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2021 (5) TMI 254 - AT - Income TaxDetermining the ALP under transfer pricing provisions - Determination of market value of of electricity - Determination of the quantum of profit claimed as deduction u/s 80IA - 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 - HELD THAT:- The Hon’ble Gujarat High Court in the case of Pr. CIT vs. Gujarat Alkalies and Chemicals Ltd.[2016 (10) TMI 1111 - GUJARAT HIGH COURT] has held the market value of per unit of electricity sold by the assessee in the open market, is the price charged by the Gujarat Electricity Board to its customers. Courts have determined that the market value should be the rate at which electricity is supplied by the State Electricity Boards to its industrial customers. As already stated the Explanation to Section 80IA(8) inserted by the Finance Act, 2012 w.e.f. 01.04.2013 gives an option for determination of “Market Value” as the ALP under the transfer pricing provisions OR as the price of such goods and services as, that it would fetch in the open market. If it is taken that ALP is the market value, then we find there is no dispute that the MAM is CUP. The contention of the ld. D/R that when MAM is taken as CUP, we need not determine a tested party is erroneous. The ICAI in Guidance note u/s 94B of the Act has laid down that the tested party has to be identified even when MAM is CUP. In this case the assessee has taken that the tested party as the non-eligible unit and whereas the TPO has taken the tested party as the CPP i.e. the eligible unit. In our view the profit of the non-eligible unit also has to be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases power from unrelated third parties. No other function etc. are in question. In our view taking the manufacturing unit as tested party for the purpose of determination of ALP with MAM being CUP, cannot be found fault with. The TPO has chosen to take the price specified in the PPAs for purchase of power as the market value. The PPA is a 20 year agreement. The assessee required to take statutory clearances and approvals. The price is regulated. The sale of power under the terms and conditions of PPA cannot be considered as the market value of the sale of electricity. Such sales cannot be considered as made in “uncontrolled conditions”. The ld. 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. 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 ALP. As consistent with the view taken in the case of M/s. Electrosteel Casting Limited [2019 (3) TMI 687 - ITAT KOLKATA] and applying the propositions of law laid down by the jurisdictional High Court in the case of Graphite India Ltd. [2016 (8) TMI 1353 - ITAT KOLKATA], M/s. Kanoria Chemicals & Industries Ltd.[2018 (2) TMI 1724 - ITAT KOLKATA] and Gujarat Alkalies and Chemicals Ltd. (supra) as well as the judgement of the Hon’ble Chhattisgarh High Court in the case of Godawari Power & Ispat Ltd. [2013 (10) TMI 5 - CHHATTISGARH HIGH COURT] we uphold the finding of the ld. CIT(A) and dismiss this appeal of the Revenue.
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