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2022 (1) TMI 588 - AT - Income TaxTP adjustment - Adjustment made by the TPO on the value of electricity supplied by the Captive Power Plant (CPP) to its manufacturing units by benchmarking the same with rate at M/s. Torrent Power - case of the assessee is this that as per the provision of Section 80IA (4) the market value in relation to any goods or services are to be taken as the price that such goods or services would ordinarily fetch in the open market or the Arms Length Price as defined u/s 92F of the Act. Further adopting the market rate for sale by CPP to the processing house was already accepted by the Ld. AO in the earlier assessment year - HELD THAT - We have considered the judgment passed by the Hon'ble Gujarat High Court in the case of Principal Commissioner of Income-tax - Vadodara-1 vs. Gujarat Alkalies Chemicals Ltd. 2016 (10) TMI 1111 - GUJARAT HIGH COURT wherein it has been held that deduction under Section 80IA (4) is allowable to the assessee for generation of power for captive consumption and the steam was to be computed considering rate of power on which the electricity buyer supplied power to its consumer. Thus we find that the judgment particularly passed in the matter of Gujarat Fluorochemicals Ltd. 2018 (8) TMI 857 - ITAT AHMEDABAD passed by the Coordinate Bench on the similar issue, the judgment passed by the Hon'ble Jurisdictional High Court in the case of CIT-Vadodara-1 vs. Gujarat Alkalies Chemicals Ltd. (Supra), the Ld. CIT(A) deleted the downward adjustment and subsequent additions made by the TPO/AO holding that in case of Captive Power Plant (CPP) eligible for deduction under Section 80IA the market rate at which the receiving unit is procuring the electricity can be adopted as sale price by the CPP which in our considered opinion is just and proper so as to warrant interference. Thus, the ground of appeal preferred by the Revenue is found to be devoid of any merit and found to be dismissed. Adjustment towards Sale of steam by CPP to Power House - case made out by the assessee is this the claim of the assessee is not the first year of claim made under Section 80IA of the Act rather the assessee is claiming the deduction since A.Y. 2006-07 which was allowed by the First Appellate Authority and in turn confirmed by the Hon'ble Benches - HELD THAT - Since the issue is identical to that the issue as already discussed hereinabove in assessee's own case for A.Y. 2012-13 2013-14 we find no reason to deviate from the stand taken by the Coordinate Bench in upholding the order passed by the Ld. CIT(A) in deleting the order of upward adjustment - The ground of appeal preferred by the Revenue is found to be devoid of any merit and, thus, dismissed.
Issues Involved:
1. Adjustment on the value of electricity supplied by CPP to its manufacturing units. 2. Consideration of CPP as the tested party for benchmarking analysis. 3. Comparability of the cost of consumption in the hands of the manufacturing unit. 4. Deduction under Section 80IA on the value of electricity supplied. 5. FAR analysis differences between CPP and Torrent Power. 6. Functions of transmission and distribution missing in CPP. 7. Decision of the Hon'ble High Court of Gujarat on benchmarking transactions. 8. Adjustment towards the sale of steam by CPP to the power house. 9. Provisions under Section 80IA regarding steam as a by-product. Issue-wise Detailed Analysis: 1. Adjustment on the value of electricity supplied by CPP to its manufacturing units: The Revenue challenged the deletion of adjustments made by the TPO on the value of electricity supplied by CPP to its manufacturing units by benchmarking the same with the rate at M/s. Torrent Power. The TPO argued that the rate charged by Torrent Power includes transmission costs, which CPP does not incur as it is only a generation unit. The TPO thus restricted the sale price to ?3.08/kwh, resulting in a downward adjustment of ?4,78,78,842/-. 2. Consideration of CPP as the tested party for benchmarking analysis: The Revenue contended that the CPP should be considered the tested party as it is the least complex entity compared to the manufacturing unit. The TPO adopted the cost of generation by Gujarat State Electricity Corporation Ltd. (GSECL) as the benchmark. 3. Comparability of the cost of consumption in the hands of the manufacturing unit: The Revenue argued that the comparable should be the price at which electricity is sold by the CPP and not the cost of consumption in the hands of the manufacturing unit, especially since the CPP is considered an independent unit. 4. Deduction under Section 80IA on the value of electricity supplied: The assessee claimed that under Section 80IA(4), the market value of goods or services should be taken as the price they would ordinarily fetch in the open market. The market rate for sale by CPP to the processing house was accepted by the AO in earlier assessments. The CIT(A) deleted the downward adjustment, relying on judgments that support the adoption of market rates for captive consumption. 5. FAR analysis differences between CPP and Torrent Power: The Revenue argued that the FAR analysis (Functions performed, assets deployed, and risk involved) of CPP is completely different from Torrent Power, which is involved in generation, transmission, and distribution. The TPO considered CPP as the tested party due to its lower complexity. 6. Functions of transmission and distribution missing in CPP: The Revenue emphasized that transmission and distribution functions are missing in CPP, as it is only engaged in power generation. The TPO argued that multiple adjustments should be made to account for these functions when benchmarking the electricity price. 7. Decision of the Hon'ble High Court of Gujarat on benchmarking transactions: The Revenue argued that the decision of the Hon'ble High Court of Gujarat in the case of Gujarat Alkalies and Chemicals Ltd. did not consider the FAR analysis and benchmarking of transactions to determine the ALP. However, the CIT(A) and the Coordinate Bench relied on this judgment, which allows deduction under Section 80IA for captive power consumption at market rates. 8. Adjustment towards the sale of steam by CPP to the power house: The TPO made an adjustment of ?4,10,81,113/- towards the sale of steam by CPP to the power house, arguing that the profit markup was excessive. The CIT(A) deleted this adjustment, noting that the assessee consistently adopted a cost-plus method with around 10% profit, which was upheld in earlier years by appellate authorities. 9. Provisions under Section 80IA regarding steam as a by-product: The Revenue argued that steam, being a by-product, serves to reduce the cost of power generation and cannot be considered a commodity for transfer or sale under Section 80IA. The CIT(A) and the Coordinate Bench upheld the assessee's claim, noting that the cost-plus method for steam was reasonable and consistent with prior years. Conclusion: The appeal filed by the Revenue was dismissed. The CIT(A)'s decision to delete the adjustments made by the TPO was upheld, relying on consistent judicial precedents and the principle of consistency in the assessee's method of valuation for captive consumption. The market rate approach for electricity and steam was deemed appropriate for determining deductions under Section 80IA.
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