TaxTMI 
TaxTMI 
2023 (12) TMI 1331
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....nterpreted to mean that in case where the monetary threshold as per section 92BA is crossed, market value has to mean the arm's length price or ALP i.e. as per limb (ii) of the said Explanation 3. The Ld. CIT(A) has erred on the facts and in law in upholding the internal CUP (SEB rate) applied by the assessee to benchmark the transaction (sale of power) to its AE, as well as computation of deduction under section 80-IA of the Act, whereas as per explanation to section 80IA(8) of the Act. "'market value", in relation to any goods or services, means-nso3 9 i. The price that such goods or Services would ordinarily fetch in the open market; or ii. 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 in section 92BA. 4. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that the assessee's generating unit (the CPP) cannot as such claim any amount of benefit under Section 80-1A of the I.T. Act computed on the basis of rates charged by the distribution licensee from the consumer. The....
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....o ensure uninterrupted supply of power to both these manufacturing units. From the facts on record, it is noted that there is no dispute that both these CPPs are qualified as eligible units for claiming deduction u/s 80-IA of the Act. The CPPs transferred power to the manufacturing units and the transfer rate was ascertained by the assessee at the rates of Rs.6.81 and Rs.5.78 per unit respectively. Since the transfer of power was between related entities, the same qualified as specified domestic transaction u/s 92BA read with Section 80-IA(8) of the Act. The assessee got conducted a transfer pricing study for the same. In the Transfer Pricing Study Report (TPSR') it was noted that after undertaking Function, Asset, and Risk (FAR) Analysis, it was concluded in the report that these CPPs were electricity providers to the manufacturing units bearing normal risks associated with the said activity. It is also undisputed that the manufacturing units, besides obtaining power from the CPPs in question, also bought power from the State Electricity Boards (SEB) at tariffs at which such power was available to industry in their states. The assessee company, therefore, asserted that the CPP....
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....utors. The tariff for power generating companies was generally fixed by the tariff regulatory commission by way of negotiation which was based on an in-built mechanism that ensures permissible profits to the power generators. The TPO thus, held that the benefit u/s 801A of the Act can accordingly be claimed only on the basis of the rates charged for sale of power by the generating companies to the distribution company. The TPO noted that the assessee's computation of arm's length value of power sold to AE was based on the market value concept, which according to him, was no longer applicable after introduction of transfer pricing provisions laying down arm's length pricing provisions in place on market value. The Ld. TPO also noted that a strict degree of comparability was required under the CUP method and in terms of Rule 10B of the Income Tax Rules,1962, the comparison of similar transactions to determine the Arm's Length Price (ALP) for sale of power was required. The Ld. TPO observed that the assessee operated a CPP which was a manufacturing unit and it was selling power to a consumer viz., the assessee's manufacturing unit, whereas the State Electricity Board was a ....
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....sted on using CUP method by taking the manufacturing unit as the tested party. It was contended that TPO's choice of generating units as tested party was wrong as it was highly regulated and did not depict the true picture of market rates as these generation companies were not allowed to sell the power to consumers in the open market. The assessee asserted that the ALP should be taken at the average market value at which the manufacturing units purchase power from unrelated third parties. The assessee, therefore, asserted that the CUP method, with the manufacturing unit as the tested party and the open market rate from SEBs as the Comparable Uncontrolled Price, accurately determines the arm's length price for benchmarking the sale of power by CPPs to the non-eligible unit. 4.3 The ld. CIT(A), after considering the submissions made by the assessee, by way of a detailed order, deleted the additions made by the AO on account of transfer pricing adjustments in relation to the price of power sold by the section 80IA eligible CPP units of the assessee to the non eligible manufacturing units of the assessee. 5. We have heard the rival contentions of the parties and have also....
