TMI Blog2022 (2) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... ble unit to non eligible unit - As relying on assessee own case for the A.Y. 2013-14 [ 2021 (9) TMI 1420 - ITAT DELHI] steam is a form of power eligible for deduction u/s.80IA and same cannot be denied by taking its steam cost at Nil. Further. He has grossly erred in ignoring the audited certificate by Senior Chartered Engineer who is an approved valuer by Income Tax Department and the Cost Accountant appointed by the Central Government without any accounts report, without any agency or expert. Accordingly, for this unit also, we hold that no transfer pricing adjustment is required. Appeal of assessee allowed. - ITA No. 1497/Chd/2019 - - - Dated:- 17-2-2022 - Shri. N.K. Saini, VP Shri Sudhanshu Srivastava, JM For the Assessee : Shri Yogesh Monga, CA. For the Revenue : Shri Sarabjeet Singh, CIT, DR. ORDER PER N.K. SAINI, VICE PRESIDENT This is an appeal by the Assessee against the order of the A.O. dt. 30/09/2019 passed under section 144C(13) r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act ) in pursuance to the direction given by the Dispute Resolution Panel-1 under section 144C(5) of the Act vide order dt. 25/07/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-eligible unit at COSt. There are number of IT AT/ High Court/ Supreme Court judgments which have held that profit on transfer of steam is eligible for deduction u/s 80-IA of the Income Tax Act 1961. Had the Arm's Length Price of the steam is to be considered at the cost of generation of steam, there would have been no need of any judgment on this issue. 3.2 also erred in making addition of Rs. 17,26,84,710 on transfer of steam as against deduction of Rs. 14,40,12,290 claimed by the assessee u/s 80-IA for transfer of steam. 4. That the Ld. AO/TPO erred on facts and in law in initiating penalty proceedings u/s 271(l)(c) of the Income Tax Act 1961 despite the fact that complete information was disclosed and nothing was concealed. 5. The assessee craves leave to alter, amend or withdraw all or any of the objections herein or at any further grounds as may be considered necessary and to submit such statement/documents and papers as may be considered necessary either before or during the hearing. 3. Ground Nos. 1 5 are general in nature while Ground No. 4 is prematurely raised so these grounds do not require any comment on our part. 4. Vide Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aug-14 5,798,300 1,085,700 4,712,600 6.72 31,668,672 Sep-14 5,568,500 1,109,900 4,458,600 6.72 29,961,792 Oct-14 4,966,600 1,033,500 3.933.100 6.72 26,430,432 Nov-14 4,478,500 1,021,900 3,456,600 6.72 23,228,352 Dec-14 5,410,100 1,032.300 4,377,800 6.72 29,418,816 Jan-15 5,469,000 1,017,500 4,451,500 6.72 29,914,080 Feb-15 4,737,100 969.100 3,768,000 6.72 25,320,960 Mar-15 5,276,100 1,083,524 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are prescribed methods under transfer pricing guidelines which has to be followed while benchmarking any of the transaction. The methods prescribed under the Income-tax Act, 1961 are as unden- 1. Comparable Uncontrolled Price Method 2. Transactional Net Margin Method 3. Resale Price Method 4. Cost Plus Method 5. Profit Split Method and 6. Any Other Method prescribed by the Board. 7.13 The assessee has submitted that they have applied CUP method for benchmarking the transaction. Now the issue arises is that whether the assessee has applied correct CUP or not. On verification of the facts it is found that the assessee has applied wrong CUP. The assessee has applied CUP taking base rates for purchase of power. The correct CUP in this case is taking rates for sale of power. It may be mentioned that purchase price of electricity and sale price of electricity are different. The assessee has assumed value which was beneficial co them, but forget that it was not the correct price. The sale rate is much lower than the purchase rates. 7.14 It may be mentioned that sale rates of producers cannot be equated with the purchase rate of end user ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IEX has submitted day to day average rate is Rs.3.499 per unit. It can be seen that average rate of power traded at IEX during F.Y.-2014-15 was Rs.3.499 per unit. It may be mentioned that trading rates at registered Exchanges can be taken as basis to draw comparability. Therefore, these rates are taken as basis for taking comparable rates. The assessee has shown sale rate at Rs.6.72 per unit by applying wrong CUP. Therefore, proper CUP is applied and rate of sale of power is taken at Rs. 3.499. 7.18 Therefore, it is seen that the units which are not used for captive consumption are calculating their profit at actual rate i.e. purchase rate of different parties but where the power is used captively the sale rate is taken as sale rate of SEBs. Thus the assessee itself is applying two methods for calculating profits of its different units. 