TaxTMI 
TaxTMI 
TaxTMI 
2023 (10) TMI 654
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....d in taxing income under the head "income from Business and Profession" at Rs. 853.74 Cr, instead of Rs. 832.72. Cr., thereby levying additional tax on Rs. 21.02 Cr. In the "Computation Sheet" even when there are no such additions in the assessment order". 6. Levy of interest u/s 234B The learned AO erred in levying interest u/s 2348 amounting to Rs. 0.52 Cr. 3. The brief facts qua the issue of adjustment on account of specified domestic transactions are that, the assessee company is engaged in the business of manufacturing and sale of inorganic chemicals, fertilizers and bio fuels. It operates inorganic chemical complex at Mithapur in Gujarat and a fertilizer complex at Babrala in Uttar Pradesh and Phosphatic fertilizers complex at Haldia in West Bengal. Assessee has reported Specified Domestic Transaction (SDT) with respect to sale of electricity from unit called Power Plant-TT-12) which has supplied 5,23,42,000 KWH units of electricity to the manufacturing unit of TCL at Mithapur at a transaction price of Rs. 36,09,44,480/-. In TP study report assessee justified the arm's length price by using CUP as the most appropriate method whereby the assessee stated that the price cha....
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....on of ITAT Ahmedabad Bench in the case of Gujarat Fluorochemicals Ltd. vs. DCIT (2018) 97 taxmann.com 10 which is also from the same jurisdiction. The Tribunal has held that for the purpose of determining the ALP of SDT of supply of electricity from eligible unit to non-eligible unit would be at the rate at which manufacturing unit of the assessee has been purchasing the electricity from State Electricity Board. Reliance was also placed on the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Industries Ltd., reported in (2020) 421 ITR 686, wherein Hon'ble High Court on similar issue and on similar lines held that valuation of electricity provided to another unit should be at the rate at which electricity distribution companies are allowed to supply electricity to the consumers. 5. However, TPO held that, the assessee has transferred / sold the power from its captive eligible unit to it‟s another non-eligible unit and there is absolutely no distribution cost involved in its pricing. Whereas the comparable (GEB) is not only purchasing the power but also being a distribution company incurs huge distribution cost and transmission losses which are factored in....
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....eneration. The SDT for which ALP is required to be determined is the supply of eligible power generation unit. Therefore, the choice of the tested party should be such, so as to arrive at the true profits of such eligible power generation unit ascertain the ALP of sale price to another unit. Hence, in such cases, power generating entity alone should be considered as tested party, as the FAR of the power generating unit has a direct impact in the quantum of SDT which should be given precedent over the FAR of the other party. 7. Further, TPO has referred to the Explanation to Section 80IA (8) which defines "market value" used in this sub-section in two manner; firstly, the price that such goods and services would ordinarily fetch in the open market; and secondly, the ALP as defined in clause (ii) of section 92F if transfer of such goods is SDT under section 92BA. He held that, in so far as the price that such goods and services would ordinarily fetch in the open market means that the electricity generated by the eligible unit would ordinarily fetch in the open market if sold and not the rate in which non-eligible unit could procure the electricity in the open market and therefore, e....
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....and 20 paise towards coal cost and depreciation and other expenses. Further even after considering the adjustment for return on capital pre tax of 24.05%, the cost works out to Rs. 3.76 per unit where as procurement rate for GEB is Rs. 3.94/unit which s being compared in this case. It may be noted that since the aforesaid price is the average price of procurement of electricity and since the source of procurement is hydel, thermal, solar as well as wind, the correct picture is not reflected. According to the assessee, if the hydel power rate only is considered, the average rate would be Rs. 3.94/unit. However, considering the details as discussed above regarding the cost of production of the assessee, power purchase cost to the MSEDCL, return on capital pre tax of 24.05%, the profit element of the assessee company etc, the ALP of the power sold to the eligible units is treated to be at Rs. 3.94/unit and adjustment is worked out as tabulated below Electricity Units Actual Rate INR ALP ALP INR Adjustment 5,23,42,000 6.90 36,11,59,800 3.94 20,62,27,480 15,49,32,320 Therefore an adjustment of Rs. 15,49,32,320/- is proposed on this transaction. The adjustment has....