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....rice benchmarked by the assessee for the sale/ transfer of power by the Chaliyama CPP is lower than the price provided in the tariff order by JSERC for an endconsumer under comparable circumstances, it is reasonable to conclude that the rate is consistent with the ALP standard from an Indian Transfer Pricing Regulations perspective. (The detailed analysis for this is placed in the TPSR of the assessee company for the Chaliyama Unit for the relevant year at Serial No. 3, page 126 of our Paper book for A.Y. 2019-20) * The rate charged by the Kamanda CPP was Rs. 5.78/- per unit for supply of power at a high voltage of 33kV. The applicable rate of WESCO (Western Electricity Supply Company of Odisha) utility for a similar end-consumer under comparable circumstances (high-tension voltage lines) as per the tariff order of Orissa Electricity Regulatory Commission (OERC) for F.Y. 2018-19 is Rs. 6.17. As the price benchmarked by the assessee for the sale/ transfer of power by the Kamanda CPP is lower than the price provided in the tariff order by OERC for an end-consumer under comparable circumstances, it is reasonable to conclude that the rate is consistent with t....
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....he complete power requirement of the manufacturing unit and in doing the same, it had to generate power which is in excess of the power required by the Manufacturing Unit such that there arises no situation of a shut down. Thus, the sale of this excess power by the Chaliyama CPP to the grid was made in a compelling circumstance and with a view to realise some value for power which otherwise would have gone to waste. Thereby, it can be said that the price realised by the CPP undertaking under compelling circumstances cannot be considered as representative of the market value of power under uncontrolled conditions - which is the method and object of the CUP Method in arriving at the Arm's Lengths Price (ALP). Since, the sale of excess/ surplus power was made only with a view to ensure that power generated does not go to waste or is lost, the price so realised did not constitute ALP of power. In this regard, reliance is placed upon the judgment of ITAT, Kolkata in the case of ACIT v. Philips Carbon Black Ltd. (ITA No. 2628/ K/ 19) (A.Y. 2013-14) dated 05.07.2022 (Copy of the order is annexed in the Paper book of Judgments submitted and is marked as Annexure: 'T', relevant Pag....
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....taken as the tested party and the benchmarking of the price of power be done based on the SEB rate for power. 5. During assessment proceedings, the Ld. TPO/ AO disregarded the rate adopted by the Appellant by holding that the sale rate available for other/independent power generating units be considered to determine the transfer/sale price of power by the eligible units to the Appellant. The Ld. TPO's contention was that the functional profile of a generation company should be compared to the price that is charged by another generation company. The Ld. TPO summarises his reference to the decision of the Hon'ble Calcutta High Court in the case of CIT v. ITC Limited reported in 236 Taxman 612 (Calcutta High Court) in support of his decision to reject the benchmarking of price of the power supply done by the assessee. 6. Thus, the Ld. TPO rejected the analysis undertaken by the Appellant in considering the Grid rate of SEB for benchmarking the power supply transaction by holding that the same is not comparable with the eligible CPP unit. The Ld. TPO computed the quantum of adjustment as under: For A.Y. 2019-20 (Page 7 of Ld. TPO's Order): d to theAp....
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....ven the notified tariff orders of the JSERC & OERC relied upon by the TPO is heavily regulated and is ascertained by the State Electricity Commission after taking into account several socio-political considerations, which is evident from the tariff order itself. Instead, the SEB supplies power at the same tariff rate to all industrial consumers (similar to the assessee) in the same State, which thus represents the prevailing market rate. 11. It is vehemently submitted that the application of the CUP method requires a high degree of comparability not only in the products (in this case 'power') sold and services provided but also in the economic circumstances in which the transactions take place. One should examine the market conditions in which the electricity is being sold. The tariff orders relied upon by the TPO operates in an altogether different market, which is the Business to Business (commonly known as B2B) Model. This tariff rate is the rate at which electricity is purchased by distribution companies from generation companies. The conditions of this market are different and distinct from the consumer market. In the circumstances, when the market conditions of the c....