7.19 Assessee's submission has been considered by the TPO, The assessee has compared sale of Punjab State Power Corporation with assessee's sale rate. It may be mentioned that both have different functions and cannot be compared. Punjab State Power Corporation is a trader where as the assessee is a producer, therefore, fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power plant 46529176 31,26,76,063 6.72 24,26,26,388 7,00,49,674 On the basis of above discussion, an adjustment of Rs. 7,00,49,674/- is hereby made to the purchase price of power by the non-eligible units front captive power plants. 5.2 During the year under consideration the assessee s power plant generated and transferred steam to generate electricity units and to manufacturing processes of various pharmaceutical and phyto-chemical products. The assessee submitted before the T.P.O as under: Month Total Steam Generated (MT) Steam used for Generation of Electricity Units (MT) Steam transferred to Manufacturing Processes (MT) Rate/MT Revenue Apr-14 38,366 12.404 25,962 2,160 56,077,920 May-14 38,377 12,410 25,967 2,160 56,088,720 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. On the basis of average electricity unit rate actually paid by the assessee company during FY 2014-15. (Rs.7.48X 386.71) Rs. 2,892.59 J. On the basis of electricity unit rate charged by Punjab State Power Corporation Limited (PSPCL) for FY 2014-15. (Rs.7.15 X386.71; Rs. 2,764.68 For the purpose of calculating the profitability of Power Plants, company has considered steam rate of Rs. 2,160/ MT (same as in previous FY 13-14) which is less than all the three rates above. Therefore, Steam rate of Rs. 2,160/ MT can be treated as Arm's Length Price. 5.3 As regard to bench marking of transfer of steam from captive power plant to non eligible unit, the TPO noted that the assessee for the purpose of calculating the profitability of power plant has considered steam rate of Rs. 2160 per MT and claimed the same to be at arms length price. The submission of the assessee are reproduced by the TPO at para 9 of his order, for the cost of repetition the same is not reproduced herein. The TPO did not find merit in the submissions of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumptions only. The wastage on exhaust, friction etc. have not been attributed to the power and steam segments and the costs of condenser steam has also not been attributed between the two. Thus these segmentals cannot be accepted. 9.7 The assessee was required to submit Statement of Cost of Production of steam manufactured during the period 01-04-2014 to 31-03-2015 in accordance with the Cost Accounting Standard- 4 (CAS-4) issued by the Council of the Institute of Cost and Works Accountants of India on Cost of Production for Captive Consumption . Since, Statement of cost of production of steam manufactured during the period 01-04-2014 to 31.03.2015 is based on assumption provided by management, it does not stand the test of authenticity. The details of actual production and transfer value of steam during the year, the same are only based on assumptions, surmises and conjectures based on average calorific value of biomass, assumed costs etc. 9.8 Also, while applying CPM no market comparables have been identified by the assessee in the Transfer Pricing Study. On the basis of the above observations, the transfer pricing study report regarding steam is proposed to be rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purpose the assessee has to select the most appropriate method. This view has been propounded in several judicial decisions [e.g. Aztech Software Technology, ITAT, Bangalore 294 ITR (AT) (32); Maruti Suzuki India Ltd (Delhi High Court) (2010-TII-01-DEL-TP); Cherokee India Pvt. Ltd, ITAT, Mumhai (2011-TIM 03-ITAT-Mum-TP), etc]. Further, if the assessee does not benchmark the transaction by following the most appropriate method the TPO has power to adopt the most appropriate method (refer Serdia Pharmaceuticals(2011-TII-02-ITAT-MUM-TP) , Cherokee India, Aztech Software, etc). 9.14 As held by the ITAT in the case of Aztech Software (supra), it is the duty of the taxpayer to furnish complete information not only about the transactions entered into by it with the AE but also about the comparables cases as the assessee is in that field and has knowledge about the comparables also. The ITAT further held that if the taxpayer does not furnish such information the TPO would be justified in determining the arm's length price on the basis of the information available with him. For some of the questions the taxpayer has simply stated that it is no privy to the information related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct by following the earlier order for the A.Y. 2014-15. The objections raised by the assessee were rejected, the relevant findings are given by the Ld. DRP in para 2.2.4 to 2.2.5 of the order dt. 25/07/2019 which read as under: 2.2.4 In our Directions for AY 2014-15 (supra) the DRP have observed and directed as under: 2.2.2 We have considered the submissions of the assessee and the TP order. We have also considered the judgments relied upon by the assessee. The various judgments referred to by the assessee have held that in terms of the provisions of sub-section (8) of s. 80IA of the Act the 'market value' referred to in the Explanation below the sub-section (8) should be taken as the rate, in this case the rate of power, to a consumer in the open market and not the rate at which power is sold to supplier. Thus, unambiguously it is held