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TMI Blog2023 (12) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... hold as per section 92BA is crossed, market value has to mean the arm's length price or ALP i.e. as per limb (ii) of the said Explanation 3. The Ld. CIT(A) has erred on the facts and in law in upholding the internal CUP (SEB rate) applied by the assessee to benchmark the transaction (sale of power) to its AE, as well as computation of deduction under section 80-IA of the Act, whereas as per explanation to section 80IA(8) of the Act. "'market value", in relation to any goods or services, means-nso3 9 i. The price that such goods or Services would ordinarily fetch in the open market; or ii. The arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. 4. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that the assessee's generating unit (the CPP) cannot as such claim any amount of benefit under Section 80-1A of the I.T. Act computed on the basis of rates charged by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute that both these CPPs are qualified as eligible units for claiming deduction u/s 80-IA of the Act. The CPPs transferred power to the manufacturing units and the transfer rate was ascertained by the assessee at the rates of Rs.6.81 and Rs.5.78 per unit respectively. Since the transfer of power was between related entities, the same qualified as specified domestic transaction u/s 92BA read with Section 80-IA(8) of the Act. The assessee got conducted a transfer pricing study for the same. In the Transfer Pricing Study Report (TPSR') it was noted that after undertaking Function, Asset, and Risk (FAR) Analysis, it was concluded in the report that these CPPs were electricity providers to the manufacturing units bearing normal risks associated with the said activity. It is also undisputed that the manufacturing units, besides obtaining power from the CPPs in question, also bought power from the State Electricity Boards (SEB) at tariffs at which such power was available to industry in their states. The assessee company, therefore, asserted that the CPPs could be expected to charge the same rate for supply of power by them which the noneligible/ manufacturing units were paying to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was based on an in-built mechanism that ensures permissible profits to the power generators. The TPO thus, held that the benefit u/s 801A of the Act can accordingly be claimed only on the basis of the rates charged for sale of power by the generating companies to the distribution company. The TPO noted that the assessee's computation of arm's length value of power sold to AE was based on the market value concept, which according to him, was no longer applicable after introduction of transfer pricing provisions laying down arm's length pricing provisions in place on market value. The Ld. TPO also noted that a strict degree of comparability was required under the CUP method and in terms of Rule 10B of the Income Tax Rules,1962, the comparison of similar transactions to determine the Arm's Length Price (ALP) for sale of power was required. The Ld. TPO observed that the assessee operated a CPP which was a manufacturing unit and it was selling power to a consumer viz., the assessee's manufacturing unit, whereas the State Electricity Board was a marketing and distribution company that would buy power from a manufacturer and further distribute to the customers. The Ld. TPO thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as tested party was wrong as it was highly regulated and did not depict the true picture of market rates as these generation companies were not allowed to sell the power to consumers in the open market. The assessee asserted that the ALP should be taken at the average market value at which the manufacturing units purchase power from unrelated third parties. The assessee, therefore, asserted that the CUP method, with the manufacturing unit as the tested party and the open market rate from SEBs as the Comparable Uncontrolled Price, accurately determines the arm's length price for benchmarking the sale of power by CPPs to the non-eligible unit. 4.3 The ld. CIT(A), after considering the submissions made by the assessee, by way of a detailed order, deleted the additions made by the AO on account of transfer pricing adjustments in relation to the price of power sold by the section 80IA eligible CPP units of the assessee to the non eligible manufacturing units of the assessee. 5. We have heard the rival contentions of the parties and have also gone through the record. 6. The ld. DR has strongly relied upon the observation made by the Transfer Pricing Officer and has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble circumstances, it is reasonable to conclude that the rate is consistent with the ALP standard from an Indian Transfer Pricing Regulations perspective. (The detailed analysis for this is placed in the TPSR of the assessee company for the Chaliyama Unit for the relevant year at Serial No. 3, page 126 of our Paper book for A.Y. 2019-20) * The rate charged by the Kamanda CPP was Rs. 5.78/- per unit for supply of power at a high voltage of 33kV. The applicable rate of WESCO (Western Electricity Supply Company of Odisha) utility for a similar end-consumer under comparable circumstances (high-tension voltage lines) as per the tariff order of Orissa Electricity Regulatory Commission (OERC) for F.Y. 2018-19 is Rs. 6.17. As the price benchmarked by the assessee for the sale/ transfer of power by the Kamanda CPP is lower than the price provided in the tariff order by OERC for an end-consumer under comparable circumstances, it is reasonable to conclude that the rate is consistent with the ALP standard from an Indian Transfer Pricing Regulations perspective. (The detailed analysis for this is placed in the TPSR of the assessee company for the Kamanda Unit for the relevant year at S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Chaliyama CPP to the grid was made in a compelling circumstance and with a view to realise some value for power which otherwise would have gone to waste. Thereby, it can be said that the price realised by the CPP undertaking under compelling circumstances cannot be considered as representative of the market value of power under uncontrolled conditions - which is the method and object of the CUP Method in arriving at the Arm's Lengths Price (ALP). Since, the sale of excess/ surplus power was made only with a view to ensure that power generated does not go to waste or is lost, the price so realised did not constitute ALP of power. In this regard, reliance is placed upon the judgment of ITAT, Kolkata in the case of ACIT v. Philips Carbon Black Ltd. (ITA No. 2628/ K/ 19) (A.Y. 2013-14) dated 05.07.2022 (Copy of the order is annexed in the Paper book of Judgments submitted and is marked as Annexure: 'T', relevant Page 233 of Paper book), wherein the facts were similar and the CPP has generated surplus power which was sold not just to the Associated Enterprise (Manufacturing Unit) but also to non-AEs. And such price realised by the CPP from the sale of power to non-AEs did not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units be considered to determine the transfer/sale price of power by the eligible units to the Appellant. The Ld. TPO's contention was that the functional profile of a generation company should be compared to the price that is charged by another generation company. The Ld. TPO summarises his reference to the decision of the Hon'ble Calcutta High Court in the case of CIT v. ITC Limited reported in 236 Taxman 612 (Calcutta High Court) in support of his decision to reject the benchmarking of price of the power supply done by the assessee. 6. Thus, the Ld. TPO rejected the analysis undertaken by the Appellant in considering the Grid rate of SEB for benchmarking the power supply transaction by holding that the same is not comparable with the eligible CPP unit. The Ld. TPO computed the quantum of adjustment as under: For A.Y. 2019-20 (Page 7 of Ld. TPO's Order): d to theAppeal taken by the department before the Hon'ble ITAT, it is humbly submitted that each and every ground has been elaborately discussed by the Ld. CIT(A) in his order, in context of the facts of the A.Y. and in light of the precedents of Co-ordinate Benches of the ITAT and several High Court pronouncements. 8. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l consumers (similar to the assessee) in the same State, which thus represents the prevailing market rate. 11. It is vehemently submitted that the application of the CUP method requires a high degree of comparability not only in the products (in this case 'power') sold and services provided but also in the economic circumstances in which the transactions take place. One should examine the market conditions in which the electricity is being sold. The tariff orders relied upon by the TPO operates in an altogether different market, which is the Business to Business (commonly known as B2B) Model. This tariff rate is the rate at which electricity is purchased by distribution companies from generation companies. The conditions of this market are different and distinct from the consumer market. In the circumstances, when the market conditions of the comparable transaction cited by the TPO are not similar to that of the assessee, his application of CUP fails. It is stated that as per our contention, the comparable market condition, in the facts of the present case, is the Business to Consumer (commonly known as B2C) Model. This market comprises of rates at which the ultimate consumers (m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied even when MAM is CUP. This proposition and reliance on the ICAI's Guidance Note that the tested party must be identified even when the MAM is CUP was given credence in the case of DCIT v. BalrampurChini Mills Ltd. (ITA No. 1672/ K/ 19) (A.Y. 2016-17), order dated 05.05.2021 & Star Paper Mills Ltd. v. DCIT (ITA No. 127/ K/ 21) (A.Y.: 2016-17), order dated 26.10.2021. 