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INCOME TAX APPELLATE TRIBUNAL (NAGPUR BENCH)
PAWAN SINGH, Judicial Member, KHETTRA MOHAN ROY, Accountant Member
Dy. CIT, Central Circle-2(2) – Appellant
Versus
Gopani Iron and Power(India) Pvt. Ltd. – Respondent
ITA No. 138/Nag/2025, AY 2017-18 | ITA No. 139/Nag/2025, AY 2018-19 | ITA No. 140/Nag/2025, AY 2019-20 | ITA No. 141/Nag/2025, AY 2020-21
For the Appellants/Petitioners: Shri Pankaj Kumar, CIT-DR
For the Respondents:Shri Prakash K Jotwani, Advocate
Distribution company’s industrial tariff is valid CUP for arm’s length price of captive power plant supply to own units under section 80IA(8), rejecting generator procurement rates due to market value principle.
Headnote:(A) Income Tax Act, 1961 - Sections 80IA(8), 80A(6), 92BA, 92C r.w. Rule 10B - Specified domestic transaction - Transfer pricing for inter-unit supply of power from captive power plant to manufacturing units - Arm’s length price determination using CUP method - Rate charged by state electricity distribution company to industrial consumers held as valid comparable uncontrolled price reflecting market value, rejecting revenue’s contention of using procurement rate from independent generators - Functional differences between generation and distribution irrelevant for standardized commodity like electricity under CUP - Market value under section 80IA(8) determined as price ordinarily fetched in open market or ALP, with distribution company tariff as appropriate benchmark - Prior Supreme Court ruling on market value applicable despite subsequent amendments, as held in paras 7-11.
(B) Transfer Pricing - Rule 10B(2) - Comparability under CUP - Product identity prevails over functional analysis for fungible commodity; regulated public tariffs from distribution companies constitute reliable open market price, not inflated by cross-subsidization or distribution margins - Tested party as power generating unit, but end-consumer tariff valid for benchmarking internal transfers (paras 4, 10).
Facts of the case:
Revenue appealed against CIT(A) orders deleting downward TP adjustments in multiple AYs for inter-unit power transfers from captive power plant, where assessee benchmarked using industrial tariff rates (Rs.7.07-7.21/unit) of state distribution company under CUP, rejected by TPO in favour of lower generator procurement rate (Rs.3.79/unit) leading to adjustment of Rs.28.22 crore in lead year.
Findings of Court:
CIT(A) relief upheld; TPO’s lower rate rejected as not reflecting market realities; distribution company’s sale tariff to industrial consumers accepted as valid CUP for ALP of captive power supply.
Issues: Whether distribution company’s industrial sale tariff constitutes appropriate CUP for captive power plant transfers under SDT, or procurement rates from generators required considering functional differences; applicability of pre-amendment market value rulings post section 80A(6) insertion.
Ratio Decidendi: For internal power transfers, market value/ALP determined by price at which distribution companies supply to industrial consumers, as it represents open market rate; generator procurement rates unsuitable; Supreme Court and tribunal precedents binding, amendments clarificatory without overriding substantive valuation principle.
Result: Revenue’s appeals dismissed.
| Table of Content |
|---|
| 1. background of appeals and tpo adjustment on captive power transfer (Para 1 , 2 , 7) |
| 2. precedents support industrial tariff as market value (Para 3 , 8 , 9 , 10) |
| 3. rival arguments on cup method and comparable pricing (Para 4 , 5 , 6) |
| 4. reject revenue grounds; affirm assessee's benchmarking (Para 11) |
| 5. dismiss all revenue appeals (Para 12 , 13) |
Order under section 254(1) of Income Tax Act
PER: PAWAN SINGH, JUDICIAL MEMBER:
1. This group of four appeals by Revenue are directed against the separate orders of CIT(A) all dated 27.12.2024 for Assessment Years 2017-18, 2018-19, 2020-21, 2021-22. In all appeals, facts are almost similar; the Revenue has raised similar grounds of appeal except variation of figure of adjustment on account of specified domestic transaction on account of sale of power of captive power plant. Thus, with the consent of both the parties all appeals were clubbed, heard together and are decided by common order to avoid the conflicting decision. For appreciation of facts, facts in Assessment Year 2017-18 is treated as lead case. The Revenue in appeal for Assessment year 2017-18 in ITA No. 138/NAG/2025 has raised following grounds of appeal.
i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in the adjustment on inter-unit transfer of power from captive power plant of Rs. 28,22,44,096/-.
ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying on the decision of Hon'ble Supreme Court in the case of CIT v. Jindal Steel and Power Limited (C. A. No. 13771 of 2015), when the case of the assessee pertains to AY 2017-18 and therefore the judgments of the Hon'ble Supreme Court for years prior to the introduction of Section 80A(6) vide Finance Act, 2009 and the amendments in Section 80A(6) and sec 80-1A(8) vide Finance Act, 2012 are not applicable to the facts of the assessee.
iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying on the decision of Hon'ble Supreme Court in the case of CIT v. Jindal Steel and Power Limited (C. A. No. 13771 of 2015), when the Hon'ble Supreme Court has clearly stated that "33. Before parting with this issue, we may mention that reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the definition of the expression "market value" as defined in the explanation below sub-section (6) of section 80A of the Act is totally misplaced inasmuch as sub-section (6) was inserted in the statute with effect from 1-4- 2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was not even borne.", hence, the decision of the Hon'ble Supreme Court on what should be taken as Market Value for transactions covered under Section 801A is clearly applicable only to the years prior to the introduction of Section 80A(6) of the Income Tax Act, vide Finance Act. 2009.
iv. Whether on the facts and circumstances of the case and in law, the Ld. C1T(A) is correct in not appreciating the fact and position of law tha comparability of the specified domestic transaction (SDT) with uncontrolled transaction has to be established in terms of parameters contained in Rule 108,2), by which the price charged by a power generating company cannot be compared to the price of a Distributor, more so since the Functions performed Assets employed and Risks assumed (FAP) are entirely different?
v. Whether on the facts and circumstances of the case and in law, the LE CIT(A) is correct in not appreciating the fact that the assessee has adopted the price charged by a power distributing company (MSEDCL) to its non-eligible unit as comparable transaction and that the margin earned by the power distributor for the functions performed, assets employed and risks assumed by it are embedded in the said price, as against same, the assessee does not perform any function on account of power distribution nor does it employ any huge asset relating
