TaxTMI 
TaxTMI 
2019 (3) TMI 687
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....rred in law and on facts in directing the Assessing Officer to restrict u/s 14A r.w.r. 8D disallowance(s) of Rs. 6,01, 17,716/- and Rs. 5,39,20,281/- to Rs. 16,85,257/- & Rs. 3,64,065/- (assessment year wise) for the purpose of MAT adjustment u/s 115JB Explanation (f) of the Act. The Revenue's identical first three substantive grounds in both of its appeals seek to revive the entire sum of section 14A disallowance. We therefore take up this common issue in all four cases together for the sake of convenience and brevity. We advert to the assessee's grounds first that the CIT(A) ought not to have directed the Assessing Officer to compute section 115JB Explanation (f) MAT adjustment computation for section 14A r.w.r 8D disallowance component of Rs. 16,85,257/- & Rs. 3,64,065/-. 3. Both parties reiterated their respective pleadings against and in support of the CIT(A) directions under challenge. We notice in this backdrop that the instant issue of section 14A r.w.r. 8D disallowance for the purpose of section 115JB MAT computation is no more res integra. Hon'ble Bombay high court's judgment in CIT vs. Bengal Finance & Investment P Ltd.; ITA No.337 of 2013 dated 10.02.2015 and this Tr....
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.... computation, which was produced and then examined. In the clarification submitted, the assessee stated that it has allocated a certain unspecified proportion of the salary of the G.M, Finance and his assistants, some part of the expenses on Telephone, Fax, Conveyance, Accounting charges etc. The Tax Audit Report, however, stated that the disallowance was made at a rate of 5% of the total dividend earned. It is seen that the said computation is based essentially on ad-hoc estimates, and as in the case of most such estimates, the same is arbitrary to a greater or lesser extent. However, what is more relevant is to consider whether any one or more expense related to the investment portfolio were omitted to be considered at all while making this computation. The assessee is seen to have acquired and disposed of investments during the year, as is evident form a general look at the balance sheet, as well as from examination of the lists of investments produced on requisition. It is also seen that, as may be expected, the assessee has incurred brokerage, STT, and other charges including stamp duty, service tax, Turnover tax etc., related to the said acquisition....
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.... its own and its borrowed funds (iii) Has restricted its estimate of disallowance even lower than the bare minimum provided for in the formula devised in rule 8D [i.e., less than the amount provided for in rule 8D(2)(iii), being 0.5% of the average value of investments In view of the above, I hereby record my dissatisfaction with the assessee's computation in terms of sec.14A(2). In consequence, the disallowance u/s14A is being recomputed in terms of rule 8D as follows, subject to the following caveats: (a) While considering interest expenses such interest as are accounted for under bill discounting, packing credit, and buyer's credit are not being considered, since they are seen to be solely and directly related to business purposes. (b) While considering the average investments, investments in debt funds are being excluded, since the same do not yield tax exempt incomes. Computation of disallowance u/s14A with rule 8D 1. Disallowable expenses may be represented by the formula D+A x B/C + 0.5% of B Where D is the expenditure directly related to the investments as includible in terms of clause (i) of sub rule 2 ....
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....e earned Rs. 3,37,05,131/- by way of dividend that is exempt from taxation. In its computation of income the assessee had voluntarily offered a sum of Rs. 16,85,257/- as disallowance u/s 14A of the Act. Despite the same, the AO mechanically applied Rule 8D and computed disallowance u/s 14A at Rs. 6,18,02,973/- and added a sum of Rs. 6,01,17,716/- to the income of the assessee. 2.2 While applying Rule 8D(i), he considered expenses of Rs. 11,63,470/- being expenses incurred on brokerage, 5TT and other charges as directly attributable to the earning of dividend income. In this regard it is submitted that the expenses of Rs. 11,63,470/- were capitalized with the cost of investment and were not claimed in the return by way of debiting the P/L account (Ledger of current investments enclosed). Now since the expenses were not claimed in the return, the question of disallowance does not arise. Thus, it is prayed that addition to the extent of Rs. 11,63,470/- be deleted outright. 2.3. 1 W.r.t disallowance of Rs. 2,00,34,065/- on account of interest under Rule 8D(ii), it is submitted that the assessee in the instant case has sufficient own funds to justify investments in shares and mutu....
