2023 (9) TMI 324 - AT - Income Tax

Tribunal allows appeal, deletes TP adjustment, upholds assessment order, clarifies ALP method & employee deductions

The tribunal allowed the appeal filed by the assessee, directing the deletion of the TP adjustment made towards deduction u/s. 80IA of the Act and upheld ... TP adjustment - addition towards deduction claimed u/s. 80IA for power generating division - determining ALP of domestic transactions in case of captive consumption of power generated by one unit and consumed in other unit - assessee has claimed deduction u/s. 80IA of the Act, for Windmill Division and has determined profit from eligible undertaking by charging power to Textile Division at the rate at which the assessee buys power from M/s.TANGEDCO Ltd. - TPO has rejected rate adopted by the assessee and has adopted rate paid by TNERC to power generating companies for purchase of power - HELD THAT:- We find that this issue is squarely covered in favour of the assessee by the decision of ITAT Chennai Benches, in the assessee’s own case for AY 2007-08 [2011 (11) TMI 368 - ITAT CHENNAI], where the Tribunal has considered an identical issue in light of deduction claimed u/s. 80IA of the Act, and observed that for the purpose of computing deduction u/s. 80IA price at which the TNERC purchased power from the power generating companies is not correct rate to be adopted, but the price at which the assessee purchased power from electricity supply companies is the rate to be compared for the purpose of determining ALP of price charged by the assessee to its other division. The ITAT Chennai Benches in the case of M/s The India Cements Limited vs. The DCIT, [2021 (12) TMI 390 - ITAT CHENNAI] has considered an identical issue in light of deduction claimed u/s. 80IA for profit derived from eligible undertaking in respect of transfer of power from Windmill Division to other division and observed that while computing deduction u/s. 80IA for power generation units for captive consumption of power, rate at which Electricity Boards supplies power to its consumers should be considered instead of the rate at which the power generating companies supply power to the Electricity Boards. Hon’ble Bombay High Court in the case of CIT-LTU v. Reliance Industries Ltd. [2019 (2) TMI 178 - BOMBAY HIGH COURT] has also considered similar issue and held that for the purpose of computing deduction u/s. 80IA of the Act, the rate at which the assessee purchased power from distribution companies is to be considered instead of rate at which the power distribution companies purchased power from generating companies. Thus determining ALP of domestic transactions in case of captive consumption of power generated by one unit and consumed in other unit, the rate at which power purchased by the assessee from distribution company is alone needs to be considered but not the rate at which distribution companies purchased power from generating companies. In the present case, the TPO and the DRP has adopted rate fixed by TNERC for purchase of power from various power generating companies by TNEB. TPO as well as the DRP are completely erred in making downward adjustment towards deduction claimed u/s. 80IA in respect of Wind Power Division, and thus, we direct the AO/TPO to delete TP adjustment made towards deduction u/s. 80IA - Decided in favour of assessee. Issues Involved:1. Validity of the assessment order.2. Determination of taxable total income.3. Validity of the reference to the Transfer Pricing Officer (TPO).4. Adoption of rates for transfer pricing adjustments.5. Disallowance of employee contributions to EPF & ESI.Summary:1. Validity of the Assessment Order:The assessee contended that the assessment order dated 16.02.2022 was contrary to law and facts. The tribunal reviewed the procedural aspects and found no procedural irregularities that would invalidate the assessment order.2. Determination of Taxable Total Income:The assessee challenged the recomputation of taxable total income, arguing that the NFAC erred in determining the income at Rs. 36,09,94,739/- against the reported Rs. 20,90,01,310/-. The tribunal examined the adjustments made and found that the TPO had correctly determined the Arm's Length Price (ALP) for the transactions under scrutiny.3. Validity of the Reference to the TPO:The assessee argued that the reference to the TPO under the domestic transfer pricing regime was invalid. The tribunal upheld the reference, noting that the TPO's analysis was necessary to determine the ALP for the transactions between the Windmill Division and the Textile Division.4. Adoption of Rates for Transfer Pricing Adjustments:The TPO rejected the assessee's adoption of M/s. TANGEDCO Ltd.'s selling price for power and instead used the purchase rates from TNERC. The tribunal found that the TPO's method of using TNERC's purchase rates was justified. However, it noted that the issue was covered in favor of the assessee by previous tribunal decisions, which held that the rate at which the assessee purchased power from distribution companies should be considered for computing the ALP.5. Disallowance of Employee Contributions to EPF & ESI:The NFAC disallowed Rs. 9,78,114/- for employees' contributions to EPF & ESI under section 36(1)(va) read with section 43B of the Act. The tribunal noted that the contributions were remitted before the due date for filing the return of income, thus eligible for deduction.Conclusion:The tribunal allowed the appeal filed by the assessee, directing the deletion of the TP adjustment made towards deduction u/s. 80IA of the Act and upheld the validity of the assessment order while addressing the specific issues raised by the assessee. The decision emphasized the correct method for determining the ALP and the eligibility of deductions for employee contributions.