TMI Blog2023 (6) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... o industrial consumers and thus, assessee was justified in adopting ALP of electricity supply to its AEs at rate charged by State Electricity Board and Revenue was not justified in excluding certain heads of charges out of it Accordingly we are of the considered view that the assessee has rightly computed the ALP by adopting the rate of Rs. 6.5 per unit as the arms length rate. Accordingly ground no. 2 of assessee s appeal is allowed. Determining the arms length value for sale of steam at Rs. nil - steam generated by captive power plant of the assessee is transmitted to the plant which manufactures chemicals as well as further processed to generate power - assessee has adopted other method in transfer pricing documentation for benchmarking SDT on transfer of steam, wherein quotation was obtained by MOL from independent supplier and such quotation has been considered by the assessee as the benchmark rate - HELD THAT:- While we are in agreement with assessee that the ALP of steam cannot be determined at Rs. nil , however, at the same time, we are also in agreement with the observations made by the Hon ble DRP that the quotation obtained by the assessee from SSPL also ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making adjustment of Rs. 15,29,80,317/- of specific domestic transaction of sale of steam by eligible unit to the manufacturing unit. Tax Effect: Rs. 5,29,43,428/- b) Ld. TPO/DRP erred in determining arm's length value for sale of steam at Nil. TPO/DRP ought to have accepted the rate charged by the appellant at Rs. 1.21Rs/Unit as at arm's length. Tax Effect: N.A. being alternative contention to Ground 3(a). Your appellant craves leave to add, amend, alter, edit, delete, modify, or change all or any of the grounds of appeal before the appeal is heard and decided. 4. Ground No. 1 is general and it does not require any adjudication. Ground No. 2 (TPO/DRP erred in making adjustment of Rs. 24,42,67,731/- of specified domestic transaction of sale of power by eligible unit to the manufacturing unit) 5. The brief facts in relation to this ground of appeal are that the assessee is engaged in manufacturing chemicals in India. The assessee has two coal based captive power plants and the assessee has claimed deduction u/s. 80IA with respect to one of these plants. During the course of assessment, the TPO in his order dated 31-10-2019 had pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company. 7. The Hon ble DRP observed that the assessee had taken the rate charged by DGVCL as a comparable rate to benchmark the rate of transfer of power from one unit to another unit. The rate charged by DGVCL was Rs. 7.07 per unit whereas the inter unit rate for transfer of power was at Rs. 6.50 per unit by the assessee. Therefore, the assessee claimed that the transactions are at ALP. However, the DRP rejected the contentions of the assessee on the ground that firstly the rate of electricity to be charged by DGVCL is fixed and approved by Gujarat Electricity Regulatory Commission (GERC), which takes into account distribution loss, transmission loss, fixed charges, interest, depreciation, return on equity etc. The TPO has clearly stated in the FAR analysis that the above facts are the key factors in deciding the rate of electricity charged by DGVCL from its customers in open market. Thus, the rate at which eligible unit has sold power to the non-eligible units are not comparable to the rate which is charged by DGVCL from its customers. Secondly, the DRP observed that the assessee had booked profit for the eligible business at approximately 50% of the cost incurred whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas in the instant facts, the assessee is charging a lower rate of Rs. 6.5 per unit. Accordingly, the counsel for the assessee submitted that in the instant case, the assessee has transferred power to its associated enterprises at a price which was lower than the market price. Accordingly, the DRP has clearly erred in holding that cost plus 15% is the correct arms length price and is representative of the market value. 9. In response, the ld. Departmental Representative placed reliance on the observations made by the DRP in its order. 10. We have heard the rival contentions and perused the material on record. We are of the considered view that in the instant facts, it is a well settled principle that where an assessee, being a captive power plant provided electricity to its associated enterprises and claimed deduction u/s. 80-IA, then for the purpose of deduction, market value of power, supplied by the assessee to its associated enterprises should be computed considering rate of power charged by State Electricity Board for supply of electricity to industrial consumers. Further, we observe that the Ahmedabad Tribunal in the case of Gujarat Fluro Chemical Ltd. vs. DCIT 97 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which manufactures chemicals as well as further processed to generate power. The assessee has adopted other method in transfer pricing documentation for benchmarking SDT on transfer of steam, wherein quotation was obtained by MOL from independent supplier and such quotation has been considered by the assessee as the benchmark rate. The TPO rejected the quotation by observing that the quotation has been obtained by MOL on 10-04-2015 and terms and conditions stated that the quotation was valid only up to seven days. Accordingly, the ld. TPO has concluded that the quotation was invalid from 17-04-2015. 