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....tructure Projects Pvt. Ltd. Vs, DCIT (order enclosed) • ITAT(Chennai) in case of ACIT Vs. M.Baskaran [152 ITD 844] 2.4.2 Applying the above to the facts of the case, it is pointed out that the assessee during the year earned no income on investments to the tune of Rs. 74,805.68102 lakhs (details enclosed at page 81) considered by the AO in the closing value of investment. 2.5.1 Further, the AO while considering the average value of Investments has considered the strategic investments (eg. Lanco Industries Ltd., Electrosteel Steels Ltd.) Lanco Industries is engaged in the same line of business as that of the assessee-company and the given investments were made to financially assist the company in strengthening its business. Thus, investment in Lanco was strategic business purposes and not for the purposes of earning dividend income or capital gains. Thus, the AO erred in considering investments in Lanco while applying Rule 8D. 2.5.2 The aforesaid claim finds strength from the following: • Delhi High Court in case of CIT Vs. Holcim India (P) Ltd. • The ITAT (Chandigarh) in case of ACIT Vs. Spray Engineering Devices Ltd. [53 ....
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....icer while adopting the average value of investments has to consider only those investments which yielded dividend income during the previous year. On the above issue the Hon'ble Income-Tax Appellate Tribunal, Kolkata in the case of REI Agro Ltd. v. Deputy CIT [2013] 144 ITD 141 (Kolkata) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of rule 8D(2)(ii) and (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon'ble Calcutta High Court in G. A. No. 3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. v. Deputy CIT [2013] 144 ITD 141 (Kolkata). It was pointed out that the assessee during the year earned no income on investment in NIMID, Canara Mutual Fund. Hence, the Assessing Officer erred in including the investment. 141. The second issue, that requires consideration is as to whether in computing the disallowance under section 14A of the Act read with rule 8D2(ii) and (iii) of the Rules, the Assessing Officer while adopting the average value of investments has t....
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....id submissions of the learned counsel for the assessee and are of the view that in the light of the decisions referred to above, in computing the disallowance under section 14A of the Act read with rule 8D(2)(ii) and (iii) of the Rules, the Assessing Officer while adopting the average value of investments has to consider only those investments which yielded dividend income during the previous year. Similarly, in computing the disallowance under section 144 of the Act read with rule 8D(2)(ii) and (iii) of the Rules, the Assessing Officer while adopting the average value of investments has to exclude the investments which are strategic investments. 143. The learned counsel for the assessee filed before us a chart wherein he has given the figures with regard to submissions in paragraphs 138 and 139 above, viz. Investments of the assessee (Rs.15,894.02 lakhs), strategic investments (Rs. 5990.06 lakhs), investments which yielded dividend income during the previous year including strategic investments (Rs.13,650.89 lakhs) and investments in dividend yielding shares (excluding strategic investments) (Rs. 7,660.83 lakhs). 144. Without prejudice to the above submissions, it was also s....
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....ance of interest made u/s 14A in terms of Rule 8D(2)(ii). 4. As regards the issue of disallowance under Section 14A read with Rule BD(2)(iii), the Hon'ble ITAT, Kolkata in the appellant's own case for AY 2008-09 had held that the provisions of Rule 8D(2)(iii) is required to be applied only with reference to investments (after excluding strategic investments) which actually yielded dividend income. From the calculations furnished by the appellant-company, it is found that, on the aforesaid lines, the disallowance under Rule 8D(2)(iii) works out to Rs. 6,16,577/- which is less than the sum of Rs. 16,85,527/- suo moto offered and disallowed by the appellant. The Ld. AO is therefore directed to restrict the disallowance to Rs. 16,85,527/-. In view of the above and for the reasons discussed in the foregoing therefore, the Ld. AO is directed to restrict the disallowance u/s 14A to Rs. 16,85,527/- in computing total income as per the computational provisions as also in computing book profit u/s 115JB. Grounds No. 2 to 5 are therefore allowed." 5. The Revenue's first argument raised before us is that the Assessing Officer had rightly invoked section 14A r.w.r. 8D(i) direct....
