Tribunal allows appeals on transfer pricing adjustments for castor meal and electricity transfers. 'sLength

The Tribunal allowed both appeals, deleting the adjustments for transfer pricing concerning the purchase of castor meal and the transfer of electricity. The Tribunal upheld the Resale Price Method (RPM) for the castor meal transaction, finding the transaction at arm's length even under the Comparable Uncontrolled Price (CUP) method. For the electricity transfer, the Tribunal held that the market value should be the rate at which electricity is sold to customers, overturning the adjustment made by the Transfer Pricing Officer and the Commissioner (Appeals).

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Issues Involved:
1. Transfer pricing adjustment for the purchase of castor meal from an Associated Enterprise (AE).
2. Transfer pricing adjustment for the transfer of electricity to other units.
3. General grounds not requiring adjudication.

Detailed Analysis:

1. Transfer Pricing Adjustment for Purchase of Castor Meal from AE:
The assessee, engaged in manufacturing and exporting castor oil and its derivatives, as well as generating power through windmill, filed a return of income for the assessment year 2013-14. The assessee had entered into specified domestic transactions with an AE, leading to a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Income Tax Act, 1961. The TPO observed that the assessee purchased castor meals from both AE and independent third parties, showing a gross margin of 5.99% for AE transactions and a negative margin of (6.97%) for non-AE transactions. The assessee used the Resale Price Method (RPM) for benchmarking, which the TPO rejected, suggesting the Comparable Uncontrolled Price (CUP) method as more appropriate. The TPO found a difference of Rs. 30,94,162/- based on date-wise comparison and made an adjustment, which was upheld by the Commissioner (Appeals).

The Tribunal noted that the RPM was appropriate as the transaction involved resale without value addition. The Tribunal found no deficiency in the gross profit margin computed by the assessee and observed that the average purchase price from AE was lower than from non-AEs. The Tribunal criticized the TPO's selective approach and flawed comparison, ultimately holding that the transaction was at arm’s length even under the CUP method. The adjustment was deleted, and the ground was allowed.

2. Transfer Pricing Adjustment for Transfer of Electricity to Other Units:
The assessee's electricity generation unit, eligible for deduction under section 80IA, transferred electricity to other units. The assessee benchmarked this transaction using the CUP method, comparing the price with that charged by Gujarat Energy Transmission Corporation Ltd (GETCO). The TPO, however, applied the rate at which distribution companies purchase power, leading to an adjustment of Rs. 41,37,879/-. The Commissioner (Appeals) confirmed this adjustment, relying on a decision of the Hon’ble Calcutta High Court.

The Tribunal, referencing multiple High Court decisions, including the jurisdictional Bombay High Court in CIT vs Reliance Industries Ltd, held that the rate at which the distribution company sells electricity to customers should be adopted. The Tribunal found the departmental authorities’ reliance on the Calcutta High Court decision misplaced and followed the principle that the market value of electricity should be the rate at which it is sold to customers. The adjustment was deemed unsustainable, and the addition was deleted, allowing the grounds.

3. General Grounds:
Ground 4 in ITA No. 6073/Mum/2019 and Ground 3 in ITA No. 6074/Mum/2019 were general and dismissed as not requiring adjudication.

Conclusion:
Both appeals were allowed, with adjustments for transfer pricing in respect of castor meal and electricity transfer being deleted. The Tribunal emphasized the appropriate use of RPM and the correct market value for electricity transfer, aligning with established legal principles and High Court decisions.

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