2025 (5) TMI 1232 - AT - Income Tax

TP Downward adjustment in respect of the transfer value of power by the captive power plant at Haldia West Bengal - HELD THAT - We note that the facts of the assessee are identical to the facts considered in the case of Dhunseri 2022 (8) TMI 1342 - ITAT KOLKATA and therefore the issue is squarely covered in favour of the assessee as held B2C market comprises the sale of power by SEB and other distribution companies to different categories of consumers. Thus the power sold by other CPPs/IPPs to unrelated parties 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. 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. Also see Jindal Steel Power Ltd. 2023 (12) TMI 417 - SUPREME COURT Initiation of penalty proceedings u/s. 270A - claim of deduction for education cess despite the fact that the assessee had suo motto disallowed the same by way of filing of form 69 - HELD THAT - We note that the assessee has correctly filed Form No. 69 before the AO on 29.11.2022 furnishing the revised computation and requested the AO to recompute the income. AO has mentioned that Form No.70 has not been uploaded however the assessee has already disallowed the same suo moto by filing Form No. 69 which has also not been denied by the department. Moreover it the /ao who issues the form 70 and not the assessee. We are of the view that the penalty proceedings initiated by the AO is invalid and the AO is directed to drop the same. Thus ground NO. 2 is allowed. Levy of interest u/s. 234A - HELD THAT - We find that the assessee has filed return of income with the extended time but despite that the AO had charged interest u/s. 234A of the Act. We note that the due date of filing of return originally was 30.09.2020 which was extended to 15.02.2021 and the assessee has filed return of income on 13.02.2021 which is within the extended due date. Accordingly the action of the AO in charging interest u/s. 234A of the Act is wrong and thus the AO is directed to delete the same. Ground No. 3 is allowed.

Summary

The core legal questions considered in this appeal include:

1. Whether the downward transfer pricing adjustment of Rs. 24,72,79,392/- made by the Transfer Pricing Officer (TPO) in respect of the transfer value of power by the captive power plant (CPP) at Haldia was justified.

2. Whether the methodology adopted by the assessee to benchmark the arm's length price (ALP) of power transferred from eligible units (CPPs) to non-eligible units complied with internal Comparable Uncontrolled Price (CUP) parameters and thus the TPO's adjustment was impermissible.

3. Whether the National Faceless Assessment Centre (NFAC) erred in recommending penalty proceedings under section 270A of the Income Tax Act for the claim of deduction of education cess, despite the assessee having suo moto disallowed the same by filing Form 69.

4. Whether the interest levied under section 234A of the Act was justified.

5. Whether the Assessing Officer (AO) erred in not granting credit for advance tax, Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and Dividend Distribution Tax (DDT) paid under section 115-O.

6. Miscellaneous grounds for amendment or additional submissions.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment on Transfer Value of Power by Captive Power Plant

Legal Framework and Precedents: The dispute revolves around the applicability of transfer pricing provisions and the determination of arm's length price under Sections 92CA and 80IA of the Income Tax Act. The relevant provisions include Section 80IA(8) which mandates computation of profits of eligible business by adopting arm's length pricing if the consideration is disputed. The Explanation defines "market value" as the price goods would ordinarily fetch in the open market. The Tribunal relied heavily on the Supreme Court decision in Jindal Steel & Power Ltd., which elucidated the concept of market value and open market in the context of captive power plants and electricity supply.

Court's Interpretation and Reasoning: The Tribunal examined the facts that the assessee had two captive power plants supplying electricity to its non-eligible manufacturing units and benchmarked the transfer price at the tariff charged by the West Bengal State Electricity Board (SEB). The TPO had made a downward adjustment based on the sale price of power by independent CPPs/IPPs, which was significantly lower.

The Tribunal found that the assessee's method of benchmarking the transfer price using the internal CUP method-i.e., the price at which the non-eligible units purchased power from SEB-was valid. The internal CUP was appropriate because the power supplied by the CPPs and SEB was to the same non-eligible units under comparable market conditions. The Tribunal rejected the TPO's reliance on external CUP based on independent CPPs/IPPs sale data, noting that such sales occurred under different market conditions (B2B vs B2C) and were therefore not comparable.

