tested party’ stands met. Accordingly, the Ld.
TPO’s contention that choice of ‘tested party’ is
irrelevant and thereby justifying his action of
considering the external power generating
stations as the ‘tested party’ instead of the
appellant’s manufacturing units is not correct
and cannot be accepted.
For the aforestated reasons, therefore, the Ld.
TPO’s interpretation of the term ‘arm’s length
price’ vis-à-vis ‘open market value’ and the CUP
comparison undertaken under different market
conditions is, in my view, defective and cannot
be accepted. Instead, I find merit in the
benchmarking analysis of the appellant in
which the market conditions were similar in as
much as the markets to which the SEB and CPP
catered, that is, the end-consumers was the
same.
12. The CIT(A) also considered the correctness of the order passed by
the TPO placing heavy reliance on the decision of this court in ITC Limited
(supra) and while doing so held that the said decision is distinguishable on
facts as it was rendered in the context of era preceding the enactment of the
Electricity Act, 2003 and to support such finding several decisions of the
tribunal were relied upon. Reference was made to the decision of the High
Court of Gujarat in Principal Commission of Income Tax Versus Gujarat
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Alkalis and Chemicals Limited 3 and the decision of the High Court of
Bombay in CIT-LTU Versus Reliance Industries Limited 4 wherein the
decision in the case of ITC Limited and Gujarat Alkalis and Chemicals
Limited were considered and the appeal filed by the revenue was dismissed.
13. With the above discussion, the CIT(A) held that the methodology
followed and bench marking performed by the assessee was legally justified
and that the intent and purpose of setting up of the Captive Power Plant
(CPP) is markedly different from that of the power generation units as well
as the State Electricity Board to which units supplied electricity and
undisputedly the CUP method was of the most appropriate method in the
assessee’s case to determine ALP and it was correct and more appropriate to
use the Internal CUP method rather than External CUP for the reason that
former was more robust and reliable method for determining the Arm’s
Length Price (ALP) as well as for the fact that reliable internal data was
readily available in the assessee case. Further it was appropriate to take the
tested party to be manufacturing units (non-eligible units of the assessee),
since it was procuring power both from CPP as well as from SEBs and
thereafter to determine ALP with respect to the transaction. The decision of
this court in ITC Limited held to be not applicable and distinguishable as
the said judgment was pronounced in the pre-de-regulation era that is
before 2003 and accordingly the assessee’s appeal was allowed. The revenue
challenged the order passed by the CIT(A) before the tribunal which re-
examined the factual position and affirmed the order passed by the CIT(A)
3
88 taxmann.com 772 (Guj)
4
[(2019) 102 taxmann.com 371 (Bom)]
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by dismissing the revenue’s appeal. The correctness of the order passed by
the tribunal is being challenged before this court.
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.
15. At this juncture, it would be relevant to take note of the Electricity
Act, 2003. Section 2(8) of the Act defines “Captive Generating Plant” to mean
a power plant set up by any person to generate electricity primarily for its
own use and includes its power plant set up by any cooperative society or
association of persons for generating electricity primarily for use of members
of such cooperative society or association. Section 9 of the Act deals with
Captive Generation. Subsection 1 of Section 9 commences with a non
obstante clause and states that notwithstanding anything contained in the
Electricity Act, 2003, a person may construct, maintain or operate a Captive
Generating Plant and dedicated transmission lines.
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16. The first proviso states that the supply of electricity from Captive
Generating Plant through grid can be regulated in the same manner as the
generating station of a generating company.
17. The second proviso states that no license shall be required under
the Electricity Act for supply of electricity generated from Captive generating
plant to any licensee in accordance with the provisions of the Act and the
Rules and Regulations made thereunder and to any consumer subject to
Regulations made under Sub Section 2 of Section 42. Sub Section 2 of
Section 9 states that every person, who has constructed a Captive
Generating Plant and maintains and operates such plant shall have the
right to open access for the purpose of carrying electricity from his Captive
Generating Plant to the destination of his use. Section 42 of the Act deals
with duties of the distribution licensees and open access. Thus, the scheme
of the Act is that a person may construct, maintain or operate a Captive
Generating Plant and dedicated transmission lines and captive plants will
have the right to open access for the purpose of carrying electricity from
captive plants to the destination of its use and no surcharge is leviable in
case open access is provided to captive units by the central or state
transmission utility or the transmission licensee involved in the
distribution/transmission of power. Further the provision make it clear that
there is no embargo to other power generating companies to directly sell the
power to such consumer at mutually agreed rate. This being not the legal
position when the decision in ITC Limited was rendered, the said decision
could not have been relied upon by the TPO/assessing officer.
