TMI Blog2022 (7) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... energy saving devices comprising transformer of different KVA, switchyard and chimney etc. - CIT-A directing the AO to allow the depreciation @ 80% as against the depreciation of 15% allowed by the AO - HELD THAT:- As undisputed facts in all preceding and succeeding years these items of equipments have been treated as part of the energy saving devices and the assessee has been allowed depreciation @ 80%. As decided in M/S MAHARAJA SHREE UMAID MILLS LTD [ 2020 (5) TMI 118 - ITAT JAIPUR] , RAKESH GUPTA [ 2013 (6) TMI 691 - ITAT CHANDIGARH] , MEHRU ELECTRICALS MECHANICAL ENGINEERS PVT. LTD., ALWAR [ 2016 (7) TMI 708 - RAJASTHAN HIGH COURT] held that transformer, switchyard and chimney are integral part of co-generation system and they are in the nature of energy saving devices. The Ld. CIT(A) has also given a very comprehensive items on the cogeneration system and how the transformer, switchyard, chimney are integral part are energy power generation system not analyzing each item. Under these circumstances, we do not find any reason to interfere in the order passed by the Ld. CIT(A). Besides the issue has been accepted by the Department in all the preceding and succeeding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lobal Energy , RPG Power Trading Co, and IEX etc 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. Further no consumer can buy the power in the open market at a rate generation companies sell power to distribution companies. No 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. We also note that decision of the Calcuta High court in the case of CIT Vs ITC [ 2015 (7) TMI 450 - CALCUTTA HIGH COURT] which was relied by the TPO/AO and the functional dissimilarity between CPP and SEB have been considered by the coordinate bench of the tribunal in the case of Star Paper Mills Ltd [ 2021 (11) TMI 1 - ITAT KOLKATA] Therefore , we are inclined to uphold the order of Ld. CIT(A) by holding that the ALC at which the power is procured by noneligible unit from SEB is the most appropriate ALP to bench mark the specified domestic transaction and accordingly the order passed by Ld. CIT(A) is upheld by dismissing the ground no. 4 of the revenue s appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. 2.1. At the outset, the Ld. Counsel for the assessee submitted that this issue is recurring one and is covered in favour of the assessee by the decision of Co-ordinate Bench of Kolkata Tribunal in ITA No. 1273 1274/Kol/2015 in AY 2009-10 2010-11 vide order dated 4.7.2018 and in ITA No. 987/Kol/2017 in AY 2011-12 dated 14.08.2019. The ld counsel submitted that the assessee has suffered net loss on foreign exchange transactions amounting to Rs. 2,28,42,000/- in respect of forward contracts which were outstanding and unsettled at the year end i.e. as on 31.03.2013 and the assessee calculated the loss on these financial instruments/ forward contracts based on the foreign exchange rate on the closing day of the financial year. The ld AR submitted that since no settlement of outstanding forward contract has actually taken place till the year end , the AO held this marked to market loss as notional loss and contingent in nature and accordingly disallowed the same. The Ld. Counsel for the assessee submitted that Co-ordinate Bench has decided the issue in favour of the assessee after following the decision of Hon ble Apex Court in the case of CIT Vs. Woodward Governor India ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion instead of 80% claimed by the assessee. Similarly is the position with regards to chimney. The AO noted that the main function of the chimney is to discharge exhaust gases into the atmosphere at a high elevation so as to avoid nuisance to the people living in the vicinity and hence depreciation has to be allowed as applicable to normal plant and machinery and not 80%. Accordingly the AO recomputed the depreciation and disallowed the excess amount of depreciation of Rs. 2,90,64,652/-. 3.2. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding that the AO has considered these items such as transformer, switchyard and chimney in isolation while the AO ought to have considered all these items as integral part of co-generation power system as the said co-generation system could not have functioned itself without the support and participation of transformer, switchyard and chimney etc. In other words, the Ld. CIT(A) held that all these are the parts of co-generation power system and all these three items were essential part of co-generation power system.. The Ld. CIT(A) allowed the appeal of the assessee by relying on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mann.com 546 (Chandigarh-Trib.), CIT vs. Mehru Electricals Mechanical Engineers (P) Ltd. in [2017] 82 taxmann.com 102 (Rajasthan), Serum Institute of India Ltd. vs. ACIT [2012] 18 taxmann.com 305 (Pune) and CIT vs. K.K. Enterprises [2-14] 51 taxmann.com 190 (Rajasthan) and find that in both these decisions the Co-ordinate Benches have held that transformer, switchyard and chimney are integral part of co-generation system and they are in the nature of energy saving devices. The Ld. CIT(A) has also given a very comprehensive items on the cogeneration system and how the transformer, switchyard, chimney are integral part are energy power generation system not analyzing each item. Under these circumstances, we do not find any reason to interfere in the order passed by the Ld. CIT(A). Besides the issue has been accepted by the Department in all the preceding and succeeding assessment years. Therefore the revenue cannot be allowed to demand a different stand in the current assessment year in this year as there is no change of facts and circumstances during the year vis a vis preceding and succeeding years. The case of assessee also finds support from the decision of Hon ble Apex Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning depreciation in the subsequent year and second proviso to section 32(1)(ii) of the Act does not expressly prohibit the allowance of balance depreciation in the subsequent year by following several decisions of coordinate benches in Kolkatta. 