The market value of power supplied by Captive Power Plants must reflect the prices charged to industrial consumers, ensuring compliance with transfer pricing regulations as outlined in Section 80-IA of the Income Tax Act.

JUDGMENT :

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 mandated 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 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 d