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....ce in both of its appeals pleads that CIT(A) has erred in law and on facts in holding that the taxpayers sales tax, subsidy and industrial promotion assistance are capital receipts not chargeable to tax thereby deleting excess depreciation disallowance involving corresponding figures of Rs. 3,16,92,148/- and Rs. 3,98,44,668/-; respectively. The CIT(A)'s detailed discussion qua the instant issue in former Assessment Year followed mutatis mutandis in latter Assessment Year reads as under: "08. Grounds numbering 6 to 10 emanate from the action of the Ld. A.O in making a disallowance of Rs. 3,16,92,148/- by disallowing a portion of the claim of depreciation, holding the same to be excessive. The impugned matter has been dealt with by the Ld.AO as under: ii) Disallowance of excess claim of depreciation The assessee company receives or is liable to receive subsidy in the nature of Sales tax remission of Rs. 28,70,361/- and Industrial Promotion Assistance of Rs. 14,49,68,866/-. The assessee has treated the same to be capital subsidies, following the decision of the Jurisdictional High Court at Calcutta, in the case of Rasoi Ltd. In pursuance of judicial discipline, an....
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....below for your ready reference: "(1) "actual cost" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Explanation 10.- Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant of reimbursement shall not be included in the actual cost of the asset to the assessee i Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." 3.2.2 From a plain reading of the above it is cle....
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....nt (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee; Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. " 67. From a plain reading of the above it is clear that a subsidy received from the Government may be reduced from the actual cost only if the subsidy is given to directly or indirectly meet the cost of the asset. However, in the instant case, the scheme nowhere specifies that the subsidy is to be used for the purpose of acquisition of fixed assets. The subsidy is provided to extend financial assistance to entrepreneurs in setting up new units/expanding existing units in the backward areas. There appears no restriction imposed on the assessee to ut....
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.... Revenue during scrutiny assessments of the assessee for the assessment years 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as 'capital', accepting the contention of the assessee. Even the Hon'ble Supreme Court in the case of CIT v. P. I Chemicals Ltd. [1994] 210 ITR 830 (SC) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under section 43(1) for the purpose allowing depreciation." In light of the above decisions, we hold that the amount of Rs. 55,79,540 disallowed on ground of excess depreciation claim, should be allowed. Thus ground No.5 raised by the Revenue is dismissed." is squarely covered in favour of the appellant-company by its own jud....
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....13,14: Interest on loan advanced to AE: Rs. 1,83,45,330/- 4.1.1 W.r.t the above, attention of your Goodself is invited to the relevant facts of the case. The assessee is engaged in the business of manufacture and export of Ductile Iron Pipe. In order to expand the market for its product, subsidiaries were incorporated to market assessee's product abroad. The AEs are mainly engaged in the trading and marketing of Ductile Iron Pipes. 4.1.2 The assessee had advanced interest free loans to Electrosteel, Algeriaand the said transaction was referred to the TPO u/s 92CA for determination of the Arms Length Price (ALP). 4.1.3 Based on the ALP so computed, the AO computed Arm's Length Interest Rate by following CUP method as 6.61% (cost of funds in hands of assessee) plus 7.5% (credit spread) based on creditworthiness of the AE. In doing so, he assigned a credit rating of 'C' to the AE. Accordingly, an upward adjustment of Rs. 1,83,45,330/- was made. Aggrieved by the said action of the AO, the assessee is in appeal before your Goodself. 4.2.1 With regard to the above, it is reiterated that fhe assessee is engaged in manufacturing and export of Ductile Iron Pipes ....
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....riving at arm's Length interest rate by taking the cost of funds to the assessee, which is a domestic rate, as a base rate. 4.4.1 Next, it is contended that computation of spread of 750bp by the AO is arbitrary and has no basis whatsoever. The same was arrived at by assigning credit rating of 'C' to the AE (which was not rated by any rating agency). However, the Income tax Act read with Transfer Pricing Rules prescribed for computation of arm's length price does not authorize the AO to assign credit rating to corporate AEs. Therefore, his act is arbitrary and not as per law. 4.4.2 Attention in this regard is invited to the judgment of ITAT(Delhi) in case of Kohinoor Foods Ltd. Vs. ACIT (order enclosed). 4.5 Lastly, the ITAT(Kolkata) in assessee's own case for AYs 2003-04 to 2011-12 (cited above) held LIEOR to be the Arm's length interest rate (para 79). Thus, upward adjustment, if any, may be computed in accordance with UBOR. Hence it is prayed that the AO be directed accordingly. 13. DECISION: 1. I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld. TPO/ AO. In Ground No. 11 to 14....
