TaxTMI 
TaxTMI 
2025 (7) TMI 609
X X X X Extracts X X X X
X X X X Extracts X X X X
....x Appellate Tribunal was justified in law in relying on the decision of the Hon'ble Apex Court in case of Jindal Steel and Power Limited in Civil Appeal No. 13771 of 2015 in the present case whereas the facts and circumstances of both the cases are distinguishable? (b) Whether on the facts and in the circumstances of the case, the Learned Income Tax Appellate Tribunal was justified in law in not considering the provisions of Income Tax Act, 1961 where it has been mandated in cases of transaction between eligible units and non-eligible units of an undertaking, in explanation (iii) of sub section (6) of Section 80A, that the express "market value" in relation to any goods or services sold, supplied or acquired means the "arm's length price" as defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in section 92BA? (d) Whether on the facts and in the circumstances of the case, the order of the Learned Income Tax Appellate Tribunal is perverse on the ground that the Transfer Pricing Officer has not applied external CUP method, which is one of the several methods for determining Arm's Length Price as laid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a specified domestic transaction referred to in section 92BA". (g) Whether on the facts and in the circumstances of the case, the Learned Income Tax Appellate Tribunal was justified in law in no appreciating that a manufacturer cannot be compensated based on rates meant for distributors and thereby ignoring the clear provisions of Rule 10B(2)(b) of the Income Tax Rules, 1962 which specify functions, assets and risks to be essential comparability factors for reference? 2. Since the issue which falls for consideration in all the appeals are identical and the substantial questions of law raised are also identical, they were heard together and are disposed of by this common judgement and order. 3. ITAT No. 215 of 2024 is taken as the lead case which relates to the assessment year 2017-2018. The respondent assessee is engaged in iron ore and manganese ore mining having mines in Orissa and Jharkhand and they also produce sponge iron, billets and power during the years under consideration. 4. For the assessment year 2017-2018, original return of income was filed showing total income of Rs. 934,43,95,510/- and subsequently revised on the identical sum and once again revis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arket rate would be the selling price of the respective state SEBs. Further it was contended that the decision of this court in the case of Commissioner of Income Tax Versus ITC Limited 236 Taxman 612 (Kolkata) which related to a case arising for the assessment year 2002-2003 is not applicable as it was rendered prior to the coming into force of the Electricity Act, 2003 which liberalized the regulatory provision governing generation and distribution of power. In support of their contention, reliance was placed on the decision in CIT Versus Godavari Power and Ispat Limited (223 Taxman 234) (Chattisgarh HC); CIT Versus Reliance Industries Limited (421 ITR 686) (Bom HC), DCIT Versus M/s. Kesoram Industries Limited ITA No. 1722/Kol/2012. Apart from the above decisions, several decisions of the Coordinate Bench of the tribunal were also relied on. 6. As could be seen from the assessment order dated 09.02.2021, the assessing officer confirmed the downward adjustment proposed by the TPO and made addition of Rs. 51,44,54, 814/-. The CIT(A) examined the facts and found that there is no dispute that both the CPPs qualified as eligible units under Section 80-IA of the Act. The CPPs transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the state procured power from the generating companies. The TPO found that the bench marking exercise of the assessee unsuitable as in his view, a distribution company incurs several additional costs in terms of aggregate technical and commercial losses like theft, wheeling charges, cross subsidy charges, customer servicing charges etc. which are not incurred by power generators. The TPO also observed that there is a Tariff Regulatory Commission which arrives at separate power tariff for both power generators and power distributors while the former is generally fixed by Tariff Regulatory Commission by way of negotiation which is based on an in-built mechanism that ensures permissible profits to the power generator. Therefore, the TPO held that the benefit under Section 80IA 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 companies. With certain other observations, the TPO substituted ALP determined by the assessee in the Transfer Pricing Study Report for the power transferred from the two eligible units with the ALP of Rs. 4.18 per unit instead of Rs. 6.32 per unit and Rs. 4.80 per unit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which the manufacturing units is taken as the tested parties was to determine the market value at which the manufacturing units purchases power from unrelated third parties and therefore, they were right in taking the manufacturing units as tested party for the purpose of determination of Arm's Length Price (ALP) with most appropriate method (MAM) being the Comparable Uncontrolled Price (CUP). 