2022 (2) TMI 1285 - AT - Income Tax

Tribunal rules in favor of assessee on arm's length sale rates, overturns additions made by A.O. 'sLength

The Tribunal allowed the appeal of the assessee, holding that the sale rate of Rs. 6.72 per unit for power and Rs. 2160 per MT for steam were at Arm's ... TP Adjustment - Addition on account of transfer of power units - AO made a reference u/s 92C to the TPO for determining the arms length price in respect of specific domestic transaction undertaken by the assessee - HELD THAT:- In our opinion the facts of the issue under consideration are identical to the facts involved for the A.Y. 2013-14 [2021 (9) TMI 1420 - ITAT DELHI] in assessee’s own case wherein held that once there was a direct internal CUP, i.e., the assessee company had purchased electricity from Punjab State Power Corporation at Rs.7.57, then it represents the market rate on which any industry undertaking or consumer is getting the electricity. Thus, we do not find any reason as to why such market rate or CUP should be rejected. Nowhere, it has been brought by the TPO as to why the average trading rate in Indian Energy Exchange should be applied as external CUP. Accordingly, we hold that the sale of electricity @ 6.72 per unit is at Arms’ Length and no adjustment is required in this segment/unit. Addition on account of transfer of steam from eligible unit to non eligible unit - As relying on assessee own case for the A.Y. 2013-14 [2021 (9) TMI 1420 - ITAT DELHI] steam is a form of power eligible for deduction u/s.80IA and same cannot be denied by taking its steam cost at Nil. Further. He has grossly erred in ignoring the audited certificate by Senior Chartered Engineer who is an approved valuer by Income Tax Department and the Cost Accountant appointed by the Central Government without any accounts report, without any agency or expert. Accordingly, for this unit also, we hold that no transfer pricing adjustment is required. Appeal of assessee allowed. Issues Involved:1. Validity of the assessment order.2. Determination of Arm's Length Price (ALP) for the transfer of power units.3. Determination of ALP for the transfer of steam.4. Initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the Assessment Order:The assessee challenged the assessment order passed by the A.O. under section 144C(13) read with section 143(3) of the Income Tax Act, 1961, arguing that the Dispute Resolution Panel (DRP) erred in confirming the additions made by the A.O./Transfer Pricing Officer (TPO) without proper appreciation of facts and law. The Tribunal noted that this ground was general in nature and did not require any specific comment.2. Determination of ALP for the Transfer of Power Units:The assessee contested the addition of Rs. 6,95,84,383 on account of the transfer of power units from eligible to non-eligible units. The TPO had determined the ALP of the power units at Rs. 5.2145 per unit, based on an average of Rs. 6.93 per unit (tariff fixed by Punjab State Electricity Regulatory Commission for Biomass Gasifier Power Plants) and Rs. 3.499 per unit (average rate of power traded at Indian Energy Exchange). The assessee argued that the correct CUP should be the rate at which the Punjab State Power Corporation Limited charges for electricity, which was higher than the rate determined by the TPO. The Tribunal, following its earlier decision in the assessee's own case for the A.Y. 2013-14, held that the sale rate of Rs. 6.72 per unit is at Arm’s Length and no adjustment is required.3. Determination of ALP for the Transfer of Steam:The assessee also contested the addition of Rs. 17,26,84,710 on account of the transfer of steam. The TPO had determined the ALP of the steam at nil, arguing that steam was a by-product of the power generation process and did not bear any cost. The assessee had used the Comparable Uncontrolled Price Method to arrive at an ALP of Rs. 2160 per MT for steam. The Tribunal, referring to its earlier decision in the assessee's own case for the A.Y. 2013-14, held that the cost of steam generation is not nil and accepted the assessee's method of determining the ALP at Rs. 2160 per MT. The Tribunal deleted the addition made on account of the transfer of steam.4. Initiation of Penalty Proceedings under Section 271(l)(c):The assessee argued that the initiation of penalty proceedings under section 271(l)(c) was erroneous as all information was disclosed and nothing was concealed. The Tribunal noted that this ground was prematurely raised and did not require any specific comment.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the sale rate of Rs. 6.72 per unit for power and Rs. 2160 per MT for steam were at Arm's Length, and deleted the additions made by the A.O. on account of the transfer of power units and steam. The initiation of penalty proceedings under section 271(l)(c) was not addressed as it was considered premature.