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....s in order to expand the market for its product, Electrosteel Europe SA was incorporated and was an associated enterprise (AE) of the assessee. Its purpose was to market assessee's product abroad. The associated enterprise is mainly engaged in the trading and marketing of Ductile Iron Pipes. In the earlier years, the assessee had advanced interest-free loans to its associated enterprise namely Electrosteel Europe SA. The said transaction was an international transaction carried out by the assessee with its associated enterprise and the arm's length price (ALP) of such transaction has to be determined in terms of section 92 of the Act. The Assessing Officer Therefore, referred to the Transfer Pricing Officer (TPO) under section 92CA for determination of the arm's length price (ALP). 72. The Transfer Pricing Officer proposed to benchmark the interest-free loan transaction by taking into account the cost of funds in the hands of the assessee (base rate of 8 per cent was adopted on the reasoning that this would be the cost of borrowing in India by the assessee) + valuation of the risk based on the credit rating of the associated enterprise (7 per cent. was added to....
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....an which is an international transaction between associated enterprises. The loan would thus be covered by section 92 of the Act which mandated income from such transaction to be computed on the basis of arm's length price. In view of the aforesaid decision of the Special Bench, we are of the view that there is no merit in the argument advanced by the learned counsel for the assessee that the provisions of section 92 of the Act is not applicable to transaction of giving interest-free loan to associated enterprise. 74. The next argument of the learned counsel for the assessee was that even if one considers the loan transaction to be an "international transaction", even then the arm's length price of 11 per cent arrived at by the Dispute Resolution Panel was arbitrary and hence cannot be adopted. The Revenue for its part has in its appeal contended that the rate adopted by the Transfer Pricing Officer should be restored. The Transfer Pricing Officer in computing the arm's length price has considered the average cost of borrowed funds to the assessee/domestic interest rates (i.e., the rate at which banks in India lend for business) and added a spread of 300 basis ....
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....length price does not authorise the Assessing Officer to assign credit rating to corporate associated enterprises. Therefore, the Dispute Resolution Panel held that the action of the Transfer Pricing Officer was arbitrary and not as per law, The Dispute Resolution Panel however applied the Central Board of Direct Taxes's safe harbour rules in the case of lending between associated enterprises wherein the Central Board of Direct Taxes had opined that addition of additional 3 per cent. on account of credit rating and risk of the borrower associated enterprise should be added to the base rate of interest charged on loans. 78. In the case of Kohinoor Foods Ltd. v. Asst. CIT [2014] 40 CCH 611 (Delhi-Trib.), the fact were that the Transfer Pricing Officer had computed arm's length interest rate at 13.49 per cent by relying upon data obtained from CRISIL. The Tribunal accordingly held that : "We have no issue of the Transfer Pricing Officer applying the CUP method. But the problem arises when in the name of applying CUP method a wholly inapplicable comparable model applied which leads to distorted results. In our considered view, a significant sector of multi-nat....
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....hod to be adopted in the facts and circumstances of the appellant's case was to benchmark the loan at the relevant currency denominated benchmark LIBOR rate, prevailing in the relevant year. The Ld. AO/TPO is thus directed to compute the ALP of loan as explained in the foregoing, Grounds No. 11 to 14 are therefore partly allowed. 12. We notice herein as well that the CIT(A) has precisely followed the tribunal's earlier years' order in the assessee's cases itself directing the authorities to benchmark assessee's international transactions in the nature of loans given to its overseas Associate Enterprises (AEs) at the relevancy currency benchmark LIBOR rate prevailing in the relevant previous year(s). Learned coordinate bench's detailed discussion held that the impugned international transactions of loans in the case of AEs have to be benchmarked in the respective foreign currency LIBOR rates than the domestic market credit ratings. We make it clear that the Revenue's pleadings before us in its corresponding grounds nos.6 to 9 have nowhere drawn any distinction on facts in all the assessment years. We accordingly adopt judicial consistency mutatis mutandis in the impugned asse....
