2023 (10) TMI 654 - AT - Income Tax

Tribunal directs AO to rectify errors and rules in favor of assessee on Transfer Pricing Adjustment

The Tribunal partially allowed the appeal, directing the Assessing Officer to verify and rectify errors related to the unwarranted additions under the ... Specified domestic transaction - Market value under Section 80IA(8) - Price that goods or services would ordinarily fetch in the open market - Arm's length price under transfer pricing provisions - Comparability and FAR analysis - Tested party selection in SDT of captive power - Computation sheet arithmetic/clerical error - Interest under section 234BSpecified domestic transaction - Market value under Section 80IA(8) - Price that goods or services would ordinarily fetch in the open market - Arm's length price under transfer pricing provisions - Comparability and FAR analysis - Tested party selection in SDT of captive power - Validity of transfer-pricing adjustment to inter-unit sale of electricity by an eligible unit under Section 80IA(8) and the appropriate basis for determining market value/ALP - HELD THAT: - The Tribunal analysed Section 80IA(8) and its Explanation, which provides two alternative modes to determine 'market value': (i) the price such goods or services would ordinarily fetch in the open market, or (ii) the arm's length price as defined in clause (ii) of Section 92F where the transfer is a specified domestic transaction. The authorities below applied the transfer pricing mechanism and selected generation-company comparables (e.g., Torrent Power Ltd.) to benchmark ALP, on the premise that SDT compels use of transfer pricing rules. The Tribunal rejected a rigid rule that Clause (ii) must always be applied, holding that the statute expressly offers two alternatives and Clause (i) remains available where an open market price is discernible. Where the captive eligible unit sold power to an associated manufacturing unit at the same rate at which that manufacturing unit purchased power from the State distribution company (GEB) in the open market, that price represents the market value under Clause (i). The Tribunal further held that the comparable relied upon by the Revenue (generation entity supplying only to GEB) was tainted by potential influence/control by the purchaser (GEB) and hence failed comparability under FAR. Applying these principles, the Tribunal accepted that the per unit price of Rs. 6.90, being the rate available in the open market and actually paid by the manufacturing unit to GEB, constituted the market value; the transfer pricing addition/disallowance made by the lower authority was deleted. [Paras 14, 15, 16, 17, 18]TP adjustment deleted; sale price at Rs. 6.90 per unit is the market value under Section 80IA(8) and no ALP adjustment is warranted.Computation sheet arithmetic/clerical error - Alleged discrepancy in the Assessing Officer's computation sheet showing higher income than reflected in the assessment order - HELD THAT: - The assessee pointed out a mismatch between the income shown in the assessment order and the figure in the AO's computation sheet, contending an excess tax consequence in the latter. The Tribunal accepted that a clerical/discrepancy may exist and directed the Assessing Officer to verify the computation sheet against the assessment order and rectify any error found. The ground was allowed for statistical purposes and remitted for verification and correction by the AO. [Paras 19]Directed AO to verify and rectify the computation sheet; ground allowed for statistical purposes.Interest under section 234B - Validity of levy of interest under section 234B in light of assessee's tax payments - HELD THAT: - The assessee contended there was no shortfall in advance tax and that excess tax had been paid. The Tribunal did not finally adjudicate the quantitative correctness of interest but directed the Assessing Officer to verify the tax payments and to grant consequential relief in computation of interest under section 234B if findings so warrant. The direction is for verification and adjustment by the AO. [Paras 20]Directed AO to verify tax payments and grant consequential relief on interest under section 234B; appeal allowed partly for statistical purposes.Final Conclusion: The appeal is partly allowed. The transfer pricing adjustment in respect of inter unit supply of electricity by the eligible unit is deleted as the transaction price corresponds to market value under Section 80IA(8). The computation-sheet discrepancy and the levy of interest under section 234B are remitted to the Assessing Officer for verification and correction, with consequential relief to be granted if warranted. Issues Involved:1. Transfer pricing adjustment for specified domestic transactions.2. Unwarranted addition under the head 'income from Business and Profession.'3. Levy of interest under Section 234B.Summary:1. Transfer Pricing Adjustment for Specified Domestic Transactions:The assessee challenged a transfer pricing adjustment of Rs. 15,23,15,220/- for inter-unit transfer of power from an eligible undertaking under Section 80-IA to non-eligible units. The assessee justified the arm's length price (ALP) using the Comparable Uncontrolled Price (CUP) method, comparing the price with Gujarat Electricity Board (GEB). The Transfer Pricing Officer (TPO) rejected this, citing differences in functions, assets, and risks between GEB and the assessee's unit, and proposed an adjustment based on the power purchase cost from Gujarat Electricity Regulatory Commission (GERC). The Dispute Resolution Panel (DRP) adjusted the ALP to Rs. 3.99 per unit based on M/s Torrent Power Ltd. The Tribunal held that the market value should be the price at which the manufacturing unit buys electricity from GEB (Rs. 6.90 per unit), as supported by various judicial precedents, and deleted the addition.2. Unwarranted Addition Under the Head 'Income from Business and Profession':The assessee contested an additional tax levy on Rs. 21.02 Crores, arguing it was not reflected in the assessment order but only in the computation sheet. The Tribunal directed the Assessing Officer (AO) to verify the facts and rectify any errors, allowing this ground for statistical purposes.3. Levy of Interest Under Section 234B:The assessee argued there was no shortfall in tax payment, claiming an overpayment. The Tribunal directed the AO to verify the payment and grant consequential relief, allowing this ground for statistical purposes.Conclusion:The appeal was partly allowed for statistical purposes, with directions for verification and rectification by the AO.