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.... State Electricity Board to the manufacturing units in uncontrolled conditions as the ALP. 13. The contention of the department in most cases that when MAM is taken as CUP, we need not determine a tested party is erroneous in our humble submissions. The ICAI in Guidance note u/s. 94B of the Act has laid down that the tested party must be identified even when MAM is CUP. This proposition and reliance on the ICAI's Guidance Note that the tested party must be identified even when the MAM is CUP was given credence in the case of DCIT v. BalrampurChini Mills Ltd. (ITA No. 1672/ K/ 19) (A.Y. 2016-17), order dated 05.05.2021 & Star Paper Mills Ltd. v. DCIT (ITA No. 127/ K/ 21) (A.Y.: 2016-17), order dated 26.10.2021. 14. In this case, the assessee has taken that the tested party as the non-eligible units (which are the manufacturing units) and whereas, the TPO has taken the tested party as the CPP i.e. the eligible unit. In our humble submissions, the profit of the noneligible unit also must be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases pow....
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....is broadly classified into two categories viz., Internal CUP Method & External CUP Method. Under the Internal CUP Method, the controlled transactions between the AEs involving buying or selling of goods, is compared with the transactions conducted by any of the AEs with unrelated parties for the same goods under similar circumstances. If reliable data is available, then internal CUP is the most appropriate method. In a case where such reliable internal data is not available, one resorts to application of external CUP which involves comparison of prices paid/charged for the same goods between two unrelated third parties, with the transaction conducted between the AEs. 18. It is humbly submitted that there is no dispute between the department and the assessee that the Most Appropriate Method (MAM) to benchmark the transfer price of power is the CUP method. According to the TPO/Revenue, the average rate at which the power generating stations sold power to the Grid, in terms of the notified tariff order, constituted the representative arm's length price. Per contra, it is the assessee's contention that the rate at which the non-eligible unit/ unrelated industrial end-c....
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....hmarked by applying the Comparable Uncontrolled Price Method [herein after referred to as 'CUP Method']. For benchmarking the transfer rate of power, the noneligible (manufacturing) units were considered as the 'tested party' as it regularly procured power both from the CPP as well as independent State Electricity Boards [herein after referred to as 'SEB']. Hence, the landed rate at which the SEBs sold power as DISCOMs to end-consumers was taken as the ALP rate to benchmark the transfer price of power supplied by the CPPs to the non-eligible units. This was done keeping in mind the transfer pricing principles of strict product comparability, whilst determining the Arm's Length Price of power, in the instant case. 21. It is also important to note that the non-eligible (manufacturing) unit comes under the category of High Tension (HT) industrial consumers of electricity. Thus, energy charges for HT Industrial Consumers at corresponding voltage and demand as per the Tariff Order of OERC/ JSERCought to be considered as comparable uncontrolled price for determination of arm's length price. 22. It is humbly submitted that the AO committed an illegality in computing the ....
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....t should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer. 33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power. 34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders. 35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals hav....
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....is submitted that it is distinguishable on facts as well as in law and is thus not applicable to the assessee's case. In the decided case, the relevant year in question was Financial Year 2001-02 i.e. prior to the introduction of Electricity Act, 2003. Until then, the electricity generating companies could only sell or supply power to the State Power Utility or company engaged both in generation & distribution and that too at the tariffs rates prescribed by the Regulatory Commission. Therefore, in absence of any alternate rates, the High Court held that the price at which electricity generating company sold power to SEBs was the only available open market rate. However, subsequent to the enactment of Electricity Act, 2003, the functioning of the power sector was liberalized as the business became de-regulated and it was legally permissible for the private CPPs to supply power to other consumers and the prices could be determined through competitive bidding process or any other mutually agreed terms. Hence, the decision of Calcutta High Court (supra) is not applicable to the relevant FY 2018-19 in question, i.e. post introduction of the Electricity Act, 2003. In our case, i....
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....spute the fact that the CPPs constituted separate and distinct undertakings and were eligible for claiming the deduction under section 80IA of the Act. However, on perusal of the working of the profitability, the A.O. found that the transfer price for power was considered by the assessee equal to the price at which the electricity was procured by the manufacturing undertakings from the respective SEBs. Referring to explanation to section 80IA, the A.O. held that for the purposes of section 80IA,the term 'market value' means the price that such goods or services would ordinarily fetch in the open market. According to the A.O., such market value was to be ascertained from the view point of the power generating undertakings claiming the deduction and not from the perspective of the manufacturing undertaking which was the captive consumer of the CPP. We note that the A.O. proceeded on the premise that the CPP owned by the assessee was not allowed to sell its power to the final consumer but was allowed to sell the same only to grid of the SEB in case of excess production. Save and except such monopoly buyer, the CPP was not permitted to sell power to anyone else. According to th....
