ITAT Jodhpur Partly Allows Hindustan Zinc Appeal, Deletes Transfer Pricing Adjustments on Captive Power and ETP Units

The Jodhpur Bench followed Supreme Court precedent in Jindal Steel to hold that SEB consumer rates, not generation-company tariffs, are the correct benchmark for captive power transfer pricing under section 80-IA.

The Income Tax Appellate Tribunal, Jodhpur Bench, has partly allowed the appeal of Hindustan Zinc Limited for Assessment Year 2022-23, deleting transfer pricing adjustments totalling over Rs 590 crore made by the Transfer Pricing Officer in respect of the company's Captive Power Plants and Effluent Treatment Plants. The Bench, comprising Dr. Mitha Lal Meena (Accountant Member) and Shri Sudhir Pareek (Judicial Member), held that the rate at which State Electricity Boards supply power to industrial consumers — not the rate at which power generation companies sell to the grid — is the correct market value for benchmarking captive power transfers under section 80-IA of the Income-tax Act, 1961. The order was pronounced on 3 June 2026 after a hearing on 25 March 2026.

The Dispute Before the Tribunal

Hindustan Zinc Limited, a company engaged in mining of ore and manufacturing of zinc, lead, silver, sulphuric acid and allied products, had set up Captive Power Plants for in-house consumption. During AY 2022-23, the CPPs — including a 160 MW thermal plant at Dariba and solar plants at Debari and Dariba (12 MW and 4 MW respectively) — supplied uninterrupted power to the company's taxable manufacturing units.

The company filed its return of income declaring Rs 1,18,70,13,11,947. The Assessing Officer, acting on a Transfer Pricing Officer's order under section 92CA(3) dated 28 January 2025, passed a Draft Assessment Order on 11 March 2025 under section 144C(1) read with sections 143(3) and 144B, proposing additions of Rs 709,74,56,659. After the company filed objections before the Dispute Resolution Panel, the DRP issued directions on 6 November 2025. The final assessment order dated 12 November 2025 under section 143(3) read with sections 144C(13) and 144B determined assessed income at Rs 1,22,46,66,77,927, against the returned income of Rs 1,18,70,13,11,947.

The company challenged the final order before the Tribunal on multiple grounds, including the benchmarking of captive power transfers, the treatment of steam transfers, the allocation of head-office expenses, the benchmarking of Effluent Treatment Plant transactions, and the levy of interest under section 234B.

The Captive Power Transfer Pricing Dispute

The central contest concerned how to price the electricity transferred from the CPPs to the company's non-eligible manufacturing units for the purpose of computing the section 80-IA deduction.

Hindustan Zinc benchmarked the transaction using the “Other Method” under Rule 10AB, taking the rate at which State Electricity Boards supply power to third-party industrial consumers as the reference price. The company valued the transfer at an average of Rs 8.38 per unit, being the SEB rate to end consumers.

The TPO rejected this approach. He held that the correct comparable was the rate at which power generation companies such as RVUN and Adani Power sell electricity to the state grid or third parties. Applying this external CUP, the TPO arrived at an average rate of Rs 4.07 per unit and made a transfer pricing adjustment of Rs 5,66,98,50,458 — the difference between the two rates applied to the volume of power transferred.

The DRP upheld the TPO's position. The company appealed to the Tribunal.

Revenue's Argument: Pre-Amendment Precedents Do Not Apply

The Departmental Representative argued that decisions of the Supreme Court and the Tribunal, including the Supreme Court's ruling in CIT v. Jindal Steel & Power Ltd. [2024] 460 ITR 162, were rendered in the context of the pre-amended provisions of section 80-IA and section 80A, and therefore could not be treated as binding precedent for AY 2013-14 onwards following the Finance Act, 2012 amendments to sections 80A(6) and 80-IA(8).

The DR relied on the ITAT Jaipur Bench's order in Shree Cement Limited (ITA Nos. 162, 178, 181, 182/JP/2016, dated 28 December 2017), which in turn had relied on M/s Chambal Fertilizers & Chemicals Limited v. CIT. The DR also contended that the market price of electricity units as per DISCOM standard rates could not constitute the arm's length price given the different functional, asset and risk profiles of the CPP eligible units and the taxable manufacturing units.

Assessee's Case: SEB Consumer Rate Is the Market Value

Senior Advocate Shri Ajay Vohra, appearing for Hindustan Zinc, submitted that the issue had already been decided in the company's favour by the Tribunal for Assessment Years 2008-09 to 2011-12, 2012-13, 2017-18, 2018-19 and 2020-21.

On the post-amendment argument, the assessee submitted that the Explanation to section 80-IA(8) defines “market value” in two alternative ways separated by the word “or”: first, the price that goods or services would ordinarily fetch in the open market; and second, the arm's length price as defined in section 92F, where the transaction is a specified domestic transaction under section 92BA. The use of “or” gives the assessee an option to adopt either mechanism. Where the open market price is ascertainable, it remains available even after the Finance Act, 2012 amendments.

The assessee relied on the Supreme Court's holding in Jindal Steel & Power Ltd. that the market value of power supplied by the SEB to industrial consumers is the correct market value of electricity, and that the rate at which power is sold to a supplier — such as the rate at which generation companies sell to the grid — cannot be the market rate of power sold to a consumer in the open market.

The assessee further relied on the Delhi High Court's decision in Pr. CIT v. DCM Shri Ram Ltd. (ITA 566/2023, relating to AY 2014-15, a post-amendment year), the Calcutta High Court's decision in PCIT v. Rungta Mines Ltd. [2025] 176 taxmann.com 410, the Mumbai Tribunal's decision in DCIT v. JSW Energy Ltd. [2026] 182 taxmann.com 201, and the ITAT Jaipur Bench's later decision in DCIT v. Shree Cement Ltd. (ITA No. 142/JP/2023, relating to AY 2014-15), all of which had dismissed the revenue's arguments on the post-amendment applicability of the Jindal Steel ratio.

On the B2B versus B2C distinction, the assessee argued that rates at which distribution companies purchase power from generation companies are rates charged to middlemen in a B2B market, governed by different regulatory conditions, and are not comparable to rates charged to ultimate industrial consumers in a B2C market.

How the Tribunal Reasoned on Captive Power

The Bench accepted the assessee's submissions. It held that the Supreme Court in Jindal Steel & Power Ltd. [2024] 460 ITR 162 had categorically decided that the rate at which the SEB supplies power to industrial consumers must be taken as the market value for computing the section 80-IA deduction, and that the rate at which power is sold to a supplier cannot be the market rate of power sold to a consumer in the open market.

On the revenue's argument that Jindal Steel has no binding force for AY 2013-14 onwards, the Tribunal followed the Mumbai Bench's analysis in DCIT v. JSW Energy Ltd. [2026] 182 taxmann.com 201, which had examined the amended provisions and concluded that “no contrary view can be taken even post amendments by Finance Act, 2012, if the 'market value' still can be ascertained as per the price available in the open market.” The Bench also noted that the coordinate bench of the ITAT Jaipur in DCIT v. Shree Cement Ltd. (ITA No. 142/JP/2023) had reached the same conclusion for AY 2014-15 after examining the amended provisions.

The Bench further noted that the Tribunal had decided the identical issue in the company's own case for AY 2020-21 (ITA No. 623/Jodh/2024), AY 2018-19 and AY 2017-18 (ITA Nos. 128 and 127/Jodh/2022), AY 2012-13 (ITA Nos. 404 and 412/Jodh/2017) and AY 2011-12 (ITA Nos. 262 and 246/Jodh/2017), consistently in the assessee's favour. Accordingly, the transfer pricing adjustment of Rs 5,66,98,50,458 on account of captive power transfers was deleted.

Steam Transfer and Head-Office Expense Grounds

Ground No. 4 and its sub-grounds concerned the disallowance of Rs 10,56,99,413 on account of generation and transfer of steam included in the profits of the Dariba CPP (160 MW and LCV Boiler CPP). The TPO had applied the “Other Method” and valued the cost of steam at nil. The assessee argued that the TPO's powers are limited to determining the arm's length price and that the aggregate benchmarking of steam and power transfers should have been accepted. The Tribunal allowed this ground following the same reasoning applied to the captive power grounds.

Ground No. 5 concerned the allocation of common and head-office expenses amounting to Rs 17.82 crore. The DRP and AO had held that the section 80-IA deduction was available only after apportioning HO expenses and depreciation on common assets on a turnover basis. The Tribunal allowed this ground as well, following its earlier orders in the company's own case.

Effluent Treatment Plant Benchmarking

Ground No. 6 concerned the disallowance of Rs 24,21,59,598 in respect of the section 80-IA deduction claimed for Effluent Treatment Plants at Chanderia and Debari. The company had benchmarked the ETP transactions using the “Other Method” under Rule 10AB, relying on a quotation obtained from an independent third-party vendor for the operation and maintenance of the ETP units. The TPO rejected this approach and instead applied the Comparable Uncontrolled Price method, without identifying any comparable uncontrolled transaction, and valued the cost of steam transferred by the ETP at nil.

The TPO's specific objection to the quotation-based benchmarking was that a single quotation could not be used for arm's length price determination. The assessee responded that neither the Income-tax Act nor the Rules prescribe the number of quotations required under the Other Method, and that Rule 10AB is an enabling provision that permits any method used to arrive at the price of a transaction between non-associated enterprises.

The Tribunal found force in the assessee's argument. It held that the TPO had not questioned the genuineness of the quotation but had merely rejected it on the ground that a single quotation was insufficient. The Bench relied on the Gujarat High Court's decision in CIT v. Adani Wilmar Ltd. [363 ITR 338 (Guj)], the Delhi Tribunal's decision in Toll Global Forwarding India Pvt. Ltd. v. DCIT [37 ITR Trib 391 (Delhi)] as affirmed by the Delhi High Court in PCIT v. Toll Global Forwarding India Pvt. Ltd. [381 ITR 38 (Del)], and the Delhi High Court's decision in DCIT v. Nobel Resources and Trading India Private Limited [70 taxmann.com 300 (Delhi)], all of which had approved the use of quotations for arm's length price determination. The Bench also noted that the ITAT Jaipur in DCIT v. Shree Cement Ltd. (ITA No. 142/JP/2023) had followed the same line. Accordingly, the adjustment of Rs 24,21,59,598 on account of ETP transactions was deleted.

Grounds Not Pressed

Ground No. 2, which challenged the assessment order as barred by limitation under section 144C(13) read with section 153(3), was not pressed by the assessee's counsel and was dismissed as not pressed.

Ground No. 7 (disallowance of MAT credit of Rs 1,31,57,69,489) and Ground No. 8 (interest under section 234B) were also not pressed, as the AO had allowed the MAT credit and rectified the interest computation in a rectification order dated 7 January 2026 passed under section 154. Both grounds were dismissed as not pressed.

Ground No. 9, concerning the initiation of penalty proceedings under section 270A read with section 274 for alleged under-reporting of income, was also not pressed and was dismissed accordingly.

Outcome

The Tribunal partly allowed the appeal. The transfer pricing adjustment of Rs 5,66,98,50,458 on account of captive power plant transfers, the disallowance of Rs 10,56,99,413 on account of steam transfers, the disallowance of Rs 17.82 crore on account of head-office expense allocation, and the adjustment of Rs 24,21,59,598 on account of ETP transactions were all deleted. The order was pronounced in open court on 3 June 2026.