2024 (2) TMI 147 - AT - Income Tax

Assessee wins Section 80IA(4)(iv)(a) deduction claim as market value determined using electricity board rates

The Deputy Commissioner of Income Tax-1 (1), Raipur (C.G.) Versus Mahendra Sponge and Power Pvt. Ltd.

ITAT Raipur allowed the assessee's claim for deduction under Section 80IA(4)(iv)(a). The AO had invoked Section 80IA(8) and scaled down the deduction by ... Deduction u/s. 80IA(4)(iv)(a) - A.O triggered the provisions of Section 80IA(8) of the Act by adopting the domestic purchase price of electricity by CSEB as the “market rate” and scaled down the assessee’s claim for deduction u/s. 80IA(4)(iv)(a) - as observed assessee had sold power to its steel division and associate enterprises @4.30/- per unit, which was much higher as in comparison to the price, at which, it had sold surplus power to Chhattisgarh State Electricity Board (CSEB), i.e. at contracted price - CIT(A) vacated the disallowance of the assessee’s claim for deduction u/s. 80IA - HELD THAT:- The issue involved in the present appeal is squarely covered by the aforementioned orders passed by the Tribunal in assessee’s own cases, [2015 (6) TMI 1243 - ITAT RAIPUR] A.Y.2008-09, [2022 (8) TMI 440 - ITAT RAIPUR] A.Y.2013-14 and [2022 (8) TMI 1445 - ITAT RAIPUR] A.Y. 2014-15 as well as the by the judgment of M/s. Godawari Power and Ispat Limited [2013 (10) TMI 5 - CHHATTISGARH HIGH COURT] We find that the Tribunal vide its order passed in the case of DCIT-2(1), Vs. M/s. Mahendra Sponge and Power Limited, [2022 (8) TMI 1445 - ITAT RAIPUR] had after exhaustive deliberations vacated the disallowance of the assessee’s claim for deduction u/s. 80IA(4)(iv)(a) as found favor with the claim of the assessee and observed, that the “market value” of the power supplied by the assessee to its steel division was rightly computed by considering the rate at which power was available in the open market, namely, the price that was charged by the electricity board. Decided in favour of assessee. Issues Involved:1. Justification of deletion of addition of Rs. 8,26,60,258/- by CIT(A).2. Determination of whether transactions with CSPDCL are uncontrolled.3. Consideration of external comparable uncontrolled price for transactions.4. Appropriateness of using 'Market rate' instead of 'Arm's Length Price'.5. Ignoring FAR analysis in determining ALP.6. Compliance with IT Act and Rules in determining ALP.Summary:Issue 1: Justification of Deletion of AdditionThe revenue challenged the deletion of Rs. 8,26,60,258/- by CIT(A). The Tribunal upheld the CIT(A)'s decision, referencing previous judgments, including the Hon'ble High Court of Chhattisgarh's decision in the case of Commissioner of Income Tax, Raipur Vs. Godawari Power and Ispat Limited, which supported the assessee's claim for deduction under section 80IA.Issue 2: Determination of Uncontrolled TransactionsThe CIT(A) found that the rate at which Chhattisgarh State Power Distribution Company Limited (CSPDCL) purchases power from the captive power plant does not qualify as uncontrolled transactions. This was upheld by the Tribunal, which noted that the facts of the case were consistent with previous rulings supporting the assessee.Issue 3: External Comparable Uncontrolled PriceThe Tribunal agreed with the CIT(A) that the external comparable uncontrolled price should not be used for determining the comparable uncontrolled price (CUP) for transactions. The Tribunal emphasized that the market rate, rather than the price at which power was sold to CSPDCL, should be considered.Issue 4: Market Rate vs. Arm's Length PriceThe Tribunal upheld the CIT(A)'s decision to use the market rate instead of the Arm's Length Price (ALP) determined by the Transfer Pricing Officer (TPO). The Tribunal referenced previous cases where the market rate was deemed appropriate for such transactions.Issue 5: Ignoring FAR AnalysisThe Tribunal found no error in the CIT(A)'s decision to ignore the FAR (Function performed, Assets used, and Risks undertaken) analysis conducted by the TPO. The Tribunal reiterated that the market rate was a more suitable measure for determining the transaction's value.Issue 6: Compliance with IT Act and RulesThe Tribunal concluded that the CIT(A) had not violated the IT Act and Rules in determining the ALP. The Tribunal referenced the Hon'ble Supreme Court's ratio in the case of Sap Labs India Pvt. Ltd. v/s ITO, supporting the CIT(A)'s approach.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 8,26,60,258/- and confirming the appropriateness of using the market rate for transactions. The Tribunal's decision was consistent with previous rulings and judicial pronouncements, ensuring compliance with the IT Act and Rules.