2021 (11) TMI 260 - AT - Income Tax

TP Adjustment - adjustment with respect to power transferred by the assessee from eligible unit to non eligible unit - internal CUP v/s external CUP - Claim of the assessee is that price at which assessee has purchased power from SEB is internal cup and therefore these prices are to be preferred over any external cup price i.e. average price of IEX and the price at which it has purchased power in Rajasthan - HELD THAT - There is no dispute about the applicability of internal cup prices with respect to transaction of sale of power from eligible unit to non eligible unit with respect to UP. This is so for the reason that in UP region assessee sales power to SEBs and therefore it is an internal cup accepted by the learned DRP also. However in Kota, Rajasthan, assessee purchases power but it does not sell the power and in that circumstances it cannot be said to be an internal cup applied by the assessee. Therefore we are in agreement with the learned dispute resolution panel that for the purpose of benchmarking of power transferred from eligible unit to non eligible unit assessee can only claim internal cup when it also sales power to SEB. Here it purchases power from SEB therefore it cannot be used as an internal cup but is rightly held by the learned dispute resolution panel to be an external cup. Whether the learned that TPO has correctly adopted IEX rates for the purpose of benchmarking the transaction of sale of power by Kota eligible unit to non eligible unit? - whether the Indian energy exchange rates are proper external cup or not? - HELD THAT - Much sanctity is attached to the rates adopted by SEBs. TPO has failed to show the reason of such a wide disparity between the rates of Indian energy exchange which is a spot exchange compared with the rates at which the energy is actually consumed in that geographical region. This does not mean that the quoted price cannot be used for the comparability analysis in cup method. But if the prices are so divergent and the difference between the two external cup becomes irreconcilable, the external cup price which is more reliable should be used. Therefore, in our view, IEX rates for these reasons cannot be said to be an external cup available for invoking the provisions of first proviso to Section 92C (2) of the act. As in case of the assessee for assessment year 2015 16 , external corporate of purchase price of power from SEB is used as a comparable discarding the Indian energy exchange rate by the learned CIT A, and the same order has not been challenged before the higher forum, it becomes final. This shows that in the subsequent year the learned transfer pricing officer/assessing officer has accepted the methodology of benchmarking the transaction of transfer of power in Rajasthan from eligible unit to non eligible unit at the purchase price of power from SEB. No infirmity in the benchmarking analysis of the assessee wherein the assessee has considered rate of ₹ 6.30 per kilowatt against the rate of power purchase paid by the assessee to Jaipur Vidyiut Vitran Nigam Limited at the rate of ₹ 8.35 per kilowatt, using the external cup for comparability. Accordingly, the ground number 2 of the appeal of the assessee is allowed and the transfer pricing adjustment is deleted. Determining the arm s-length price of steam at rupees nil - HELD THAT - Revenue authorities erred in holding that the steam does not have any cost and therefore steam transferred by assessee s eligible units to non eligible units at cost, which is determined by Cost accountants and Other professional, has the Arms length price of Rs Nil instead of cost of ₹ 103745275/- . Therefore we allow ground number 3 of the appeal and direct the learned transfer-pricing officer to delete the addition of ₹ 1,035,745,275 which was made determining the arm s-length price of transfer of steam from eligible unit to non-eligible unit by considering the cost of production of the steam at Rs. Nil. Disallowance u/s 14 A - HELD THAT - Assessee has interest free funds available which are 12.82 times higher than the amount of investments. Thus Where assessee had its surplus fund against which investment was made, no question of making any disallowance of expenditure in respect of interest expenses under section 14A arose - See Principal CIT v. Sintex Industries Ltd. 2018 (3) TMI 1448 - SC ORDER . Further for working out the portion of administrative expenditure, assessee has applied the factor of 0.5 % on the amount f investments which has yielded tax-free income during the year. We find that this stand of assessee is also in consonance with the decision of Honourable Delhi High court in ACB India limited 2018 (3) TMI 1448 - SC ORDER . In view of this we direct the ld AO to retain the disallowance offered by assessee as disallowance u/s 14 A of the Act only to the extent of Rs. ₹ 6,399,219/ which is offered by the assessee itself and delete the balance. Accordingly Ground no 4 of the appeal is allowed. Addition made to the income of the assessee Under the head capital gains by invoking the provisions of Section 50 C - HELD THAT - Provision of section 50C (2) provides that where the assessee claims before the ld AO that stamp duty value exceeds the fair market value, then the Ld AO is duty bound to refer the matter to the DVO for determining fair market value of that property. This fact is also noted by the ld DRP but upheld the action of the ld AO for the reason that assessee objected to adoption of stamp duty value as deemed consideration at a very late stage , so ld AO did not have enough time to refer the matter to DVO. Assessee also disputed that the stamp duty valuation is of the commercial properties where as the assessee has purchased agricultural land only. Therefore even otherwise the stamp duty rates of the property should be determined on the basis of it being agricultural land. Assessee in terms of provision of section 50C (2) of the Act has objected against adoption of stamp duty rates as well as characteristics of the land before the ld AO, we set aside the whole issues back to the file of the ld AO with direction to the ld AO to refer mater to the district valuation officer to determine fair market value of the property and assessee is also direct to raise all the issue before ld AO as well as DVO about the real character of the property whether it is an agricultural land or otherwise. Addition u/s 115JB of the income tax act which was disallowed u/s 14 A - HELD THAT - We find that this issue is squarely covered in favour of the assessee by the decision of special bench in case of ACIT V Vireet Investments P Ltd 2017 (6) TMI 1124 - ITAT DELHI where in it has been held that the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. Therefore action of ld AO of imputing disallowance u/s 14 A of the act as addition as per clause f of explanation 1 to section 115 JB is not proper - Even otherwise the assessee has already made adjustment as the above clause of explanation 1 of section 115 JB of the act of ₹ 66.92 lakhs. Thus it is directed to be deleted. Deduction of Education cess u/s 37 (1) - HELD THAT - We find that this issue is squarely covered in favour of the assessee by the decision of Honourable Bombay high court in case of Sesa Goa Limited. 2020 (3) TMI 347 - BOMBAY HIGH COURT and Honourable Rajasthan High court in case of Chambal fertilizers Limited 2018 (10) TMI 589 - RAJASTHAN HIGH COURT . Therefore respectfully following the same, we direct the ld AO to allow assessee the deduction of cess u/s 37 (1) of the act. Accordingly, additional ground of appeal is allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustments: Transfer of power and steam.
2. Disallowance under Section 14A.
3. Addition under Section 50C.
4. Adjustment to Book Profits under Section 115JB.
5. Penalty proceedings under Section 271(1)(c).
6. Additional ground on education cess.

