TaxTMI 
TaxTMI 
2024 (7) TMI 569
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....he case, the Ld. CIT(A) has erred in not appreciating that arm's length price and fair market value are two different concepts and the role of the TPO is limited to determination of Arm's length price. 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that Explanation to section 80-IA has to be interpreted 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 ẠLP 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- 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 (i) of section 92F, where the transfer of such goods or services is a specified domestic transaction referre....
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....m of deduction claimed by the assessee u/s 80IA of the Income Tax Act. 4. It is noted here that the identical issue in the case of present assessee itself in relation to the subsequent assessment year A.Y 2019-20 has come for consideration before the Coordinate Bench of the Tribunal (incidentally presided by both of us) and we have decided this issue in favour of the assessee vide order dated 14.12.2023 passed in ITA No. 286/Kol/2023. The relevant part of the order is reproduced as under: "4. The brief facts of the case are that the assessee company has manufacturing units at Chaliyama (Jharkhand) and Kamannda(Orissa) which produce sponge iron and billets. The company had setup captive power plants (CPP) at both these locations to 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....
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.... According to TPO, the functions performed by the CPPs were those of a manufacturer of power and not those of a distributor. The Ld. TPO was therefore of the view that the appropriate 'Comparable Uncontrolled Price' (CUP) method for benchmarking of the said transaction between Associate Enterprises was the average rate at which distribution companies in the State procured power from the generation companies. For obtaining these rates, the Ld. TPO referred to the multi-year tariff order issued by JSERC (Jharkhand State Electricity Regulatory Commission)and OERC (Orissa Electricity Regulatory Commission). The Ld. TPO noted that there was a tariff regulatory commission which arrived at separate power tariffs for both power generators and power distributors. 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 no....
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....at these rates don't reflect the true market conditions for electricity sales. It was emphasized that captive power plants (CPPs) in manufacturing industries aim to save costs and ensure a stable power supply to assessee's manufacturing units, differing from independent power producers. The assessee further contended that comparing rates from the notified tariff orders was flawed, as those rates were heavily regulated and influenced by socio-political considerations. It was further contended that the Comparable Uncontrolled Price (CUP) method should consider the actual market conditions of Business to Consumer (B2C) Model, where manufacturing units purchase power from State Electricity Boards (SEBs). Regarding the Most Appropriate Method (MAM), the assessee insisted 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 w....
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....or this, no adverse inference ought to be drawn in as much as due to such lower benchmarking of the price per unit of electricity than the SEB's price per unit of electricity, the assessee has claimed a lower amount of deduction than what it was otherwise eligible to claim. 2. The details of the rate considered by the Appellant with respect to the power supplyis as under: * The rate charged by the Chaliyama CPP was Rs. 6.81/- per unit for supply of power at a high voltage of 132kV. The applicable rate of JBVNL (Jharkhand BijliVitaran Nigam Limited) utility for a similar end- consumer under comparable circumstances (high-tension voltage lines) as per the tariff order of Jharkhand State Electricity Regulatory Commission (JSERC) for F.Y. 2018-19 is Rs. 7.33. As the price 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 end-consumer 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 ....
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....evant year (A.Y. 2019-20), it can be seen in the TPSR for the Chaliyama Unit under the heading 'Evaluation of comparability with internal uncontrolled prices' that the Chaliyama CPP generated surplus power and supplied it, which is a total of 41 million kwh, to the grid of JBVNL (SEB, Jharkhand) - this is a total of around 8.5% of the capacity of Chaliyama CPP and the majority of the power generated in the CPP (298,399,832 units in Kwh) was captively consumed by the manufacturing unit, as has been detailed in the TPSR. In the evaluation made in the TPSR at page 124 of the Paperbook, it is categorically outlined that power cannot be stored for future consumption and that it must be consumed at the time of generation. And that the purpose of setting up the Chaliyama CPP was to address the 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 wo....
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.... the CPP (214,897,739 units in Kwh) was captively consumed by the manufacturing unit, as has been detailed in the TPSR. Thereafter, in the TPSR under the heading 'Evaluation of comparability with external uncontrolled prices' at page 81 of our Paperbook,the TPSR for the Kamanda Unit goes on to analyse functionally that the only alternative in the absence of the Kamanda CPP would be for the manufacturing unit to purchase and procure power from the State Electricity Board (i.e. WESCO Facility) at prescribed rates. Thus, the appropriate application of the CUP method as per the regulations and mandate of the statute would require that comparison ought to be done with the prevailing price in an uncontrolled and comparable circumstance wherein the Non-Eligible Unit (Manufacturing Unit) be 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 Appellan....