12. The assessee filed appeal with respect to this ground of appeal before the DRP. The DRP observed that assessee had benchmarked the transaction by comparing the rate with the quotation obtained from third party Shree Sulphurics Pvt. Ltd. However, the DRP dismissed the assessee s appeal with the following observations:- 6.3 Discussion and Directions 6.3.1 Vide this ground the applicant has agitated adjustment made with respect to sale of steam. The assessee company had two coal based captive power plants which generate steam and power. The steam generated is then trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market rate. Hence the pricing method adopted by assessee is not verifiable with the market rates. VII. It is also seen that assessee had not submitted any separate account for the steam unit. Therefore, even the submission of the assessee also supports the finding that cost or price of the steam cannot be determined separately. VIII. The benchmarking analysis claimed to have been adopted by the MOL and relied upon by the assessee is on the basis of a quotation. However, on perusal of the copy of such quotation, it is found that the said quotation is not backed by any analysis of the valuation of the price so quoted and also without any supporting evidences and hence is liable to be rejected. IX. Assessee had booked profit for the eligible business at approximately 50% of the cost incurred which is more than ordinary profit compared to any ordinary unit engaged in the power generation only not having captive consumption as discussed in the transfer pricing order. X. Steam is a by product and no separate cost is incurred for production of steam. Therefore, considering the facts discussed hereinabove, the steam is used only for the captive consumption an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the ITAT upheld the ALP on the basis of valuation exercise done on the basis of engineering certificate produced by the assessee before the Tribunal for its consideration. However, in the instant facts, no such exercise has been done by the assessee to ascertain the value of steam supplied to its AE. In the case of DCM Shriram Ltd. 140 taxman.com 217 (Delhi Trib), the ITAT held that the steam has a cost and arms length price of steam cannot be determined at nil . Further, the ITAT held that the value of steam can be expressed in terms of equivalent units of electricity that would have been generated and such value is usually higher than cost of steam. In the case of Nectar Life Sciences Ltd. 138 taxman.com 557 (Delhi Trib), the Delhi ITAT held that steam is a form of power and there is clearly a cost for steam generation. Therefore, TPO was not justified in determining ALP of assessee s specified domestic transactions pertaining transfer of steam from eligible to non-eligible units at nil . In this case, the ITAT held that since steam is a form of power and there was clearly a cost for steam generation as per report approved by a chartered engineering and steam unit taken for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power manufacturing unit. Tax Effect Rs. 4,65,08, 658/- b) Ld. TFI DRP erred in law and on facts in disregarding benchmarking method adopted in transfer pricing documents of the appellant company ignoring factual aspects and submissions. Ld. TPO/DRP ought to nave accepted the rate charged by the appellant at Rs. 6.5 Rs./Unit as at arm's length. Tax Effect: NA being alternative contention to Ground 2(a). 3. a) Ld TPO/DRP erred in law and on facts in making adjustment of Rs. 8,47,51 530/- of specific domestic transaction of sale of steam by eligible unit to the manufacturing unit. Tax Effect: Rs. 2,93,31,249/- b) Ld. TPO/DRP erred in determining arm's length value for sale of steam at Nil TPO / DRP ought to have accepted the rate charged by the appellant at Rs. 1.10/Unit as at arm's length. Tax Effect: N.A being alternative contention to Ground 3(a). Your appellant craves leave to add, amend, alter, edit, delete, modify, or change all or any of the grounds of appeal before the appeal is heard and decided. 19. Ground No. 1 is general and does not require any adjudication. 20. We observe that the issues for consideration and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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