14. In this case, the assessee has taken that the tested party as the non-eligible units (which are the manufacturing units) and whereas, the TPO has taken the tested party as the CPP i.e. the eligible unit. In our humble submissions, the profit of the noneligible unit also must be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases power from unrelated third parties. No other function, etc. are in question. It is our submissions that taking the manufacturing unit as tested party for the purpose of determination of ALP with MAM being CUP, cannot be found fault with. 15. It is humbly submitted that the TPO has chosen to take the price specified in the respective tariff orders of the respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P is the most appropriate method. In a case where such reliable internal data is not available, one resorts to application of external CUP which involves comparison of prices paid/charged for the same goods between two unrelated third parties, with the transaction conducted between the AEs. 18. It is humbly submitted that there is no dispute between the department and the assessee that the Most Appropriate Method (MAM) to benchmark the transfer price of power is the CUP method. According to the TPO/Revenue, the average rate at which the power generating stations sold power to the Grid, in terms of the notified tariff order, constituted the representative arm's length price. Per contra, it is the assessee's contention that the rate at which the non-eligible unit/ unrelated industrial end-consumer of power at high voltage procured power in an uncontrolled transaction from an unrelated entity viz. SEB, was the right basis for determination of ALP. Hence, the question for the Hon'ble Bench's consideration is what ought to be the most appropriate data and the price to be adopted for applying the CUP Method. The dispute is regarding the manner of benchmarking the transfer price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power as DISCOMs to end-consumers was taken as the ALP rate to benchmark the transfer price of power supplied by the CPPs to the non-eligible units. This was done keeping in mind the transfer pricing principles of strict product comparability, whilst determining the Arm's Length Price of power, in the instant case. 21. It is also important to note that the non-eligible (manufacturing) unit comes under the category of High Tension (HT) industrial consumers of electricity. Thus, energy charges for HT Industrial Consumers at corresponding voltage and demand as per the Tariff Order of OERC/ JSERCought to be considered as comparable uncontrolled price for determination of arm's length price. 22. It is humbly submitted that the AO committed an illegality in computing the market value by taking into account the rate of power charged by a generating power station. It should have been compared with the market value of power supplied to an endconsumer. This question has come up for consideration before the Hon'ble Bombay High Court in the case of CIT Vs Reliance Industries Limited [2019] (102 taxmann.com 372) wherein the Hon'ble Court after considering the judgment of the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket value of power supplied to a consumer. 33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power. 34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders. 35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals have no merit. They are dismissed." (B) CIT Vs Reliance Industries Ltd (421 ITR 686) (Bom HC) 4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assessee- company and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates, the High Court held that the price at which electricity generating company sold power to SEBs was the only available open market rate. However, subsequent to the enactment of Electricity Act, 2003, the functioning of the power sector was liberalized as the business became de-regulated and it was legally permissible for the private CPPs to supply power to other consumers and the prices could be determined through competitive bidding process or any other mutually agreed terms. Hence, the decision of Calcutta High Court (supra) is not applicable to the relevant FY 2018-19 in question, i.e. post introduction of the Electricity Act, 2003. In our case, it is humbly submitted that both the Energy Regulatory Commissions of Jharkhand & Orissa (JSERC & OERC) vide their respective Notifications have in exercise of the powers conferred under sub-sections (2), (3), and (4) of Section 42 read with Sections 39, 40, 86 and 181 of the Electricity Act, 2003 (36 of 2003) and all other powers enabling them in that behalf, have passed regulations for the introduction of open access to the intra-state transmission and distribution systems and terms and conditions thereof. They have liberalised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at such goods or services would ordinarily fetch in the open market. According to the A.O., such market value was to be ascertained from the view point of the power generating undertakings claiming the deduction and not from the perspective of the manufacturing undertaking which was the captive consumer of the CPP. We note that the A.O. proceeded on the premise that the CPP owned by the assessee was not allowed to sell its power to the final consumer but was allowed to sell the same only to grid of the SEB in case of excess production. Save and except such monopoly buyer, the CPP was not permitted to sell power to anyone else. According to the A.O., therefore, the market value which the assessee was likely to fetch by sale of excess power to monopoly buyer like SEB represented the market value. In the AO's opinion the rates at which the SEBs were selling power to the consumers were much higher than the price at which the power was purchased from the CPPs because in addition to profit margin of the SEB, such price also included the costs towards distribution, storage, transmission losses etc. 22. We note that the sole basis for AO's inference against the assessee was his b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from all controls. The said policy further clarified that the captive generating