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....reference may also be made to KERC's order dated 27.02.2007. In this order, the commission explained the salient features of the National Electricity Policy issued by the Government of India on 12.02.2005 with regard to captive generation. The said order explains that the Electricity Act 2003, put in place highly liberal frame work for power generation wherein there is no requirement of licensing for generation of power. The requirement of techno-economic clearance of CEA for thermal generation was no longer there. Captive generation has been freed from all controls. The said policy further clarified that the captive generating plants were permitted to sell electricity to licensees and consumers when they were allowed 'open access' by SERCs under section 42 of the Electricity Act, 2003. The tariff policy issued by Government of India on 06.01.2006 also provided that the sole purpose of freely allowing captive generation was to enable industries to access reliable quality and cost effective power. As per the recommendation made, the SERCs were required to encourage the distribution licensees to procure power from CPPs through competitive bidding on a composite tariff bas....
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....facts of the instant case , as admittedly, the Asst Year before Hon'ble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002- 03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us) , the assessee would be governed by the provisions of Electricity Act, 2003. 5.6.1. We have already seen that the ITC's case in Hon'ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutuall....
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....st Bengal State Electricity Board (WBSEB). It is not in dispute that the Assessee is entitled to claim deduction u/s.80IA of the Act on the profits derive by the Assessee from generation of power. Since the power generated is consumed by the Assessee for own use and not sold to a third party,.Sec.80IA(8) of the Act prescribes a method of determination of profits derived by the undertaking generating power. In such cases, the profits and gains of such eligible business has to be computed as if the transfer had been made at the market value of such goods or services as on the relevant date. "Market Value" has been defined in Explanation to Sec.80IA(8) of the Act as the "the price that such goods or services would ordinarily fetch in the open market". In India the business of generation of electricity and its distribution is governed by the Indian Electricity Act, 2003. The electrical power system mainly consists of generation, transmission and distribution. For generation of ( electrical power there are many Public Sector Undertakings and private owned generating stations (GS). The Electrical transmission system is mainly carried out by central government body PGCIL (Power grid corpo....
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....s. The said order deals with generation of non- conventional energy and it lays down in para-25 of its order that third party sales of power generated by non-conventional means cannot be made. In para-28 power generated by such generators have to be sold in public interest only to APTRANSCO at rates specified in the said paragraph. Our attention was drawn to Paragraph 4 of the West Bengal electricity Regulatory Commission (Open Access) Regulations, 2007, which lays down that a licensee or a generating company Of' a captive generating plant or a consumer or any person engaged in the business of supplying electricity to the public under the Act (Electricity Act, 2003) shall be eligible for open access to the intra-state transmission lines or associated facilities of the STU or any Transmission licensee on payment of charges as may be specified by the Commission, for using the transmission system of the Transmission Licensee. It was submitted that power generators in West Bengal are free to trade in power on exchange or sell excess power to third parties. Therefore, the judgment of the Hon'ble Calcutta High Court in case of ITC Ltd., (supra) will not apply to the case of the A....
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....Chemicals Ltd (ITA No.544 of 2016) dismissed the Revenue's appeal on the following specific question: "(II) Whether the Tribunal was right in law in allowing the assessee's claim of deduction of Rs. 1954 Crores u/s 80IA(4) of the I.T. Act, 1961, when the assessee had adopted rate of power generation at Rs.4.73 per unit, rate on which the GEB supplied power to its consumers, ignoring the rate of Rs.2.36 per. unit, the rate on ' which power generating company supplied its power to GEB?" The Hon'ble Gujarat High Court, thus, specifically decided the issue in favour of the assessee by holding that the deduction under Section 80IA in respect of CPP shall be computed by taking the per unit selling price of electricity equal to the rate at which the assessee purchased the electricity from SEB. 29. The landed cost payable to the SEB by the non-eligible units represents the rate which is available in open market and determined under uncontrolled conditions and is hence a reliable CUP available in the given facts of the case of the assessee to determine the ALP. Hence, after the detailed discussions and elaborate analysis, the order of the Ld. CIT(A) ca....
