TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 1
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....ome Tax Act, 1961 and in that view of the matter the impugned assessment order passed u/s 143(3) r.w.s. 144C dated 30.03.2021 be declared void ab initio. 2. For that on the facts and in the circumstances of the case and in law, the final assessment order passed by the Ld. AO being barred by limitation ought to be held as void-ab-initio and consequently the entire assessment be quashed. 3. At the time of hearing, the Ld. AR appearing on behalf of the assessee did not press these grounds and therefore the same stands dismissed. 4. Ground Nos. 3 to 7 of the appeal relate to the claim of deduction u/s 80IA of the Act, which read as under: 3. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the lower authorities grossly erred in making an adjustment of Rs. 13,71,40,567/- in respect of the transfer value of power by the captive power plant at Saharanpur. 4. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the lower authorities erred in not appreciating that that the "market value" or "transfer price" of the power adopted by the appellant for th....
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....nts of said eligible unit in terms of Section 80-IA(5)/(7) of the Act. Further, as the power generated by the assessee was captively consumed by the paper manufacturing unit, such transfer of power qualified as a reportable specified domestic transaction in terms of Section 80-IA(8) read with Section 92BA of the Act. The transfer pricing auditor duly reported this intra-unit transfer in Form 3CEB filed for AY 2016-17 and the said specified domestic transaction was benchmarked following the Comparable Uncontrolled Price Method [hereinafter referred to as CUP]. Perusal of the Transfer Pricing Study Report placed at Pages 31 to 67 of the paper-book, reveals that the non-eligible unit was taken as the 'tested party' as it was procuring power both from CPP as well as Paschimancla Vidyut Vitran Nigam Ltd i.e, State Electricity Board [hereinafter referred to as 'SEB']. The transfer price of power supplied by the CPP to the paper manufacturing unit was accordingly benchmarked at the annual average of the landed cost at which power was being purchased by the non-eligible unit from the SEB i.e. Rs. 8.41 per unit. Having regard to the aforesaid transfer price of power, the profits of the CPP ....
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....53/- [Rs. 8.41 per unit X 2,93,03,540 units] reported in Form 3CEB, resulting in downward adjustment of Rs. 13,71,40,567/-. 7. Pursuant to the above transfer pricing order dated 25.10.2019 passed u/s 92CA (3) of the Act, the AO issued draft assessment order u/s 144C of the Act dated 30.11.2019. Aggrieved by the said draft order, the assessee preferred an appeal before the Ld. DRP which dismissed by their order dated 27.02.2020. Being aggrieved by the same, the assessee is now in appeal before us. 8. In the course of hearing, the Ld. AR Shri Akkal Dudhewala FCA, appearing on behalf of the assessee contended that the lower authorities failed to appreciate that the eligible unit i.e. CPP did not supply power to any unrelated parties other than the non-eligible unit i.e. the paper manufacturing unit. On the other hand, the paper manufacturing unit was procuring power from both the CPP as well as unrelated third party i.e. the SEB. He therefore submitted that there was reliable internal CUP data available with the assessee to benchmark the transfer price of power. He thus claimed that the transfer price of the power procured by the non-eligible unit from the eligible unit was rightly ....
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....ssessee argued that, the assessee has not disputed that the impugned transaction which is covered u/s 80I-A(8) of the Act, is not subject to provisions of Chapter X of the Act or that it is not to be subjected to arm's length principles. He took us through the Form 3CEB wherein the assessee had determined the ALP of the power supplied by the CPP, by using the CUP Method. He also referred to the Transfer Pricing Study Report to show that even the auditor had performed the FAR Analysis & the Economic Analysis and thereafter determined the arm's length price of power transferred by the eligible unit to non-eligible unit in terms of Rule 10B of the Income-tax Rules, 1962. He further contended that the purported difference being carved out by the Revenue between the concept of 'open market value' and 'arm's length price' was without any basis. He invited our attention to the Guidance Note issued by the IRS of United States of America relied upon by the Ld. CIT, DR which stated that, ordinarily the fair market valuation standards produces arm's length results and it is only in some instances where the rules and principles of fair valuation standards was inconsistent with the arm's length....