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.... different from that of domestic & agricultural consumers, as the higher rates of the former subsidize the rates charged from the latter. Further, although India has surplus power generation capacity, it lacks adequate transmission and distribution infrastructure. As a consequence, due to the high-power tariffs and unstable supply of power, there are significant cost overruns in the manufacturing unit. The captive power plant is thus set-up with the dominant intent to save power costs, which the manufacturing unit is otherwise required to incur & pay to the SEBs, and at the same time, to ensure stable supply of uninterrupted power for smooth production. This results in opportunity cost savings to the assessee company. Accordingly, while drawing up the stand-alone accounts of the eligible CPP and non- eligible manufacturing unit, the landed rate at which the manufacturing unit is procuring power from SEB is used as the comparable rate under the arm's length standards. 10. The argument that the landed rate at which the non-eligible unit purchases power from the SEB is regulated and therefore cannot be said to represent an uncontrolled transaction does not hold good in the gi....
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....e assessee has met both the fair valuation standards as well as the transfer pricing guidelines. It is asserted that ordinarily the fair market valuation standards produce arm's length results, and it is only in some instances where the rules and principles of fair valuation standards is inconsistent with the arm's length standards that it may produce a result which may not be same. We humbly submit that the benchmarking analysis performed in the Transfer Pricing Study Report fulfilled the CUP parameters and therefore it was not a case that the assessee had determined the 'open market value' and not the 'arm's length price'. It is important to take due cognizance of the change in law viz., introduction of specified domestic transfer pricing provisions by the Finance Act, 2012. Determination of the 'open market value' also met the transfer pricing guidelines and thus the transfer rate, as determined by the assessee, was the 'arm's length price' of power. Thus, while determining the ALP under transfer pricing provisions, in our humble submissions, the assessee has correctly identified the manufacturing unit as the tested party and CUP as the Most Appropriate Method(MAM) and the purch....
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....idered. Imaginary costs which are not incurred cannot guide the decision regarding benchmarking of the price at which power is bought by the non-eligible unit. Thus, while determining the ALP under transfer pricing provisions, we humbly state that the assessee has correctly identified the manufacturing unit as the tested party and CUP as the MAM and the purchase price of electricity in the open market from the State Electricity Board to the manufacturing units in uncontrolled conditions as the ALP. 16. It is humbly submitted that courts have held that from a perusal of Rule 10B of the Income tax Rules, 1962, it is evidently clear that what is required to be seen is the price at whicha property, good or service has been acquired under a comparable uncontrolled transaction under similar market conditions. 17. The application of CUP Method requires strict product comparability which has been transacted under similar conditions. This method can be applied where Associated Enterprises (AEs) buy or sell similar goods or services in comparable transactions with unrelated enterprises or when unrelated enterprises buy or sell similar goods or services under similar conditi....
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....able only if both - the property/ services and circumstances surrounding the controlled transaction are substantially the same as those of the uncontrolled transaction. The most important factor in determining comparability under this method is property/ services similarity. Similarity of contractual terms and economic conditions, such as geographic markets and the level of market, are also important comparability factors of the open market under this method. In the event that differences in products or terms exist, the Indian Regulations/ OECD Guidelines provide that adjustments would be appropriate to eliminate the effect of the differences on price. The OECD Guidelines state that a flexible approach should be adopted when examining the CUP method, and appropriate adjustments should be applied when reasonable. 20. It is important to note that in the case of the assessee, as the power generated by the both its CPPs were captively consumed by the respective non-eligible units, such intra-unit transfer of power qualified as reportable specified domestic transaction u/s. 80-IA(8) read with Section 92BA(iii) of the Act. Accordingly, such intra-unit transfer of power was repor....
