Market rate for Section 80-IA(4) deduction is the tariff charged by utilities to consumers, not the purchase rate.

The respondent-assessee, a company engaged in chemical manufacturing and power generation, claimed a deduction of ₹30,96,49,300/- under Section 80-IA(4) of the Income Tax Act, 1961, for its 90MW Captive Power Plant for Assessment Year 2010-11.

The Assessing Officer (AO) disallowed the claim on 13.02.2013, questioning the rate adopted by the assessee for power supplied to its captive units.

On appeal, the CIT(A) remitted the matter back to the AO, and the Income Tax Appellate Tribunal (ITAT) subsequently dismissed the Revenue's appeal on 19.03.2018.

The Revenue then appealed to the High Court of Gujarat, challenging the market rate used for calculating the deduction.

1. Whether the ITAT erred in law by allowing the assessee’s claim of deduction under Section 80-IA(4) based on the rate at which the Gujarat Electricity Board (GEB) supplied power to its consumers, rather than the lower rate at which power generating companies supplied power to the GEB?

Section 80-IA(4) of the Income Tax Act, 1961, regarding deductions for profits and gains from industrial undertakings engaged in infrastructure development.

The core legal principle followed was established by the Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Ltd. (460 ITR 162), which determined that "market value" for captive power consumption must be equated with the rate charged by the State Electricity Board to its industrial consumers, rather than the price paid by the Board to power suppliers.

The Court noted that the central dispute was the determination of "market value" for power transferred from the captive plant to the assessee's industrial units. The Revenue argued for a lower rate based on what the GEB pays suppliers, whereas the assessee utilized the higher retail rate charged by the GEB to industrial consumers.

Relying on the Jindal Steel precedent, the Court reasoned that a consumer in the open market cannot purchase power at the wholesale "supplier" rate; therefore, the only realistic market comparison is the rate at which an industrial consumer actually purchases power from the grid.

The Court further observed that the tariff paid by the GEB to suppliers is a result of statutory mandates and is not a competitive market price.

Since this legal issue was already settled in favor of the assessee by both the Supreme Court and previous benches of the Gujarat High Court (Tax Appeal No. 817 of 2013), the Court found no reason to deviate from this position.

It held that the market value for computing deduction under Section 80-IA is the rate at which the State Electricity Board supplies power to consumers.

Consequently, the ITAT's order was upheld, and the Tax Appeal was dismissed.