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....ther, it is worthwhile to quote here the relevant provisions of Rule 10B of Income Tax Rules 1962 [herein after referred to as the Rules]. Clause (a) of sub-rule (1) of Rule 10B defines CUP Method as follows: "Rule 10B. Determination of arm's length price under section 92C. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: (a) comparable uncontrolled price method, by which,-- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the interna....
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....ost paid by the paper manufacturing unit to the SEB is held to represent internal comparable arm's length rate. We accordingly find sufficient merit in the benchmarking analysis undertaken by the assessee applying internal CUP Method. 15. Before us the Ld. TP CIT, DR had argued that, the choice of 'tested party' is irrelevant for the purposes of application of CUP Method. We agree that the key factor in application of CUP is 'product comparability' and choice of 'tested party' is of lesser significance. In the present case, we note that reliable comparable data is available for the same product purchased by non-eligible unit from eligible unit. Hence, as the significant criteria i.e. product comparability is found to be met, we do not see any infirmity in the manner in the assessee's application of CUP Method to ascertain the transfer price of power u/s 80-IA(8) of the Act. 16. In this regard, the Ld. CIT, DR had relied on some of the observations made by the Mumbai Bench of this Tribunal in the case of India Debt Management Pvt Ltd Vs DCIT (supra)which we find to be misplaced. Having perused the said order, we note that this decision was rendered in a different factual context a....
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....vations of the any Court must be read in the context of the facts and the issues before the Court for consideration. The Hon'ble Supreme Court in the case of CIT Vs Sun Engineering Works (P) Ltd (198 ITR 297) has observed as follows: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of the Court and not pick out words or sentences from the judgment, divorced from the context of the questions under consideration by the Court, to support their proceedings." 18. Coming back to the facts in the present case, it is noted that the TPO had taken the rates notified in the tariff orders of the UPERC to be th....
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....nstead the SEB supplies power at the same tariff rate to all industrial consumers (similar to the assessee) in the same State, which thus represents the prevailing market rate. 20. As noted earlier, the application of CUP method requires high degree of comparability not only in the products sold and services provided but also in the economic circumstances in which the transactions take place. One should examine the market conditions in which the electricity is being sold. The tariff order relied upon by the TPO operates in an altogether different market, which is the Business to Business (commonly known as B2B) Model. This tariff rate is the rate at which electricity is purchased by distribution companies from generation companies. The conditions of this market are different and distinct from the consumer market. As noted earlier, no consumer of electricity can procure power in the market at the rate at which generation companies sell to distribution companies under the notified tariff order. In the circumstances, when the market conditions of the comparable transaction cited by the TPO are not similar to that of the assessee, his application of CUP fails. According to us, the com....
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.... non-eligible units brought electricity from the grid is thus incorrect. The ld.DRP under this misconception construed that the rate at which electricity supply-companies are purchasing the electricity should be applied for benchmarking the value of electricity sold by the CPP to its manufacturing units. In other words, the DRP was of the view that non-eligible units cannot be taken for the benchmarking for determining the value at which electricity was sold by the CPP. DRP has emphasized that manufacturing units could have different source of procurement of electricity; say - from CPP or from electricity boards. But as electricity producer, in a CPP, it could only be sold to distribution licensee holder. In this way, the ld.DRP observed that value of electricity cannot be benchmarked by adopting the rate at which manufacturing units of the assessee has been purchasing the electricity, rather, according to the DRP, the rate at which supplier companies are purchasing the electricity ought to be applied. Before us, the ld. counsel for the assessee contended that this controversy has been silenced by the Hon'ble Gujarat High Court in the case of Pr. CIT v. Gujarat Alkalis & Chem....
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.... far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only Rs. 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered." 4. This was followed in case of CIT v. Shah Alloys Ltd. in Tax Appeal No. 2093/2010. This was reiterated in Tax Appeal No.1646/2010 in case of ACIT v. Pragati Glass Works (P.) Ltd. (order dated 30.1.2012), in which following observations were made : "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for ....