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.... 2012 & 298/Kol/2013) dated 25.08.2017 wherein the Hon'ble ITAT, Kolkata after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd. [2015] 64 taxmann.com 214 along with the provisions of Electricity Act, 2003 and the decision of Apex Court in the case of ThiruArooran Sugars Ltd (227 ITR 432) upheld the assessee's contention that the open market value of electricity for the purposes of Section 80IA should be the price at which the assessees procures power from SEBs. 24. Relying on the extracts of a few judgments which have considered the similar issue at hand, they are reproduced hereinunder: (A) CIT Vs Godavari Power &Ispat Ltd (223 Taxman 234) (Chattisgarh HC) "30. The Steel-Division of the Assessee is a consumer. The CPP of the Assessee supplies electricity to the Steel-Division. Had the Steel-Division not taken power from the CPP then it had to purchase power from the Board. The CPP has charged the same rate from the Steel-Division that the Steel- Division had to pay to the Board if the power was purchased from the Board. 31. The market value of the power supplied to the Steel-Division should be computed c....
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....uld be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance Infrastructure Ltd. v. Addl. CIT [2011] 9 taxmann.com 186 (Mum. - Trib.). Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:- "44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. We therefore dismiss ground No.4 of the revenue." 25. As far as the Ld. TPO's reliance on the judgment of the Hon'ble C....
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.... AYs 2008-09 & 2009-10, through its lead order in ITA No. 1722/Kol/2012, after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra), the provisions of Electricity Act, 2003 and the decision of Hon'ble Apex Court in the case of ThiruArooran Sugars Ltd (227 ITR 432) upheld the assessee's contention that the open market value of electricity for the purposes of Section 80IA(8) should be the price at which the assessee procures power from SEBs. The relevant findings are as under: " 21. We have considered the rival submissions and perused the documents in the paper book which inter alia contained Electricity Act, 2003, KERC Regulations 2004, copy of KERCs order dated 27.02.2007 approving 'open access' to CPPs for supply of electricity etc. The bone of contention between the parties is the adoption of the most appropriate rate at which sale of electricity would be valued for the purpose of determining the profitability of all the four CPPs. It is not in dispute that during the relevant year, the assessee operated four CPPs in the State of Karnataka, Orissa and West Bengal and the power generated was entirely supplied and consumed by ma....
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.... Revenue's appeal in the case of ITC Ltd. (supra). In that case also the Hon'ble High Court proceeded on premise that the independent power producers or CPPs could sell the power only to power distribution companies and that too at the rates determined by the State Regulatory Commission. In other words in the opinion of the A.O. and the Hon'ble High Court the power producers were necessarily required to sell the power in the regulated market where prices were fixed at the discretion of the State Electricity Boards and / or Regulatory Commissions and the power generating companies had no option or discretion to determine the selling rate. However, in the case in hand there is a change of scenario before us and the learned AR of the assessee in his detailed presentation (supra) has brought out the salient features of the Electricity Act 2003 by which CPPs were granted 'open access' by law. In terms of the 'open access' granted, the power generating companies were free to sell the power to any third party at the prices mutually agreed and in such case, the regulatory commission was required to determine only the 'wheeling charges' which the transmis....
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....f Rs. 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.'s presumption that the assessee was legally obliged to sell electricity only to the power distribution companies and SEBs and that too at the controlled prices was devoid of any legal or factual foundation. We note that this specific issue was adjudicated by the Co- ordinate Bench of this Tribunal in the case of DCIT vs Birla Corporation Ltd. to which one of us was signatory. In the said decision, the Co-ordinate Bench of this Tribunal, after considering the ratio laid down by the Hon'ble Supreme Court in the case ThiruArooran Sugar Ltd. held as follows: "5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ldCIT(A) was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon'ble Jurisdictional High Court. The ld AR fairly brought to our attention the decision of Hon'ble Jurisdictional High Court in the case of ITC Ltd b....
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....at the rates of Rs. 6.35, Rs. 3.72 and Rs. 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively." 27. In the case of Electrosteel Casting Ltd., the Kolkata ITAT took into consideration the judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd. and distinguished it by passing a speaking order very recently. Relevant extracts are reproduced below (copy of the order is marked as Sl. No. 19 in the paperbook of judgments at page no. 216): "46. We have given a very careful consideration to the rival submissions. We have already seen that the Assessee manufactures Dr spun pipes, DI fittings, etc., at its factory at Khardah (West Bengal) CI spun pipes at its factory at Elavur (Tamil Nadu) and low ash metallurgical coke at its factory at Haldia (West Bengal). At Khardah and Haldia factory the Assessee also has its own power plant generating electricity from heat emitted from blast furnaces in the process of manufacturing of Dr Pipes at Khardah, where power generated is entirely consumed for own use (i.e., captive consumption), and sponge iron plant and coke oven plant at Haldia where the power generated is consumed for own use (captive con....
