Hindalco Industries Ltd. v. Deputy Commissioner of Income Tax (2024) 114 ITR 502 (Mum)(Trib)
Facts of the Case
- Assessment Year: 2003-04
- Nature of Business: Hindalco Industries Ltd. operated a captive power plant supplying electricity to its own aluminium production unit.
- Additional Sales: A small portion of the generated power was sold to the State Electricity Board.
- Claim: The company claimed a deduction under Section 80IA of the Income Tax Act, which provides benefits for enterprises engaged in infrastructure development.
- Dispute: The dispute arose over the appropriate rate to determine the market value of the power supply for internal consumption, as required under Section 80IA(8).
Key Issue:
- Whether the market value of the power should be based on the rate at which the State Electricity Board supplied electricity to industrial consumers or the rate at which the company sold power to the State Electricity Board.
Judgment:
- The Income Tax Appellate Tribunal (ITAT) held that the term “market value” under Section 80IA(8) refers to the price at which goods (in this case, electricity) would typically be sold in an open market scenario.
- It ruled that the appropriate market value should be the rate at which the State Electricity Board supplies power to industrial consumers.
- The Tribunal rejected the argument that the rate at which Hindalco sold power to the State Electricity Board should be considered, as this rate reflected a supplier-to-government transaction rather than an open market rate.
- Consequently, the rate charged by the State Electricity Board to industrial consumers was determined to be the correct market value for calculating the deduction under Section 80IA and establishing the transfer price for the captive power plant supply.
This judgment reinforces the principle that market value for internal transfers under Section 80IA should reflect the standard consumer rates rather than the supplier-to-government rates.