ITAT Delhi Quashes Transfer Pricing Adjustment on Captive Power Supply; Affirms State Electricity Board Rate as Valid Benchmark
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has delivered a crucial ruling concerning the determination of the Arm's Length Price (ALP) for electricity supplied by a captive power plant to another internal division of the same assessee. In the case of ACIT Vs ACB India Ltd, the Tribunal dismissed the Revenue's appeal and upheld the principle that the rate charged by the State Electricity Board to industrial consumers constitutes the valid market value for benchmarking inter-unit power transfers.
This comprehensive summary explores the factual matrix, the Transfer Pricing Officer's (TPO) methodology, the appellate proceedings, and the Tribunal's reliance on the landmark Supreme Court precedent to resolve the dispute.
Factual Matrix of the Case
The assessee, ACB India Ltd, is a corporate entity primarily engaged in coal beneficiation, coal trading, and the generation and sale of power. For the Assessment Year (AY) 2014-15, the assessee filed its return of income on November 27, 2014.
The assessee operated two distinct units eligible for profit-linked deductions under Section 80-IA of the Income-tax Act, 1961:
- A 15 MW windmill unit.
- A 30 MW thermal power plant.
During the year under consideration, the assessee claimed a deduction amounting to Rs 8,98,46,843/- under Section 80-IA exclusively for the windmill unit. Because the 30 MW thermal power plant had incurred losses, the assessee did not claim any deduction under Section 80-IA for this specific facility.
Operationally, the electricity generated by the thermal power plant was captively consumed. It was transferred to the assessee's Washeries division at a recorded internal rate of Rs 4 per unit. To justify this transfer price, the assessee pointed to the official tariff published by the Chhattisgarh State Electricity Board (CSEB) applicable to the "mines and cement industry," which stood at Rs 4.05 per unit. The assessee maintained that since its internal transfer price of Rs 4 per unit was marginally lower than the prevailing CSEB rate, the transaction inherently satisfied the Arm's Length Price criteria under the transfer pricing regulations.
The Transfer Pricing Dispute and Assessment
During the scrutiny assessment proceedings, the Assessing Officer (AO) invoked Section 92CA(1) of the Income-tax Act, 1961 and referred the matter to the Transfer Pricing Officer (TPO) to benchmark the assessee's domestic and international transactions.