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.... We direct the AO to grant deduction under section 80IA(4) on the value of electricity supplied by the CPP to its manufacturing units by adopting the average rate of electricity supplied to the assessee by MGVCL, DGVCL. 22. Useful reference in this regard may also be made to the decision of this Tribunal in the case of DCIT Vs Balrampur Chini Mills Ltd in ITA No. 1672/Kol/2019 for AY 2016-17 involving similar facts and circumstances as involved in the present case. In the decided case as well, identical benchmarking analysis was performed by the assessee to determine the ALP of power transferred by the CPP to the manufacturing unit for the purposes of Section 80-IA(8) of the Act. This benchmarking exercise was rejected by the TPO, who substituted it with the rate notified for sale of power by the power generating companies to distribution companies, in the tariff order by the State Electricity Commission. This Tribunal adjudicated the issue in favour of the assessee, by observing as under: 5. On the contrary however, it is noted that the non-eligible undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelat....
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.... regulatory provisions applicable in the State of West Bengal, the coordinate Bench accepted the assessee's contention that in view of the provisions of Electricity Act of 2003, which were applicable in the concerned AY 2011-12, the decision of Calcutta High Court in the case of CIT Vs ITC Ltd. (supra) was not applicable. .... 8.13. If it is taken that ALP is the market value, then we find there is no dispute that the MAM is CUP. The contention of the ld. D/R that when MAM is 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 ....
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....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. 33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power. 34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders. 35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals have no merit. They are dismissed." (B) CIT Vs Reliance Industries Ltd (421 ITR 686) (Bom HC) 4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assesseecompany and provided to the another be valued. The assessee contended that such valuation should be at the ra....
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....arashtra Electricity Regulatory Authority (for short "MERC"). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law." 8. Thus, the issue at hand had been examined by this Court on earlier occasion....
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....3. Until then, the electricity generating companies could only sell or supply power to the State Power Utility or company engaged both in generation & distribution and that too at the tariffs rates prescribed by the Regulatory Commission. Therefore, in absence of any alternate rates, the High Court held that the price at which electricity generating company sold power to SEBs was the only available open market rate. However subsequent to the enactment of Electricity Act, 2003, the functioning of the power sector was liberalized as the business became de-regulated and it was legally permissible for the private CPPs to supply power to other consumers and the prices could be determined through competitive bidding process or any other mutually agreed terms. Hence, the decision of Calcutta High Court (supra) is not applicable to the relevant FY 2015-16 in question, i.e. post introduction of the Electricity Act, 2003. 26. We note that this Tribunal in the case of DCIT Vs M/s Kesoram Industries Limited for AYs 2008-09 & 2009-10, through its lead order in ITA No. 1722/Kol/2012, after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra), the provisions ....
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.... represented the market value. In the AO's opinion the rates at which the SEBs were selling power to the consumers were much higher than the price at which the power was purchased from the CPPs because in addition to profit margin of the SEB, such price also included the costs towards distribution, storage, transmission losses etc. 22. We note that the sole basis for AO's inference against the assessee was his belief that the CPP or independent power producer was not allowed to sell power to any person other than the SEBs or power distribution companies. According to the A.O., there was monopoly buyer who alone was permitted to purchase the power at the price determined in the sole discretion of the SEBs and therefore, the price at which the SEBs were purchasing power alone represented the market value for the power generated by CPPs. We also note that the premise on which the A.O. proceeded was analogous to the premise on which the Hon'ble Calcutta High Court decided the Revenue's appeal in the case of ITC Ltd. (supra). In that case also the Hon'ble High Court proceeded on premise that the independent power producers or CPPs could sell the power only to power....
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....nd the order of the KERC dated 27.02.2007, it therefore, appears that there was no statutory bar on the CPPs to sell electricity to any third party and that too at the rate mutually agreed by and between the parties. We, therefore, find that the very foundation on which the A.O. held that the assessee had no option but to sell electricity to SEB alone was factually wrong and misplaced and therefore, legally untenable in the changed factual scenario as discussed above. 23. The learned AR drew our attention to the chart published by the Indian Energy Exchange (IEX) for the yearly power price prevailing on the IEX in different regions during the year2008-09. The said chart we note gave break up of power price at which the was purchased and sold by power producers, distribution companies etc in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was Rs. 7.53/-. Similarly for the Southern Region of Rs. 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.'s presumption that the assessee was legally obliged to sell electricity only to the po....
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....10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. ...... 30. Following the judgment of the Hon'ble Gujarat High Court and decision of the Coordinate Bench, we direct the A.O. to allow the deduction under section 80IA(4) by adopting the weighted average landed cost of electricity at the rates of Rs. 6.35, Rs. 3.72 and Rs. 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively. 27. For the reasons set out above and following the above cited decisions (supra), we thus hold that th....
