TaxTMI 
TaxTMI 
2022 (2) TMI 1285
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....g an order without appreciation of facts and law. 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. 5.2145/ unit as against Rs. 6.72/ unit and in doing so have grossly 2.1 erred in making addition of Rs. 6,95,84,383 on account of transfer of power units by taking power unit rate of Rs. 5.2145 (average of Rs. 6.93/ unit, tariff fixed by Punjab State Electricity Regulatory Commission for Biomass Gasifier Power Plants and Rs. 3.499/ 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 at energy exchange by husk based power plant companies based in Punjab or anywhere in India. 2.2 erred in ignoring provisions of Income Tax Act and various ITAT/ High Court judgments regarding "Market Value" ....
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....ng and delivery of high quality pharmaceutical products and research in health sector. It requires high volume of electricity and power steam for heating, cooling, controlling the humidity and chemical reactions. The assessee had set up two electricity power plant of 6 MW each in Dera Bassi (Punjab) for fulfilling its captive needs. The said plants generating both electricity and steam aiding in the manufacturing process. The electricity produced by the said power plants was partly consumed for running the said plants and the remaining was distributed for carrying out the operation of the assessee company, i.e; manufacture of pharmaceutical products. A part of the steam generated during the process was also distributed for captive consumption as it acts as an inseparable part of the manufacturing process. The assesse worked out the rate per unit of electricity generated at Rs. 6.72 per unit on the basis of CUP (Comparable Uncontrolled Price Method) in the following manner : Details of Electricity units generated and distributed to Manufacturing process Month Total Generation of Electricity Units Auxiliary Consumption Units transferred to Manufacturing Processes Ra....
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....up method shall not be applied and the sale rate of power shall not be taken at Rs. 3.499 per unit instead of Rs. 6.72 per unit shown by the assessee. In response the assessee furnished the written submission dt. 15/10/2018 which has been reproduced by the TPO in para 6 of his order, for the cost of repetition the same is not reproduced herein. The TPO proposed the adjustment of Rs. 7,00,49,674/- by observing in para 7.12 to 7.22 of his order as under: 7.12 The assessee has submitted that they have computed the sale of power at the rates at which the Punjab State Electricity Board is supplying electricity to them/ others. The contention of assessee is not acceptable, there are prescribed methods under transfer pricing guidelines which has to be followed while benchmarking any of the transaction. The methods prescribed under the Income-tax Act, 1961 are as unden- 1. Comparable Uncontrolled Price Method 2. Transactional Net Margin Method 3. Resale Price Method 4. Cost Plus Method 5. Profit Split Method and 6. Any Other Method prescribed by the Board. 7.13 The assessee has submitted that they have applied CUP meth....
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....d the sale rate is higher due to these overhead expenses. The assessee has thus applied wrong CUP by taking purchase rate of end customer i.e. sale rate of SEBs as sale rates for their power producing units. 7.17 On the basis of above discussion it is seen that the assessee has not applied correct CUP, correct internal CUP available in this case is rate at which any independent party would have sold power to other independent party. Since the assessee has not sold power to any third party therefore, the sale rate caanot be arrived at. However, a notice u/s 133(6) was issued to Indian Energy Exchange, which is the largest exchange to trade power to ascertain average price of power traded at that exchange. In response to this the IEX has submitted day to day average rate is Rs.3.499 per unit. It can be seen that average rate of power traded at IEX during F.Y.-2014-15 was Rs.3.499 per unit. It may be mentioned that trading rates at registered Exchanges can be taken as basis to draw comparability. Therefore, these rates are taken as basis for taking comparable rates. The assessee has shown sale rate at Rs.6.72 per unit by applying wrong CUP. Therefore, proper CUP is a....
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....average of generic tariff and power traded at IEX is taken as comparable price. Thus Rs. 5.2145 per unit is taken as comparable price for calculating ALP under CUP. 7.22 With this remark, external CUP is applied in this case taking assessee as the tested party and arm's Length Rate is applied at Rs.5.2145 per Kwh, Adjustment as per ALP:- Name of power generating unit Captive consumption by assessee Value considering ALP of Rs.5.2145 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.) Power plant 46529176 31,26,76,063 6.72 24,26,26,388 7,00,49,674 On the basis of above discussion, an adjustment of Rs. 7,00,49,674/- is hereby made to the purchase price of power by the non-eligible units front captive power plants. 5.2 During the year under consideration the assessee's power plant generated and transferred steam to generate electricity units and to manufacturing processes of various pharmaceutical and phyto-chemical products. The assessee submitted before the T.P.O as under: Month Total Steam Generated (MT) ....
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.... price. The submission of the assessee are reproduced by the TPO at para 9 of his order, for the cost of repetition the same is not reproduced herein. The TPO did not find merit in the submissions of the assessee and proposed the adjustment of Rs. 753,533,280/- by observing in para 9.1 to 9.17 of his order as under: 9.1 The reply of the assessee has been considered and is not found to be acceptable. 9.2 In the separate audited financials of the eligible unit- New power plant, the assessee is showing revenue from sale of steam of Rs 75.35 Crore. The revenue from sale of electricity (pre adjustment) is only Rs 17.66 Crore. Thus out of total revenue of Rs 106.20 Crore, sale of steam constitutes more than 76% of the total and sale of electricity is only 24% of the total. Since the primary activity of the power plant is captive generation of electricity, this is a scenario in which the residual by-product is being priced 3.2 times the cost of the main activity. Thus all in all, the assessee is claiming that residual heat from steam is more valuable to the assessee than the main function - i.e. electricity. 9.3 Considering the fact that the assessee is running ....