Issue-wise Analysis:

1. Transfer Pricing Adjustments: Transfer of Power and Steam
- Transfer of Power (?26,52,98,490/-): The assessee used internal CUP rates for benchmarking, which were rates at which power was purchased from SEBs. The TPO adopted IEX rates as external CUP, leading to an adjustment. The tribunal found that SEB rates are more reliable than IEX rates due to the significant disparity and the nature of IEX being a spot exchange. The tribunal upheld the internal CUP method and deleted the adjustment.
- Transfer of Steam (?1,03,57,45,275/-): The assessee transferred steam at cost, certified by cost accountants. The TPO determined the ALP of steam at NIL, arguing steam is a byproduct with no cost. The tribunal disagreed, citing cost accounting standards and previous rulings, and found steam to have a cost. The adjustment was deleted.

2. Disallowance under Section 14A (?1,55,48,790/-):
- The assessee disallowed ?6,399,219/- under Section 14A, arguing investments were made from surplus funds. The AO applied Rule 8D, leading to a higher disallowance. The tribunal found the assessee had sufficient interest-free funds and upheld the disallowance made by the assessee, deleting the additional disallowance.

3. Addition under Section 50C (?2,57,31,000/-):
- The AO adopted stamp duty valuation for land sold, which was higher than the sale consideration. The assessee objected, claiming the land was agricultural, not commercial. The tribunal noted the AO's failure to refer the matter to the DVO for valuation and remanded the issue back to the AO for proper valuation.

4. Adjustment to Book Profits under Section 115JB (?1,55,48,790/-):
- The AO added disallowance under Section 14A to book profits under Section 115JB. The tribunal, following the special bench decision in ACIT v. Vireet Investments, held that disallowance under Section 14A should not be added to book profits under Section 115JB. The adjustment was deleted.

5. Penalty Proceedings under Section 271(1)(c):
- The initiation of penalty proceedings was dismissed as it was merely an initiation and not a final imposition.

6. Additional Ground on Education Cess (?1,33,41,210/-):
- The tribunal admitted the additional ground on the deductibility of education cess under Section 37(1), following the decisions of the Bombay High Court in Sesa Goa Ltd. and the Rajasthan High Court in Chambal Fertilizers & Chemicals Ltd. The deduction was allowed.

Conclusion:
The appeal was partly allowed, with significant deletions of adjustments and disallowances made by the AO and TPO, including transfer pricing adjustments for power and steam, disallowance under Section 14A, and adjustments to book profits under Section 115JB. The tribunal also allowed the additional ground on education cess. The issue of addition under Section 50C was remanded for proper valuation.