TaxTMI 
TaxTMI 
2023 (9) TMI 324
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....ated 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 NFAC erred in adding back Rs. 15,10,15,315/- after rejecting the transfer price of the el....
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....ere 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 appreciate that the employees' contribution of PF & ESI were admittedly remitted before the due date for filing of the return of income as pe....
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....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 assessment years. The TPO after considering relevant submissions of the assessee and also taken note of relevant facts opined that the assessee company has ma....
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....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 assessee preferred an appeal before the Tribunal. 7. The Ld.Counsel for the assessee, Mr.S.Sridhar, Advocate, submits that the DRP is erred in not appreciating the f....
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.... 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 to the above the written submission on Merit is as under; The appellant claimed deduction of 80IA of the IT Act on sale of electricity from the "eligible business". The TP study in ....
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....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). To get over this situation, the matter needs to be examined by the CBDT. The matter has been examined by the CBDT and it is of the view that amendments would be required to be made to the provisions of the Act, if such Transfer Pricing Regulations are required to be ....
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....randum 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 transactions between domestic related parties, suggested that Ministry of Finance should consider appropriate provisions in law to make transfer pricing regulations applicable to such related party domestic transactions. The application and extension of scope of transfer pricing regulations to domestic transactio....
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....he 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 attracted. 5. Market value? for the purpose of section 80[A and arm's length price as per clause (ii) of section 92F Being the power generator in eligible units, the rate at which they can sell in open market to State Electricity Board is the "market value". All the power generation units have to either captively consume or sell to State Electricity Board. That is the market rate as per the explanation discussed abov....
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....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 other business. Those units if they buy the electricity from open market, the rate was retail purchase rate. However, that is not the case here. 3. Hon'ble SC has directed Ministry of Finance to enact separate legislation to determine arm's length in such specified domestic transaction. 4. Such legislation was enacted by parliament in Finance Act 2012. Accordingly, w.e.f. 1-4-2013 significant amendment was brought in the statue to address such specified domestic transaction. 5. TPO in compliance to the legislative enaction, determined t....
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....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 other division and observed that while computing deduction u/s. 80IA of the Act, for power generation units for captive consumption of power, rate at which Electricity Boards supplies power to its consumers should be considered instead of the rate at which the power generating companies supply power to the Electricity Boards. The relevant findings of the Tribunal are as under: 18.5 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee's own case for assessmen....
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....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 referred to supra, we find no error in the order of the learned CIT(A) which calls for any interference. It may be mentioned here that the deduction u/s. 80IA is the deduction from the total income of theassessee the profits and gains of an eligible undertakings. The Hon'ble Gujarat High Court has categorically admitted that the deduction u/s. 80IA is permissible for captive consumption and even the rate at which the deduction is to be computed. Consequently, the issue is held in favour of the assessee and against the Revenue." 18.6 In the present case, the facts are identical with that of the facts considered by the Tribun....