TaxTMI 
TaxTMI 
2021 (9) TMI 1420
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....ut appreciation of facts and law. 1.2 The Ld. AO erred on facts by considering power plants of the assessee as "Biomass Gasifier Power Plants" instead of "Biomass Steam Power Plants". This has been clarified vide our letter dated 02.02.2017 and Chartered Engineer Certificate. The raw materials and operational working of both power plants are altogether different. 2. Power Unit The Ld. AO/TPO erred on facts and in law in determining the arm's length price ("ALP") of the Assessee's Specified Domestic transactions pertaining to transfer of power units from eligible to non-eligible units at Rs. 4.609545/ unit as against Rs. 6.72/ unit and in doing so have grossly 2.1 erred in taking unit rate of Rs. 4.609545 (average of Rs. 6.40/ unit, tariff fixed by Punjab State Electricity Regulatory Commission for Biomass Gasifier Power Plants and Rs. 2.81909/ unit, the average rate of power traded at Indian Energy Exchange), despite that fact that the assessee had Biomass Steam based Power plants and also the assessee could not have sold power units on Indian Energy Exchange due to statutory or regulatory restrictions and there was no evidence of actual delivery/supply of power traded ....
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....roduction of its pharmaceuticals products requires high volume of electricity and power steam for heating, cooling, controlling and humidity and chemical reactions. It has set up two electricity power plant OF 6 MW each in Dera Bassi (Punjab) for fulfilling the captive consumption needs of the assessee-company. The said plants generate both electricity and steam aiding in the manufacturing process. Since, the assessee has entered into specific domestic transaction within the meaning of Section 92BA with its associated enterprises; the Assessing Officer referred the matter to the TPO for determining the Arms' Length Price. The TPO after examining the transfer pricing adjustment and after analyzing all the specific domestic transactions with the AE, has proceeded to benchmark the power from eligible unit to non eligible unit specifically supply of electricity and steam from eligible unit to non-eligible unit. As per the TP study report, the assessee had shown transfer of power from eligible unit to non eligible unit at Rs.17,66,97,024/-. The TPO noted that transfer of the electricity power from eligible unit to non eligible unit, the average sales price as per Indian Energy Exchange ....
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....hits not fixed tariff for assessee's unit, therefore, it cannot be presumed that these factors have boon considered while deciding tariff of Rs.6.40 per unit. Under these circumstances solely Generic Tariff cannot be taken as base for determining CUP. However it can be taken as a base to some extent. Therefore, the rates of power traded at TEX and generic rates decided by PSERC cart be taken as base for comparability under CUP. With above discussion average of generic tariff mid power traded at IEX is taken as comparable price. Thus Rs. 4.609545 per unit is taken as comparable price for calculating ALP under CUP. 7.23 With this remark, external CLP is applied in this case taking assessee as the tested party and arm's Length Rate is applied at Rs.4.609545 per Kwh. Adjustment as per ALP:- Name of power generating unit Captive consumption by assessee Value considering Alp of Rs.4,609545 Per unit Difference between value shown by assessee and ALP Units Consumed Notional value shown by assessee (in Rs.) Rate per unit (Notional) (in Rs.) New Power Plant 26294200 173397024 6.72 12,12,04,298 5,54,92,726 Old Power Plant 17220400 115721088 6.72 7,93,78,209 3,63,42,87....
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....ng. In De-aerator, steam is given to remove the dissolved oxygen in water for further polishing the water. After the De-aerator, this water feed to the boiler with the help of boiler feed pump and simultaneously Bin mass fuel is feed to boiler in boiler furnace and Burning of biomass fuel continuously for heating the boiler and generate the steam @ 67 kg/cm2, 485 deg e. This steam goes to steam turbine and run the turbine (a), 8200 rpm & rotate the alternator @ 1500 rpm by using the reduction gear box. This alternator generate the 11 KV and supply to process plant and then step down the 11 KV to 440 V with the help of transformer and run the motors, fans other equipments. On the other side, the steam left in steam turbine comes out the from turbine @ 6 kg/cm2, 250 deg e which is supplied to Process plant for heating and cooling purpose. Partial steam inside the turbine having very low pressure and goes to condenser which pressure is 0.1 kg/cm2 @ 50 deg e and condense it with the help of cooling tower water and again feed to the De-aerator for reuse for boiler. 8.3 On examining the process of power generation it can be seen that the Gasifier were not installed for ....
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....spectively. Since assessee was generating electricity and steam from its eligible unit on which it has claimed deduction u/s.80IA which is not in dispute, because the conditions laid down in Section 80-IA(4)(iv) of the Income Tax Act was fully applicable. In so far as eligible unit which was generating electricity unit, the details of electricity unit generated and distributed to manufacturing process of pharma and another products was as under: Details of Electricity units generated and distributed to Manufacturing process Month Total Generation of Electricity Units Auxiliary Consumption Units transferred to Manufacturing Processes Rate/Unit Revenue Apr-13 4,796,500 872,000 3,924,500 6.72 26,372,640 May-13 5,046,700 939,300 4,107,400 6.72 27,601,728 Jun-13 5,005,800 944,600 4,061,200 6.72 27,291,264 Jul-13 5,277,000 952,200 4,324,800 6.72 29,062,656 Aug-13 5,481,200 1,021,500 4,459,700 6.72 29,969,184 Sep-13 5,149,600 959,000 4,190,600 6.72 28,160,832 Oct-13 5,256,500 1,004,100 4,252,400 6.72 28,576,128 Nov-13 3,127,900 618,900 2,509,000 6.72 16,860,480 Dec-13 4,107,800 909,000 3,198,800 6.72 21,495,936 Jan-14 ....