4.3. After hearing the rival parties and perusing the material on record, we find that the issue is squarely settled by the various judicial forums in several cases namely CIT vs. Rittal India (P) Ltd. [2016] 66 taxmann.com 4 (Karnataka), DCIT vs. National Engineering Industrial Ltd. [2022] 135 taxmann.com 193 (Kolkata-Trib.), Century Enka Ltd. vs. DCIT [2015] 58 taxmann.com 318 (Kolkata-Trib.) and Universal Cables Ltd. vs. DCIT [2015] 57 taxmann.com 95 (Kolkata-Trib.). In all the above citations, it has been held that the assessee is entitled to remaining 50% of the depreciation in the subsequent year which was not claimed in the year of addition because of the reasons that the asset was put to use for less than 180 days. The assessee has claimed 50% of the depreciation in consonance with second proviso to section 32(1)(ii) of Act. Accordingly we are inclined to uphold the order of Ld. CIT(A) by dismissing the ground no. 3 of revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions of captive power consumption by the non-eligible unit from the eligible unit. The TPO rejected the ALP determined by the assessee and considered the third parties to whom the eligible unit supplied power during the year as tested party and came to the conclusion that the price at which the power was sold to these third parties at 3.65 per unit would be the ALP. Accordingly the TPO recommended adjustment to the tune of Rs. 6,37,37,035/- and the draft assessment was passed making adjustment to the tune of Rs. 6,37,37,035/- to the total income of the assessee. However since the total income of the assessee was computed at loss and therefore deduction u/s 80IA was not available in the AY 2013-14 and thus it has no impact on the total income of the assessee. Nonetheless, it has certainly effect in subsequent years and hence the assessee assailed the order of TPO/AO before the Ld. CIT(A). 5.2. The Ld. CIT(A) allowed the appeal of the assessee by holding that the specified domestic transactions entered into between the eligible unit and non-eligible unit are at ALP as the assessee has valued the transactions at a rate at which the power is procured by non-eligible unit from SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. From the foregoing facts, the question to be decided is that for application of CUP Method what should be the most appropriate data and the price to be adopted. It is well understood that CUP Method can be applied where AEs buy or sell similar goods or services in comparable transactions with unrelated enterprises or when unrelated enterprises buy or-sell similar goods or services, as is being done between the AEs. The CUP Method, can' be broadly classified into two categories i.e. Internal CUP Method External CUP Method. Under the Internal CUP Method, the transaction between the AEs involving buy or sell of goods services are comparable to the transacted conducted by any of the AEs with unrelated parties for buy or sell of similar goods or services under similar conditions. However when such internal data is not available, then one may apply external CUP which involves comparison of prices paid/ charged between two unrelated third parties in uncontrolled conditions with the transaction conducted between the AEs. 4. From the material on record it is noted that although the eligible CPP supplied power to AE as well as non-AEs, the price realized from non-AEs did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. 5. On the other hand, I find that the benchmarking exercise followed by the appellant not only fulfils the internal CUP parameters but reliable data is also available in this regard. The landed cost payable to the SEB represents the rate which' is available in open market and determined under uncontrolled conditions and is hence a reliable Internal CUP available in the given facts of the case. I therefore find merit in the submissions of the Ld. AR. as well as the TPSR that the average landed tariff rate notified by the SEB is a fair, reliable and reasonable basis to benchmark the transfer value of power procured by the non-eligible undertaking from the eligible unit. The coordinate Benches of the Tribunal at Kolkata have allowed the assessee's claim for deduction under Section 80IA in respect of profits of CPPs by taking selling price of electricity equal to the landed cost at which the- electricity was supplied by SEBs to the assessee's other Units consuming electricity. Dy.CIT Vs Kanoria Chemicals Industries Ltd (ITA No.944/K/16) Graphite India Ltd Vs Addl.CIT (ITA No. 304-305/K/08) Birla Corporation Ltd (ITA Nos. 971/Kol/ 2012 298/Kol/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat Alkalies Chemicals Ltd (supra) held that the valuation of electricity provided by eligible unit to another non-eligible unit for the purposes of Section 80IA(8) should be at rate at which electricity distribution companies were allowed to supply electricity to consumers. 