ITAT Kolkata Upholds SEB Consumer Tariff for Section 80-IA Deduction on Captive Power Plant Transfers — Revenue Appeals Dismissed

Overview of the Dispute

The Income Tax Appellate Tribunal (ITAT), Kolkata, pronounced a significant ruling on 18th May, 2026, consolidating and dismissing all four Revenue appeals filed against two related entities — Shyam Sel & Power Ltd. and Shyam Metalics & Energy Ltd. — covering Assessment Years 2020-21 and 2021-22. The disputes centred on two recurring issues: the correct benchmarking of electricity transfer prices from captive power plants (CPPs) to manufacturing units for computing deductions under Section 80-IA of the Income-tax Act, 1961, and the appropriate methodology for allocating head office common expenses to eligible units.

The Tribunal, after extensively examining precedents from the Supreme Court and the Calcutta High Court, as well as its own coordinate bench decisions, ruled comprehensively in favour of the assessees and rejected the Revenue's contentions on both counts.

Background and Factual Matrix

Shyam Sel & Power Ltd. — AY 2020-21 (ITA No. 2663/KOL/2025)

The assessee had established three captive power plants — one at Mangalpur and two at Jamuria — to fulfil the power requirements of its co-located manufacturing units. Deduction under Section 80-IA was claimed in respect of profits derived from these eligible CPP units. The relevant specified domestic transactions were duly disclosed in Form 3CEB.

The original deduction claimed stood as follows:

Subsequently, the assessee revised its claim downward to Rs. 1,96,83,82,588/- by benchmarking the electricity transfer value against tariffs charged by the respective State Electricity Boards (SEBs) — Rs. 4.58/unit for the Jamuria plants and Rs. 4.39/unit for the Mangalpur plant.

Transfer Pricing Officer's Position

The Transfer Pricing Officer (TPO), vide order dated 05.04.2023 under Section 92CA(3), accepted the revised transfer price for the Jamuria CPPs (with the resultant downward self-adjustment of Rs. 13,75,36,212/- going uncontested). However, with respect to the Mangalpur unit, the TPO adopted a significantly lower benchmark of Rs. 2.53/unit, resulting in:

• A reduction of Rs. 26,03,72,340/- in the Section 80-IA deduction attributable to the Mangalpur CPP
• An overall downward transfer pricing adjustment of Rs. 39,79,08,552/- across all eligible CPPs

CIT(A)'s Relief

On first appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the transfer pricing adjustment pertaining to the Mangalpur unit. The CIT(A) held that the assessee had correctly adopted the average annual landed cost at which the non-eligible manufacturing units purchased electricity from the electricity distribution company as the benchmark for valuing electricity transferred by the eligible CPPs — a methodology that was rational, consistent with judicial precedent, and reflective of genuine market conditions.

Legal Framework: Section 80-IA(8) and Market Value Determination

Section 80-IA(8) of the Income-tax Act, 1961 provides that where goods or services are transferred between an eligible unit and any other unit of the same assessee, and the Assessing Officer is of the opinion that the consideration recorded in the books does not correspond to the market value of such goods or services, the profits of the eligible unit shall be computed on an arm's length pricing basis.

The Explanation to Section 80-IA(8) defines "market value" in relation to goods as:

• The price such goods would ordinarily fetch in the open market, or
• The arm's length price as defined under Section 92F(ii), where the transaction constitutes a specified domestic transaction under Section 92BA

The pivotal legal question, therefore, was: what constitutes the "open market" price of electricity supplied by captive power plants to co-located manufacturing units?

Supreme Court's Binding Precedent: CIT v. Jindal Steel & Power Ltd. (460 ITR 162)

The Tribunal placed extensive reliance on the Supreme Court's authoritative ruling in CIT v. Jindal Steel & Power Ltd. (460 ITR 162 SC), which had conclusively settled this very question.

Key Reasoning of the Supreme Court