Revenue appeal dismissed, CIT(A) upheld. Consistent precedents, valuation method, market rate for deductions.

The appeal filed by the Revenue was dismissed. The CIT(A)'s decision to delete the adjustments made by the TPO was upheld, relying on consistent judicial precedents and the principle of consistency in the assessee's method of valuation for captive consumption. The market rate approach for electricity and steam was deemed appropriate for determining deductions under Section 80IA.

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Issues Involved:
1. Adjustment on the value of electricity supplied by CPP to its manufacturing units.
2. Consideration of CPP as the tested party for benchmarking analysis.
3. Comparability of the cost of consumption in the hands of the manufacturing unit.
4. Deduction under Section 80IA on the value of electricity supplied.
5. FAR analysis differences between CPP and Torrent Power.
6. Functions of transmission and distribution missing in CPP.
7. Decision of the Hon'ble High Court of Gujarat on benchmarking transactions.
8. Adjustment towards the sale of steam by CPP to the power house.
9. Provisions under Section 80IA regarding steam as a by-product.

Issue-wise Detailed Analysis:

1. Adjustment on the value of electricity supplied by CPP to its manufacturing units:
The Revenue challenged the deletion of adjustments made by the TPO on the value of electricity supplied by CPP to its manufacturing units by benchmarking the same with the rate at M/s. Torrent Power. The TPO argued that the rate charged by Torrent Power includes transmission costs, which CPP does not incur as it is only a generation unit. The TPO thus restricted the sale price to Rs. 3.08/kwh, resulting in a downward adjustment of Rs. 4,78,78,842/-.

2. Consideration of CPP as the tested party for benchmarking analysis:
The Revenue contended that the CPP should be considered the tested party as it is the least complex entity compared to the manufacturing unit. The TPO adopted the cost of generation by Gujarat State Electricity Corporation Ltd. (GSECL) as the benchmark.

3. Comparability of the cost of consumption in the hands of the manufacturing unit:
The Revenue argued that the comparable should be the price at which electricity is sold by the CPP and not the cost of consumption in the hands of the manufacturing unit, especially since the CPP is considered an independent unit.

4. Deduction under Section 80IA on the value of electricity supplied:
The assessee claimed that under Section 80IA(4), the market value of goods or services should be taken as the price they would ordinarily fetch in the open market. The market rate for sale by CPP to the processing house was accepted by the AO in earlier assessments. The CIT(A) deleted the downward adjustment, relying on judgments that support the adoption of market rates for captive consumption.

5. FAR analysis differences between CPP and Torrent Power:
The Revenue argued that the FAR analysis (Functions performed, assets deployed, and risk involved) of CPP is completely different from Torrent Power, which is involved in generation, transmission, and distribution. The TPO considered CPP as the tested party due to its lower complexity.

6. Functions of transmission and distribution missing in CPP:
The Revenue emphasized that transmission and distribution functions are missing in CPP, as it is only engaged in power generation. The TPO argued that multiple adjustments should be made to account for these functions when benchmarking the electricity price.

7. Decision of the Hon'ble High Court of Gujarat on benchmarking transactions:
The Revenue argued that the decision of the Hon'ble High Court of Gujarat in the case of Gujarat Alkalies and Chemicals Ltd. did not consider the FAR analysis and benchmarking of transactions to determine the ALP. However, the CIT(A) and the Coordinate Bench relied on this judgment, which allows deduction under Section 80IA for captive power consumption at market rates.

8. Adjustment towards the sale of steam by CPP to the power house:
The TPO made an adjustment of Rs. 4,10,81,113/- towards the sale of steam by CPP to the power house, arguing that the profit markup was excessive. The CIT(A) deleted this adjustment, noting that the assessee consistently adopted a cost-plus method with around 10% profit, which was upheld in earlier years by appellate authorities.

9. Provisions under Section 80IA regarding steam as a by-product:
The Revenue argued that steam, being a by-product, serves to reduce the cost of power generation and cannot be considered a commodity for transfer or sale under Section 80IA. The CIT(A) and the Coordinate Bench upheld the assessee's claim, noting that the cost-plus method for steam was reasonable and consistent with prior years.

Conclusion:
The appeal filed by the Revenue was dismissed. The CIT(A)'s decision to delete the adjustments made by the TPO was upheld, relying on consistent judicial precedents and the principle of consistency in the assessee's method of valuation for captive consumption. The market rate approach for electricity and steam was deemed appropriate for determining deductions under Section 80IA.

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