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18. We concur with the views expressed by the learned tribunal that
the consumer/contracting parties will certainly desire to purchase electricity
at lesser rate than the rates offered by State Electricity Board whereas the
Captive Power Plants/generating companies would desire to get maximum
rate on the sale of power in unregulated and uncontrolled transaction and
both the parties would settle at mutually agreed rates irrespective of the
rates at which the State Electricity purchases power from other generating
units.
19. The learned tribunal in the case of Star Paper Mills Limited Versus
DCIT Circle 4 Kolkata 5 held that where the assessee company, engaged in
business of manufacturing and sale of paper, had set up Captive Power
Plant (CPP) to meet its requirements of its paper manufacturing units which
also availed power from State Electricity Board, the said transaction being in
nature of specified domestic transaction, transfer price of power supplied by
CPP was to be bench marked at annual average of landed cost at which
power was being purchased by manufacturing units from State Electricity
Board. The revenue carried the matter on appeal before this court and the
appeal filed by the revenue was dismissed and the said decision is reported
in (2025) 172 taxman.com 391 (Kolkata). In the said appeal, the following
two substantial questions of law were taken up for consideration:-
“(a) WHETHER in facts of the case and in law, the
Hon’ble ITAT is justified upholding the internal CUP
applied by the assessee to benchmark the transaction
(sale of power) to its AE, as well as computation of5
(2022) 134 taxmann.com 177 (Kolkata-TRIB)Page 18 of 22
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deduction under section 80-IA of the Act, whereas as
per explanation to section 80-
IA(8) of the Act, “market value” in relation to any
goods or services, means (a) the price that such goods
or services would ordinarily fetch in the open market;
or (b) the arm’s length price as defined in clause (ii)
of section 92F, where the transfer of such goods or
services is a specified domestic transaction referred to
in section 92BA?
b) WHETHER in facts of the case and in law, the
Hon’ble ITAT is justified in not appreciating the
finding of the TPO that the assessee’s generating unit
cannot as such claim any benefit under section
80IA of the Income Tax Act computed on the basis of
rates charged by the distribution licensee from the
consumer. The benefit can only be claimed on the
basis of the rates fixed by the tariff regulation
commission for sale of electricity by the generating
companies to the distribution company?
20. The Court took note of the decision of the Hon’ble Supreme Court
in CIT Versus Jindal Steel and Power Limited 6. In the said case, the
assessee having found that the electricity supplied by the State Electricity
Board was inadequate and to meet the requirements of its industrial units,
set up captive power generating units to supply electricity to its industrial
units which was done at a particular rate. The surplus power if any,
generated was to be wheeled out to the electricity board grid pursuant to an
agreement between the State Electricity Board and the assessee at a rate
fixed by the State Electricity Board. The question which arose of
consideration is as to the quantum of deduction which the assessee would
be entitled to claim under Section 80IA of the Act. The assessing officer held
6
(2024) 460 ITR 162 (SC)
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that the market value of the electricity should be computed based on the
rate fixed by the State Electricity Board for the electricity which is
purchased by the assessee. The Dispute Resolution Panel (DRP) affirmed the
view taken by the assessing officer and the matter was challenged before the
tribunal. The tribunal followed the decision in the assessee’s own case for an
earlier assessment year which order had become final as the department did
not prefer any appeal under Section 260A of the Act. In the batch of cases,
in Jindal Steel and Power one of the appeals was an appeal filed by the
assessee namely ITC Limited against the judgment of the Division Bench of
this court in Commissioner of Income Tax Versus ITC Limited (supra) in
CA No. 9920 of 2016 and this appeal was allowed by the Hon’ble Supreme
Court by order dated 07.12.2023 and the Hon’ble Supreme Court held as
follows:-
“28. Thus, 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 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.
30. Thus on a careful consideration, we are of the
view that the market value of the power suppliedPage 20 of 22
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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.
31. 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.”
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
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reasoning given in the preceding paragraphs, we hold that the learned
tribunal rightly dismissed the appeals filed by the revenue.
22. In the result, these appeals are dismissed and the substantial
questions of law are answered against the revenue.
(T.S. SIVAGNANAM, CJ.)
I Agree.
[CHAITALI CHATTERJEE (DAS), J.]
(P.A.- SACHIN)
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