2023 (11) TMI 1361 - AT - Income Tax

Power purchase rates from captive units for section 80IA deduction should follow consumer supply rates not generator rates

The ITAT Chennai upheld the CIT(A)'s decision to delete transfer pricing adjustments made by the AO/TPO regarding power purchased from captive power ... TP adjustment - power purchased and consumed by the appellant company from its captive power generation units, for the purpose of computing deduction u/s. 80IA - HELD THAT:- This issue is no longer the res integra. As decided in the case of DCIT vs M/s. India Cements Ltd. [2021 (12) TMI 390 - ITAT CHENNAI] has considered an identical issue, where the Tribunal by following the decision of Reliance Industries Ltd [2019 (2) TMI 178 - BOMBAY HIGH COURT] held that, for the purpose of computing deduction u/s. 80IA of the Act, towards power generated from captive power generation units and consumed by other units, the rate at which the power distribution companies supplied powers to consumers should be adopted instead of the rate at which the power generating companies supplied power to power distribution companies. We are of the considered view that there is no error in the reasons given by the ld. CIT(A) to delete additions made by the AO/TPO towards transfer pricing adjustment, in respect of deduction claimed u/s. 80IA of the Act, for windmill division. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the delay in filing the appeal by the revenue should be condoned.2. Whether the Transfer Pricing Officer (TPO) and Assessing Officer (AO) correctly determined the Arm's Length Price (ALP) for the power generated by the assessee's captive power generation units and consumed by its other business units, for the purpose of computing deduction under Section 80IA of the Income-tax Act, 1961.3. Whether the rate at which power distribution companies supply power to consumers or the rate at which power generating companies supply power to distribution companies should be adopted for benchmarking the power consumed by the assessee from its captive power generation units.ISSUE-WISE DETAILED ANALYSIS1. Condonation of DelayThe delay in filing the appeal by the revenue was 142 days. The revenue submitted a petition for condonation of delay along with an affidavit explaining that the delay was due to the time consumed in obtaining comments from the Transfer Pricing Officer (TPO) necessary for deciding on filing the appeal. The Court, after hearing both sides, concluded that the reasons provided constituted a reasonable cause under the Act for condoning the delay. Consequently, the delay was condoned, and the appeal was admitted for adjudication.2. Determination of Arm's Length Price (ALP)The relevant legal framework involves Section 80IA of the Income-tax Act, which provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The issue revolved around the determination of the ALP for power generated by the assessee's captive units and consumed internally, which is a specified domestic transaction under Section 92BA read with Section 80IA(8).The TPO rejected the assessee's benchmarking method, which used the rate at which power was purchased from TANGEDCO (a power distribution company) as the Comparable Uncontrolled Price (CUP). Instead, the TPO adopted the rate at which the assessee sold surplus power to TANGEDCO as the ALP, leading to a transfer pricing adjustment.The CIT(A) disagreed with the TPO's approach, relying on judicial precedents that supported using the rate at which power distribution companies supply power to consumers as the appropriate benchmark. The CIT(A) held that the rate charged by TANGEDCO to commercial consumers should be used for computing the deduction under Section 80IA.3. Benchmarking Rate for Power ConsumptionThe Court considered whether the rate for benchmarking should be the rate at which power distribution companies supply power to consumers or the rate at which power generating companies supply power to distribution companies. The Court referenced the decision of the ITAT, Chennai Benches in the case of DCIT vs M/s. India Cements Ltd, which supported using the rate at which power distribution companies supply power to consumers for computing deductions under Section 80IA.The Court noted that the CIT(A) had followed judicial discipline by relying on precedents that favored using the consumer rate for benchmarking. The Court found no error in the CIT(A)'s decision to delete the additions made by the AO based on the TPO's adjustment.SIGNIFICANT HOLDINGSThe Court upheld the CIT(A)'s decision, emphasizing the following principles:- The rate at which power distribution companies supply power to consumers should be used for benchmarking power consumed by the assessee from its captive power generation units for the purpose of computing deductions under Section 80IA.- The decision aligns with established judicial precedents, including the decisions in the cases of DCIT vs M/s. India Cements Ltd and others, which have consistently supported the consumer rate as the appropriate benchmark.The Court dismissed the appeal filed by the revenue, thereby affirming the CIT(A)'s order and the rationale that the consumer rate is the correct benchmark for computing deductions under Section 80IA for captive power consumption.