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.... Total Income NIL NIL NIL B. Deduction under Chapter VI - Deduction u/s 80-IA Less: TP adjustment Eligible Deduction after TP Adjustment (Restricted to the extent of GTI) 19,03,49,419 - __________ 19,03,49,419 NIL - - 19,03,49,419 13,71,40,567 5,32,08,852 NIL Assessed Income NIL NIL NIL 29. The Ld. DRP however did not agree with the above contention of the assessee and held that the transfer pricing adjustment made by the TPO is distinct from claim of deduction u/s 80-IA of the Act. According to the Ld. DRP, any transfer pricing adjustment would result in enhancement of business income of the assessee and not reduction in the claim made u/s 80-IA of the Act. The Ld. DRP accordingly upheld the action of the AO in increasing the business income of the assessee by the impugned transfer pricing adjustment. Being aggrieved by this action of the Ld. DRP, the assessee is in appeal before us. 30. Having considered the rival submissions of both the parties, it is noted that, in view of our findings on merits, this issue has now become of academic interest; but for the sake of completeness of the matter, we ....
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....incurred at clubs & associations. According to the AO, such expenses incurred by the company were personal in nature and he therefore disallowed it u/s 37(1) of the Act. On appeal, the Ld. DRP held that the club expenses were in the nature of pure business expense allowable u/s 37 of the Act. It further held that the membership fees of trade associations were also for business purposes. It however directed the AO to verify whether the membership was in the nature of company or the individuals and accordingly allow deduction for the said expenditure. The AO noted that, the club memberships were in the names of Directors and not the company and thus added back the entire club expenses of Rs. 8,65,913/- to the total income. Being aggrieved by the action of the lower authorities, the assessee is now in appeal before us. 36. We have heard both the parties and perused the material available on record. It is noted that out of the total amount of Rs. 8,65,913/-, sum of Rs. 3,61,164/- comprises of subscription fees paid to different trade associations such as Indian Paper Mfg Association, Indian Chamber of Commerce, Tappi Journal etc., which are ex28 facie for business purposes. We do not ....
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....accordingly re-compute the total income for the relevant year. 41. It is noted that, before the Ld. DRP, the assessee had raised an additional claim for deduction of entry tax paid under protest during the relevant year u/s 43B of the Act, which had not been claimed in the return of income. Upon examining the details furnished by the assessee and having regard to the provisions of Section 43B of the Act, the Ld. DRP admitted this new claim and directed the AO to allow the deduction u/s 43B after verification of the payment details. Following the directions issued by the Ld. DRP, the AO allowed the claim at Para 4 of his assessment order. The relevant findings recorded by the AO are as follows: "4. Regarding deduction in respect of Rs. 62,90,188/- paid by the assessee towards the entry tax paid by the assessee under protest as per directions of the Hon'ble Court during the relevant year on actual payment basis in terms of Section 43B of the I.T. Act, the Hon'ble DRP directed to allow the said deduction after verification of the payment details. In this regard, during the assessment proceedings the assessee suo moto has furnished the proof of all the payments made towards Entry ta....
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....ra, the Ld. CIT, DR appearing on behalf of the Revenue opposed the admission of this fresh claim by relying on the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (284 ITR 323). He further submitted that the judgment relied upon by the assessee was not applicable in as much as there has been a change in law and the provisions of Section 43B(1)(a) had been amended from 01.04.1989 to include 'fees' within its ambit. 45. We have heard both the parties. As regards the admissibility of this ground, we note that the assessee can raise additional ground before the appellate authority, as allowed by the Hon'ble Supreme Court in Goetze (India) Ltd. Vs. CIT (supra), though not raised before the AO. In this decision, the Hon'ble Supreme Court has held that where claim of deduction was not made in the ROI or by filing a revised ROI, the same cannot be made before the AO, but it was clarified by the Hon'ble Apex Court that there is no bar in making a fresh claim before the appellate authorities. We further note that the Hon'ble Gujrat High Court in the case of CIT vs. Mitesh Impex (270 CTR66) after considering the decisions rendered by the Hon&#....