plants were permitted to sell electricity to licensees and consumers when they were allowed 'open access' by SERCs under section 42 of the Electricity Act, 2003. The tariff policy issued by Government of India on 06.01.2006 also provided that the sole purpose of freely allowing captive generation was to enable industries to access reliable quality and cost effective power. As per the recommendation made, the SERCs were required to encourage the distribution licensees to procure power from CPPs through competitive bidding on a composite tariff basis. From a conjoint reading of the provisions of the Electricity Act 2003, KERCs 'open access' Regulation notified in 2004 and the order of the KERC dated 27.02.2007, it therefore, appears that there was no statutory bar on the CPPs to sell electricity to any third party and that too at the rate mutually agreed by and between the parties. We, therefore, find that the very foundation on which the A.O. held that the assessee had no option but to sell electricity to SEB alone was factually wrong and misplaced and therefore, legally untenable in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.6.1. We have already seen that the ITC's case in Hon'ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue" has been defined in Explanation to Sec.80IA(8) of the Act as the "the price that such goods or services would ordinarily fetch in the open market". In India the business of generation of electricity and its distribution is governed by the Indian Electricity Act, 2003. The electrical power system mainly consists of generation, transmission and distribution. For generation of ( electrical power there are many Public Sector Undertakings and private owned generating stations (GS). The Electrical transmission system is mainly carried out by central government body PGCIL (Power grid corporation of" India limited). To facilitate this process, India is divided into 5 regions : Northern, Southern, Eastern, Western and North eastern region. Further within every state we have a SLDC (state load dispatch centre). The distribution system is carried out by many distribution companies (DISCOMS) and SEBs (State electricity board). There are two tariff systems, one for the consumer which they pay to the D1SCOMS and the other one is for the DISCOMS which they pay to the generating stations. The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricity to the public under the Act (Electricity Act, 2003) shall be eligible for open access to the intra-state transmission lines or associated facilities of the STU or any Transmission licensee on payment of charges as may be specified by the Commission, for using the transmission system of the Transmission Licensee. It was submitted that power generators in West Bengal are free to trade in power on exchange or sell excess power to third parties. Therefore, the judgment of the Hon'ble Calcutta High Court in case of ITC Ltd., (supra) will not apply to the case of the Assessee. 49. It is clear from the rival contentions that determination price at which Power generated can be sold is subject to statutory control under the provisions of Sec.61 & 62 of The Electricity Act, 2003. The Hon'ble Calcutta High Court In its decision rendered in the case of ITC Ltd. (supra) has specifically observed that in the case before it electricity generated by the Assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. No arguments were advanced before the Hon 'ble High Court nor did it dea1 with applicabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 80IA in respect of CPP shall be computed by taking the per unit selling price of electricity equal to the rate at which the assessee purchased the electricity from SEB. 29. The landed cost payable to the SEB by the non-eligible units represents the rate which is available in open market and determined under uncontrolled conditions and is hence a reliable CUP available in the given facts of the case of the assessee to determine the ALP. Hence, after the detailed discussions and elaborate analysis, the order of the Ld. CIT(A) cannot be found fault with." 8. We have considered the rival submissions and also gone through the orders of the lower authorities. Before proceeding further, it will be relevant here to reproduce the relevant provisions of section 80IA(8) of the Income Tax Act: 80IA(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which the property ,goods or service has been acquired under similar market conditions. It is also settled that choice of tested party is of lesser significance for the purpose of application of CUP method but instead key factor in application of CUP is product comparability and similar market conditions. Further the CUP method can be classified into two categories i.e. internal CUP method and external CUP method. Under internal CUP method the transactions between the AE's involving buying or selling of goods and services are comparable to the transaction entered into by the AE's with the unrelated parties for buying and selling similar goods and service under similar circumstances. However when such internal data was not available then one may apply external CUP which involves comparison of price paid/charged between the two unrelated parties in uncontrolled condition for transactions entered into between the AE's. In the instant case as noted elsewhere hereinabove that the CPP bench marked the transaction with non eligible