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....sumption of power generated by an Assessee engaged in the business of paper manufacture. The question that was examined by the Hon'ble Court was as to what would be market value for the purpose of computation of deduction u/s.80IA of the Act in the context of Sec.80IA(8) of the Act. The Hon'bIe Calcutta High court held deduction u/s. 80IA had to be computed in such circumstances not on the basis of rates chargeable by distribution licensee from consumer and that the same can be Claimed only on the basis of rates fixed by tariff regulation commission for sale of electricity by generating companies to distribution licensees. 48. The submission of the learned counsel for the Assessee was that the decision of the Hon'ble Calcutta High Court is not applicable to the case of the Assessee as in the case before the Hon'ble Calcutta High Court, the undertaking that generated power was situate in the State of Andhra Pradesh where electricity generated could not be sold to anyone other than a distribution company or a Company which is engaged both in generation and distribution. In this regard an order of the Andhra Pradesh Electricity Regulatory Commission, Hyderabad....
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....rols one cannot ascertain the price such goods or services would ordinary fetch in the open market because in such circumstances it cannot be said that there is open market for the goods or services. We are of the view in the given circumstances, there are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of Sec. 80IA(8) of the Act and therefore the proviso to Sec. 80IA(8) of the Act would apply and the AO may compute such profits and gains on such reasonable basis as he may deem fit. In our view, interest of justice would be met by setting aside the order of the AO on this issue and directing the AO to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the Assessee opportunity of being heard. The discretion given to the AO under the proviso to sec. 80IA(8) is not a subjective satisfaction but an objective one and therefore the reasonableness of the action of the AO should be justifiable. With these observations we allow the relevant ground of appeal of the revenue for statistical purposes." 28. The Hon'ble Gujarat High Court in its judgment dated 0....
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....e eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means- (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. 8.1 A perusal of the Explanation to Section 80IA(8) would reveal that in case of specified domestic transactions as referred to section 92BA of the Act, the market value will be the arm's length price as in clause (ii) of section 92F of the Act. Now clause (ii) of section 92F reads as under: 92F. In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,- (ii) "arm's length price" means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions; ....
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.... of purchase of power by the non eligible unit from SEB fulfill the internal CUP parameters vis product comparability and similar market conditions and thus the ALC paid by the non eligible unit to the SEB represented the internal comparable ALP. 5.7. We note that the Ld. CIT(A) has also dealt with the issue as to how the assessee has come to manufacture the power. We observe from the order of Ld. CIT(A) that the assessee engaged in the business of manufacture of carbon black and in the manufacturing process the principal raw material consumed is carbon black feed stock (CBFS). During the manufacturing of carbon black several gases are produced in the substantial quantity and if such gases, which are by-product of the manufacturing process, if not consumed immediately have to be released in the air which causes atmospheric pollution. At the same time, such gases can be used as source material for generation of power which in turn can be used for operating the manufacturing plant. For this purpose, the assessee had such generation plant in the immediate vicinity of the manufacturing unit. The Ld. CIT(A) also noted that since the manufacturing unit of the assessee was genera....
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....CIT (supra) and DCIT vs. BalrampurChini 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 ld DR that rate at which the power was supplied to the unrelated parties should be taken as ALP however can not overlook the fact that the said transactions did not take place under similar market conditions and that price cannot be taken as ALP under CUP method. The power supplied by the CPP to non eligible unit was business to consumer (commonly known As B2C) meaning thereby the rate at which the ultimate consumers can purchase the power for their consumption is relevant. In the instant case before us, the B2C market comprises the sale of power by SEB and IEX etc to different categories of consumers. Thus the power sold by the CPP to unrelated parties namely Noida Power Co Ltd, Global Energy , RPG Power Trading Co, and IEX etc was in altogether different market conditions which is business to business ....
