TaxTMI 
TaxTMI 
2025 (8) TMI 1717
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....wing paragraphs. ITA No. 1079/KOL/2025 A.Y. 2017-18 04. The issue raised by the revenue in ground no. 1 is against the order of ld. CIT deleting the adjustment made by the AO/TPO amounting 44,83,27,538/- in respect of transfer of captive power to its Associated Enterprises (AEs) while the other grounds no. 2 to 13 are in support of ground no.1. 05. The facts in brief are that the assessee is engaged in the business of manufacturing and sale of Sugar, Molasses, Industrial Alcohol, Ethanol, Organic Manure and Generation & Distribution of Power in the form of steam and electricity. The electricity so generated is partly consumed in the sugar/ distillery plants and partly sold to the State Electricity Board (SEB)/ UPPCL. The assessee is having specified domestic transactions pertaining to the transfer of power to its own undertaking and therefore, case of the assessee was referred to Transfer Pricing Officer (TPO) for determination of the arm's length price of the specified domestic transactions of sale of captive power. The learned TPO passed an order under Section 92CA(3) making adjustment on account of transfer of power to its own undertaking that is captively cons....
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.... definition of market value. The Explanation was amended w.e.f. 1-4-2013 wherein clause (ii) was inserted relating to arm's length price. The hon'ble Kolkata tribunal discussed the applicability of the two clauses in the Explanation in the aforesaid decision and held the following: 8. The issue on hand is determination of the quantum of profit which could be claimed as deduction under Section 80-IA of the Act for which we have to determine the price at which the electricity is transferred by the Captive Power Plant of the assessee company to the manufacturing unit of the assessee company. 8.1. Explanation to Section 80-IA(8) inserted by the Finance Act, 2012 w.e.f. 01.04.2013 reads as follows: "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." (Emphasis ours) 8.2. A plain reading of the above....
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.... market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price that such goods would ordinarily fetch on sale in the open market. Thus, as per this definition, the market value of any goods would mean the price that such goods would ordinarily fetch on sale in the open market. 23. This brings to the fore as to what do we mean by the expression "open market" which is not a defined expression. 24. Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80- IA would mean the price of such goods determined in an environment of fre....
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....e said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition. 27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, 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 coul....
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....e market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under section 80-IA of the Act. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue. 32. Revenue has relied upon the decision of the Calcutta High Court in ITC Ltd. (supra). In that case, the High Court rejected the first contention of the revenue that the assessee ....
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....serted in the statute with effect from 1-4-2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne. 34. That being the position, we have no hesitation in answering this issue in favour of the assessee and against the revenue." 4.5 The aforesaid decision of the hon'ble Supreme Court was for the period prior to introduction of Transfer Pricing (TP) provisions on such specified domestic transactions, however, the same would equally apply to the period post introduction of the TP provisions as the concept of market price is the basis for determination of the arm's length price under TP provisions also which does not stand diluted. Even under TP provisions, the exercise conducted is to determine the market price by determining the arm's length price by following the procedure defined under Chapter X of the Income Tax Act. Moreover, as per the decision of hon'ble Kolkata tribunal in appellant's own case for AY 2016-17, the appellant can claim "market value" as per clause (i) of the Explanation to section 80-IA(8) which was also applicable to the Jindal Steel case decided by the hon....
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....of the sale of electricity. Such sales cannot be considered as made in "uncontrolled conditions". The Id. D/R submitted that the power generating company does not have distribution costs. When a captive power plant in an industry supplies electricity to its own manufacturing unit, there is no power distribution cost. The savings of cost of power can be determined only when the rate at which the manufacturing unit of the company purchases power in the open market from the power distribution companies is considered. Imaginary costs which are not incurred cannot guide our decision. 8.14. Thus while determining the ALP under transfer pricing provisions, in our view 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 Arms Length Price. 9. In view of the above discussion, consistent with the view taken in the case of M/s. Electrosteel Casting Limited (supra) and applying the propositions of law laid down by the jurisdictional High Court in the case of Graphite India Ltd. (su....
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....h price of the domestic transactions of sale of captive power the associated enterprises, as stated hereinabove. The assessee benchmarked these transactions on the basis on SEB tariff notification which was Rs.8.1525/Kwh whereas the Transfer Pricing Officer adopted Rs.4.96/Kwh for benchmarking these domestic transactions with the AEs thereby making an adjustment of Rs.44,83,27,538/-. Accordingly, the assessment was framed by the learned ld. AO making this addition. The learned CIT (A) while passing the order, has followed the decision of the Coordinate Bench in ITA No. 1672/KOL/2019, for A.Y. 2016-17, dated 5-5-2021, in the assessee own case. The learned CIT (A) also followed the decision passed by the Hon'ble Apex Court in the case of CIT Vs. Jindal Steel & Power Limited (supra), in which the Hon'ble Court has settled the issue once and for all by holding that market value of power supplied by the assessee to its industrialized units should be computed by considering the rate at which the State Electricity Board supplied power in the market to the consumers. The operative part of the decision has been extracted in the appellate order above. Besides, we note the decision f....
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....ence of any exempt income earned during the year it has been held by hon'ble Calcutta High Court in the cases of REI Agro [2022] 140 taxmann.com 71 and GKK Capital Markets Pvt. Ltd. (2017) 392 ITR 192(Cal) that no disallowance can be made u/s 14A in absence of exempt income earned during the year. However, section 14A was amended by Finance Act 2022. Post amendment to section 14A, disallowance u/s 14A can be made even if no exempt income is earned by the assessee. The issue whether the amendment to section 14A of the Act made by Finance Act, 2022 is retrospective or prospective has been settled by the Hon'ble Delhi High Court in the case of PCIT v. Era Infrastructure (India) Ltd [448 ITR 674] wherein the Hon'ble Court held that the amendment made by the Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effect. 3.20 find that the ratio laid down in the case of PCIT v. Era Infrastructure (India) Ltd. (Supra) judgment dt. 20/07/2022, wherein the Hon'ble Court has held that the amendment made in Section 14A of the Act by Finance Act, 2022, will be appli....
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....s are two distinct and separate issues. The learned Authorized Representative submitted that the assessee had suo motto added these expenses u/s 37 of the Act and rightly claimed deduction u/s 80G of the Act. However, the AO was not in agreement with the assessee and disallowed the deduction claimed by the assessee u/s 80G of the Act. 017. In the appellate proceedings, the learned CIT (A) allowed the appeal of the assessee by observing and holding as under: - "3.14 I have gone through the assessment order, the submission made by the appellant and the documents furnished by the assessee in support of its claim. I have also perused the ITR and Tax Audit Report filed by the assessee. On perusal of the ITR filed for A.Y. 2020-21. it was found that the assessee has disallowed the sum of Rs. 10,92,88,570/-on account of Expenses incurred on Corporate Social Responsibility (CSR) u/s 37 of the Act in its ITR at page 34, clause 7(h). The sum of Rs. 10,92,15,222/- as CSR was given to charitable institutions. The appellant furnished the receipts and the 80G certificates issued by those institutions to the assessee. Hence it is clear that the assessee has paid CSR Donation....