unit at a rate at which power is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the open market at a price which was lower than the price at which the manufacturing unit procured electricity from the SEB cannot the arm's length price of the power. Thus, the Ld. CIT(A) reversed the order of TPO/AO by directing that the price at which the SEB sold power in the open market under uncontrolled conditions is reliable internal CUP and accordingly came to the conclusion that ALC notified by the SEB is a fair, reliable and reasonable basis to bench mark the power procured by non-eligible unit from the eligible unit. The Ld. CIT(A) while allowing the appeal of the assessee has relied on the series of decisions namely PCIT vs. Gujarat Alkalies& Chemicals Ltd. (supra), CIT vs. Godawari Power & Ispat Ltd. (supra) and Reliance Infrastructure Ltd. in ITA No. 2180 of 2011 (Bombay-High Court) and the decision of Co-ordinate Bench of Kolkata in the case of DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol/2012 for AY 2008-09. We note that in all the above decisions, the AALC at which the power is purchased by the non-eligible unit of the assessee was considered to be the fair market value transfer price of power supplied by the eligible unit to the non-eligible unit. Befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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." 8.3 It is pertinent to note here that the assessee's main business is not of generating of power to further sell the same to the distribution companies/State Electricity Boards. The point to be noted here is that the respective captive power plants were established by the assessee for its own needs i.e. for the purpose of supply uninterrupted powers to its manufacturing units as well as to save the cost of power purchased from State Electricity Boards. Here, in the facts and circumstances, in our view, the arm's length price could not be determined by taking the average market rates of power supply units to distribution companies as the assessee is not into the said business of selling of power to distribution companies. The arm's length price in this case, in our view, has to be determined taking into mind the business perspective of the assessee which was to get uninterrupted power and to save cost of electricity pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be: Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission. Section 38. (Central Transmission Utility and functions): (2) The functions of the Central Transmission Utility shall be - (d) to provide non-discriminatory open access to its transmission system for use by- (i) any licensee or generating company on payment of the transmission charges ; or (ii) any consumer as and when such open access is provided by the State Commission under sub-section (2) of section 42, on payment of the transmission charges and a surcharge thereon, as may be specified by the State Commission: ........ Provided also that such surcharge shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use." Similar provisions for non-payment of surcharge has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r wheeling such electricity in accordance with regulations made by the State Commission and the duties of the distribution licensee with respect to such supply shall be of a common carrier providing nondiscriminatory open access . (4) Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply. (5) Every distribution licensee shall, within six months from the appointed date or date of grant of licence, whichever is earlier, establish a forum for redressal of grievances of the consumers in accordance with the guidelines as may be specified by the State Commission. (6) Any consumer, who is aggrieved by non-redressal of his grievances under sub-section (5), may make a representation for the redressal of his grievance to an authority to be known as Ombudsman to be appointed or designated by the State Commission. (7) The Ombudsman shall settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. ITC Ltd. (supra) along with the provisions of Electricity Act, 2003 has taken note of the fact that in the case of CIT vs. ITC (supra), it was noted that the generation companies could only sell the power to the distribution companies. However, in view of the Electricity Act 2003, the said embargo has been lifted in respect of captive power plants which can directly sell the power to its manufacturing units/contracting parties and the rates of the electricity can be determined by them individually by way of contract and the same were not regulated by the Electricity Regulatory Commission. The Coordinate Bench after considering various case laws has decided the issue in favour of the assessee. The relevant part of the order of the Coordinate Bench of the Tribunal is reproduced as under: "21. We have considered the rival submissions and perused the document in the paper book which inter alia contained Electricity Act, 2003, KERC Regulations 2004, copy of the KERCs order dated 27.02.2007 approving 'open access' to CPPs for supply of electricity etc. The bone of contention between the parties is the adoption of the most appropriate rate at which sale of electricity would be val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce at which the SEB were purchasing power alone represented the market value for the power generated by CPPs. We also note that the premise on which