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....en fact proves that the AEs were mainly catering to the marketing needs of the assessee which was the sole purpose of their existence. Given such economic interdependence on the AE no adjustment under the transfer pricing provisions in Chapter X was required. 5.1.4 The aforesaid claim finds strength from the following judgments: • ITAT(Delhi) in case of Kohinoor Foods Ltd. Vs. ACIT[67 SOT 108] • Delhi High Court in case of CIT Vs. Cotton Naturals (I) Pvt. Ltd, [276 CTR 475] • ITAT (Ahmedabad) in case of Micro Links Ltd. [157 TTJ 289] • ITAT(Delhi) in case of Knorr Bremse India Pvt. Ltd, [56 SOT 349] 5.2.1 Without prejudice to the above, if for the sake of argument we accept that services were rendered by the assessee-company, even then the impugned guarantee transaction does not constitute an international transaction within the meaning of Section 92B of Income Tax Act, 1961. In this connection, it is submitted that no cost was incurred by the assessee-company to provide such guarantee to the AE. Thus, the said corporate guarantee did not have a bearing on the profits, income, losses or assets of the ....
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....cated in a Developed Nations and not Developing Nations. Hence, the entire addition has been made arbitrarily and not in consonance with the Transfer Pricing provisions under the Act. 5.4 Lastly, ITAT (Kolkata) in case of Tega Industries Ltd, Vs. DCIT [ITA No. 7972/Kol/2012] held that guarantee extended by the assessee was merely a shareholder activity undertaken to further the assessee's business. The Tribunal deleted the addition made on account of guarantee commission in full. In the instant case, the corporate guarantee was not extended with a view to earn commission but to protect the interest of the assessee. Thus, following the decision of Kolkata Tribunal the ALP of guarantee transaction is nil. Thus, no adjustment on account of guarantee commission is warranted. Accordingly, it is prayed that addition of Rs. 5,32,43,578/- be deleted. 16. DECISION: I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld, TPO/ AO. Before the ld. TPO, the appellant contended that the issuance of corporate guarantee was not an 'international transaction' and therefore no benchmarking exercise was required to be ca....
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....ee charges may be taken at 0.40 per cent which was the percentage of commission charged by the bank from the assessee for furnishing identical guarantee as was furnished by the assessee for a loan transaction by banks to its associated enterprise. In this regard our attention was drawn to the fact that IDBI Bank has charged a commission of 0.40 per cent. per annum as guarantee commission for similar facility extended to the assessee and that should be taken as a comparable case. Our attention was drawn to page 120 of the paper book II filed by the assessee in the appeal for the assessment year 2011-12. 84(A).On the other hand, the learned Departmental representative has relied upon the orders of the authorities below and submitted that the assessee has undertaken the risk by providing the guarantee for the loan obtained by the associated enterprise from the bank. Therefore, the differential rate adopted by the Transfer Pricing Officer is justified, 84(B). Having considered the rival submissions as well as relevant material on record, we agree with the plea of the learned authorised representative that the arm's length guarantee commission adopted at 2 per cent by the D....
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....fer Pricing Officer, cannot be sustained in facts of the present case. We also find that in an independent transaction, the assessee has paid 0.6 per cent guarantee commission to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal CUP and comparing the same with the transaction with the associated enterprise. The charging of 0.5 per cent guarantee commission from the associated enterprise is quite near to 0.6 per cent., where the assessee has paid independently b the ICICI Bank and charging of guarantee commission at the rate of 0.5 per cent from its associated enterprise can be said to be at arm's length. The difference of 0.1 per cent can be ignored as the rate of interest on which ICICI Bank, Bahrain Branch has given loan to associated enterprise (i.e. subsidiary company) is at 5.5 per cent, whereas the assessee is paying interest rate of more than 10 per cent on its loan taken with ICICI bank of India. Thus, such a minor difference can be on account of differential rate of interest. Thus, on these facts, we do not find any reason to uphold any kind of upward adjustment in arm's length price in relation ....
