DCIT Vs Vishal Fabrics Ltd. (ITAT Ahmedabad)
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-8, Ahmedabad, concerning Assessment Year 2015-16. The principal dispute related to the valuation of electricity supplied by the assessee’s Captive Power Plant (CPP) to its manufacturing/processing unit for purposes of computing deduction under Section 80IA of the Income-tax Act, 1961.
The assessee was engaged in manufacturing processed fabrics and operated a 2.3 MW CPP from which electricity and steam were supplied exclusively to its processing house. The CPP was a separate eligible unit, while the processing house was not eligible for deduction. The assessee valued electricity supplied by the CPP at Rs. 7.49 per unit, based on the rate charged by Torrent Power Ltd. to the processing house. The assessee had consistently adopted this market-based rate.
The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO). The TPO held that the Torrent Power rate included transmission costs whereas the CPP was only a generation unit and did not bear comparable transmission and distribution costs. The TPO therefore adopted the cost of generation of electricity by Gujarat State Electricity Corporation Ltd. (GSECL), determining the rate at Rs. 3.08/kWh and making a downward adjustment of Rs. 4,78,78,842/-.