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....ity. 10. It has been further submitted that for the purpose of calculating the profitability of Power Plants, company has considered electricity unit rate of Rs. 6.72, which is less than sale unit rate of Rs. 7.15 as charged by Punjab State Power Corporation Limited from industrial undertakings in Punjab; and unit rate of Rs. 7.57 actually paid by the company to Punjab State Power Corporation Limited. The company had taken average per unit rate of Rs.6.24 fixed by Punjab State Electricity Commission and unit sale rate of Rs.7.15 charged by Punjab State Power Corporation Limited, i.e. Rs 6.72 per unit. Therefore, electricity unit rate of Rs. 6.72 is to be treated as Arm's Length Price. Thus, most of the methods in the case of the assessee could have been either CUP or resale price method wherein the rate of Rs.6.24 per unit which was the purchase rate fixed by Punjab State Electricity Regulatory Commission would have been taken otherwise the CUP method is to be applied which is not even disputed by the authorities below. Here, in this case, the assessee has taken average electricity unit rate fixed by Punjab State Electricity Regulatory for Assessment Year 2014-15 for Biomass base....
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....ing process. Once the chemical reaction took place, we need chilled water for cooling effect which is generated with the help of Vapor Absorption Machine (VAM) which is operated through steam. 12. During the year under review, power plants have generated and transferred steam to generate electricity units and to manufacturing processes of various pharmaceutical and phyto-chemical products as per details below: Month Total Steam Generated (MT) Steam used for Generation of Electricity Units (MT) Steam transferred to Manufacturing Processes (MT) Rate/ MT Revenue Apr-13 37,890 12,967 24,923 2,160 53,833,680 May-13 40,039 13,147 26,892 2,160 58,086,720 Jun-13 38,912 13,022 25,890 2,160 55,922,400 Jul-13 40,520 12,330 28,190 2,160 60,890,400 Aug-13 41,512 12,648 28,864 2,160 62,346,240 Sep-13 39,785 13,448 26,337 2,160 56,887,920 Oct-13 40,269 13,611 26,658 2,160 57,581,280 Nov-13 29,464 5,931 23,533 2,160 50,831,280 Dec-13 34,791 9,036 25,755 2,160 55,630,800 Jan-14 25,182 3,281 21,901 2,160 47,306,160 Feb-14 31,623 8,580 23,043 2,160 49,772,880 Mar-14 46,649 11,748 34,901 2,160 75,386,160 Total 446,636 12....
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....sp; = 3.96 (746-115) X100 Steam generation from 112,786,868 Kgs of Husk = 112,786,868 X 3.96 = 446,635,997 Kgs i.e. 446,636 MT The basis for working of steam and units is based on the following factors: S. No Factors Kcal/Kgs Generated 1. 1 Kg Steam to turbine @ 67Kg/cm2, 485 deg.e 746 Kcal (Enthalpy of Steam Generation) as per properties of steam 2. 1 Kg of Extraction Steam @ 6Kg/cm2, 250 deg. C 567 Kcal (Enthalpy of Steam Extraction) as per properties of steam 3. 1 Kgs of Condenser Steam 50 Kcal (Enthalpy of Steam Condensing) as per properties of steam Steam from boiler sent to turbine at 100%, which is having the following allocation Steam to turbine @ 67Kg/cm2, 485 deg.e = 446,636X 746 333,190,456 MKcal Less: Friction, Exhaust, Radiation and Convention losses (30.1635%) 100,502,024 MKcal (A) 232,688,432 MKcal Extraction Steam @ 6Kg/cm2, 250 deg. C = 316,887 X 567 (B) 179,674,929 MKcal Condenser (129,749 X 50) &....
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....tio 22.58% 15. Thus, it was submitted that transfer pricing of Rs.2,160/- per MT is to be treated as Arms' Length Price also for the reason that normally profitability of steam generating units in private sector is between 25% to 35% and there has been held so in the case of DCIT vs. Vishal Fabrics Pvt. Ltd. in ITA No.125/Ahd/2015 (ITAT Ahd). 16. On the other hand, ld. CIT-DR referred to various analysis and observations of the Assessing Officer and the DRP, he submitted that similar arguments were raised before the authorities below. It has been dealt by the TPO and has been rejected under cogent ground. DECISION 17. After considering the aforesaid submissions and the facts and material discussed in the impugned order, we find that the Transfer Pricing Adjustment of the specified domestic transaction has been with regard to sale of electricity units to the other unit for manufacturing process of pharma and phyto-chemical products. 18. In so far as sale of electricity unit from eligible unit to other manufacturing units, it is seen that, assessee had sold the electricity @ 6.72 per unit. Ld. TPO has rejected the assessee's method of benchmarking at the said rate by holding t....
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.... 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 purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market." b. High Court of Calcutta in the case of Commissioner of Income Tax Kolkata - III v/s ITC Ltd. [2015] 64 taxman.com 214 held as under: - Benefit under section 80-IA cannot be denied to assessee, merely because power generated by its power undertaking was consumed at home or by other business of assessee and was not sold to outsiders. Assessee's power generating unit could not as such claim any benefit under section 80-IA computed on basis of rates chargeable by distribution licensee from consumer and such benefit could only be claimed on basis of rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. c. Supreme Court of India in the case of ITC Limited v/s Commissioner of Income Tax Kolkata - III [2016] 74 taxman.com 244, has held as under SLP granted against High Court's ruling that assessee's power generating unit could not as....