Our captive power plant supplies electricity to our own factory. The officer values that power at the low rate the Electricity Board pays us for surplus, not the tariff the Board charges us. Which is 'market value' under s.80-IA(8)?
The tariff the Board charges its industrial consumers. The Supreme Court held that the rate at which a generator sells surplus power to a State Electricity Board is a rate fixed by contract under a statutory monopoly and is not a price fetched in the open market. The tariff at which the Board supplies industrial consumers is the price at which power is actually available to a buyer, and that is the market value for an inter-unit transfer under s.80-IA(8). Here that meant Rs 3.72 per unit, not Rs 2.32.
Decided by the Supreme Court (B.V. Nagarathna and Ujjal Bhuyan JJ (judgment delivered by Ujjal Bhuyan J)) on 2023-12-06, reported as 2023 INSC 1053; (2024) 460 ITR 162 (SC); (2023) 335 CTR 1017 (SC); Civil Appeal No. 13771 of 2015 with connected appeals. It bears on section 80-IA, section 80-IA(8) of the Income Tax Act 1961, in Deductions & Disallowances matters.
Almost every captive power claim under s.80-IA is attacked on transfer price, and the difference between the two rates is usually the whole dispute. This is a Supreme Court decision against the Revenue that affirmed the Punjab and Haryana, Bombay and Gujarat High Courts on the same question, so it should close the point at assessment stage rather than at appeal.
Binding on every court and authority in India.
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The assessee, a public company at Hisar, generated electricity and manufactured sponge iron and M.S. ingots. Because the State Electricity Board's supply was inadequate it set up captive power plants to feed its own industrial units. By an agreement dated 15 July 1999 it sold surplus power to the Board at Rs 2.32 per unit. The Board supplied power to industrial consumers at Rs 3.72 per unit, and the assessee recorded the transfer of power from its power undertaking to its own manufacturing units at that rate. For assessment year 2001-02 it claimed a deduction under s.80-IA of Rs 80,10,38,505. The Assessing Officer held that Rs 3.72 was not the true market value, took Rs 2.32 instead, and restricted the deduction to Rs 48,11,72,000. The Commissioner (Appeals) confirmed the officer. The Tribunal reversed, and the High Court upheld the Tribunal. The Revenue appealed to the Supreme Court, which heard the matter with a batch of connected appeals raising the same and other issues.
The civil appeals were dismissed with no order as to costs. For s.80-IA(8) the market value of electricity supplied by a captive generating unit to the assessee's own manufacturing units is the rate at which the State Electricity Board supplies power to industrial consumers, and not the rate at which the Board buys surplus power from the generator. On the connected issues the Court also held that no particular mode of exercising the option to claim depreciation on the written down value basis is prescribed, so claiming it in the return is a valid exercise of the option; that professional fees paid in the Reliance Industries matters were allowable, the officer having relied only on a retracted search statement; and it declined to decide whether carbon credit receipts are capital or revenue, the Revenue not having raised the point before the High Court.
Section 80-IA(8) requires an inter-unit transfer to be recorded at market value, and the Explanation defines market value as the price the goods would ordinarily fetch on sale in the open market. The Court took 'open market' to connote free competition, where price is settled by supply and demand and is not fettered by control or regulation. Measured against that, the Rs 2.32 rate failed: it was a rate arrived at by contract with the Board in conditions of statutory monopoly, where the generator had no other buyer for its surplus, and so was not a price ordinarily fetched in an open market. The Rs 3.72 rate was the rate at which power was in fact available to any industrial consumer who wanted to buy it, and it was that rate the assessee's own units would have had to pay had they bought from the Board instead of from the captive plant. The Court therefore held that the consumer tariff, and not the surplus purchase rate, is the yardstick, and affirmed the High Court decisions to that effect.
Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity.
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Handle my notice → Ask a CA on WhatsAppThe tariff the Board charges its industrial consumers. The Supreme Court held that the rate at which a generator sells surplus power to a State Electricity Board is a rate fixed by contract under a statutory monopoly and is not a price fetched in the open market. The tariff at which the Board supplies industrial consumers is the price at which power is actually available to a buyer, and that is the market value for an inter-unit transfer under s.80-IA(8). Here that meant Rs 3.72 per unit, not Rs 2.32. This was decided by the Supreme Court (B.V. Nagarathna and Ujjal Bhuyan JJ (judgment delivered by Ujjal Bhuyan J)) and bears on section 80-IA, section 80-IA(8) of the Income Tax Act 1961. It is reported as 2023 INSC 1053; (2024) 460 ITR 162 (SC); (2023) 335 CTR 1017 (SC); Civil Appeal No. 13771 of 2015 with connected appeals. Almost every captive power claim under s.80-IA is attacked on transfer price, and the difference between the two rates is usually the whole dispute. This is a Supreme Court decision against the Revenue that affirmed the Punjab and Haryana, Bombay and Gujarat High Courts on the same question, so it should close the point at assessment stage rather than at appeal. If it applies to you, the first step is this: Value inter-unit transfers of power at the tariff the State Electricity Board or distribution licensee charged industrial consumers in the relevant year, and put the published tariff schedule for that year on record.
