ITAT Deletes 106 Cr TP Adjustment on Power & Steam Transfers Under Section 80IA

The assessee, engaged in the manufacture and sale of fertilizers, PVC compounds, cement, sugar, chemicals, and power, filed its returns for several years, claiming deduction under Section 80IA for captive power units. The Transfer Pricing Officer (TPO) proposed an aggregate adjustment of Rs. 106.23 crore-Rs. 7.96 crore on transfer of power from eligible to non-eligible units, alleging ALP not met using internal CUP and Rs. 98.26 crore on transfer of steam (considered by TPO as a by-product with zero cost).

The Assessing Officer (AO) followed the TPO’s findings and also invoked Section 14A in respect of the Rs. 1.52 crore disallowance.

CIT (A) Held: The CIT(A) deleted these additions. Revenue appealed before the Tribunal.

Main Issue: Whether transfer pricing adjustments made under Section 80IA for internal power and steam transfers between eligible and non-eligible units, based on CUP and cost methods respectively, are sustainable in law.

ITAT Held: The ITAT upheld the CIT(A)’s decision, holding that using internal CUP based on electricity rates from JVVNL was more appropriate than external IEX rates. It relied on past rulings, like Jindal Steel, which recognized SEB rates as market value under Section 80IA.

For the Rs. 98.26 crore steam transfer adjustment, the Tribunal ruled steam is a commercially valuable product, not a free by-product. It accepted cost-based benchmarking backed by a cost accountant’s certificate and rejected the TPO’s zero-value approach.

The Tribunal highlighted consistency, noting the Department had accepted the same approach in other years. It also deleted a Rs. 1.52 crore disallowance under Section 14A as unjustified.

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