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.... of ACIT v. Philips Carbon Black Ltd. (supra) has observed that the internal CUP method applied by the assessee to benchmark specific domestic transaction of transferring power to CPP to non-eligible unit was more appropriate in the relevant market conditions to determine the arm's length price (ALP). The relevant part of the order of the Coordinate Bench is reproduced as under: "Now the issue before us whether the CUP method can be applied to bench mark specified domestic transactions of transferring power by CPP to non eligible unit where the CPP sells the similar goods or services to unrelated enterprises. 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 application of CUP is product comparability and similar market conditions. Further the CUP method can be classified into two c....
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....e has to be set up. The power generated by consuming the waste gases was in surplus and much higher than the power required by carbon black manufacturing unit and thus the excess power generated has to be sold in the open market at the lower rate as the power is a highly perishable commodity which cannot be stored for the future. On this reasoning, the Ld. CIT(A) has come to the conclusion that the selling the power by CPP in the open market was under compelling circumstances and was targeted to recover only the cost of power generation and therefore such price cannot be considered as representative of market value of the commodity under uncontrolled conditions. According to Ld. CIT(A), the excess surplus power sold in the open market at a price which was lower than the price at which the manufacturing unit procured electricity from the SEB cannot the arm's length price of the power. Thus, the Ld. CIT(A) reversed the order of TPO/AO by directing that the price at which the SEB sold power in the open market under uncontrolled conditions is reliable internal CUP and accordingly came to the conclusion that ALC notified by the SEB is a fair, reliable and reasonable basis to bench mark ....
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....which the distribution companies purchased power from generation companies. Further no consumer can buy the power in the open market at a rate generation companies sell power to distribution companies. Thus we do not find any force in the contentions of the ld DR that rate at which the power was sold to unrelated parties by the CPP is the ALP. We also note that decision of the Calcutta High court in the case of CIT Vs ITC 236 Taxman 612 which was relied by the TPO/AO and the functional dissimilarity between CPP and SEB have been considered by the coordinate bench of the tribunal in the case of Star Paper Mills Ltd Vs DCIT in ITA No. 127/Kol/2021. Therefore , we are inclined to uphold the order of Ld. CIT(A) by holding that the ALC at which the power is procured by noneligible unit from SEB is the most appropriate ALP to bench mark the specified domestic transaction and accordingly the order passed by Ld. CIT(A) is upheld by dismissing the ground no. 4 of the revenue's appeal." 8.3 It is pertinent to note here that the assessee's main business is not of generating of power to further sell the same to the distribution companies/State Electricity Boards. The point to be noted here ....
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....ly of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company. 1[Provided further that no licence shall be required under this Act for supply of electricity generated from a captive generating plant to any licencee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under subsection (2) of section 42.] (2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use: Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be: Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission. Section 38. (Centra....
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....ase open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use: [Provided also that the State Commission shall, not later than five years from the date of commencement of the Electricity (Amendment) Act, 2003, by regulations, provide such open access to all consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one megawatt.] (3) Where any person, whose premises are situated within the area of supply of a distribution licensee, (not being a local authority engaged in the business of distribution of electricity before the appointed date) requires a supply of electricity from a generating company or any licensee other than such distribution licensee, such person may, by notice, require the distribution licensee for wheeling such electricity in accordance with regulations made by the State Commission and the duties of the distribution licensee with respect to such supply shall be of a common carrier providing nondiscriminatory open access . (4) Where the State Commission permits a consumer or class of consumers to rec....