The assessee, a public company at Hisar, generated electricity and manufactured sponge iron and M.S. ingots. Because the State Electricity Board's supply was inadequate it set up captive power plants to feed its own industrial units. By an agreement dated 15 July 1999 it sold surplus power to the Board at Rs 2.32 per unit. The Board supplied power to industrial consumers at Rs 3.72 per unit, and the assessee recorded the transfer of power from its power undertaking to its own manufacturing units at that rate. For assessment year 2001-02 it claimed a deduction under s.80-IA of Rs 80,10,38,505. The Assessing Officer held that Rs 3.72 was not the true market value, took Rs 2.32 instead, and restricted the deduction to Rs 48,11,72,000. The Commissioner (Appeals) confirmed the officer. The Tribunal reversed, and the High Court upheld the Tribunal. The Revenue appealed to the Supreme Court, which heard the matter with a batch of connected appeals raising the same and other issues. The matter was decided on 2023-12-06 by the Supreme Court (B.V. Nagarathna and Ujjal Bhuyan JJ (judgment delivered by Ujjal Bhuyan J)). On those facts the Supreme Court held as follows. The civil appeals were dismissed with no order as to costs. For s.80-IA(8) the market value of electricity supplied by a captive generating unit to the assessee's own manufacturing units is the rate at which the State Electricity Board supplies power to industrial consumers, and not the rate at which the Board buys surplus power from the generator. On the connected issues the Court also held that no particular mode of exercising the option to claim depreciation on the written down value basis is prescribed, so claiming it in the return is a valid exercise of the option; that professional fees paid in the Reliance Industries matters were allowable, the officer having relied only on a retracted search statement; and it declined to decide whether carbon credit receipts are capital or revenue, the Revenue not having raised the point before the High Court.
Section 80-IA(8) requires an inter-unit transfer to be recorded at market value, and the Explanation defines market value as the price the goods would ordinarily fetch on sale in the open market. The Court took 'open market' to connote free competition, where price is settled by supply and demand and is not fettered by control or regulation. Measured against that, the Rs 2.32 rate failed: it was a rate arrived at by contract with the Board in conditions of statutory monopoly, where the generator had no other buyer for its surplus, and so was not a price ordinarily fetched in an open market. The Rs 3.72 rate was the rate at which power was in fact available to any industrial consumer who wanted to buy it, and it was that rate the assessee's own units would have had to pay had they bought from the Board instead of from the captive plant. The Court therefore held that the consumer tariff, and not the surplus purchase rate, is the yardstick, and affirmed the High Court decisions to that effect. In the words reproduced by the source cited on this page: "Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity." The decision followed or applied CIT v. Jindal Steel and Power Ltd (2024) 460 ITR 159 (P&H) - affirmed; CIT LTU v. Reliance Industries Ltd (2020) 421 ITR 686 (Bom) - affirmed; Pr. CIT v. Gujarat Alkalies and Chemicals Ltd (2017) 395 ITR 247 (Guj) - affirmed.
It was decided by the Supreme Court on 2023-12-06 and is reported as 2023 INSC 1053; (2024) 460 ITR 162 (SC); (2023) 335 CTR 1017 (SC); Civil Appeal No. 13771 of 2015 with connected appeals. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 80-IA, section 80-IA(8), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The civil appeals were dismissed with no order as to costs. For s.80-IA(8) the market value of electricity supplied by a captive generating unit to the assessee's own manufacturing units is the rate at which the State Electricity Board supplies power to industrial consumers, and not the rate at which the Board buys surplus power from the generator. On the connected issues the Court also held that no particular mode of exercising the option to claim depreciation on the written down value basis is prescribed, so claiming it in the return is a valid exercise of the option; that professional fees paid in the Reliance Industries matters were allowable, the officer having relied only on a retracted search statement; and it declined to decide whether carbon credit receipts are capital or revenue, the Revenue not having raised the point before the High Court. It arises in Deductions & Disallowances matters, on section 80-IA, section 80-IA(8) of the Income Tax Act 1961, and was decided by B.V. Nagarathna and Ujjal Bhuyan JJ (judgment delivered by Ujjal Bhuyan J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the officer relies on the power purchase agreement rate for surplus power, answer with the Court's reasoning that a rate fixed under a statutory monopoly is not an open-market price. Check the year: where the transfer is a specified domestic transaction under s.92BA, the proviso to s.80-IA(8) requires market value to be taken as the arm's length price, so confirm whether the aggregate threshold is crossed before applying this decision without more. Keep the s.80-IA(8) argument separate from any transfer pricing documentation argument - the Explanation to s.80-IA(8) supplies its own definition of market value.
Still good law. A targeted search for any review, recall or later doubting of this decision found nothing; the itatonline digest records it as affirming the Punjab and Haryana, Bombay and Gujarat High Courts. A full citator check of later treatment was not run. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment disposes of a large batch of appeals raising four different issues; only the market value issue is a s.80-IA point and only that issue is summarised here in full. The professional fees issue arose in the Reliance Industries matters, not in the Jindal Steel matter. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The civil appeals were dismissed with no order as to costs. For s.80-IA(8) the market value of electricity supplied by a captive generating unit to the assessee's own manufacturing units is the rate at which the State Electricity Board supplies power to industrial consumers, and not the rate at which the Board buys surplus power from the generator. On the connected issues the Court also held that no particular mode of exercising the option to claim depreciation on the written down value basis is prescribed, so claiming it in the return is a valid exercise of the option; that professional fees paid in the Reliance Industries matters were allowable, the officer having relied only on a retracted search statement; and it declined to decide whether carbon credit receipts are capital or revenue, the Revenue not having raised the point before the High Court.
TaxSphere, “CIT v Jindal Steel & Power Ltd”, https://taxnotice.vittsphere.com/caselaw/case/jindal-steel-power-market-value-captive-power-80ia8/ (validity last checked 2026-09-07)
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