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....free to supply electricity to its associate enterprises/manufacturing units or to the contracting parties and consumers, at the rates mutually settled between them. The said captive power plants are not mandatorily required to supply the electricity to the distribution companies and even are exempt of other charges which the other generating companies/distribution companies has to pay to the Government/ State Electricity Boards. The captive power plants are required only to pay wheeling charges if they use the distribution lines of the State Electricity Boards/distribution companies. 8.4 At this stage, we deem it appropriate to reproduce the relevant provisions of the Indian Electricity Act, 2003: "Section 2(8) "Captive generating plant" means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association; Section 9. (Captive generation): (1) Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captiv....
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.... (1) It shall be the duty of a distribution licensee to develop and maintain an efficient, co-ordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in this Act. (2) The State Commission shall introduce open access in such phases and subject to such conditions, (including the cross subsidies, and other operational constraints) as may be specified within one year of the appointed date by it and in specifying the extent of open access in successive phases and in determining the charges for wheeling, it shall have due regard to all relevant factors including such cross subsidies, and other operational constraints: Provided that such open access shall be allowed on payment of a surcharge] in addition to the charges for wheeling as may be determined by the State Commission: Provided further that such surcharge shall be utilised to meet the requirements of current level of cross subsidy within the area of supply of the distribution licensee : Provided also that such surcharge and cross subsidies shall be progressively reduced 2[***] in the manner as may be specified by the State C....
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....hich the consumer may have apart from the rights conferred upon him by those sub-sections. Section 49. (Agreement with respect to supply or purchase of electricity): Where the Appropriate Commission has allowed open access to certain consumers under section 42, such consumers, notwithstanding the provisions contained in clause (d) of sub-section (1) of section 62, may enter into an agreement with any person for supply or purchase of electricity on such terms and conditions (including tariff) as may be agreed upon by them. 8.5 A perusal of the aforesaid provisions of the Electricity Act, 2003 would reveal that notwithstanding anything contained in the said Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines. Further, such captive plants will have the right to open access for the purpose of carrying electricity from such captive plants to the destination of its use. Further, no surcharge is leviable in case open access is provided to the captive unit by the Central or State transmission utility or the transmission licensee involved in distribution/transmission of power. The Section 42 provides that a ....
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....perated four CPPs in the State of Karnataka, Orissa and West Bengal and the power generated was entirely supplied and consumed by manufacturing undertakings of the assessee. The A.O. per-se did not dispute 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 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 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 ....
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.... was required to determine only the 'wheeling charges' which the transmission companies / authorities could levy. In this regard, the useful reference may also be made to KERC's order dated 27.02.2007. In this order, the commission has explained the salient features of the Natural 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 also issued by Government of India on 06.01.2006 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 w....
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....dictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the 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....
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.... there may be only one seller or one buyer, and even though one or both may be hypothetical rather than real." These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre-requisite that an open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee- company actually bought sugarcane from a large number of growers year after year in the ordinary course of business. The price at which it buys sugarcane must be taken to be the market price. If the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was the only buyer in the region where its factory was located." (emphasis added) 5.6.3. The ld AR submitted that as held in the aforesaid judgement of the Hon'ble Supreme Court, the price paid by an assessee for purchase of raw material repr....
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....wer consumed by its own plant by way of profits and gains for the relevant assessment years. 26. We find that the facts of the assessee's case are similar to the facts involved in the case of Birla Corporation Ltd. (supra). The basic reason is adopted by the Ld. CIT(A) in assessee's case was the same as in the case of Birla Corporation Ltd. (supra) and we note that the same appellate authority has passed the order in both case i.e. in assessee's case and the Birla Corporation Ltd. Therefore, following the Co-ordinate Bench decision Birla Corporation Ltd. (supra), we uphold the impugned of Ld. CIT(A) and direction of the Ld. CIT(A) - VI, Kolkata and dismiss ground no 3 of revenue's appeal." 9. It is to be noted here that the sale of electricity by the generating companies to the distribution company/state electricity board is regulated by the relevant provisions of the Electricity Act and the policy / guidelines framed by the respective Electricity Regulatory Commissions, however, the generation and supply of electricity by the captive power plants primarily to their associated enterprises has been kept outside of the Government control. Under the circumstances, th....
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....ssee, 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 Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act. 29. Section 43A of the 1948 Act lays down t....