TaxTMI 
TaxTMI 
2023 (9) TMI 324
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....ting the assessment in consequence to the proceedings initiated and completed on various dates including the directions of the DRP dated 24.01.2022 under transfer pricing regime in determining the taxable total income at Rs. 36,09,94,739/- as against the reported taxable total income at Rs. 20,90,01,310/- without assigning proper reasons and justification. 3. The NFAC failed to appreciate that the entire re-computation of taxable total income including the book profit computation as per the impugned order(s) on various facets was wrong, erroneous, unjustified, incorrect, invalid and not sustainable both on facts and in law. 4. The NFAC erred in making the reference to the TPO for checking the correctness of the transaction under scrutiny under domestic transfer pricing regime and in this regard, ought to have appreciated that the reference to the TPO under domestic transfer pricing regime was invalid on various grounds. 5. The NFAC failed to appreciate that the mechanical adoption of the order(s) passed under TP regime in passing the final assessment order should be reckoned as bad in law based on technical grounds as well as on merits. 6. The NF....
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....ate adopted for the electricity produced and transferred to the other division which was reckoned as captive consumption were completely wrong and erroneous on various facets and ought to have appreciated that the method adopted for determining the ALP for the transaction under scrutiny was correct inasmuch as further ought to have appreciated that there was proper understanding and implementation of the said method in determining the ALP and its consequential compilation of the financial statements in relation thereto. 12. The NFAC erred in sustaining the disallowance of Rs. 9,78,114/- employees' contribution to EPF & ESI by invoking the provisions of section 36(1)(va) read with section 43B of the Act without assigning proper reasons and justification. 13. The NFAC failed to appreciate that the consistent judicial trend by virtue of the decisions of the Madras High Court and Jurisdictional Bench of the Income Tax Appellate Tribunal after noticing the amendment was completely overlooked and brushed aside and ought to have appreciated that the binding decisions were completely ignored, thereby vitiating the decision on merits. 14. The NFAC failed to ap....
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....nalyzing FAR of the assessee and FAR of M/s.TANGEDCO Ltd., came to the conclusion that comparison of price charged by distributors for the price to be charged by manufacture is incorrect, because, power distribution companies are operating under different set of facts and their FAR is entirely different from functions performed by the assessee and asset employed. Therefore, rejected TP study conducted by the assessee and has adopted CUP method by considering Power Purchase Agreement entered into by the TNERC with various power generators, where, the TNERC has fixed tariff ranging from Rs. 2.73 per unit to Rs. 3.70 per unit. Therefore, issued a show cause notice and called upon the assessee to explain 'as to why' deduction claimed u/s. 80IA of the Act, for Wind Power Mill Division shall not recomputed. In response, the assessee submitted that when the assessee has adopted CUP method as Most Appropriate Method and selected a comparable which is into similar kind of business, then, the TPO adopting rate charged by TNERC for power suppliers, is incorrect. The assessee had also relied upon certain judicial precedents, including ITAT Chennai Benches in the assessee's own case for earlier....
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....s.TANGEDCO Ltd., which is also functions performed by any wind energy in the state except different that the assessee is making captive consumption and others are selling to M/s.TANGEDCO Ltd. Therefore, when the FAR analysis of the assessee and FAR analysis of distributor companies is different, the question of comparison rate charged by power Distribution Company to power Generation Company is incorrect. Therefore, by considering relevant facts and also by following the decision of the Hon'ble High Calcutta Court in the case of CIT v. ITC Ltd. (supra) rejected arguments of the assessee and upheld TP adjustment as suggested by the TPO by taking into account power purchase rate of TNERC from power generating companies, and then, compared with price charged by the assessee to its other divisions. 6. The Assessing Officer, in pursuant to directions of the DRP, passed final assessment order and determined total income of Rs. 49,48,04,732/- by making additions towards TP adjustment as suggested by the TPO. The Assessing Officer had also made additions towards employee's contribution to PF u/s. 36(1)(va) of the Act r.w.s.43(b) of the Act. Aggrieved by the final assessment order, the a....
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....e India Cements Ltd., and thus, additions made by the AO should be deleted. 8. The Ld.CIT-DR, supporting the order of the AO & the DRP submitted that when it comes to comparison of tested party, FAR analysis of the assessee and the tested party should be considered and in case, any difference in functions performed by the tested party, then the purpose of comparative analysis will defeat. In the present case, the assessee has compared rate charged by electricity distribution companies to end users, even though, FAR analysis of the assessee and electricity distribution companies are entirely different. The TPO and the DRP after considering relevant facts has rightly rejected TP study conducted by the assessee and has adopted rate at which TNERC purchased power from power generating companies and compare with price charged by the assessee. Therefore, he submits that there is no error in the reasons given by the TPO to make downward adjustment towards deduction claimed u/s. 80IA of the Act, and their orders should be upheld. The Ld. DR has filed written submissions on this issue which has been reproduced as under: B. Written submission on merit: Without prejudice ....
