Inter-unit power transfer pricing: GEB rates accepted as benchmark over TPO adjustment under CUP method

The ITAT Mumbai ruled on two transfer pricing issues. First, regarding inter-unit power transfer from an 80-IA eligible undertaking, the Tribunal held that Gujarat Electricity Board (GEB) rates were the correct benchmark for comparison under the Comparable Uncontrolled Price method, rejecting the TPO's adjustment. The Tribunal followed its own precedent for AY 2017-18, stating GEB's electricity supply rate to non-eligible units was appropriate for external comparison rather than Indian Energy Exchange rates. Second, the Tribunal admitted an additional ground regarding steam transfer valuation under section 80-IA, finding it raised a legal issue with bona fide reasons for late submission. The matter was remitted to the Assessing Officer for fresh consideration on whether market value should determine the deduction calculation.

---

---

Issues Involved:

1. Transfer Pricing Adjustment for Inter-Unit Transfer of Power.
2. Determination of Market Value for Deduction u/s 80-IA.
3. Admission of Additional Ground for Transfer of Steam at Market Value.

Summary:

1. Transfer Pricing Adjustment for Inter-Unit Transfer of Power:

The assessee challenged the upward transfer pricing adjustment of Rs. 12.99 Cr. u/s 92 of the Act for the inter-unit transfer of power from an eligible undertaking u/s 80-IA to a non-eligible unit. The AO/TPO, following DRP directions, used the rate from Torrent Power Ltd. (TPL) as a comparable for the CUP method, which the assessee argued was inappropriate. The assessee contended that the rate charged by the Gujarat Electricity Board (GEB) should be used as it reflects the arm's length price. The Tribunal referred to its decision in the assessee's own case for AY 2017-18 and the Supreme Court's decision in CIT vs. Jindal Steel & Power Limited, affirming that the market value should be the rate at which the State Electricity Board supplies power to consumers in the open market. The Tribunal held that the TP adjustment was not sustainable and deleted the addition.

2. Determination of Market Value for Deduction u/s 80-IA:

The Tribunal emphasized that the market value for power supplied by the assessee should be computed based on the rate at which the State Electricity Board supplies power to consumers, not the rate at which power is sold to a supplier. The Tribunal rejected the TPO's comparison with TPL, stating that TPL's transactions with GEB were not uncontrolled. The Tribunal also dismissed the argument for using Indian Energy Exchange rates, citing significant differences and lack of comparability with the rates at which SEBs supply power.

3. Admission of Additional Ground for Transfer of Steam at Market Value:

The assessee sought to claim 80-IA deduction for the transfer of steam at market value through an additional ground. The Tribunal admitted the additional ground, citing the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, which allows raising new legal issues before the Tribunal if relevant facts are on record. The Tribunal remitted the issue to the AO for a de novo consideration, directing the AO to consider additional evidence and case laws while deciding the matter.

Conclusion:

The Tribunal allowed the appeal, deleting the TP adjustment for the inter-unit transfer of power and admitting the additional ground for the transfer of steam at market value, remitting the latter issue to the AO for fresh consideration.

---