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2024 (7) TMI 569
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....rket 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 referred to in section 92BA." 3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in in not appreciat....
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....he 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 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 ....
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....parable 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 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 tra....
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....ply 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 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 SE....
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....wise 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 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....
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....acity 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 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/....
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....manda 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 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 benchma....
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....ant 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 given facts of the present case, for the reason that even 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 ....
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.... 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 purchase price of electricity in the open market from the 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 ....
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....P. 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 conditions, as is being done between the AEs. The CUP Method 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....
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....ulations/ 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 reported by the transfer pricing auditor in Form 3CEB and it was benchmarked by applying the Comparable Uncontrolled Price Method [herein after referred to as 'CUP Method']. For benchmarking the transfer rate of power, the non-eligible (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....
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....sidered 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 considering the rate of power to a consumer in the open market and it 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 D....
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....r:- "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 Calcutta High Court in the case of ITC Ltd (supra) is concerned, it 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 ....
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....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 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 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. Acc....
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.... 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 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 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 ....
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....ard 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 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 Ca....
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....u) 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 consumption and surplus power generated is sold to the West 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 pric....
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....tta 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 in O.P.No.1075/2000 dated 20.6.2001 was filed before us. 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 f....
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....e 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 03.10.2016 in the case of Pr. CIT Vs Gujarat AIkalies & 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 sel....
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....ection 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; 8.2 The Coordinate Kolkata Bench of this Tribunal in the case 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 sai....
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.... 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 generating huge poisonous gases, therefore the power plant of the assessee 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 manuf....
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....nstant 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 commonly known as B2B model and the said rate represented the rate at 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 non-eligible unit from SEB ....
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.... 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 captive generating plant and dedicated transmission lines: Provided that the supply 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 transmissio....
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.... 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 Commission: Provided also that such surcharge shall not be leviable in case 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 C....
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....he transmission licensee involved in distribution/transmission of power. The Section 42 provides that a consumer may opt for supply of electricity directly from a generating company or any licensee 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....
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....CPP owned by the assessee was not allowed to sell its power to the final consumer but was allowed to sell the same to grid of the SEB in case of excess production. Save and except such monopoly buyer, the assessee 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 rep....
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....iable 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 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....
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....levant 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 mutually agreed upon notwithstanding 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 C....
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....l represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC's case 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 considerati....
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.... the generating units to the distribution companies which are highly regulated and controlled cannot 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 re....
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.... electricity. The said provision makes it clear that tariff is determined on 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 a....