9. The CIT(A) embarked upon an enquiry or in other words a fact finding exercise and called upon the assessee to explain why the CUP method should be considered to be the most appropriate method for the purpose of determining the sale price for the transfer of power from the assessee's eligible units namely the Captive Power Plant (CPPs) to the assessee's non eligible units namely the manufacturing units. The reply given by the assessee found acceptance by the CIT(A). The assessee submitted that the CUP method compares the price charged for property/services transfers/rendered in a controlled transaction with the price charged for similar property/services transfer/rendered in a comparable uncontrolled transaction under comparable circumstances. The assessee's contention was that a transa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion conducted between the associated entities. 11. The CIT(A) agreed with the contention raised by the assessee after noting that both non eligible units had also purchased power from the respective State Electricity Boards apart from procuring power from their Captive Power Plants and therefore accepted the applicability of Internal CUP method as adopted by the assessee. The CIT(A) appears to have called for various documents and took note of the sample copies of the bills showing purchase of power by non-eligible units. Further the CIT(A) noted that the availability of reliable data has not been disputed by the TPO. Reference was made to the decision of the learned tribunal in the case of M/s. Star Paper Mills Limited Versus DCIT in ITA No. 127/Kol/2021 dated 26.10.2021 and the decision in the case of Reliance Industries Limited (supra). With regard to the product comparability and the choice of the tested parties, the following findings was rendered by the CIT(A):- Therefore, 'product comparability' is undoubtedly of paramount importance and therefore the choice of 'tested party' follows. In the present case, it is noted that the product in question is 'power'. The m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the methodology followed and bench marking performed by the assessee was legally justified and that the intent and purpose of setting up of the Captive Power Plant (CPP) is markedly different from that of the power generation units as well as the State Electricity Board to which units supplied electricity and undisputedly the CUP method was of the most appropriate method in the assessee's case to determine ALP and it was correct and more appropriate to use the Internal CUP method rather than External CUP for the reason that former was more robust and reliable method for determining the Arm's Length Price (ALP) as well as for the fact that reliable internal data was readily available in the assessee case. Further it was appropriate to take the tested party to be manufacturing units (non-eligible units of the assessee), since it was procuring power both from CPP as well as from SEBs and thereafter to determine ALP with respect to the transaction. The decision of this court in ITC Limited held to be not applicable and distinguishable as the said judgment was pronounced in the pre-de-regulation era that is before 2003 and accordingly the assessee's appeal was allowed. The revenue c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Section 42. Sub Section 2 of Section 9 states that every person, who has constructed a Captive Generating Plant and maintains and operates such plant shall have the right to open access for the purpose of carrying electricity from his Captive Generating Plant to the destination of his use. Section 42 of the Act deals with duties of the distribution licensees and open access. Thus, the scheme of the Act is that a person may construct, maintain or operate a Captive Generating Plant and dedicated transmission lines and captive plants will have the right to open access for the purpose of carrying electricity from captive plants to the destination of its use and no surcharge is leviable in case open access is provided to captive units by the central or state transmission utility or the transmission licensee involved in the distribution/transmission of power. Further the provision make it clear that there is no embargo to other power generating companies to directly sell the power to such consumer at mutually agreed rate. This being not the legal position when the decision in ITC Limited was rendered, the said decision could not have been relied upon by the TPO/assessing officer. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulation commission for sale of electricity by the generating companies to the distribution company? 20. The Court took note of the decision of the Hon'ble Supreme Court in CIT Versus Jindal Steel and Power Limited (2024) 460 ITR 162 (SC). In the said case, the assessee having found that the electricity supplied by the State Electricity Board was inadequate and to meet the requirements of its industrial units, set up captive power generating units to supply electricity to its industrial units which was done at a particular rate. The surplus power if any, generated was to be wheeled out to the electricity board grid pursuant to an agreement between the State Electricity Board and the assessee at a rate fixed by the State Electricity Board. The question which arose of consideration is as to the quantum of deduction which the assessee would be entitled to claim under Section 80IA of the Act. The assessing officer held that the market value of the electricity should be computed based on the rate fixed by the State Electricity Board for the electricit....