10. For the reasons set out in the foregoing therefore I hold that the methodology and benchmarking performed by the appellant (also judicially approved by higher judicial forums discussed above) was justified! Accordingly the Ld. AO/TPO is directed to delete the transfer pricing adjustment and further direct the Ld. AO/TPO to grant the deduction u/s 80IA based on the transfer price of Rs.6.71/unit in respect of the power supplied by the CPP to noneligible unit of the appellant. 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. Ground Nos. 6 7are therefore allowed. 5.3. The ld. D.R. vehemently argued before the Bench that the Ld. CIT(A) has erroneously deleted the addition by taking ALC non-eligible unit of Rs. 6.71 per unit as the rate for bench marking the captive cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of power from eligible unit to non-eligible unit. The Ld. A.R. referred to the following decisions to defend his arguments: i) CIT vs. Reliance Industries Ltd. [2019] 102 taxmann.com 372 (Bombay) ii) CIT vs. Gujarat Alkalies Chemicals Ltd. (ITA No. 544 of 2016) (Guj HC) iii) CIT vs. Reliance Infrastructure Ltd. (ITA No. 2180 of 2011) (Bom HC) iv) CIT vs. Godawari Power Ispat Ltd. (223 Taxman 234) (Chhat. HC) v) ACIT vs. Birla Corporation Ltd. (ITA No. 971/Kol/2012)(ITAT Kol) 5.5. The Ld. A.R. has submitted that in the following cases non-eligible manufacturing unit was treated as tested party and ALC at which the power is purchased by the tested party from SEB was held to be most captively ALP consumed to benchmark the transfer price of power supplied by the eligible unit to the noneligible unit: i) Star Paper Mills Ltd. vs. DCIT [2022] 134 taxmann.com 177 (Kolkata-Trib.) ii) DCIT vs. Balarampur Chini Mills Ltd. (IT Appeal No. 1672 (Kol) of 2019, dated 5.5.2021) Finally the Ld. A.R. submitted that the arguments by the Ld. D.R. that the power sold to independent parties at Rs. 3.65 per unit should be taken as the arm s length price for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as tested party and the price at which the power was sold to these independent parties at 3.65 per unit would be the ALP of the domestic specified transactions. Accordingly the TPO recommended adjustment to the tune of Rs. 6,37,37,035/- and the AO passed the draft assessment. However since the total income of the assessee was computed at loss, deduction u/s 80IA of the Act was not available in the AY 2013-14 as it was not having any impact on the total income of the assessee. The assessee challenged the issue as it had impact on the subsequent years. According to the assessee the internal CUP has to be used for the determination of ALP at which the non-eligible unit/manufacturing unit procured the power from unrelated party i.e. SEB. Now the issue before us whether the CUP method can be applied to bench mark specified domestic transactions of transferring power by CPP to non eligible unit where the CPP sells the similar goods or services to unrelated enterprises. We have also perused the provisions as contained in Rule 10B of the Income Tax Rules which provide as to where the CUP can be and has to be applied. We observe from the said rule 10B that we have to see the price at whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generation of power which in turn can be used for operating the manufacturing plant. For this purpose, the assessee had such generation plant in the immediate vicinity of the manufacturing unit. The Ld. CIT(A) also noted that since the manufacturing unit of the assessee was generating huge poisonous gases, therefore the power plant of the assessee has to be set up. The power generated by consuming the waste gases was in surplus and much higher than the power required by carbon black manufacturing unit and thus the excess power generated has to be sold in the open market at the lower rate as the power is a highly perishable commodity which cannot be stored for the future. On this reasoning, the Ld. CIT(A) has come to the conclusion that the selling the power by CPP in the open market was under compelling circumstances and was targeted to recover only the cost of power generation and therefore such price cannot be considered as representative of market value of the commodity under uncontrolled conditions. According to Ld. CIT(A), the excess surplus power sold in the open market at a price which was lower than the price at which the manufacturing unit procured electricity from the SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the sale of power by SEB and IEX etc to different categories of consumers. Thus the power sold by the CPP to unrelated parties namely Noida Power Co Ltd, Global Energy , RPG Power Trading Co, and IEX etc 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. Further 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. We also note that decision of the Calcuta High court in the case of CIT Vs ITC 236 Taxman 612 which was relied by the TPO/AO and the functional dissimilarity between CPP and SEB have been considered by the coordinate bench of the tribunal in the case of Star Paper Mills Ltd Vs DCIT in ITA No. 127/Kol/2021. Therefore , we are inclined to uphold the order of Ld. CIT(A) by holding that the ALC at which the power is procured by noneligible unit from SEB is the most appropriate ALP to bench mark the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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