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....s, assumed costs etc. 9.8 Also, while applying CPM no market comparables have been identified by the assessee in the Transfer Pricing Study. On the basis of the above observations, the transfer pricing study report regarding steam is proposed to be rejected and the benchmarking done by the assessee cannot be accepted. A search process was undertaken on Prowess Database to identify companies in the business of selling steam to third parties. However, no external companies could be identified. 9.9 The formulas used by the assessee is based on the assumption that the quantity of steam would be as per the quantity of heat produced by burning biomass. From this total heat quantity, a certain estimated percentage of heat in conduction losses and the heat utilized in Power generation has been subtracted. The remaining amount has simply been attributed as the heat transferred to the production process. This approach is not acceptable. Further losses after extraction of steam from the turbine to the point where it is actually a part of the production process has not been taken into account. Thus it is not possible to accurately determine the number of units of ste....
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....ITAT further held that if the taxpayer does not furnish such information the TPO would be justified in determining the arm's length price on the basis of the information available with him. For some of the questions the taxpayer has simply stated that it is no privy to the information related to the AE. As held by the ITAT, Mumbai in the case of UCB India (2009-TII-02-ITAT-Mum-TP), it is the duty of the AE to furnish requisite information to the taxpayer if it wants to help the assessee in its tax matters. If the AE does not provide the relevant information then it is not for the revenue to conclude in subsidiary's favour. 9.15 On examining the process of power generation it can be seen that the Gasifier were not installed for steam production but for power generation. The unutilized part is only used for other purpose, as such entire cost is for power generation and being bye-product steam do not have any cost. 9.16 It may be mentioned that no where in the TP report the assessee has given CUP details of steam. Even during the TP audit the assessee submitted detail of steam pricing, but it was for power generation and not for entire steam. Therefore, the M....
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....ments that the rate at which the supplier sells in the open market should be considered for benchmarking the transactions. Therefore, the rate at which IEX or the Electricity Boards sells power to the consumer are para materia for determining the ALP of the impugned transactions. IEX is the central exchange which buys power from various producers of power irrespective of the sources material from which power is produced, and sells power to the consumer as per their demand. If the IEX sells power to consumers at lower price, any consumer would prefer to purchase power from IEX, or any other supplier of power, and certainly not from a supplier who sells power at high cost. 2.2.3 The assessee has submitted that the power provided by PSERC to the assessee, as per the electricity bills during the year in the name of the assessee for industrial connection, filed at pages-174 to 197 of the paper book, is @ Rs. 7.15 per unit and therefore the assessee, for cost saving, setup power plants for producing power from bio-mass fuel and the assessee said power to its non-eligible units @ the rate Rs. 6.72 per unit. No doubt, assessee did save cost in this manner, if compared to the rate ....
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....taking the average of the rate of IEX and rate specified by Punjab State Electricity Regulatory Commission is upheld so however that the rate of Rs. 6.95 per unit for biomass steam plant should be adopted. Accordingly the revised adjustment on account of transfer of power is recomputed as under:- Adjustment as per directions of Hon'ble DRP:- Name of power generating unit Captive consumption by assessee Value considering ALP of Rs. 5.2245 per unit Difference between value shown by assessee and ALP Units consumed National value shown by assessee (in Rs.) Rate per unit (National in Rs.) Power Plant 46529176 31,26,76,063 6.72 24,30,91,680 6,95,84,383 6. Now the assessee is in appeal. 7. Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that an identical issue having similar facts was a subject matter of the assessee's appeal in ITA No. 567/Del/2019 for the A.Y. 2013-14 before the ITAT Delhi Bench "I-1", New Delhi wherein vide order dt. 13/09/2021 the issue has been decided in favour of the assessee and against the Department, copy of the said order was furni....
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....ted in paragraph 9. 19. Here, in this case, what needs to be benchmarked for is, whether the sale of electricity unit rate by the eligible unit to its non eligible unit is as per the market rate or not i.e., whether it is an Arms' Length Price. The external CUP has been adopted by taking the rate of charged by Punjab State Power Corporation Ltd. which has been charging sale unit rate of Rs. 7.15 from industrial undertaking in Punjab. Another reason to justify this CUP was that Assessee Company itself has paid for its own consumption at unit rate at Rs.7.57 per unit to Punjab State Power Corporation. To justify the sale rate to its other unit, the assessee-company has 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 Stated 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 B....
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....ry undertaking or consumer is getting the electricity. Thus, we do not find any reason as to why such market rate or CUP should be rejected. Nowhere, it has been brought by the TPO as to why the average trading rate in Indian Energy Exchange should be applied as external CUP. Accordingly, we hold that the sale of electricity @ 6.72 per unit is at Arms' Length and no adjustment is required in this segment/unit. 9. As regards to the another issue relating to the adjustment in the transfer of steam. 10. The Ld. Counsel for the Assessee submitted that an identical issue has already been decided by the ITAT Delhi Bench "I-1", New Delhi in assessee's own case in the aforesaid referred to order dt. 13/09/2021 in ITA No. 567/Del/2019 for the A.Y. 2013-14. 11. Ld. CIT DR in his rival submissions reiterated the observations made by the authorities below in their respective orders and submitted that the facts involved in the earlier year decided by the ITAT in assessee's own case are different from the facts involved in the year under consideration. It was further submitted that for the year under consideration no mark up was to be added since it was without any basis and that there ....