TMI Blog2022 (1) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied power to its consumer. Thus we find that the judgment particularly passed in the matter of Gujarat Fluorochemicals Ltd. [ 2018 (8) TMI 857 - ITAT AHMEDABAD] passed by the Coordinate Bench on the similar issue, the judgment passed by the Hon'ble Jurisdictional High Court in the case of CIT-Vadodara-1 vs. Gujarat Alkalies Chemicals Ltd. (Supra), the Ld. CIT(A) deleted the downward adjustment and subsequent additions made by the TPO/AO holding that in case of Captive Power Plant (CPP) eligible for deduction under Section 80IA the market rate at which the receiving unit is procuring the electricity can be adopted as sale price by the CPP which in our considered opinion is just and proper so as to warrant interference. Thus, the ground of appeal preferred by the Revenue is found to be devoid of any merit and found to be dismissed. Adjustment towards Sale of steam by CPP to Power House - case made out by the assessee is this the claim of the assessee is not the first year of claim made under Section 80IA of the Act rather the assessee is claiming the deduction since A.Y. 2006-07 which was allowed by the First Appellate Authority and in turn confirmed by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in deleting the adjustments made by the TPO and allowing deduction u/s. 80IA on the value of electricity supplied by the CPP to its manufacturing units by benchmarking the same with rate at M/s, Torrent Power, whereas, as per the FAR analysis i.e. functions performed, assets deployed and risk involved, the CPP unit is least complex in comparison to manufacturing unit and the TPO has rightly considered CPP unit as tested party. (v) The Ld. CIT(A) has erred in law and on facts in deleting the adjustments made by the TPO on the value of electricity supplied by the CPP to its manufacturing units by benchmarking the some with rate at M/s. Torrent Power, since the FAR analysis of the tested party is completely divergent from that of the comparable on account of major differences in functions, assets employed and risks assumed and since the MAM adopted in this case is CUP, there has to be a very high degree of similarity in the FAR for the entities to be comparable. As such, even if the manufacturing unit is taken as the tested party, there will be a requirement of making multiple adjustments as per provisions under rule 10B of Income fax Rules 1962 on account of the charges incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparable for benchmarking of transaction of Sale of steam. (xi) The Ld. CIT(A) has erred in ignoring the provisions u/s. 80IA of the Act which allows deduction to an undertaking engaged in the generation of power whereas steam is a by-product and serves to reduce the cost of generation of power and therefore cannot be taken to be a commodity which is transferred/sold by the assessee. 2. By way of Ground Nos. 1 to 8 the Revenue has challenged the order passed by the Ld. CIT(A) in deleting the adjustment made by the TPO on the value of electricity supplied by the Captive Power Plant (CPP) to its manufacturing units by benchmarking the same with rate at M/s. Torrent Power. It is further contended that the Torrent Power is involved in generation, transmission and distribution whereas the Captive Power Plant (CPP) of the assessee is only a generation unit and in that view of the matter the FAR i.e. (Functions performed, assets deployed and risk involved) being completely different and not comparable at all. Further that according to the Revenue the comparable ought to be the price at which the electricity is sold by the CPP and not the cost of consumption in the hands of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of generation electricity by the Gujarat State Electricity Corporation Ltd. (GSECL). 5. Apart from that, according to the Revenue even if the manufacturing unit is taken as the tested party there will be a requirement of making multiple adjustments as per provision under Rule 10B of Income Tax Rules, 1962 on account of the charges incorporated in the electricity price paid for functions like distribution and transmission and different other losses and charges to arrive at the ALP which has not been performed by the assessee while undertaking the benchmarking analysis. 6. The Revenue relied upon the order of the TPO considering the CPP unit as tested party being less complex than the manufacturing unit and compared the rate at which power generation unit sold electricity to distribution and transmission unit which was tested by GERC. 7. During the year under consideration the appellant company entered into a number of domestic transaction and claimed deduction under Section 80IA of the Act. The case was referred by the Ld. AO to the Transfer Pricing Officer (TPO) with the determination of Arms Length Price (ALP). The TPO under Section 92CA(3) of the Act on 30.10.2011 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that relying upon the judgment passed by the Hon'ble Jurisdictional High Court in the case of Gujarat Fluorochemicals Ltd. vs. DCIT, Vadodara (supra) the