TaxTMI 
TaxTMI 
2023 (5) TMI 1476
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.... a sum of Rs 140,47,96,628/-. Assessee's own case in ITAT for previous AY's not followed: 2.1 The DRP has grossly erred in not following the decision in Assessee's own case by the Hon'ble Chennai Tribunal in ITA No. 2412 to 2416/2019 for AY- 2011-12, 2012-13, 2014-15, 2015-16 and 2016-17 at Page-16, Para- 29 to 32 and ITA No. 737/Chny/2018 for AY 2013-14 dated 18.08.2021 at Page 41 para 18. Though this ground was raised before the DRP it did not even mention the same in its order dated 22.06.2022. Judicial decisions by ITAT's and HCs on same issue ignored: 3.1 The DRP grossly erred in ignoring the jurisdictional decision of the Chennai Tribunal as well as other High Courts on the very same issue, all of which were submitted before the DRP. Instead, DRP merely referred to the single decision in the case of Saranya Textiles Vs ACIT merely stating that the case was distinguishable on facts and circumstances of the case, without any elaboration. None of the other cases were even referenced. 3.2 The DRP/AO/TPO erred in not following a NUMBER of jurisdictional Tribunal decisions and HC decisions on exactly the same issue in....
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....te undertakings, long-term contracts, differing nature of type/assets/infrastructure employed ft numerous other varying parameters in each contract). Incorrect adoption of "safe harbour" rates without basis: 6.1 The DRP/AO/TPO further erred in blindly adopting "safe harbour" rates as the ALP without explaining why the rates adopted by the assessee he's not in accordance with section 92C read with 80lA. In doing so, the DRP/AO/TPO has not appreciated concept and purpose of safe or safe harbour rules. The DRP/AO/TPO authorities failed to understand that if the safe harbour rules rate is to be adopted blindly without any further examination as the ALP, then all other provisions regarding, methods of determining ALP and the rules therefor, the DRP and appeals to higher forum would be redundant as the only rate that can be adopted as ALP. The safe harbour rates merely provide rates which can be accepted by the department without any further examination as to the methods of computing the ALP. Rates arrived at without basis: 7. 1 Without prejudice, the DRP/AO/TPO has not specified as to on what basis Rs. 0.13 Rs. 4.91 and Rs. 3.10 has been adopted a....
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....f applicable to power generating entities is not correct. 4. The TPO, however was not convinced with the explanation furnished by the assessee and according to TPO price fixed by ERC becomes a significant factor, because the said rate was fixed to procure and sell power from independent power producers. This is so, since if the assessee had to sell power in the open mart, the buyers would have the only power distribution companies as electricity is not a commodity that is freely saleable to whomsoever is interested. Therefore, he opined that deduction claimed u/s. 80IA of the Act on notional profit derived from internal consumption of power from captive power plant should be computed on the basis of rate as which independent power generating companies sold power to distribution companies, and thus, adopted tariff rate fixed by ERC and made adjustment of Rs. 140,47,96,628/-. 5. The Ld. Counsel for the assessee, submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT, Chennai Benches in assessee's own case for assessment year 2011-12, 2012-13, 2014-15, 2015-16 & 2016-17, where under identical facts the tribunal by following the decision of....
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....ds to be considered is functions performed by the comparable, asset employed and revenue generated. In this case, the assessee is in the business of power generation, but it cannot be a comparable company which is into the business of power distribution. The functions performed by power generating companies and power distribution companies are entirely different. The asset employed by these two companies are also entirely different. The revenue employed by generating companies and distribution companies are also different. Therefore, under TP regime this point needs to be considered while selecting the comparable company. The TPO after giving various reasons came to the conclusion that rate charged by power distribution companies cannot be yardstick for comparing revenue earned by power generation company and reasons given by the TPO and DRP are not properly appraised by the Tribunal while adjudicating the issue for earlier years. Therefore, he submitted that the issue to be decided without going into the decisions rendered by the Tribunals in assessee's own case for earlier years. In this regard, he filed detailed written submissions on the issue which has been reproduced as under....