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....r such distribution. The price at which Distribution Company sells the power to the customers cannot be the price at which power generating units sells the electricity. In this case, the ld. DRP has taken M/s. Torrent Power Ltd. (TPL) which is an electricity generation unit in whose case per unit has been determined at Rs. 3.99/- which is in accordance with Safe Harbour Rules and also specific external CUP in the case of electricity generation unit. Secondly, he submitted that wherever transfer of goods and services falls under SDT, then market price has to be determined as per principles of ALP under transfer pricing mechanism as provide in clause (ii) of Explanation to section 80IA(8). 10. The case of the ld. Counsel for the assessee is that, what is required to be seen as to how much a non-eligible unit will have to pay the price for buying electricity. If it has bought electricity from GEB which has supplied the electricity @6.90 per unit, then if at the same price the eligible unit has supplied, then there is direct CUP. The purpose of Section 80IA(8) is to see whether the goods and services has been transferred at market value. The market value here in this case is at Rs. 6.....
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....e eligible unit and therefore, eligible unit alone should be taken as a tested party and the FAR analysis has to be done of the eligible unit vis-à-vis the other units which are generating electricity. Lastly, he has given the detailed analysis as to why the price charged by the distribution companies cannot be compared with the assessee because it undertakes various functions, deploys various assets and assumes various risks and therefore, the price charged by the distribution company from the end customers cannot be the market value of the price on which assessee sold the price as power generation unit to another unit of the same assessee. Finally, the ld. DRP has given one comparable instance, of M/s. Torrent Power Ltd. (TPL) which was into generation of electricity in whose case, Gujarat Electricity Regulatory Commission (GERC) has determined the tariff for supply of electricity to State Electricity Board at Rs. 3.99 per unit. 12. Whereas the case of the assessee is that the manufacturing unit has bought the electricity from the eligible unit at Rs. 6.90 per unit which is the price from which it has procured electricity from GEB and therefore, the price charged by GEB i....
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.... domestic transaction referred to in section 92BA. 13. Thus, the aforesaid provision provides that goods and services provided by the eligible business which is being transferred to other business carried on by the assessee has to correspond to the market value of such goods as on the date of the transfer. The Explanation provides the scope and the meaning of the "market value‟ in relation to any goods and services which has provided two manners to determine. The first is the price that such goods or services would ordinarily fetch in the open market and then the phrase "or" has been used. Secondly, the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to section 92BA. Section 92BA incorporates the determination of ALP under transfer pricing provision of sections 92,92C, 92D and 92E. It provides that any transfer of goods or services referred to in sub-section (8) of Section 80IA is also covered under the specified domestic transaction. 92F sub-clause (ii) defines the arm's length price, which means the price which is applied or proposed to be applied in a transaction bet....
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....d through arm's length principle. Secondly, if the price of the transfer of goods and services is in consonance with the price available in the open market then the profits of the eligible business shown as per this price is eligible for deduction and in that case the second option may not be necessary. 15. Both the authorities, i.e., ld. TPO and ld. DRP have held that in case of 80IA (8), the market value has to be compulsory governed by Explanation (ii) to Section 80IA (8), because in 92BA provides that such transfer of goods and services referred in this sub-section falls within SDT and therefore, arm's length price has to be determined as per Section 92F(ii). Further according to them Explanation (i) & (ii) have separate application because it is separated by word "or", but how they are separately applicable and under which circumstances has not been elaborated. If such an interpretation is to be accepted, then clause-(i) of the Explanation will become otios and redundant, because then the transfer of the goods and services falling u/s. 80IA(8) has to be compulsorily be determined under arm's length principle. Had it been so, then post introduction of SDT in Section 92BA w.e.f....
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....lectricity provided to another unit should be at the rate at which electricity distribution companies were allowed to supply electricity to the consumers. This judgment has been distinguished by ld. TPO / ld. DRP holding that these judgments relate to assessment years where SDT provisions were not applicable. We are not inclined to agree to such a view that these judgments have become redundant and Explanation (i) is no more applicable after the introduction of Clause (ii) w.e.f. 01/04/2013, because, the statute has not omitted clause (i). Thus, in our opinion these judgments still holds the field and once the market value of such price on which electricity is sold to another unit of the assessee, the same can be compared with the electricity distribution entities for supplying to the customers in the open market. Accordingly, there is no infirmity in the contention of the assessee that per unit electricity sold to the non-eligible unit at Rs. 6.90 per unit is the market value. 17. The ld. DRP has taken M/s. Torrent Power Ltd. (TPL) which is the electricity generation entity supplying electricity to GEB. In that case Gujarat Electricity Regulatory Commission (GERC) has fixed tarif....