TaxTMI 
TaxTMI 
2023 (11) TMI 1361
X X X X Extracts X X X X
X X X X Extracts X X X X
....ul nor wanton but for the unavoidable reasons, therefore, delay may be condoned in the interest of advancement of substantial justice. 3. The learned AR, on the other hand, fairly agreed that delay may be condoned in the interest of justice. 4. Having heard both sides and considered the petition filed by the revenue for condonation of delay, we are of the considered view that reasons given by the revenue for not filing the appeal within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of appeal is condoned and appeal filed by the revenue is admitted for adjudication. 5. The revenue has raised the following grounds of appeals: "1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2. The Id. CIT(A) has erred in allowing assessee's appeal without proper appreciation of facts. 3. The ld. CIT(A) has erred in considering the noneligible unit i.e., power consumption unit of M/ s. TNPL Pvt Ltd as the tested party instead of power generating unit. 4. The ld. CIT(A) erred in adopting the price charged by a distribution of Power i.e. TANGEDCO as a C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT vs ITC Ltd [2015] 64 taxmann.com 214 (Cal). 8. In pursuant to TP adjustment as suggested by the TPO, the Assessing Officer has passed final assessment order u/s. 143(3) r.w.s. 144C(3) of the Act and determined total income of Rs. 173,31,56,057/- and made additions towards transfer pricing adjustment, in respect of power purchased from captive power generation units amounting to Rs. 37,3648,879/-. 9. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A) the assessee submitted that, it has taken rate of purchase of power from open market and as per available data, power purchased from TANGEDCO @ Rs. 6.35 per KW is appropriate rate to benchmark the transactions of the assessee. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of certain judicial precedents, including the decision of ITAT, Chennai Benches in the case of Eveready Spinning Mills (P) Ltd vs ACIT [2012] 50 SOT 8, held that the rate at which TANGEDCO supply power to commercial consumers should be taken as the rate for sale of power by the assessee's wind mill units to the assessee for computation of deduction u/s. 8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omestic transaction in terms of Section 80-IA(8) read with Section 92BA of the Act. The transfer pricing auditor duly reported this intra-unit transfer in Form 3CEB filed for AY 2016-17 and the said specified domestic transaction was benchmarked following the Comparable Uncontrolled Price Method [hereinafter referred to as CUP). Perusal of the Transfer Pricing Study Report placed at Pages 31 to 67 of the paper-book, reveals that the non-eligible unit was taken as the 'tested party' as it was procuring power both from CPP as well as Paschimancla Vidyut Vitran Nigam Ltd i.e, State Electricity Board (hereinafter referred to as 'SEB'). The transfer price of power supplied by the CPP to the paper manufacturing unit was accordingly benchmarked at the annual average of the landed cost at which power was being purchased by the non-eligible unit from the SEB i.e. Rs. 8.41 per unit. Having regard to the aforesaid transfer price of power, the profits of the CPP was worked out by the assessee at Rs. 19,03,49,419/- which was eligible for deduction u/s 80-IA of the Act. However as the Gross Total Income, after setting off brought forward losses was NIL, the assessee did not claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cept that in the case relied upon, the eligible unit did not sell electricity to the State Electricity Board. However, even in that case, the rate was fixed by T.P.O. at the price for which power generating units were required by state law to sell to the state distribution company. The Hon'ble Tribunal, after threadbare, discussion of facts and after referring to a number of judicial pronouncements on the matter, took the view that the rate at which the non-eligible unit paid for per unit of power to the State Electricity Board was the right benchmarked price. While doing so, the Hon'ble Tribunal also distinguished the case of ITC Ltd (supra) which was relied upon by the AO. Para 25 of the order is extracted below in this connection. "25. As far as the Revenue's reliance on the judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd (supra) is concerned, we note 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 cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Attention is drawn to the table at P.No.4 of the TP order. The TPO briefed about the transaction of sale of power by power generation unit to power consumption unit (Sale of paper). 2. What is the nature of transaction: Assessee has power generation unit through various Turbo Generator and listed at para 7.1. The power generated by those eligible units were captively consumed by paper mill (other business"). Whether power generated from those eligible units and sold/captively consumed by other business was at market rate or not was determined by the TPO. What is the arm's length to be determined is sale of Power by the power generation units of eligible business and not purchase of power by "other business" from open market. 3. Legislative History: Hon'ble Supreme Court in the case of CIT Vs Glaxo Smithkline Asia (P) Limited [2010] in 195 Taxmann 35, has examined section 40A(2) and 80IA of the IT Act and directed Ministry of Finance and CBDT to enact special provisions in IT Act to deals such transactions empowering the AO to make adjustments to the income declared by the assessee having regard to the fair market value of the transactions between related parties. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....methods of determination of arm's length price, including the methods provided under the Transfer Pricing Regulations. However, in a number of matters, the Assessing Officer is constrained by non-maintenance of relevant documents by the taxpayers as, currently, there is no specific requirement for maintenance of documents or of getting specific transfer pricing audit done by the taxpayers in respect of domestic transactions between the related parties. One of the suggestions which needs consideration is whether the law should be amended to make it compulsory for the taxpayers to maintain books of account and other documents on the lines prescribed under rule 1 OD in respect of such domestic transactions and whether the taxpayers should obtain audit reports from their chartered accountants so that the taxpayers would maintain proper documents and requisite books of account reflecting the transactions between related entities at arm's length price, based on generally accepted methods specified under the Transfer Pricing Regulations. Normally, the Supreme Court does not make recommendations or suggestions. However, in order to reduce litigation in complicated matters, the ques....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... into by domestic related parties or by an undertaking with other undertakings of the same entity for the purposes of section 404, Chapter VI-A and section 10AA. The concerns of administrative and compliance burden are addressed by restricting its applicability to the transactions, which exceed a monetary threshold of Rs. 5 crores in aggregate during the year. In view of the circumstances which were present in the case before the Supreme Court, there is a need to expand the definition of related parties for purpose of section 40A to cover cases of companies which have the same parent company. It is, therefore, proposed to amend the Act to provide applicability of transfer pricing regulations (including procedural and penalty provisions) to transactions between related resident parties for the purposes of computation of income, disallowance of expenses etc. as required under provisions of sections 404, 80IA, - l0AA, 80A, sections where reference is made to section 80-IA, or to transactions as may be prescribed by the Board, if aggregate amount of all such domestic transactions exceeds Rupees 5 crore in a year. It is further proposed to amend the meaning of related persons as provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the method of assessee, the entire purpose of legislation of section 92B, 92E and explanation to section 80IA consequent to direction of Supreme Court in the case of CIT Vs Glaxo Smithkline Asia (P) Limited [2010] in 195 Taxmann 35 will be defeated. 8. TP study by the TPO: The TPO has examined the transaction in the following line; * What we have to examine in TP study is the sale price of power generation units/eligible units to State Electricity Board. * The tested party is the power generation units i.e. eligible units' and not the captive consumption unit as contended by the appellant. * Because what the assessee claimed deduction u/s 80IA was on sale of power of eligible business * Here, the determination of arm's length of eligible business only underwent TP study and not the other business of captive consumption. * That is what Hon 'ble SC has prescribed in its decision. 8.1 Issues discussed by TPO: Attention is drawn to para 7.1 to 7.12 of the TP order. The TPO discussed the following parameters, exhaustively in the TP order: Para 7.1 Inter unit transfer of power Para 7.2 Bench marking of the transaction by the assessee, using AE as tested ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nance Act 2012. Accordingly, w.e.f. 1-4-2013 significant amendment was brought in the statue to address such specified domestic transaction. 5. TPO in compliance to the legislative enaction, determined the arm's length of the "eligible business" of the power generation units by comparing with the rate of other power generators. In view of the above, it is prayed that the decision of CIT(A) may be set-aside and the action of TPO may be upheld." 11. The Ld. Counsel for the assessee, Shri. A. Vijayaraghavan, Advocate, supporting the order of the CIT(A) submitted that, this issue is squarely covered in favour of the assessee by the decision of ITAT, Chennai Benches in the case of DCIT vs M/s. India Cements Ltd in ITA No. 737/Chny/2018, where an identical issue had been considered by the Tribunal and after considering relevant facts and also by following judicial precedents held that, the rate at which the power distribution companies supplies to consumers should be adopted to benchmark power purchased and consumed by the assessee from its captive power generation units. 12. We have heard both the parties, perused materials available on record and gone through orders of the au....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. This is not in dispute. The dispute has risen for computing the deduction u/s.80IA of the Act. The issue admittedly is covered by the decision of the Co-ordinate Bench of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax referred to supra and as also the decision in the case of Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra. A similar view has also been taken in the case of M/s. Saranya Textiles vs. The Assistant Commissioner of Income Tax, wherein one of us is a party. This view of ours is also supported by the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Income Tax vs. Gujarat Alkalies Chemicals Limited reported in 395 ITR 247(Guj.), wherein it has been held that the deduction u/s.80IA was allowable to the for generation of power for captive consumption and that the rate of power generation at which the electricity board supplied power to its consumers rather than the rate at which the power generating companies supply its power to the electricity board was to be taken as the price. Further, this view has been supported by the decision of the Hon'ble Bombay High ....