TMI Blog2021 (5) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, Molasses, Industrial Alcohol, Ethanol, Organic Man manufacture and generation and distribution of power in the form of steam and electricity. All its factories, power undertakings, distilleries etc. are located at different places in U.P., whereas its head-office is at Kolkata. For AY 2016-17, the assessee company filed its return of income electronically on 26.11.2016 showing total income of ₹ 65,88,72,120/- under the normal provisions of the Income-tax Act, 1961. However, its Book-profits were ₹ 1,02,89,54,675/-. The assessee company claimed deduction u/s 80IA of the Act amounting to ₹ 2,43,24,28.803/- for generation and distribution of power. The assessee company had considered rate of electricity at ₹ 8.30 per Kwh for transferring the same to other units of the assessee company The said rate of ₹ 8.30 per kwh was considered as per tariff orders issued by Uttar Pradesh Electricity Regulatory Commission in accordance with which tariff rates were notified by Uttar Pradesh Power Corporation Limited for sale of electricity in that area, under the provisions contained in sub-section 6 of section 80A and sub-section 8 of section 80IA of the Act. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessee for transferring from CPP (Captive Power Plant) to the manufacturing unit was not correctly done. He submitted that the assessee has wrongly adopted the rate, charged by the State Electricity Board UPPCL to its Maizapur and Tulsipur manufacturing units as the rate for transferring power. He submits that the TPO was right in adopting the average rate at which the power was sold by the eligible unit i.e. CPP to an unrelated party as the rate of power specified under the PPA (Power Purchase Agreement) by the CPP to the distribution company. He submits that the distribution company of UPPCL is an unrelated party and the rate is that CUP and this is ALP. 4.1. The ld. CIT(D/R) further submitted that the judgement in the case of ITC Ltd.. (236 Taxman 612) of the jurisdictional High Court is not distinguishable on facts as in that case the power units could only be sold to power distribution licensees and not to outside parties. 4.2. The ld. CIT(D/R) further submitted that the value chain of power generation consists of manufacturing costs and distribution costs and as the assessee is only a manufacturer and that the power distribution cost should not be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to a consumer are both determined by the determined by Electricity Regulatory Commission. Thus he submits that the amount received by power generating companies, under CUP, as per the tariff determined by U.P. Electricity Regulatory Commission is to be considered as the ALP. He further submits that there is no concept of tested party when CUP is the Most Appropriate Method (MAM) for determining the ALP. For this proposition he relied on the order of the Mumbai Tribunal in the case of India Debt Management (P) Ltd. vs. DCIT ([2016] 69 taxmann.com 125). Alternatively he submitted that the power generating unit should be considered as a tested party and not the manufacturing unit as was done by the assessee, as the captive power plant has the least complex functions among the two. He prayed that the order of the AO/TPO be restored. 5. The ld. Counsel for the assessee relied on the order of the ld. CIT(A) and submitted that the issue has been already adjudicated in favour of the assessee by the Coordinate Bench of the Tribunal in the case of M/s. Electrosteel Casting Limited vs. DCIT in ITA Nos. 138, 139, 191 192/Kol/2018 order dated 28.02.2019 and submitted that the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80IA(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 explanation demonstrates that, for determination of market value, you can adopt the price at which the goods or services would ordinarily fetch in the open market OR the ALP as defined in Section 92F(ii) of the Act where the transfer of such goods or services is a specified domestic transaction referred u/s 92BA of the Act. The Act states that either of the above two may be adopted as the market value . This, in our view justifies the claim of the assessee that it can claim Market Value as per limb (i) of the Explanation. 