Coordinate Bench was pleased to hold that in case of Captive Power Plant eligible for deduction under Section 80IA, the market rate at which the receiving unit is procuring the electricity can be adopted as the sale price by the CPP. The relevant portion whereof is as follows: 29. Brief facts of the case are that the assessee has captive power plants at Ranjinagar and Dahej. At Dahej, assessee has coal based captive power plant and gas based captive power plant. According to the AO, it did not claim deduction under section 80IA originally in the assessment year 2013-14. However, after the decision of Hon'ble Chhattisgarh High Court in the case of CIT Vs. Godawari Power Ispat Ltd., 223 TAXMANN 234 it has filed a submission claiming deduction. It also revised return of income on 31.3.2015 in the assessment year ITA No. 805 and 2744/Ahd/2017 2013-14. Similarly, in the assessment year 2012-13, it has enhanced its claim by way of a loiter pointing out that the rate for determining the valuation of power generated by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution function are totally missing in the CPP. It also observed that sale of electricity is regulated activity, thus, as per the law, CPP could have sold to a distribution licensee (through transmission utility). The benchmarking of sale of CPP at the rate at which non-eligible units brought electricity from the grid is thus incorrect. The ld. DRP under this misconception construed that the rate at which electricity supply- companies are purchasing the electricity should be applied for benchmarking the value of electricity sold by the CPP to its manufacturing units. In other words, the DRP was of the view (hat non-eligible units cannot be taken for the benchmarking for determining the value at which electricity was sold by the CPP. DRP has emphasized that manufacturing units could have different source of procurement of electricity, say - from CPP or from electricity boards. But as electricity producer, in a CPP, it could only be sold to distribution licensee holder. In this way, the ld. DRP observed that value of electricity cannot be benchmarked by adopting the rate at which manufacturing units of the assessee has been purchasing the electricity, rather, according to the DRP, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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 power generation at ₹ 4.73 per unit, rate on which the GEB supplied power to its consumers, ignoring me rate of ₹ 2.36 per unit, the rate on which power generating company supplied its power to GEB? 32. The Hon'ble High Court has replied this question by recording the following finding: ' 3. Since both the Issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No. 2092/2010 in somewhat similar controversy observed as under: 3. With respect to Question [8], the issue pertains to sub Section (8) of Section 80IA of the Income Tax Act, 1961. The assessee had a CPP Unit generating electricity, which v/as supplying it to a general unit. The electricity generated is being supplied to other consumers also. The CPP unit charged ₹ 5.40 ps. per unit from the general unit. The Assessing Officer applying sub-Section (3) of Section 80IA restricted the same to ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered under sub-Section (8) of Section 80IA of the Act. However, In so far as the Tribunal's reasoning to adopt the market value of the goods at ₹ 5.40 ps, per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of ₹ 5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only ₹ 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered. 4. This was followed in case of CIT v. Shah Alloys Ltd., in Tax Appeal No. 2093/2010. This was reiterated in Tax Appeal No. 1646/2010 in case of ACIT v. Pragati Glass Works (P.) Ltd. (order dated 30.1.2012), in which following observations were made : 7. To our mind, Tribunal has comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw therefore, arises. Tax Appeal is dismissed. 5. Issue once again reached the Division Bench of this Court in case of CIT vs Alembic Ltd. in Tax Appeal No. 471/2009 and connected appeals. The Division Bench referring to earlier judgments of the Court held as under. 11. We have considered the submissions made by the/earned counsel for the parties. We have also considered the case laws cited by the learned counsel for the assessee. Taking into consideration the judgments of this court and other High Courts, ITA No. 805 and 2744/Ahd/2017 cited above, we are of the opinion that the Tribunal has rightly allowed the claim of the assessee. In that view of the matter we do not find any infirmity in the order of the Tribunal. Therefore, we answer question (C) and (D) in favour of the assessee and against the revenue. 6. Issues are thus considered on number of occasions by the Court and held against the Revenue. Questions are answered against the Revenue. Both the tax appeals are therefore, dismissed. This judgment of Hon'ble High Court is directly on the issue. Hon'ble Court has considered section 80IA, therefore, it is not justifiable at the end of ld. DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und to be devoid of any merit and found to be dismissed. 