TaxTMI 
TaxTMI 
2021 (9) TMI 1420
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.... the Appellant's income by issuing an order without 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 restrict....
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....gaged in the business of manufacturing and delivery of high quality pharmaceutical products and research in health sector. The production 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 t....
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....hese factors are- Plant Load Factor and number of operating days for Non-fossil fuel based Cogeneration: fuel cost and return on equity. Since PSERC 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.) ....
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....the salts, carbonates, bicarbonates by the mythology using inn- exchange, extract all the minerals from water and feed to the boiler via De-aerator. These salts arc removed from water to avoid the boiler and steam turbine from scaling. 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 cond....
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....erating electricity units & steam for distributing the same to the manufacturing processes of various pharmaceutical and phyto-chemical products situated within the same premises in Derabassi (Punjab). The power plants have started generating power & steam w.e.f June 2007 & Jan 2013, respectively. 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 ....
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....e on the platform of Indian Energy Exchange, there should be approval from Central Electricity Regulatory Commission (CERC), which is a regulatory authority for all the electricity distributors and suppliers. Nectar doesn't possess any such approval from CERC. The company should be a gridconnected entity for affecting delivery of electricity as cleared and settled by the Indian Energy Exchange. Nectar doesn't have grid connectivity for affecting delivery of electricity. 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 method....
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....ng plants in Derabassi. Different finished products are being manufactured in different oral plants. In all the plants, the raw material is being poured into vessels and then with the help of steam the material is being heated up to its boiling point. Once the material reaches its boiling point, other materials are added in that vessel so as to make the chemical reaction and manufacture finished goods. iv). Utilities: - Like heating is a part of manufacturing process, cooling is the next step in that manufacturing 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,....
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....A No.1920/Del/2013 order dated 13.01.2016 wherein it was held that the formula of cost of steam should be adopted in the ratio of energy consumed. Accordingly, the assessee had furnished report of Shri R.D. Sharma, Senior Chartered Engineer approved by Income Tax Department and banks whose report can be summarized:- Total rice husk consumption is 112,786,868 Kgs (Rs. 562,003,635/-). One ton rice husk has generated 3.96 MT of steam as per the following accepted formula: - Steam Generation /Ton of fuel = (Efficiency X Gross Calorific Value of Fuel) = Enthalpy of Steam - Enthalpy offeed water) X100 78X3200 = 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/cm^2, 485 deg.e 746 Kcal (Enthalpy of Steam Generation) as per properties of steam ....
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....9 MKcal 46,526,053 MKcal 232,688,432 MKcal %age 80% 20% 100% Revenue 684,475,920 292,418,112 976,894,032 Carbon Credit - 5,285,280 5,285,280 Total Revenue 684,475,920 297,703,392 982,179,312 Raw Material Consumed 449,602,908 112,400,727 562,003,635 Other Manufacturing Expenses 7,664,305 1,916,076 9,580,381 Personnel Expenses 19,783,977 4,945,994 24,729,971 Depreciation 52,868,651 13,217,163 66,085,814 Total Expenses 529,919,841 132,479,960 662,399,801 No. of Units to Manufacturing Units 316,887,000 43,514,600 Cost/Unit 1.6723/ Kg 3.0445/ Unit The computation of Arm's Length Price is as under: - Particulars Rate/ MT Cost of Steam generation Rs. 1,672.30 Steam unit rate taken for the purpose of captive power plant profitability Rs. 2,160.00 Profit Ratio 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 h....
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....Corporation Ltd. Thus, it was stated that if these two rates are compared, then the assessee's sale rate of Rs.6.72 per unit is definitely at Arm's Length. What is also required to be seen here is, whether in the open market what is the rate of power or electricity is available to the consumer. If in open market the power is available to a customer from State Electricity Board at the rate charged by it then it is to be reckoned as market rate. Before us, following judicial pronouncements have been cited wherein sale rate or purchase rate of State Electricity Board has been accepted on market rate. a. High Court of Chhattisgarh in the case of Commissioner of Income Tax Raipur v/s M/s Godawari Power & Ispat Ltd. Raipur [2014] 42 taxmann.com 551 (Chhattisgarh) vide para 31 of its order held as under: - "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 purchased power in the open market. The rate of power to a suppli....
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....pecified hereinabove in paragraph 13. 22. Thereafter, the cost plus method was adopted and also the ld. TPO has required the assessee to furnish the cost of the steam produced. In response, the assessee has filed a report from approved senior chartered engineer who has given his report and the details of working. The ld. TPO without any cogent material or any expert report has rejected the working. Even if the cost plus method is adopted as held by the TPO, then how can he take the cost of steam at Nil and held that it is biomass which is byproduct therefore there is no cost. Such an observation of the TPO is de hors any proper reasoning because from a bare perusal of the calculation as given in the report as incorporated above in paragraph 14, we find that formula has been given as to how one ton rice husk has generated 3.96 MT of steam and also the basis for working of steam based on various factors including the steam from boiler sent to turbine at 100%. It has been demonstrated before the authorities below that the total steam generated in turbines was 232,688,432 M Kcal, out of which 46,526,053 M Kcal steam (20%) has been used for generating electricity units and balance (8....