8.3. Limb (ii) of the above referred Explanation Section 92BA of the Act defines specified domestic transaction is as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the orders of the lower authorities as also from the contentions of the appellant, it is noted that both the parties have in principle accepted and agreed that the most appropriate method for determination of ALP of power tariff is CUP Method. In the Ld. TPO's opinion however the average of the rate at which eligible unit supplied power to unrelated party and the power tariff orders issued the relevant SEC was the most relevant indicator of the arm's length price for power supplied by CPP to non-eligible unit as opposed to the appellant's contention that the tariff rate prescribed by SEB for supply to consumers was the fair reasonable ALP. The Ld. TPO in this regard relied on the judgment of the Hon'ble Calcutta High Court in ITC Limited reported in (2015) 64 Taxman.com 214. The Ld. TPO took into consideration the fact that during the relevant year the appellant itself had sold power generated by CPP to unrelated party under a PPA agreement where per unit price realized was ₹ 4.77. Keeping in view these facts, the Ld. AO concluded that the rate adopted by the appellant at ₹ 8.30/unit was excessive and did neither represent fair market value nor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the non-eligible undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelated enterprise i.e. SEB under uncontrolled conditions and prevailing market circumstances at the rate of Rs.ll.22/unit. Therefore the tariff at which the other non-eligible units purchased power from SEB can be taken to be a fair indicator to benchmark the transfer value of ₹ 8.30/unit adopted by the appellant. It is noted that the transfer value of ₹ 8.30 / unit was based on the tariff order issued by the SEB in respect of supply of power to units located in the same region as that of the non-eligible unit which procured power from the eligible unit. This tariff order issued by the SEB was available in open market and determined under uncontrolled conditions and is hence a reliable external CUP available in the given facts of the case. On comparing the rates in tariff order with the rates at which other non-eligible units procured power from open market under uncontrolled conditions; it is noted therefore that the transfer value of ₹ 8.30/unit determined by the appellant is fair and reasonable. I therefore find merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in its judgment dated 03.10.2016 in the case of Pr.CIT Vs Gujarat Alkalies Chemicals Ltd (ITA No. 544 of 2016) dismissed the Revenue's appeal on the following specific question: (77) Whether the Tribunal was right in law in allowing the assessees claim of deduction of ₹ 1954 Crores u/s 80IA(4) of the I.T. Act, 1961, when the assessee had adopted rate of power generation at ₹ 4.73 per unit, rate on which the GEB supplied power to its consumers, ignoring the rate of ₹ 2.36 per unit, the rate on which power generating company supplied its power to GEB? 9. The Hon'ble Gujarat High Court thus specifically decided the issue in favour of the assessee / taxpayer by holding that the deduction under Section 80IA in respect of CPP shall be computed by taking the per unit selling price of electricity equal to the rate at which the assessee purchased the electricity from SEB. 10. Reliance is further placed on the judgment of the Hon'ble Chhattisgarh High Court in case of CIT v. Godawari Power . Ispat Ltd. [2014] 42 taxmann.com 551/223 Taxman 234, in which the Court held and observed as under: 31. The market value of the power sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the transfer price of ₹ 8.30/unit. While computing the deduction permissible, the Ld. AO/TPO shall give an opportunity of hearing to the appellant and will re-compute the deduction in terms of the directions above. Grounds Nos. 2 to 5 are therefore allowed. 08. Ground No 6 taken by the appellant-company relates to the rights of the appellant to take additional grounds during appeal, or to modify or alter any of the grounds already taken. As no such rights were exercised by the appellant, there was no occasion to adjudicate in the matter. In the final result, the appeal filed by the appellant is treated as allowed . 8.5. This decision is in consonance to the propositions of law laid down by the Coordinate Bench of the ITAT in the case of M/s. Electrosteel Casting Limited (supra) wherein it is held as follows: 1. I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld. TPO/ AO. The appellant-company operates a captive power plant ('CPP') and the power generated therein is consumed by the appellant-company itself. For the purposes of computing profits of the captive power unit, eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble ITAT, Kolkata in the appellant's own case in I.T. (SS) No.47 to 60/K0I/2014, 313 and 256/K0I/2015, 66 and 124/K0I/2016 25.11.2015 for AY 2003-04 to 2011-12 has held as follows: 46. We have given a very careful