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....censee other than the distribution licensee operating in his area. As per section 49 of the Electricity Act 2003, if such an open access is provided by a generating company/licensee to any consumer, then such a generating company/lisensee and the consumer may enter into an agreement for supply or purchase of electricity on such terms and conditions (including tariff) as may be agreed upon by them. Under the circumstances, there is no bar even to other power generating companies at the option of the consumers to directly sell the power to such consumers at the mutually agreed rates. Therefore, the case law relied upon by the ld. DR "CIT vs. ITC Ltd." (supra) is not applicable in the case in hand. 8.6 We find that the Coordinate Bench of the Tribunal in the case of Kesoram Industries Ltd. vs. ACIT (ITA No.1037/Kol/2012 along with other appeals), after considering the judgment of the Calcutta High Court in the case of CIT vs. ITC Ltd. (supra) along with the provisions of Electricity Act, 2003 has taken note of the fact that in the case of CIT vs. ITC (supra), it was noted that the generation companies could only sell the power to the distribution companies. However, in view of the ....
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....essee being the CPP was not permitted to sell the power to any one else. According to the A.O., therefore, the market value which the assessee was likely to fetch by sale of excess power by SEB alone represented the market value. In the AO's opinion the rates at which the SEBs were selling power to the consumers were much higher than the price at which the power was purchased from the CPPs because in addition to profit margin of the SEB, such price also included the cost towards distribution, storage, transmission losses etc. 22. We note that the sole basis for AO's inference against the assessee was his belief that the CPP or independent power was not allowed to sell the power generated to any person other than the SEBs or power distribution companies. According to the A.O., there was monopoly buyer who alone was permitted to purchase the power at the price determined in the sole discretion of the SEBs and therefore, the price at which the SEB were purchasing power alone represented the market value for the power generated by CPPs. We also note that the premise on which the A.O. proceeded was analogous to the premise on which the Hon'ble Calcutta High Court decided the Re....
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....ite tariff basis. From a conjoint reading of the provisions of the Electricity Act 2003, KERCs 'open access' Regulation notified in 2004 and the order of the KERC dated 27.02.2007, it therefore, appears that there was no statutory bar on the CPPs to sell electricity to any third party and that too at the rate mutually agreed by and between the parties. We, therefore, find that the very foundation on which the A.O. held that the assessee had no option but to sale electricity to SEB alone was factually wrong and misplaced and therefore, legally untenable in the changed factual scenario as discussed above. 23. The learned AR drew our attention to the chart published by the Indian Energy Exchange (IEX) for the yearly power price prevailing on the IEX in different regions during the year 2008-09. The said chart we note gave break up of power price at which the power was purchased and sold by power and producers, distribution company etc in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was Rs. 7.53/-. Similarly for the Southern Region of Rs. 7.54 per unit. Similar prices prevailed in 2009....
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....withstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. 5.6.2. We find that the reliance placed by the ld AR on the decision of the Hon'ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), wherein at page 441, it was held as under:- "In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that....
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....ase because the Hon'ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. Hence we are in agreement with the arguments of the ld AR. 5.6.4. We find that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year. In our considered opinion, the assessee's method is more appropriate as it factors in variations as and when they take place." 24. We also note that the identical issue of determination of power tariff rate for allowing deduction under section 80IA in respect of profits of CPPs came up for consideration before the Co-ordinate Bench of this Tribunal in the case of Graphite India Ltd. vs ACIT in ITA No. 304-305/Ko....
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....ot be set up as benchmark, whereas, the supply by the captive units to non-eligible units and other consumers and even by the generating companies directly to the consumers is governed by uncontrolled market conditions. Under such circumstances, in our view, the consumer /contracting parties will certainly want to purchase the electricity at somewhat lesser rate than the rates of the State Electricity Boards, whereas, the captive power plants/generating companies would try to get maximum rate on the sale of power in unregulated and uncontrolled transactions and under the circumstances, both the parties would settle at the mutually agreed rates, irrespective of the rates at which the State Electricity purchases power from the other generating units. When we consider this bargain power of captive units and other generating companies in uncontrolled and unregulated transactions, then market value to determine arm's length price, in our view, would not be dependent upon of the average market value electricity sold by other generating units to the distribution companies in controlled and regulated transactions. As observed above, the very purpose and objective of the installation of cap....
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....n the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in ....