TaxTMI 
TaxTMI 
2024 (2) TMI 696
X X X X Extracts X X X X
X X X X Extracts X X X X
....-2, Kolkata 12.03.2019 File received from the Principal Commissioner of Income Tax-2, Kolkata suggesting 2nd Appeal. 13.03.2019 Processing of papers for filing of appeal and appeal filed So, the delay was for two days. The Ld. AR had not made any objection for condoning of delay. The reason for the delay is accepted by the bench. Accordingly, we condone the delay of two (2) days to filing the appeal. 3. At the outset, the revenue placed that both the appeals are in the same nature and have a common factual background. Accordingly, we have taken together, heard together and disposed of together. ITA No. 490/Kol/2019 is taken as lead case. 4. The revenue has taken the following grounds of appeal: 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that deduction u/s 80IA of the Act will be allowed as claimed by the assessee. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition made by AO u/s 14A under Rule 8D without appreciating the CBDT Circular No. 5/2014. 3. Whether on the facts and in circumstances of the case, Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 lakh equals to Rs. 1,48,085/- was calculated and added back to the total income of the assessee. The assessee has grievance about both the additions and filed appeal before the Ld. CIT(A). Ld. CIT(A) allowed the grounds of the assessee related to issues u/s 80IA of the Act and in case of addition u/s 14A the Ld. CIT(A) upheld the views of Ld. AO for AY 2013-14. For AY 2014-15 only addition u/s 80IA was deleted by the Ld. CIT(A). There is no issue u/s 14A related to AY 2014-15. Being aggrieved on the appeal order the revenue has filed an appeal before us. 6. The Ld. D.R, Mr. Kiran Chatrapoty, JCIT, Sr. D.R vehemently argued and fully relied on the order of assessing authority. The relevant paragraph of the assessment order is duly enclosed as below: "3. The assessee company, during the relevant previous year, engaged in the business of manufacture of rectified spirit, Indian made foreign liquor, marine products and trading of marine feed and generation & distribution of Thermal Power for captive consumption. 3.1. The purpose of set up of power generation plant is to make the company to sufficient in supply of electricity power. The power is generated by igniti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....generating undertakings was the most relevant indicator of the arm's length price for power supplied by CPPs. Apart from relying on the orders of the regulatory authorities determining the tariff, the Ld. TPO also took into account the judgment of the Hon'ble Calcutta High Court in ITC Limited reported in (2015) 64 Taxman.com 214 wherein the Hon'ble Court had held that the CPPs were not permitted to sell power to anyone else but to power distribution companies and that too at the controlled rates notified by the regulatory authorities. The Ld. AO/ TPO therefore concluded that the rate adopted by the appellant at Rs.8.48 per unit for the CPP at West Bengal was excessive and did neither represent fair market value nor the ALP of the power supplied by CPP. On the contrary he adopted Rs.3.23 per unit as the ALP for the power generated by Unit located in the State of West Bengal. 2. Per contra, the Ld.- ARs of the appellant has made detailed submissions rebutting the Ld. TPO's conclusion, which have extensively been extracted in the earlier paragraphs. From the foregoing the question to be decided is that for application of CUP Method what should be the most appropr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... undertaking as well as unrelated enterprises i.e. the SEB. In the circumstances it is noted that reliable internal CUP data was available with the appellant to. benchmark the ALP of the power generated & supplied by the eligible undertaking to the non-eligible unit. 4. In respect of the basis and benchmarking exercise followed by the Ld. AO/TPO, I note that it suffered from apparent infirmities, From the facts on record I note that the Ld. TPO wrongly assumed that the CPP was neither discharging distribution functions nor transmission functions and therefore sought to functionally distinguish it from the SEBs. It is however found from the facts on record that the CPP was indeed distributing and supplying power to the non-eligible undertaking through transmission lines and hence the FAR analysis performed by the Ld. AO/TPO was unjustified. It is also observed that the Ld. TPO/AO erred in considering different forms of power units such as coal based, waste heat gas based etc. to be comparable to the assessee CPP when the jurisdictional fact remained that the assessee's CPP was a thermal based power plant. The Ld. TPO/AO also selected the tariff schedule on random & pick....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d." Mr. Khaitan argued andplaced that the issue is already covered by the order of Co-ordinate Bench of ITAT, Kolkata and the order of Hon'ble Supreme Court in the case of CIT vs. Jindal Steel and Power Ltd. in [2024] 460 ITR 162 (SC). Mr. Khaitan further placed that the assessee is charging electricity finally amount to @ Rs. 8.28 per unit. The same rate as charged by West Bengal State Electricity Board (in short WBSEB) the other bench marking of the companies are not similar related to nature of generation of power. Factually they are different. Mr. Khaitan invited our attention in the order of Co-ordinate Bench "C" Bench in the case of DCIT vs. Birla Corporation Ltd. in ITA Nos. 2142 & 2143/Kol/2018 for AY 2013-14 and 2014-15 date of order 07.02.2023. The relevant paragraphs are reproduced as below: 9.4. We, further, observe that ld. CIT(A) after considering the facts of the case for the year under appeal as well as the decision of this Tribunal in assessee's own case for the preceding years deleted the addition towards transfer pricing adjustment of Rs. 107,46,72,729/- observing as follows: "08. FINDINGS &DECISION: 1. I have carefully considered th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elevant indicator of the arm's length price for power supplied by CPPs. Apart from relying on the orders of the regulatory authorities determining the tariff, the Ld. TPO also took into account the judgment of the Hon'ble Calcutta High Court in ITC Limited reported in (2015) 64 Taxman.com 214 wherein the Hon'ble Court had held that the CPPs were not permitted to sell power to anyone else but to power distribution companies and that too at the controlled rates notified by the regulatory authorities. The Ld. TPO also took into consideration the fact that during the relevant year the appellant itself had sold 3,32,891 units generated by CPP in Rajasthan on IEX where per unit price realized was Rs.4.95. Keeping in view these facts and documents the Ld. AO concluded that the rates adopted by the appellant at Rs.6.76/6.85 per unit & Rs.6.79/Rs.6.84 per unit for the CPPs at Rajasthan & Madhya Pradesh was excessive and did neither represent fair market value nor the ALP of the power supplied by CPP. On the contrary he adopted Rs.4.13 per unit8i Rs.2.45 per unit as the ALP for the power generated by Units located in the States of Rajasthan & Madhya Pradesh respectively. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n constitute 0.11% of the total power generated by the CPP during the relevant year. In the circumstances therefore the rate at which the transaction was conducted by the eligible unit with non-AEs cannot be considered to be reliable data because the facts indicate that such sale was more in nature of reducing effective cost of generation by selling the excess power generated rather than incurring the generation loss. On the contrary however, in the case of CPP at Rajasthan also it is noted that the cement manufacturing undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelated enterprise i.e. SEB and therefore the tariff at which the said AE, i.e. noneligible unit purchased power from SEB represented reliable internal CUP. I therefore find that even after introduction of domestic transfer pricing provisions to specified domestic transactions and becoming applicable to the appellant, the ratio laid down by the Hon'ble ITAT, Kolkata in the appellant's own case for AYs 2008-09 & 2009-10 remains equally valid. 5. For the reasons set out in the foregoing therefore I hold that the methodology and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns in the audited report in Form 3CEB. Accordingly to the TPO the average rate of Rs. 3.47 per unit calculated on the basis of sale data of power by independent CPPs/IPPs as determined by various tariff orders would be the ALP of the domestic specified transactions. Accordingly the TPO recommended adjustment to the tune of Rs. 6,75,22,00,000/- and the AO passed the draft assessment accordingly. According to the assessee the internal CUP has to be used for the determination of ALP at which the non-eligible units/manufacturing units procured the power from unrelated party i.e. SEB. Now the issue before us whether the CUP method can be applied to bench mark specified domestic transactions of transferring power by CPPs to non eligible units. We have also perused the provisions as contained in Rule 10B of the Income Tax Rules which provide as to where the CUP can be and has to be applied. We observe from the said rule 10B that we have to see the price at which the property, goods or service has been acquired under similar market conditions. It is also settled that choice of tested party is of lesser significance for the purpose of application of CUP method but instead key factor in appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court) and the decision of Coordinate Bench of Kolkata in the case of DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol/2012 for AY 2008-09. We note that in all the above decisions, the AALC at which the power is purchased by the non-eligible unit of the assessee was considered to be the fair market value / transfer price of power supplied by the eligible unit to the non-eligible unit. Before us, the Ld. A.R also argued that non-eligible units has to be held as a tested party and AALC at which the power was purchased by the tested party from SEB/ third party is the most appropriate ALP to bench mark the transfer of power supplied by eligible unit to non-eligible unit. The said view of the assessee is squarely covered by the two decisions of Hon'ble Benches namely Star Paper Mills Ltd. vs. DCIT (supra) and DCIT vs. Balrampur Chini Mills Ltd. (supra). Having considered the ratio laid down, we are of the view that there is no infirmity in the order of Ld. CIT(A) which is a very reasoned and speaking order passed after following the decision of various Hon'ble High Courts and decision of Co-ordinate Benches of the Tribunal. We have also noted the arguments advanced by the Id D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, common ground no. 2 for AY 2013-14 & 2014-15 regarding transfer pricing adjustment made for deduction u/s 80IA of the Act raised by the Revenue are dismissed. 8. Mr. Khaitan further invited our attention in the order of Hon'ble Apex Court in the case of CIT vs. Jindal Steel & Power Ltd. (supra) the relevant paragraphs are reproduced as below: "27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit. 28. Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act. 30. Thus on careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under section 80-IA of the Act. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue. 32. Revenue has relied upon the decision of the Calcutta High Court in ITC Ltd. (supra). In that case, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order of Coordinate bench that the electricity unit would be charged as per the rate prevail by the WBSEB in case of selling to the consumer without any further conditions. The assessee has taken the calculation in CUP method the Ld. CIT(A) has taken the issue in external CUP method and accordingly deleted the addition. The ld. TPO has considered the comparable who are not generating thermal power which the assessee dealt in. Here, the supply power in between eligible unit to non-eligible unit. The assessee had adopted the power tariff which is said to be ALP and the WBSEB was maintain this rate by selling the consumer. The rate was adopted by the ld. TPO in CUP method cannot be accepted as the WBSEB is not tested party. The assessee has only transactions with AE, not any other party. The fair market value is clearly covered in order of Jindal Steel and power Ltd. (supra) and Birla Corporation Ltd. (supra). We respectfully relied on both the orders. We are not interfering in the appeal order in this issue. The assessment order is unjustified in this issue. Accordingly, the grounds of the revenue for ground nos. 1 and 3 are dismissed. 10. In case of addition u/s 14A the revenu....