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....e which needed to be addressed was, whether Transfer Pricing Regulations should be limited to cross-border transactions or be extended to domestic transactions. In the case of domestic transactions the under-invoicing of sales and over-invoicing of expenses ordinarily would be revenue neutral in nature, except in the following two circumstances having tax arbitrage- (i)If one of the related companies is a loss making company and the other is a profit making company and profit is shifted to the loss making concern; and (ii)If there are different rates for two related units [on account of different status, area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of the tax arbitrage. For example, sale of goods or services from non-SEZ area, [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less taxable profit and non-taxable division will have a higher profit exemption. [Para 4] AH these complications arise in cases where fair market value is required to be assigned to the transactions between related parties in terms of section 40A(2). ....
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....2013. This is applicable from AY 2013-14. TPO clearly mentioned the same at page number -7 of the TP order. 2.3 The Explanation to section 80IA(8) introduced in Finance Act defines "market value" for the purpose of above said provision placed in Chapter X. The explanatory memorandum is as under: "Transfer Pricing Regulations to apply to certain domestic transactions Section 40A of the Act empowers the Assessing Officer to disallow unreasonable expenditure incurred between related parties. Further, under Chapter VI-A and section 10AA, the Assessing Officer is empowered to re-compute the income (based on fair market value) of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity. However, no specific method to determine reasonableness of expenditure or fair market value to re-compute the income in such related transactions is provided under these sections. The Supreme Court in the case of CIT Vs. Glaxo SmithKline Asia (P) Ltd., in its order has, after examining the complications which arise in cases where fair market value is to be assigned to transac....
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....rket value in Specified Domestic Transaction? 3.1 Section 80IA(8): Where any goods or services held for the purpose of eligible business are transferred to any other business carried on by the assessee Or - First limb. or Where any goods or services held for the purpose of any other business are transferred to eligible business carried on by the assessee - Second limb. In either case If consideration recorded in the accounts of eligible business does not correspond to market value of such goods, then for the purpose of section 80IA(8), profit and gains of such eligible business shall be computed as if the transfer in either case had been made at market value of the goods as on date of transfer. These discussions were made by the TPO at para 7.3. 4. Here what is the good transferred? i. The good transferred or sold here is electricity. ii. The assessee company has generated power from eligible units andi transferred to other business carried on by them. iii. It was captively consumed by other business carried on by the assessee. iv. Hence first limb of section 80IA(8) discussed above is attract....
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.... > That is what Hon'ble SC has prescribed in its decision. Show cause notice by TPO: TPO issued detailed show cause notice and considered submissions of the appellant and adopted right method of TP study in the TP order. 8. Appellants reliance on earlier decisions: With due regard, it is submitted that this is new area of TP study where the power generation unit being the tested party and sale of electricity of that eligible business undergone TP study in the light of Hon'ble Supreme Court and new legislation brought into statute in Finance Act in section 80IA(8) and in section 92 BA(2) read with section 92F(ii) and Ruled 10B(2) of the IT Act and IT Rules. Hence those earlier decisions are not applicable for the present appeal of AY 2017-18. This was brought out in TP order unambiguously and it was also argued in length before Hon'ble ITAT. 9. Summary: 1. The TP study was* on determination of arm's length of eligible business that has claimed deduction u/s. 801A of the IT Act on sale of power by the power generation unit. 2. It was not on consumption of electricity by captive consumption unit of ....
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.... Act and determined TP adjustment of Rs. 15,10,15,315/-. 10. We have given our thoughtful consideration to the reasons given by the TPO and the DRP in light of various arguments advanced by the assessee and we find that this issue is squarely covered in favour of the assessee by the decision of ITAT Chennai Benches, in the assessee's own case for AY 2007-08 in ITA No.1571/Mds/2011, where the Tribunal has considered an identical issue in light of deduction claimed u/s. 80IA of the Act, and observed that for the purpose of computing deduction u/s. 80IA of the Act, price at which the TNERC purchased power from the power generating companies is not correct rate to be adopted, but the price at which the assessee purchased power from electricity supply companies is the rate to be compared for the purpose of determining ALP of price charged by the assessee to its other division. The ITAT Chennai Benches in the case of M/s The India Cements Limited vs. The DCIT, in ITA No. 2415 and 2210/Chny/2017 has considered an identical issue in light of deduction claimed u/s. 80IA of the Act, for profit derived from eligible undertaking in respect of transfer of power from Windmill Division to othe....
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....of Commissioner of Income Tax vs. Gujarat Alkalies Chemicals Limited reported in 395 ITR 247(Guj.), wherein it has been held that the deduction u/s. 80IA was allowable to the for generation of power for captive consumption and that the rate of power generation at which the electricity board supplied power to its consumers rather than the rate at which the power generating companies supply its power to the electricity board was to be taken as the price. Further, this view has been supported by the decision of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs. Reliance Industries Limited in I.T.A. No.1056/Chny/2016 dated 0.01.2019 and as also the decision of the Hon'ble Chhattisgarh High Court in the case of Godavari power and Ispat Limited reported in [2014] 42 Taxman.com 551 (Chhattisgarh). As it is noticed that the learned CIT(A) has followed judicial discipline by following the decision of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax and Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra, as it is noticed this view has also been approved by the Hon'ble High Courts refer....