2024 (12) TMI 545 - AT - Income Tax

Assessee wins section 80-IA deduction appeal on captive power transfer pricing using State Electricity Board consumer rates

ITAT Raipur allowed the assessee's appeal regarding section 80-IA deduction disallowance. The tribunal held that for computing arm's length price of power ... Disallowance of deduction u/s 80-IA - downward adjustment in arm's length price for transfer of power from captive power unit ('eligible unit') to stee manufacturing unit ('non-eligible unit') - HELD THAT:- Since the issue is duly deliberated upon by the Hon’ble Jurisdictional High Court of Chhattisgarh in the case of CIT v Godavari Power & Ispat Ltd. [2013 (10) TMI 5 - CHHATTISGARH HIGH COURT] wherein Hon’ble Court has decided that “the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier; it should have been compared with the market value of power supplied to a consumer”. Whereas, in the present case, against the binding judgment of the Hon'ble High Court, the Arm’s Length Price (ALP) adopted for transfer of power from eligible unit to non-eligible unit at the rate at which power generating company supply powers to power distribution company by the Ld. AO on the recommendation of Ld. TPO which was further approved by Ld. DRP instead of the rate at which Chhattisgarh State Power Distribution Company Ltd. supplies the power to its consumers. The view of Hon’ble Jurisdictional High Court was subsequently affirmed by the Apex Court in the case of CIT Vs. Jindal Steel and Power Ltd. [2023 (12) TMI 417 - SUPREME COURT] as held the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under section 80-IA of the Act. Thus ground no. 1 of the assessee’s present appeal is allowed. Disallowance of deduction u/s 80G and double disallowance of deduction u/s 80G - allowability of expenditure incurred for donation out of the amount designated for CSR expenses which were disallowed by the assessee as per provisions of section 37 - HELD THAT:- As in the present case admittedly the donations extended by the assessee are to Shri Marwadi Pathshala Samiti (Bitti Committee) and Rajashthan Gokalyan as discernible from assessment order and such parties does not fall under the exception carved out u/s 80G(2)(iiihk) and (iiihl), thus, the assessee is entitled for claim of donations paid under the provisions of Section 80G in respect of payments made towards donations which formed part of the spend towards CSR. Consequently, we concur with the contention raised by the assessee in the present appeal in its ground no. 2, however, for the purpose of verification of facts that such donations which the assessee have made satisfies the conditions of Section 80G of the Act for which no specific finding is emanating from the orders of authorities below, we restore this issue back to the file of Ld. AO for fresh adjudication in terms of our aforesaid observations. Error on the part of Ld. AO in making double disallowance of deduction claim u/s 80G - As the issue regarding donation u/s 80G in ground no. 2 is restore to the file of Ld. AO, we find it appropriate to restore ground no. 3 having connected issue for verification of the facts and to re- adjudicate, in terms of the error pointed out by the assessee. Issues Involved:1. Disallowance of deduction under Section 80-IA of the Income Tax Act due to downward adjustment in arm's length price for power transfer.2. Disallowance of deduction under Section 80G of the Income Tax Act.3. Double disallowance of deduction under Section 80G.4. Non-adjustment of brought forward MAT Credit.5. Short grant of interest under Section 244A.6. Difference in total income as per assessment order and computation sheet.7. Initiation of penalty proceedings under Sections 271AA and 270A.8. Jurisdictional validity of the assessment orders and DRP directions.Detailed Analysis:1. Disallowance of Deduction under Section 80-IA:The primary issue concerns the disallowance of the deduction claimed under Section 80-IA due to a downward adjustment in the arm's length price (ALP) for the transfer of power from the captive power unit to the steel manufacturing unit. The Transfer Pricing Officer (TPO) determined the ALP at INR 3.42 per unit, which was lower than the rate of INR 5.77 per unit used by the assessee. The assessee argued that the market value should be the rate at which the State Electricity Board supplies power to consumers, as affirmed by the Supreme Court in CIT vs. Jindal Steel & Power Ltd. The Tribunal agreed with the assessee, citing past decisions and the Supreme Court's ruling that the market value should reflect the rate charged to industrial consumers, not the rate at which power is sold to a supplier like the State Electricity Board.2. Disallowance of Deduction under Section 80G:The assessee claimed a deduction under Section 80G for donations made, which were part of the Corporate Social Responsibility (CSR) expenditure. The AO disallowed this claim, arguing that CSR expenses cannot qualify for Section 80G benefits. However, the Tribunal noted that the Income Tax Act does not restrict deductions for donations forming part of CSR, except for specific funds like the Swachh Bharat Kosh and Clean Ganga Fund. The Tribunal, following precedents, held that the assessee is entitled to the deduction under Section 80G, provided the donations meet the statutory conditions, and remanded the matter to the AO for verification.3. Double Disallowance of Deduction under Section 80G:The assessee contended that there was a double disallowance of the INR 4,00,000 deduction under Section 80G. Since this issue is related to the previous ground, the Tribunal remanded it to the AO for re-evaluation and correction if necessary.4. Non-adjustment of Brought Forward MAT Credit:The assessee claimed that the AO failed to adjust the available MAT Credit against the tax payable under the normal provisions. The Tribunal did not provide a separate adjudication on this issue, indicating it as consequential.5. Short Grant of Interest under Section 244A:The assessee argued that the interest under Section 244A was computed for 15 months instead of 46 months. The Tribunal did not specifically adjudicate this issue, treating it as consequential.6. Difference in Total Income as per Assessment Order and Computation Sheet:The assessee pointed out a discrepancy between the total income figures in the assessment order and the computation sheet. The Tribunal did not provide a separate ruling, considering it a consequential issue.7. Initiation of Penalty Proceedings under Sections 271AA and 270A:The initiation of penalty proceedings was challenged by the assessee. The Tribunal did not address this issue separately, suggesting it was either consequential or premature.8. Jurisdictional Validity of Assessment Orders and DRP Directions:The assessee questioned the jurisdictional validity of the draft and final assessment orders and the DRP's directions. The Tribunal did not specifically rule on this issue, implying it was either not ripe for adjudication or deemed to be without merit.Conclusion:The Tribunal allowed the appeal regarding the deduction under Section 80-IA, aligning with judicial precedents. It also remanded the Section 80G deduction issues for verification. Other grounds were treated as consequential, general, or academic, with no separate adjudication provided. The appeal was thus partly allowed for statistical purposes.