the A.O. proceeded was analogous to the premise on which the Hon'ble Calcutta High Court decided the Revenue's appeal in the case of ITC Ltd. (supra). In that case also the Hon'ble High Court took note of the fact that the independent power producers or CPPs can only sell the power to the power distribution companies at the rates determined by the State Regulatory Commission. In other words in the opinion of the A.O. and the Hon'ble High Court the power producers were necessarily required to sell the power in the regulated market where prices were fixed at the discretion of the State Electricity Boards and / or Regulatory Commissions and the power generating companies had no option or discretion due to determine the selling rate. However, in the case in hand there is a change of scenario before us and the learned AR of the assessee in his detailed presentation (supra) has brought out the salient features of the Electricity Act 2003 by which CPPs were granted 'open access' by law. In terms of the 'open access' granted, the power generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was Rs. 7.53/-. Similarly for the Southern Region of Rs. 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.'s presumption that the assessee was legally obliged to sell electricity only to the power distribution companies and SEBs and that too at the controlled prices was devoid of any legal or factual basis. We note that this specific issue was adjudicated by the Co-ordinate Bench of this Tribunal in the case of DCIT vs Birla Corporation Ltd. to which one of us was signatory. In the said decision of the Co-ordinate Bench of this Tribunal after considering the ratio laid down by the Hon'ble Supreme Court in the case Thiru Arooran Sugar Ltd. held as follows: "5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), wherein at page 441, it was held as under:- "In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price, there has to be an actual market where there will be "a concourse of buyers and sellers". This argument was specifically rejected by Lord Pearson L. J., in the case of Building and Civil Engineering Holidays Scheme Management Ltd. v. Post Office [1966] 1 QB 247 (CA), in the following words (page 268): "What is meant by 'market value' ? It is not reasonable to suppose that for the purposes of this proviso there is no market value unless there is a concourse of buyers and sellers. There is no need to infer that there must be an open market, or that there must be a price fluctuating according to the pressures of supply and demand." In that case Lord Denning also explained the concept of market value in the following words (page 264): "What is the 'market value' of these stamps ? . . . It does not connote a market where buyers and sellers congregate. The 'market value' here means the price at which the goods could be expected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of profits of CPPs came up for consideration before the Co-ordinate Bench of this Tribunal in the case of Graphite India Ltd. vs ACIT in ITA No. 304-305/Kol/2008 and DIT vs Kanoria Chemicals and Industries Ltd in ITA NO. 944/Kol/2016, a perusal of the said orders reveals that the Co-ordinate Bench had held that for the purpose of granting the deduction, the profits of the CPP should be determined with reference to the power tariff rate at which the manufacturing undertakings being the captive consumers were provided electricity by the SEBs. 25. We also note that similar issue was also considered by the Hon'ble Madras High Court in the case of Tamil Nadu Petro Products Ltd. vs ACIT 338 ITR 648 wherein the Hon'ble High Court held that there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the assessee to derive profits and gains by working out the cost of such consumption of power in as much as the assessee is able to save to that extent which would certainly by covered by section 80IA(1). The Hon'ble High Court thus upheld the assessee's claim for deduction under section 80IA by way of dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the distribution companies in controlled and regulated transactions. As observed above, the very purpose and objective of the installation of captive units by an assessee is to supply of electricity to its own manufacturing units for uninterrupted power supply and saving of electricity expenses and whatever expenses are saved that certainly would be the profit of the captive unit which, in our view, will be eligible for deduction u/s 80IA of the Income Tax Act. Considering this aspect, the contention of the Revenue that the rates determined by the Regulatory Commission for generating units for supply of electricity to the distribution companies should be taken as benchmark, in our view, would not be accurate benchmarking of the price. 10. The Hon'ble Supreme Court in the recent decision in the case of CIT vs. M/s Jindal Steel & Power Ltd. in Civil Appeal No.13771 of 2015 &Ors, decided on 06.12.2023 though discussing the provisions of Electricity Act, 1948 have made the following observations on this issue: "27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of Section 80IA (8). On the contrary, the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under Section 80 IA of the Act. 30. Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the marke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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