2023 (1) TMI 473 - AT - Income Tax

Assessee's Appeal Partially Allowed: Tribunal Deletes Transfer Pricing Addition, Grants Deduction, Restores Notional Gain Issue.

Tata Steel Long Products Limited Versus Asst. Commissioner of Income Tax, Circle, Rourkela

The Tribunal partially allowed the assessee's appeal for statistical purposes. It deleted the addition made by the AO regarding transfer pricing, directed ... Deduction of notional gain on fair valuation of investments - Claim not made in return of income - HELD THAT:- In view of the principles laid down in the case Goetze (India) Ltd.[2006 (3) TMI 75 - SUPREME COURT] Appellate Tribunal being the appellate authority did have the power to restore the issue to the file of the Assessing officer with the direction to consider the claim of the assessee though the revised return on the issue has not been filed. This being so, respectfully following the ratio laid down supra, the issue as to whether the notional income being the notional fair value gain on the investments in Corporate Debt Bonds is to be considered for taxation in the hands of the assessee or not is restored to the file of the Assessing officer for adjudication on merits. Ground No. 4 of the assessee stands partly allowed for statistical purposes. Non-allowance of deduction u/s. 80-IA - assessee is in the business of generation and distribution of electricity - HELD THAT:- Once the assessee is granted the benefit of deduction u/s. 80IA for one year other than on the issue of variation in the quantification of the deduction u/s. 80IA, the Assessing officer is no more entitled to question the allowability of deduction u/s. 80IA The Hon'ble Jurisdictional High Court of Orissa in the case of the assessee [2019 (7) TMI 1924 - ORISSA HIGH COURT] has categorically held that the assessee is eligible for deduction u/s. 80IA on the legal matrix. It was on the factual issues, the Hon'ble Jurisdictional High Court of Orissa had restored the matter to the ITAT for adjudication. Therefore, categorically on law, the Hon'ble Jurisdictional High Court of Orissa has held the issue in favour of the assessee and on the factual matrix, the Co-ordinate Bench held in favour of the assessee, thus, holding that the assessee is entitled to the benefit of deduction u/s. 80IA of the Act - AO is directed to grant the assessee the benefit of deduction u/s. 80IA as claimed. Ground No. 3 of the assessee stands allowed. TP Adjustment - AO had applied the State Electricity Board rate of Rs. 2.63 per unit as against Rs. 3.83 per unit applied by the assessee - market rate that is to be applied in respect of cost of the unit of electricity generated by the assessee and sold - HELD THAT:- A perusal of provisions of section 80-IA(4) clearly shows that the provision is available to both the undertakings which is doing the business of generating of electricity as also to an undertaking which is in the business of generating and distributing of electricity. A perusal of the facts of the assessee's case clearly shows that 95% of the assessee's power generation has been sold to Tata Steel Limited. Thus, clearly, the assessee is not only generating but also distributing the power. Therefore, the rate applicable as per the provisions of section 80-IA(8) being the market rate would be the rate at which the distribution agencies supplies the electricity and not the rate at which the OERC fixes in respect of supply by generating companies to the distribution companies, which is nothing but the said Electricity company who supplies the electricity to the retailers. The rate at which the electricity could have been sold to distribution companies is not the same at which such companies sell the electricity to the consumers. Thus, clearly, as the assessee herein, is doing both business of generation and distribution of electricity, the decision in the case of ITC Ltd. [2015 (7) TMI 450 - CALCUTTA HIGH COURT] would not be applicable to the facts of the assessee's case. This being so, as the assessee is in the business of distribution of electricity also, it is such rate as retailer would pay for the purpose of purchasing of electricity which is to be considered. In the circumstances, the addition as made by the AO on the issue stands deleted. Issues Involved:1. Transfer pricing issue concerning the Arms Length Price of the domestic transaction involving the sale of electricity.2. Non-allowance of deduction under Section 80IA of the Income Tax Act.3. Notional gain on the fair valuation of investments in Corporate Debt Bonds.4. Consequential interest issues.Issue-wise Detailed Analysis:1. Transfer Pricing Issue:The Tribunal addressed the transfer pricing issue raised in Ground No. 2 of the appeal. The assessee argued that the Assessing Officer (AO) incorrectly applied the State Electricity Board rate of Rs. 2.63 per unit instead of Rs. 3.83 per unit for the electricity generated and sold. The Tribunal noted that the assessee sold 95% of its generated power to Tata Steel Limited, a sister concern, and only 5% was used for captive consumption. The Dispute Resolution Panel (DRP) had directed the AO to verify whether an appeal had been filed against the Orissa High Court's decision favoring the assessee. The Tribunal observed that no specific adjudication by the Orissa High Court on this issue existed, but the appeal was allowed, implying the question of law was answered in favor of the assessee. The Tribunal concluded that the rate applicable should be the rate at which the distribution agencies supply electricity, not the rate fixed by the Orissa Electricity Regulatory Commission (OERC) for supply by generating companies to distribution companies. Hence, the addition made by the AO was deleted.2. Non-allowance of Deduction under Section 80IA:Ground No. 3 dealt with the non-allowance of deduction under Section 80IA. The assessee, engaged in the generation and distribution of electricity, claimed that 95% of the electricity generated was sold to Tata Steel Limited, and only 5% was used for captive consumption. The Tribunal noted that the Orissa High Court had previously ruled in favor of the assessee for the assessment year 2006-07, and the Co-ordinate Bench of the Tribunal had also upheld this decision. The Tribunal emphasized that once the benefit of deduction under Section 80IA is granted for one year, the AO cannot question its allowability in subsequent years, except for variations in quantification. The Tribunal directed the AO to grant the deduction under Section 80IA as claimed by the assessee, subject to the decision of the Supreme Court in the case of Alembic Ltd.3. Notional Gain on Fair Valuation of Investments:Ground No. 4 concerned the deduction of notional gain on the fair valuation of investments in Corporate Debt Bonds. The assessee admitted to inadvertently crediting notional income, which was not claimed in the return of income but was submitted before the AO and the DRP. Both the AO and the DRP rejected the claim based on the principles laid down by the Supreme Court in Goetze (India) Ltd. vs CIT. However, the Tribunal, following the Supreme Court's principles, restored the issue to the AO for adjudication on merits, allowing Ground No. 4 for statistical purposes.4. Consequential Interest Issues:Ground Nos. 5 and 6 were related to consequential interest. The Tribunal did not provide specific details on these grounds in the judgment, indicating they were consequential to the main issues addressed.General Grounds:Ground Nos. 1 and 7 were general in nature and did not require specific adjudication.Conclusion:The Tribunal allowed the appeal of the assessee partly for statistical purposes. The stay application filed by the assessee was dismissed as infructuous since the appeal had already been adjudicated. The order was pronounced in the open court on 26/12/2022.