in these judgments that the rate at which the supplier sells in the open market should be considered for benchmarking the transactions. Therefore, the rate at which IEX or the Electricity Boards sells power to the consumer are para materia for determining the ALP of the impugned transactions. IEX is the central exchange which buys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the direction of the Ld. DRP the A.O. passed the assessment order dt. 30/09/2019 and made the addition of Rs. 6,95,84,383/- on account of transfer of power by observing in para 2.4 of the assessment order dt. 30/09/2019 which read as under: 2.4 In compliance of the directions of Hon'ble DRP u/s 144C(5) of Income Tax Act dated 25/07/2019, the concerned Transfer Pricing officer-1(3)(2), New Delhi passed an order dated 19.09.2019 giving effect to directions of Hon'ble DRP by revising the TP adjustment to Rs. 24,22,69,093/- against the earlier adjustment of Rs. 82,35,82,954/-. The relevant portion of the TP adjustment made by the ACIT, Transfer Pricing Officer-1(3)(2), New Delhi is reproduced as under: Adjustment on account of transfer of Power:- On this ground the Hon'ble DRP observed that the adjustment made by the TPO by taking the average of the rate of IEX and rate specified by Punjab State Electricity Regulatory Commission is upheld so however that the rate of Rs. 6.95 per unit for biomass steam plant should be adopted. Accordingly the revised adjustment on account of transfer of power is recomputed as under:- Adjustment as per directions of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing Adjustment of the specified domestic transaction has been with regard to sale of electricity units to the other unit for manufacturing process of pharma and phyto-chemical products. 18. In so far as sale of electricity unit from eligible unit to other manufacturing units, it is seen that, assessee had sold the electricity @ 6.72 per unit. Ld. TPO has rejected the assessee s method of benchmarking at the said rate by holding that average sale rate as per Indian Energy Exchange is much lower, i.e., 2.81909 per unit as against sale made by the assessee of Rs.6.72 per unit. He has incorporated the detail obtained by him u/s. 133(6) from IEX which gives the average price of power trade in the exchange. From the submissions made before us as well as before the authorities below, the assessee s main contention has been that the rates of IEX cannot be applied, because, firstly, there was no trade of Biomass based power plant in Punjab; and secondly, there was no actual delivery of electricity unit in this year. The other reason given has been highlighted in paragraph 9. 19. Here, in this case, what needs to be benchmarked for is, whether the sale of electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -IA computed on basis of rates chargeable by distribution licensee from consumer and such benefit could only be claimed on basis of rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. c. Supreme Court of India in the case of ITC Limited v/s Commissioner of Income Tax Kolkata - III [2016] 74 taxman.com 244, has held as under SLP granted against High Court's ruling that assessee's power generating unit could not as such claim any benefit under section 80-IA computed on basis of rates chargeable by distribution licensee from consumer and such benefit could only be claimed on basis of rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. d. High Court of Delhi in the case of Commissioner of Income Tax v/s Orient Abrasive Ltd. [2014] 271 CTR 626. 20. Once there was a direct internal CUP, i.e., the assessee company had purchased electricity from Punjab State Power Corporation at Rs.7.57, then it represents the market rate on which any industry undertaking or consumer is getting the electricity. Thus, we do not find any reason as to why such market rate or CUP should be rejected. Nowh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manner specified hereinabove in paragraph 13. 22. Thereafter, the cost plus method was adopted and also the ld. TPO has required the assessee to furnish the cost of the steam produced. In response, the assessee has filed a report from approved senior chartered engineer who has given his report and the details of working. The ld. TPO without any cogent material or any expert report has rejected the working. Even if the cost plus method is adopted as held by the TPO, then how can he take the cost of steam at Nil and held that it is biomass which is byproduct therefore there is no cost. Such an observation of the TPO is de hors any proper reasoning because from a bare perusal of the calculation as given in the report as incorporated above in paragraph 14, we find that formula has been given as to how one ton rice husk has generated 3.96 MT of steam and also the basis for working of steam based on various factors including the steam from boiler sent to turbine at 100%. It has been demonstrated before the authorities below that the total steam generated in turbines was 232,688,432 M Kcal, out of which 46,526,053 M Kcal steam (20%) has been used for generating electricity units ..... X X X X Extracts X X X X X X X X Extracts X X X X
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