TMI Blog2021 (9) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... rison of purchase price of AE and non AE transactions. Even, while doing so, the TPO was very much conscious that except the month of April, the purchase price paid to the AE is less than the purchase price paid to non AEs. Therefore, he has conveniently restricted himself to the month of April where the purchase price paid to AE is slightly more than the purchase price paid to non AEs, while, ignoring the figures for the rest of the year as it would not have worked out to his liking. Thus, if the average purchase price of AE and non AE transactions are considered even under CUP, the transaction with AE would be at arm s length. The per MT price of non AE transaction compared with date-wise AE transaction in reality is the average price of non AE transaction for the month of April. This fact is clearly discernible from the working note showing calculation of average purchase price and average sale price as placed at page 146 of the paper book. Thus, the aforesaid facts make it abundantly clear that the working of price difference made by the TPO is flawed, as he has compared date-wise price of AE transaction with average price of non AE transaction for the month of April 2012. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic transactions with associated enterprise (related party), a reference was made to the Transfer Pricing Officer (TPO) under section 92CA of the Income Tax Act, 1961. On perusing the report furnished by the assessee in form 3CED, the TPO noticed that the assessee had purchased castor cakes/meals worth ₹ 21,32,09,594/- from one of its AEs viz. Ihesedu Agro Chem Pvt Ltd (IAPL). Further, he found that some products were also purchased by the assessee from independent third parties. The castor meals/cakes so purchased have been resold to buyers locally as well as outside India. From the details furnished, the TPO found that in respect of resale of castor meals/cakes purchased from AE, assessee had shown gross margin of 5.99%. Whereas, in respect of resale of castor meals purchased from independent third parties, the assessee has shown negative gross margin of (6.97%). On verifying the transfer pricing study report, he found that the assessee had benchmarked the transaction with AE by applying resale price method (RPM) based on internal comparables. The TPO observed, since castor meal is a byproduct generated in the process of manufacturing castor oil, the assessee also produces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout prejudice, he submitted, even under CUP method also if the average purchase price paid to AE is compared with the average price paid to non AE, the transaction would be at arm s length. He submitted, though, the TPO while applying CUP has referred to date-wise comparison to work out difference, however, no such date-wise data relating to non AE transaction is available on record. In this context, he drew our attention to page 146 of the paper book to demonstrate that date-wise price of non AE transaction, is not available. Thus, he submitted, the TPO himself has taken the average price of non AE transaction to compare with the date-wise price of AE transaction. Further, drawing our attention to the calculation of average purchase price and average sale price at page 146 of the paper book, he submitted, there is huge difference in the quantity of purchase between AE and non AEs. He submitted, while the assessee had purchased huge quantities from AE, the purchase from non AE is substantially lower. Therefore, in such circumstances, CUP method cannot be the most appropriate method. Without prejudice, he submitted, even if CUP is applied, the average price paid both, to the AE and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Even assuming that CUP would be the most appropriate method to benchmark the transaction, the facts on record clearly reveal that the average purchase price of castor meal from AE works out to ₹ 4,821/- per M.T as against the average purchase price from unrelated parties working out to ₹ 5,485/- per M.T. The aforesaid factual position has not been disputed by the TPO. What the TPO has done to reject the assessee s claim is, he has ventured into date-wise comparison of purchase price of AE and non AE transactions. Even, while doing so, the TPO was very much conscious that except the month of April, the purchase price paid to the AE is less than the purchase price paid to non AEs. Therefore, he has conveniently restricted himself to the month of April where the purchase price paid to AE is slightly more than the purchase price paid to non AEs, while, ignoring the figures for the rest of the year as it would not have worked out to his liking. Thus, if the average purchase price of AE and non AE transactions are considered even under CUP, the transaction with AE would be at arm s length. Though, the TPO claimed to have worked out the difference between the price paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charged to the non eligible units with the price charge by GETCO to the assessee for supply of electricity. The TPO, however, was not convinced with the benchmarking of the assessee. He issued a show cause notice to the assessee to explain as to why the rate given by the distribution company in the region for purchase of power from power producers should not be adopted for benchmarking the transaction. In reply, it was submitted by the assessee that the transaction with the AE has been benchmarked by adopting other specified method as provided under rule 10AB since no other option was provided in the agreement with GETCO other than giving credit for the units against its own electricity consumption. The TPO; however, did not find assessee s submission acceptable. Relying upon a decision of Hon ble Calcutta High Court in case of CIT vs ITC Ltd (ITA 426 of 2006), the TPO held that the rate at which distribution companies are supplying electricity cannot be taken for comparison. For such purpose, the TPO sought information from a third party, viz. Dakshin Gujarat Vij Co. Ltd regarding the rate at which, the distribution company is purchasing power from power producers. On verifying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .CIT (2018 97 taxmann.com 10 14. Prabhu Spinning Mills (P) Ltd vs Dy.CIT (2013) 33 taxmann.com 398 15. Addl.CIT vs Jindal Steel Power Ltd (2007) 16 SOT 509 (Del) 13. The learned departmental representative, strongly relying upon the observations of the Assessing Officer and TPO, submitted that the addition made should be confirmed. 14. We have considered rival submissions in the light of decisions relied upon and perused the materials on record. The dispute lies within a narrow compass. The core issue which requires to be decided is, what should be the price for transfer of electricity from the eligible unit to non eligible units of the assessee. While the assessee has adopted the rate at which the distribution company of the government sells to customers, the departmental authorities relying upon a decision of the Hon ble Calcutta High Court cited (supra), have applied the rate at which the distribution company purchases electricity from other electricity producers. In our view, the issue is no more res integra because of the decision of the Hon ble jurisdictional High Court in case of Reliance Industries Ltd (supra). The Hon ble High Court, while dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:- 6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short MERC ). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term Market Value is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of ₹ 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged ₹ 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out ₹ 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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