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....eeded to be addressed was, whether Transfer Pricing Regulations should be limited to cross-border transactions or be extended to domestic transactions. In the case of domestic transactions the under-invoicing of sales and over-invoicing of expenses ordinarily would be revenue neutral in nature, except in the following two circumstances having tax arbitrage- (i) lf one of the related companies is a loss making company and the other is a profit making company and profit is shifted to the loss making concern,* and (ii) lf there are different rates for two related units [on account of different status, area-based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of the tax arbitrage. For example, sale of goods or services from non-SEZ area, [taxable division} to SEZ unit [non-taxable unit} at a price below the market price so that taxable division will have less taxable profit and non-taxable division will have a higher profit exemption. [Para 4] All these complications arise in cases where fair market value is required to be assigned to the transactions between related parties in terms of section 40A(2). To ge....
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....his is applicable from AY 2013-14. The Explanation to section 80IA(8) introduced in Finance Act defines "market value" for the purpose of above said provision placed in Chapter X. The explanatory memorandum is as under: "Transfer Pricing Regulations to apply to certain domestic transactions Section 40A of the Act empowers the Assessing Officer to disallow unreasonable expenditure incurred between related parties. Further, under Chapter VI-A and section 10AA, the Assessing Officer is empowered to re-compute the income (based on fair market value) of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity. However, no specific method to determine reasonableness of expenditure or fair market value to re-compute the income in such related transactions is provided under these sections. The Supreme Court in the case of CIT Vs. Glaxo SmithKline Asia (P) Ltd., in its order has, after examining the complications which arise in cases where fair market value is to be assigned to transactions between domestic related parties, suggested that Ministry of Finance sh....
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....ransferred to any other business carried on by the assessee - First limb Or Where any goods or services held for the purpose of any other business are transferred to eligible business carried on by the assessee In either case - Second limb If consideration recorded in the accounts of eligible business does not correspond to market value of such goods, then for the purpose of section 80IA(8), profit and gains of such eligible business shall be computed as if the transfer in either case had been made at market value of the goods as on date of transfer. 5. Here what is the good transferred? 1. The good transferred or sold here is electricity. 2. The assessee company has generated power from eligible units and transferred to other business carried on by them. 3. It was captively consumed by other business carried on by the assessee. 4. Hence first limb of section 80IA(8) discussed above is attracted. 'Market value' for the purpose of section 801A and arm's length price as per clause (ii) of section 92F Being the power generator in eligible units, the rate at which they can sel....
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....on of ITAT for earlier AYs: With due regard, it is submitted that Hon'ble ITAT has followed the decision of A Y 2011-12 rendered in ITA No. 2412/Chny/2019 dated 12-12-2019 and allowed the appeal of the appellant in all the previous year decisions. It can be referred to para-29 of order dated 12-12-2019 and para 18.5 of the order dated 18-08-2021. The A Y that was relied upon by the ITAT was pertaining to A Y 2011-12 that was prior to enactment of legislation of SDT in Finance Act 2012. In those appeals the Hon'ble ITAT held that for the purpose of deduction claimed u/s 80IA of the IT Act, notional profit derived from the internal consumption of power from captive power plant should be computed on basis of rate of power purchased. ● This is exactly opposite to the TP study. ● Here the TP study was on power generation unit- eligible business ● TP study was not on power consuming units/captive consumption - other business ● The market value of power sold by eligible business to Regulatory Authority is the arm's length. Various other case laws listed in the said decision were all rendered....
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....ITA No. 2412/Chny/2019 dated 12.12.2019, where the Tribunal under identical set of facts by following certain judicial precedents including the decision of Hon'ble Bombay High Court in the case of Reliance Industries Ltd., and the decision of Hon'ble Chhattisgarh High Court in the case of M/s. Godavari Power and Ispat Ltd., supra held that while computing deduction u/s. 80IA for generation of power for captive consumption, the rate at which electricity board supply power to its consumers should be considered instead of the rate at which the power generating companies supply its power to the electricity board. The relevant findings of the Tribunal are as under:- "31. We have considered the rival submission and perused the materials available on record. " 32. A perusal of the facts in the present case clearly shows that the assessee has been captively consuming the electricity generated from its wind mill as also the Heat Waste Recovery Treatment Plant. Admittedly, the assessee is entitled to the deduction u/s. 80IA of the Act in respect of the electricity generated and consumed. This is not in dispute. The dispute has risen for computing the deduction u/s. 80IA of ....