The Tribunal further referenced the coordinate bench's decision in DCIT vs Dhunseri Ventures Ltd., which held that the average annual landed cost (AALC) paid by non-eligible units to SEB was the appropriate ALP. The Tribunal emphasized that the rate at which SEB supplied power to industrial consumers represented the true market value, as opposed to the contracted price between CPPs and SEB for surplus power, which was fixed under statutory regulation and lacked competitive negotiation.

Key Evidence and Findings: The assessee's Form 3CEB disclosed the specified domestic transactions. The power transfer prices were benchmarked at rates charged by SEB, which was the prevailing market rate for industrial consumers. The TPO's downward adjustment was based on tariff orders for independent CPPs/IPPs, which were found not to reflect the market conditions applicable to the assessee's transactions.

Application of Law to Facts: The Tribunal applied the principle that "market value" under Section 80IA(8) means the price in an open market characterized by free competition. The Supreme Court's reasoning in Jindal Steel was pivotal, clarifying that the price fixed by SEB for surplus power supplied by CPPs was not a market price due to statutory controls and lack of negotiation. Instead, the price at which SEB sold power to industrial consumers was the relevant market value.

Treatment of Competing Arguments: The revenue argued for the TPO's adjustment based on independent CPP/IPPs tariff data. The Tribunal rejected this, noting the difference in market conditions and that the power supplied by CPPs to non-eligible units was a B2C transaction, unlike the B2B transactions relied upon by the revenue. The Tribunal also distinguished the Calcutta High Court decision in CIT vs ITC Ltd., finding it factually distinguishable.

Conclusions: The Tribunal allowed the assessee's ground, setting aside the downward adjustment and directing the AO to delete it. The internal CUP method using SEB's tariff to industrial consumers was upheld as the correct ALP.

2. Penalty Proceedings under Section 270A for Education Cess Deduction

Legal Framework: Section 270A empowers penalty for under-reporting of income. The Finance Act, 2022 introduced provisions for disallowance of education cess claims by filing Form 69 and recomputation via Form 70.

Court's Interpretation and Reasoning: The assessee had claimed education cess as an expenditure but had suo moto disallowed the same by filing Form 69 before the AO. The AO initiated penalty proceedings alleging under-reporting as the required Form 70 for recomputation was not uploaded.

The Tribunal noted that the assessee's voluntary disallowance via Form 69 was not disputed and that Form 70 is issued by the AO, not the assessee. Given that the assessee had complied with the procedural requirement to disallow the cess, the penalty proceedings were held to be invalid.

Conclusions: The Tribunal directed the AO to drop the penalty proceedings, allowing the ground in favor of the assessee.

3. Levy of Interest under Section 234A

Legal Framework: Section 234A provides for interest on delayed filing of income tax returns beyond the due date.

Court's Interpretation and Reasoning: The assessee filed the return within the extended due date. The AO erroneously levied interest under section 234A despite timely filing.

Conclusions: The Tribunal held the interest levy unjustified and directed deletion of the same.

4 & 5. Credit for Advance Tax, TDS, TCS, and DDT

Legal Framework: Tax credits for advance tax, TDS, TCS, and DDT under respective sections are allowable if properly substantiated.

Court's Interpretation and Reasoning: The Tribunal found that the AO had not granted these credits and that the matter required verification. It restored the issues to the AO for examination with directions to allow credits after due process.

Conclusions: Grounds were allowed for statistical purposes, pending AO's verification.

6. Miscellaneous Grounds

These were general and did not require adjudication.

Significant Holdings:

On the transfer pricing issue, the Tribunal reiterated the principle that "market value" under Section 80IA(8) means the price determined in an open market characterized by free competition, as explained in the Supreme Court's decision:

"Market value is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply."

It was held that the price fixed by the State Electricity Board for surplus power supplied by the captive power plant was not a market price due to statutory controls and lack of negotiation, and hence could not be equated with market value for Section 80IA purposes.

The Tribunal further held:

"The 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 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."

On penalty proceedings, the Tribunal emphasized that voluntary disallowance by filing Form 69 precludes penalty for under-reporting, especially where Form 70 issuance is the AO's responsibility and the assessee had complied with procedural requirements.

On interest under section 234A, the Tribunal confirmed that timely filing within extended due dates negates the liability for interest.

On tax credits, the Tribunal underscored the necessity of proper verification and opportunity to the assessee before denying credits.