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....s taken note thereof in his detailed discussions as follows: "14. Ground numbering 12, 17, 18, 19, & 20 relate to the action of the Ld.AO / TPO in making adjustments on account of Specified Domestic Transactions by an amount of Rs. 1,92,23t674/-. The impugned matter has been dealt with by the Ld.AO in the TP order placed supra. 15. In respect of this ground, during the course of the appeal, the appellant- company /Ld. A.Rs for the appellant-company have made the following submissions: Ground Nos. 12, 17, 18, 19, 20: Specified Domestic Transaction: Rs. 1,92,23,674/- 5.1 The assessee-company has a power unit the output of which is captively consumed by its manufacturing units. During the year, the manufacturing units of the assessee had purchased power from State Electricity Board. Hence, the given transaction was taken as a comparable uncontrolled transaction against which the specified domestic transaction' was benchmarked and the purchase price in the comparable transaction was taken to be the Arm's Length Price. 5.2 Reliance in this regard was placed on the judgment of Calcutta High Court in case of Kanoria Chemicals & Industries Limited [ITA No. 58 of 2073....
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....ugarcane would have been sold in the open market. The rate of sale in the open market would be the same at which sugarcane was purchased by the sugar mill of the assessee." Applying the above, it may be said that the rate at which the assessee (a consumer of power) purchases power from WBSEB may be taken to be the market value for determining the sale price for the power generated by the unit. Thus, the computation of eligible profits should be done with reference to the rate at which power was purchased by the assessee from the State Electricity Board. 6.4.1 Attention of your Goodself is also invited to the decision of ITAT(Kolkata) in its own case for AY 2006-07 to 2011-12 wherein the Bench dismissed the plea of Department to apply the sale price applicable to distribution licensees by following the decision of Calcutta High Court in case of ITC Ltd. At para 49 of the order it was observed that "It is clear from the rival contentions that determination price at which Power generated can be sold is subject to statutory control under the provisions of Section 61 & 62 of the Electricity Act, 2003. The Hon'ble Calcutta High Court in its decision rendered in the case of ITC ....
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....been added to the energy charges per unit to arrive at the Arm's length price/effective rate per unit which in turn has been used to compute deduction u/s 80-IA. 6.4.4 Now since the aforesaid purchase transaction with the Board constitutes a comparable transaction wherein the energy rate per unit is at par/lower than rates notified in Tariff order, there appears no reason to disturb the quantum deduction claimed by the assessee. Thus it is prayed that the addition made by the AO be deleted. 16. DECISION: 1. I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld. TPO/ AO. The appellant-company operates a captive power plant ('CPP') and the power generated therein is consumed by the appellant-company itself. For the purposes of computing profits of the captive power unit, eligible for deduction under Section 80IA, the appellant-company has adopted the tariff rates at which it purchased electricity in the State of West Bengal to be 'open market value' in terms of Section 80IA(8) of the Income-tax Act, 1961. In the transfer pricing proceedings, the appellant explained that it had applied the inter....
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....at its factory at Haldia (West Bengal). At Khardah and Haldia factory the assessee also has its own power plant generating electricity from heat emitted .from blast furnaces in the process of manufacturing of DI Pipes at Khardah, where power generated is entirely consumed for own use (i.e., captive consumption), and sponge iron plant and coke oven plant at Haldia where the power generated is consumed for own use (captive consumption and surplus power generated is sold to the West Bengal State Electricity Board (WBSEB), It is not in dispute that the assessee is entitled to claim deduction under section 80-IA of the Act on the profits derived by the assessee from generation of power, Since the power generated is consumed by the assessee for own use and not sold to a third party, section 80-IA(8) of the Act prescribes a method of determination of profits derived by the undertaking generating power. In such cases/ the profits and gains of such eligible business has to be computed as if the transfer had been made at the market value of such goods or services as on the relevant date. 'Market value" has been defined in the Explanation to section 80-IA(B) of the Act as the "the price t....
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.... the Hon'ble Calcutta High Court is not applicable to the case of the assessee as in the case before the Hon'ble Calcutta High Court, the undertaking that generated power was situated in the State of Andhra Pradesh where electricity generated could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. In this regard an order of the Andhra Pradesh Electricity Regulatory Commission, Hyderabad in O. P, No, 1075/2000, dated June 20,2001 was filed before us, The said order deals with generation of non-conventional energy and it lays down in paragraph 25 of its order that third party sales of power generated by non-conventional means cannot be made. In paragraph 28 power generated by such generators have to be sold in public interest only to APTRANSCO at rates specified in the said paragraph, Our attention was drawn to paragraph 4 of the West Bengal Electricity Regulatory Commission (Open Access) Regulations, 2007, which lays down that a licensee or a generating company or a captive generating plant or a consumer or any person engaged in the business of supplying electricity to the public under the Act (Electric....