TaxTMI 
TaxTMI 
2021 (5) TMI 254
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.... 2016-17, the assessee company filed its return of income electronically on 26.11.2016 showing total income of Rs. 65,88,72,120/- under the normal provisions of the Income-tax Act, 1961. However, its Book-profits were Rs. 1,02,89,54,675/-. The assessee company claimed deduction u/s 80IA of the Act amounting to Rs. 2,43,24,28.803/- for generation and distribution of power. The assessee company had considered rate of electricity at Rs. 8.30 per Kwh for transferring the same to other units of the assessee company The said rate of Rs. 8.30 per kwh was considered as per tariff orders issued by Uttar Pradesh Electricity Regulatory Commission in accordance with which tariff rates were notified by Uttar Pradesh Power Corporation Limited for sale of electricity in that area, under the provisions contained in sub-section 6 of section 80A and sub-section 8 of section 80IA of the Act. The A.O. took up the case as a scrutiny assessment and issued notices u/s 143(2) and u/s 142(1) of the Act. As the assessee company was having a specified domestic transactions with its Associated Enterprise, the case of the assessee company was referred so the Transfer Pricing Officer (TPO) to determine Arms Len....
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.... TPO was right in adopting the average rate at which the power was sold by the eligible unit i.e. CPP to an unrelated party as the rate of power specified under the PPA (Power Purchase Agreement) by the CPP to the distribution company. He submits that the distribution company of UPPCL is an unrelated party and the rate is that CUP and this is ALP. 4.1. The ld. CIT(D/R) further submitted that the judgement in the case of ITC Ltd.. (236 Taxman 612) of the jurisdictional High Court is not distinguishable on facts as in that case the power units could only be sold to power distribution licensees and not to outside parties. 4.2. The ld. CIT(D/R) further submitted that the value chain of power generation consists of manufacturing costs and distribution costs and as the assessee is only a manufacturer and that the power distribution cost should not be considered while determining the market value or rate at which the power transferred. Thus he submits that price charged by the distribution company to the parties cannot be compared to the "charge" by the generating company. He argued that several additional fixed and variable costs like transmission network cost, commercial losses, w....
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....tested party when CUP is the Most Appropriate Method (MAM) for determining the ALP. For this proposition he relied on the order of the Mumbai Tribunal in the case of India Debt Management (P) Ltd. vs. DCIT ([2016] 69 taxmann.com 125). Alternatively he submitted that the power generating unit should be considered as a tested party and not the manufacturing unit as was done by the assessee, as the captive power plant has the least complex functions among the two. He prayed that the order of the AO/TPO be restored. 5. The ld. Counsel for the assessee relied on the order of the ld. CIT(A) and submitted that the issue has been already adjudicated in favour of the assessee by the Coordinate Bench of the Tribunal in the case of M/s. Electrosteel Casting Limited vs. DCIT in ITA Nos. 138, 139, 191 & 192/Kol/2018 order dated 28.02.2019 and submitted that the issue is squarely covered in favour of the assessee both in facts and in law. He vehemently contended that the ld. CIT(D/R) has not brought out any case law in support of his contention and is unsuccessfully trying to distinguish the judgements of the Tribunal and the High Court which fully cover the case of the assessee. 5.1. H....
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....ength price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA." (Emphasis ours) 8.2. A plain reading of the above explanation demonstrates that, for determination of market value, you can adopt the price at which the goods or services would ordinarily fetch in the open market OR the ALP as defined in Section 92F(ii) of the Act where the transfer of such goods or services is a specified domestic transaction referred u/s 92BA of the Act. The Act states that either of the above two may be adopted as the "market value". This, in our view justifies the claim of the assessee that it can claim "Market Value" as per limb (i) of the Explanation. 8.3. Limb (ii) of the above referred Explanation Section 92BA of the Act defines specified domestic transaction is as follows: "For the purposes of this section and sections 92, 92C, 92D and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:- (i) [***] (ii) any transaction referred to in section 80A; (i....
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.... the average of the rate at which eligible unit supplied power to unrelated party and the power tariff orders issued the relevant SEC was the most relevant indicator of the arm's length price for power supplied by CPP to non-eligible unit as opposed to the appellant's contention that the tariff rate prescribed by SEB for supply to consumers was the fair & reasonable ALP. The Ld. TPO in this regard relied on the judgment of the Hon'ble Calcutta High Court in ITC Limited reported in (2015) 64 Taxman.com 214. The Ld. TPO took into consideration the fact that during the relevant year the appellant itself had sold power generated by CPP to unrelated party under a PPA agreement where per unit price realized was Rs. 4.77. Keeping in view these facts, the Ld. AO concluded that the rate adopted by the appellant at Rs. 8.30/unit was excessive and did neither represent "fair market value" nor the ALP of the power supplied by CPP. On the contrary he adopted Rs. 4.90/unit per unit as the ALP for the power generated by the eligible unit. 3. Per contra, the Ld. AR of the appellant has made detailed submissions rebutting the Ld. TPO's conclusion, which have extensively bee....