11. Ground Nos. 9 10 relate to deletion of adjustment of ₹ 4,10,81,113/- made by the TPO towards Sale of steam by CPP to Power House relying upon the decision of Hon'ble Tribunal in assessee's own case for A.Y. 2012-13. 12. The Ld. AO made an addition of ₹ 4,10,81,113/- towards adjustment in the sales of steam by CPP to processing house. In fact, the CPP supplies steam to the power house @₹ 1.35 per kg. as against the cost of ₹ 1.22 per kg., the total steam sold is 12,32,25,800 kg. @1.35 per kg. for a total consideration of ₹ 16,63,66,963/-. As per the Ld. TPO the appellant has marked up the profit of ₹ 32.78%; on the other hand, according to the appellant its profit is only around 11% which is in conformity with the earlier years profits. Further that the same was upheld by the appellant authorities including the Coordinate Bench of Hon'ble Tribunal in appellant's own case for A.Y. 2012-13 2013-14. However, the TPO rejected the value of the appellant and reduced the ALP by a sum of ₹ 4,10,81,113/- which was, in turn, deleted by the Ld. CIT(A). Hence, the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous appellate orders. However the certificate for same is enclosed herewith. Further to state that the steam is not sold at ₹ 8.04/unit. Your assessee has submitted the pricing comparison for your better understanding that even after conversion of steam into power and as if sold as power, the sales value of steam sold is much lesser than the power sold value. The same is reproduced below, Steam transfer to Process Total Sale value Conversion at 4.7 Kg / Total sale price at at ₹ 1.35 per kg = 1 unit of power ₹ 8.04 123225800Kg 166366963/- 26218255 units If the steam is converted into the power and then sold to the process division then the sales value will be ₹ 2A(sic).08 Cr where assessee has followed the cost plus method and derived the sales value of ₹ 16.36 Cr which is much lower than the comparable method. The Assessee has installed flow meters at the plant location which measures the steam in MT/Hour unit and power in MW so generated. The Assessee herewith submits few images of output display of the flow meters installed at the plant locati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above mentioned discussion, the ALP rate of sale of steam is determined by adopting CUP as MAM and the mark up charged is thus disallowed. The assessee failed to provide supporting evidences and proper benchmarking analysis regarding the mark up charged to the cost of generation of steam, Hence, the assessee failed to discharge the onus and thus could not substantiate the mark up charged. Thus, the mark up charged by the assessee for sale of steam remains unsubstantiated- Hence, this office disallows the mark up charged on sale of steam transaction. Particulars Quantity Value in 3 CL 11 Cost as 100% 32. 78% Mark-up ALP Adjustment Vishal Fabrics Limited 163202.684 16636696 125285830 41081133 41081133 Thus the transactions of sale of steam by CPP are revised down as under: particulars transaction Value in 3CEB Revised down ALP adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with the issue in assessee's own case for A.Y. 2012-13 the Coordinate Bench was pleased to observe as follows: 4. We have heard the Ld. Counsel appearing for the respective parties, we have also perused the relevant materials available on record and also carefully considered the judgment passed by the Co-ordinate Bench in assessee's own case in appeal preferred by Revenue in ITA No. 125/Ahd/2015 for A.Y. 2011-12. The identical issue has been considered by the Co-ordinate Bench in the said judgment, the relevant whereof is as follows:- 6. In earlier years, on the basis of such valuation, deduction u/s. 80IA (4)(iv) of the Act were allowed from A.Y. 2006-07. In our considered opinion, assessee is therefore on the principle of consistency, eligible for such deduction. Further as required assessee filed a certificate inform 10CCB from a charted accountant for claim and therefore the reasonableness and valuation of steam is certified through that certificate is eligible deduction. In support of its contention, assessee also filed a rate chart at Page No. 13 of Paper Book and same is reproduced as under: VISHAL FABRICS PRIVATE LIMITED STATEMENT OF COMPUTATI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.10 0 TOTAL POWER GENERATED UNITS 14023208 UNITS 15220300 UNITS 14708800 14889700 14890900 14060310 POWER PLANT CONSUMPTION UNITS 3011739 UNITS 3035967 UNITS 2960203 3032648 3047536 2952422 POWER TO PROCESS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 2382390 2845500 5 DEPRECIATIO N RS. 11149377 RS. 11149458 RS. 11149556 11149446 11107858 11107858 0 TOTAL EXPENSES RS. 145653944 0 . RS. 134243523 0.34 RS. 152393235 0.99 113446520 0.73 96921049 0.62 75206738 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.80 71872809 0.65 47785932 0.45 GENERATING POWER RS. 10304635 RS. 2759866 RS. 26846491 27303887 25048240 27420806 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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