consideration to the rival submissions. We have already seen that the assessee manufactures DI spun pipes, D) fittings, etc., at its factory at Khardah (West Bengal) Cl spun pipes at its factory- at Elavur (Tamil Nadu) and low ash metallurgical coke at its factory at Haldia (West Bengal). At Khardah and Haldia factory the assessee also has its own power plant generating electricity from heat emitted .from blast furnaces in the process of manufacturing of DI Pipes at Khardah, where power generated is entirely consumed for own use (i.e., captive consumption), and sponge iron plant and coke oven plant at Haldia where the power generated is consumed for own use (captive consumption and surplus power generated is sold to the West Bengal State Electricity Board (WBSEB), It is not in dispute that the assessee is entitled to claim deduction under section 80-IA of the Act on the profits derived by the assessee from generation of power, Since the power generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon'ble court was as to what would be market value for the purpose of computation of deduction under section 80-IA of the Act in the context of section 8o-IA(8) of the Act. The Hon'ble Calcutta High Court held deduction under section 80-LA had to be computed in such circumstances not on the basis of rates chargeable by distribution licensee from consumer and that the same can be claimed only on the basis of rates fixed by tariff regulation commission for sale of electricity by generating companies to distribution licensees. 48. The submission of the learned counsel for the assessee was that the decision of the Hon'ble Calcutta High Court is not applicable to the case of the assessee as in the case before the Hon'ble Calcutta High Court, the undertaking that generated power was situated in the State of Andhra Pradesh where electricity generated could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. In this regard an order of the Andhra Pradesh Electricity Regulatory Commission, Hyderabad in O. P, No, 1075/2000, dated June 20,2001 was filed before us, The said order deals with generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing adjustments Page | 29 I.T.A Nos.191 192/K0I/2018 I.T.A Nos.138 139/K0I/2018 M/s. Electrosteel Castings Ltd. Assessment Year: 2012-13 2013-14 pertaining to specified domestic transactions in the absence of any distinction on facts or law pin-pointed at revenue's behest. It fails in both of its cross-appeals ITAN0.191 192/K0I/2018. 17. The assessee's appeals in ITAN0.138 139/K0I/2018 are allowed and Revenue's crossappeals ITAN0.191 192/K0I/2018 are dismissed. 8.6. The ld. CIT(D/R) tried to argue that the order of the Tribunal in the case of M/s. Electrosteel Casting Limited (supra) is erroneous. Such argument cannot be countenanced as no distinguished feature have been brought out by the ld. CIT(D/R). 8.7. The Bench in the case of M/s. Electrosteel Casting Limited (supra) has recorded that, the propositions of law laid down in the case of ITC Ltd. (supra) are not applicable to the facts of the case for the reason that the captive power plant of ITC Ltd. was located in the state of Andhra Pradesh and it had no right to sell electricity other than to the electricity distribution companies and whereas in the present case, the captive power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the price at which State Electricity Boards sells electricity to industrial consumers is representative; of the price that electricity would ordinarily fetch in the open market and i.e. the price which has been adopted by the assessee for the electricity generated by the eligible business transferred to its other business for the purpose of computation of profits and gains of the eligible business in terms of section 80IA(8) of the Act. We find that the AO has taken figures from units of powers sold to UPPCL at 0.89 units @ ₹ 24,43,159/- as against the price of assessee i.e. inter-unit transfer @ ₹ 43,02,187/- per unit. Wc are of the view that the figures picked up by the AO from the orders of UPPCL does not represent the open market value of electricity. The learned Tribunal also allowed the claim for deduction under Section 80IA following the judgment of this Court in the case of CIT Vs. Graphite India Limited. From the aforesaid brief narration, it would appear that the views adopted by the learned Tribunal, prima facie, are correct. We have enquired of Mr. Dudheria, learned Advocate appearing for the Revenue, as to on what basis does he dispute the correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8.13. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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