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....ariff at which the other non-eligible units purchased power from SEB can be taken to be a fair indicator to benchmark the transfer value of Rs. 8.30/unit adopted by the appellant. It is noted that the transfer value of Rs. 8.30 / unit was based on the tariff order issued by the SEB in respect of supply of power to units located in the same region as that of the non-eligible unit which procured power from the eligible unit. This tariff order issued by the SEB was available in open market and determined under uncontrolled conditions and is hence a reliable external CUP available in the given facts of the case. On comparing the rates in tariff order with the rates at which other non-eligible units procured power from open market under uncontrolled conditions; it is noted therefore that the transfer value of Rs. 8.30/unit determined by the appellant is fair and reasonable. I therefore find merit in the submissions of the Ld. AR as well as the TPSR that the average landed tariff rate notified by the UPSCB is a fair, reliable and reasonable basis to benchmark the transfer value of power procured by the non-eligible undertaking from the eligible unit. 6. The Ld. TPO's referen....
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....im of deduction of Rs. 1954 Crores u/s 80IA(4) of the I.T. Act, 1961, when the assessee had adopted rate of power generation at Rs. 4.73 per unit, rate on which the GEB supplied power to its consumers, ignoring the rate of Rs. 2.36 per unit, the rate on which power generating company supplied its power to GEB?" 9. The Hon'ble Gujarat High Court thus specifically decided the issue in favour of the assessee / taxpayer by holding that the deduction under Section 80IA in respect of CPP shall be computed by taking the per unit selling price of electricity equal to the rate at which the assessee purchased the electricity from SEB. 10. Reliance is further placed on the judgment of the Hon'ble Chhattisgarh High Court in case of CIT v. Godawari Power &. Ispat Ltd. [2014] 42 taxmann.com 551/223 Taxman 234, in which the Court held and observed as under: "31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have p....
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....fore allowed. 08. Ground No 6 taken by the appellant-company relates to the rights of the appellant to take additional grounds during appeal, or to modify or alter any of the grounds already taken. As no such rights were exercised by the appellant, there was no occasion to adjudicate in the matter. In the final result, the appeal filed by the appellant is treated as "allowed"." 8.5. This decision is in consonance to the propositions of law laid down by the Coordinate Bench of the ITAT in the case of M/s. Electrosteel Casting Limited (supra) wherein it is held as follows: "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 80LA, 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 8oIA(8) of the Incometax Act, 1961. In the tran....
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....l consideration to the rival submissions. We have already seen that the assessee manufactures DI spun pipes, D) fittings, etc., at its factory at Khardah (West Bengal) Cl spun pipes at its factory- at Elavur (Tamil Nadu) and low ash metallurgical coke 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 8o-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....
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....d deduction under section 80-LA had to be computed in such circumstances not on the basis of rates chargeable by distribution licensee from consumer and that the same can be claimed only on the basis of rates fixed by tariff regulation commission for sale of electricity by generating companies to distribution licensees. 48. The submission of the learned counsel for the assessee was that the decision of 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 t....
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....he absence of any distinction on facts or law pin-pointed at revenue's behest. It fails in both of its cross-appeals ITAN0.191 & 192/K0I/2018. 17. The assessee's appeals in ITAN0.138 & 139/K0I/2018 are allowed and Revenue's crossappeals ITAN0.191 & 192/K0I/2018 are dismissed." 8.6. The ld. CIT(D/R) tried to argue that the order of the Tribunal in the case of M/s. Electrosteel Casting Limited (supra) is erroneous. Such argument cannot be countenanced as no distinguished feature have been brought out by the ld. CIT(D/R). 8.7. The Bench in the case of M/s. Electrosteel Casting Limited (supra) has recorded that, the propositions of law laid down in the case of ITC Ltd. (supra) are not applicable to the facts of the case for the reason that the captive power plant of ITC Ltd. was located in the state of Andhra Pradesh and it had no right to sell electricity other than to the electricity distribution companies and whereas in the present case, the captive power plant is located in the state of Uttar Pradesh and as per the provisions of Uttar Pradesh Electricity Act, the assessee was entitled to sell power in open market. Hence the ld. CIT(A) has rightly stated t....
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....n market and i.e. the price which has been adopted by the assessee for the electricity generated by the eligible business transferred to its other business for the purpose of computation of profits and gains of the eligible business in terms of section 80IA(8) of the Act. We find that the AO has taken figures from units of powers sold to UPPCL at 0.89 units @ Rs. 24,43,159/- as against the price of assessee i.e. inter-unit transfer @ Rs. 43,02,187/- per unit. Wc are of the view that the figures picked up by the AO from the orders of UPPCL does not represent the open market value of electricity." The learned Tribunal also allowed the claim for deduction under Section 80IA following the judgment of this Court in the case of CIT Vs. Graphite India Limited. From the aforesaid brief narration, it would appear that the views adopted by the learned Tribunal, prima facie, are correct. We have enquired of Mr. Dudheria, learned Advocate appearing for the Revenue, as to on what basis does he dispute the correctness of the order passed by the learned Tribunal. Mr. Dudheria submitted that he has placed all the facts and circumstances of the case. He has nothing more to do. ....
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....taken as CUP, we need not determine a tested party is erroneous. The ICAI in Guidance note u/s 94B of the Act has laid down that the tested party has to be identified even when MAM is CUP. In this case the assessee has taken that the tested party as the non-eligible unit and whereas the TPO has taken the tested party as the CPP i.e. the eligible unit. In our view the profit of the non-eligible unit also has to be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases power from unrelated third parties. No other function etc. are in question. In our view taking the manufacturing unit as tested party for the purpose of determination of ALP with MAM being CUP, cannot be found fault with. The TPO has chosen to take the price specified in the PPAs for purchase of power as the market value. The PPA is a 20 year agreement. The assessee required to take statutory clearances and approvals. The price is regulated. The sale of power under the terms and conditions of PPA cannot be considered as the market value of the sale of electricity. Such sales cannot be considered as m....