ITAT Mumbai Endorses ₹6.62 Per Unit GUVNL Tariff for Captive Power Valuation under Section 80-IA

1. Background of the Dispute

The decision in Aditya Birla Nuvo Ltd. Vs DCIT (ITAT Mumbai) concerns cross-appeals for Assessment Year 2013-14, arising from various adjustments and allowances made under the Income Tax Act 1961.

The controversy that ultimately required a Third Member arose only in relation to Ground No. 7, which dealt with how to determine the fair market value of electricity generated by a captive power plant and supplied to the assessee’s own industrial unit, and how that value should be adopted for claiming deduction under Section 80-IA.

The appeals were initially heard by a Division Bench of the ITAT Mumbai ‘K’ Bench, consisting of a Judicial Member and an Accountant Member. While they agreed on all other issues, they differed on the following key question:

  • What is the appropriate benchmark or fair market rate for valuing electricity generated by the assessee’s captive power plant and supplied to its own Rayon unit, for purposes of computing profit eligible for deduction under Section 80-IA?

Due to this difference of opinion, the matter was referred to a Third Member under Section 255(4) of the Income Tax Act 1961. Once the Third Member rendered his opinion, the Division Bench followed the majority view and passed its consequential order on 17 November 2025.

2. Parties and Business Operations

The assessee in the case, Aditya Birla Nuvo Ltd., which subsequently amalgamated with Grasim Industries Ltd., was engaged in multiple manufacturing activities, including:

  • Rayon
  • Carbon black
  • Insulators
  • Textiles
  • Garments

To meet the power requirements of its Rayon manufacturing unit, the assessee operated a captive power plant known as Rayon CPP-2. This plant generated electricity for captive consumption and supplied that power to the Rayon unit.

Alongside captive generation, the Rayon unit also purchased electricity from an external, unrelated power utility, namely Gujarat Urja Vikas Nigam Limited (GUVNL).

3. Core Issue: Benchmark Rate for Captive Power under Section 80-IA

3.1 Captive Power and Section 80-IA Deduction

The assessee claimed deduction under Section 80-IA in respect of its eligible undertaking engaged in power generation. For this purpose, it was required to compute profits derived from the undertaking.

In situations where an eligible undertaking transfers goods or services to another business of the same assessee, Section 80-IA mandates that such transfer should be valued at market value. The central point of dispute was how to determine this “market value” for electricity generated and consumed captively by the assessee.

3.2 Assessee’s Benchmarking Approach

To value the electricity generated by Rayon CPP-2 and supplied to its own Rayon unit, the assessee adopted the rate charged by GUVNL for supplying electricity to the same unit. Specifically:

  • The Rayon manufacturing unit was purchasing electricity from GUVNL at ₹6.62 per unit during the relevant year.
  • The assessee treated this rate of ₹6.62 per unit as an internal Comparable Uncontrolled Price (CUP).
  • Based on this rate, it computed the arm’s length value of captive power transferred from Rayon CPP-2 to the Rayon unit.
  • Using that value, the assessee computed the profit of the captive power undertaking and claimed deduction under Section 80-IA.

In essence, the assessee contended that the actual industrial tariff paid to an independent utility for the same product (electricity), consumed by the same unit, in the same period, represented the correct market value.

3.3 Revenue’s Stand: TPO and AO’s Reasoning

The Transfer Pricing Officer (TPO) did not accept the assessee’s benchmarking methodology. The TPO’s key objections were:

  • An electricity generating entity is functionally different from a distribution utility such as GUVNL.
  • Differences in functions, assets and risks between a generator and distributor, in the TPO’s view, made direct comparison inappropriate.
  • Thus, the distribution tariff charged by GUVNL to the assessee was considered by the TPO as not being a suitable benchmark for the arm’s length price of power generated by the captive plant.

Instead, the TPO: