Electricity and steam sales ruled at Arm's Length, no adjustments needed. AO additions deleted, assessee appeal allowed.

The Tribunal concluded that the sale of electricity at Rs. 6.72 per unit and the transfer of steam at Rs. 2160 per MT were at Arm's Length, requiring no adjustments. The Tribunal directed the deletion of additions made by the AO, allowing the appeal of the assessee.

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Issues Involved:

1. Validity of the assessment order.
2. Determination of the Arm's Length Price (ALP) for electricity units transferred from eligible to non-eligible units.
3. Determination of the ALP for steam transferred from eligible to non-eligible units.
4. Restriction of addition under Chapter VI-A.

Issue-Wise Detailed Analysis:

1. Validity of the Assessment Order:

The assessee challenged the assessment order passed by the Assessing Officer (AO) in pursuance of the directions issued by the Dispute Resolution Panel (DRP), stating that the DRP erred both on facts and in law. The AO's consideration of the assessee's power plants as "Biomass Gasifier Power Plants" instead of "Biomass Steam Power Plants" was contested. The raw materials and operational working of both power plants are different, as clarified by the assessee through a letter and a Chartered Engineer Certificate.

2. Determination of the ALP for Electricity Units:

The AO/TPO determined the ALP of the assessee's specified domestic transactions pertaining to the transfer of power units from eligible to non-eligible units at Rs. 4.609545 per unit, against the assessee's declared rate of Rs. 6.72 per unit. The TPO used the average rate from the Indian Energy Exchange (IEX) and the tariff fixed by the Punjab State Electricity Regulatory Commission (PSERC) as a base for comparability under the Comparable Uncontrolled Price (CUP) method. The assessee contended that the IEX rates were not applicable as there was no actual delivery/supply of power traded at the energy exchange by husk-based power plant companies in Punjab or anywhere in India. The assessee argued that the market value should be based on the sale price of electricity boards or the purchase price of electricity boards for captive power plants.

The Tribunal found that the assessee had sold electricity at Rs. 6.72 per unit, which was justified by the rates charged by the Punjab State Power Corporation Limited (PSPCL) and the average rate fixed by the PSERC. The Tribunal held that the sale of electricity at Rs. 6.72 per unit was at Arm's Length and no adjustment was required.

3. Determination of the ALP for Steam:

The AO/TPO determined the ALP of the assessee's specified domestic transactions pertaining to the transfer of steam from eligible to non-eligible units at "Nil" against the assessee's declared rate of Rs. 2160 per MT. The TPO treated the assessee's power plant as a Biomass Gasifier Power Plant, where no steam is generated, instead of a Biomass Steam Power Plant. The TPO rejected the assessee's cost certificate and determined that the cost of steam was "Nil" as it was considered a by-product of power generation.

The Tribunal found that the steam generated was used for both power generation and manufacturing processes. The Tribunal accepted the assessee's method of calculating the cost of steam based on the report of a Senior Chartered Engineer and the Cost Accountant. The Tribunal held that the transfer pricing of Rs. 2160 per MT for steam was at Arm's Length and no adjustment was required.

4. Restriction of Addition under Chapter VI-A:

The AO/TPO made an addition of Rs. 33,36,66,839/- for transfer pricing adjustments. The assessee contended that the addition should be restricted to Rs. 31,87,41,278/-. The Tribunal directed the deletion of the additions made by the AO, allowing the appeal of the assessee.

Decision:

The Tribunal concluded that the sale of electricity at Rs. 6.72 per unit and the transfer of steam at Rs. 2160 per MT were at Arm's Length and no adjustments were required. The Tribunal directed the deletion of the additions made by the AO, allowing the appeal of the assessee. The order was pronounced in the open Court on 13th September 2021.

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