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2023 (7) TMI 1557 - AT - Income TaxTP Adjustment - transfer value of power by the captive power plant at Saharanpur - computing arm s length price for transactions of the transfer of power by the eligible unit to the non-eligible unit - HELD THAT - We find that the decision of the tribunal in the assessee s own case for the assessment year 2016-17 2021 (11) TMI 1 - ITAT KOLKATA is squarely applicable to the present case on hand. Ld. DRP has also referred to this decision of the tribunal given for assessment year 2016-17 observing that the issue and objections are identical to Assessment Year 2016-17 the ld. DRP has only directed the assessing officer to ascertain the legal status of further appeal by the revenue and in case the matter has attained finality and the decision of this tribunal has been accepted by the revenue the adjustments/additions shall be deleted if not then adjustment/addition is upheld until such finality is attained. As submitted by assessee the revenue s appeal against the decision of the Tribunal for Ay 2016-17 is still pending and that the Hon ble High Court is yet to decide the said issue and until such time the order of this tribunal in the assessee s own case for the assessment year 2016-17 shall be binding. Thus set aside the order of the lower authority uphold the benchmark analysis undertaken by the assessee and delete the alleged downward transfer pricing adjustment and allow the effective grounds raised by the assessee.
The judgment addresses the appeal filed by the assessee against the downward transfer pricing adjustment made by the Assistant Commissioner of Income Tax for the Assessment Year 2018-19. The core issue is the computation of the arm's length price for the transfer of power from the captive power plant (CPP) to the non-eligible unit, which resulted in a transfer pricing adjustment of Rs. 16,18,75,076/-.
1. ISSUES PRESENTED and CONSIDERED The primary legal issue revolves around the determination of the arm's length price for the intra-company transfer of power from the CPP to the non-eligible unit. The specific questions include:
2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents: The legal framework involves Section 80-IA of the Income Tax Act, which provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The arm's length price is determined under Section 92C using methods like the CUP method, which requires comparing the price charged in a controlled transaction with that in an uncontrolled transaction. The Tribunal's decision for Assessment Year 2016-17, which dealt with similar facts, serves as a precedent. In that case, the Tribunal upheld the assessee's use of the internal CUP method, comparing the rate at which the non-eligible unit procured power from the State Electricity Board (SEB) as the arm's length price. Court's Interpretation and Reasoning: The Tribunal noted that the power generated by the CPP was consumed by the non-eligible unit, and the assessee used the internal CUP method to benchmark the transfer price. The Tribunal emphasized that the CUP method requires strict product comparability and that the internal CUP method is preferred when reliable data is available. The Tribunal found that the rate at which the non-eligible unit procured power from the SEB was a reliable internal comparable, as it represented the market rate at which similar consumers purchased power under similar conditions. Key Evidence and Findings: The Tribunal reviewed the assessee's transfer pricing study, which used the rate of Rs. 9.08 per unit, based on the average landed cost of power from the SEB. The TPO, however, proposed a rate of Rs. 3.84 per unit based on the average rate at which distribution companies purchased power from generation companies. The Tribunal found that the TPO's reliance on the tariff order for distribution companies was misplaced, as it did not reflect the market conditions for consumers like the non-eligible unit. Application of Law to Facts: The Tribunal applied the CUP method to the facts, determining that the internal CUP method was appropriate. The rate at which the non-eligible unit purchased power from the SEB was deemed to fulfill the CUP parameters, as it was a transaction under similar market conditions. Treatment of Competing Arguments: The Tribunal addressed the Revenue's argument that the rate used by the assessee was regulated and not an uncontrolled transaction. It countered that the tariff rates used by the TPO were also regulated and not representative of the market rate for consumers. The Tribunal also distinguished the facts from other cases cited by the Revenue, emphasizing the importance of product comparability and market conditions in applying the CUP method. Conclusions: The Tribunal concluded that the assessee's methodology for determining the arm's length price was justified and that the transfer pricing adjustment proposed by the TPO was not warranted. The Tribunal upheld the internal CUP method used by the assessee and directed the deletion of the transfer pricing adjustment. 3. SIGNIFICANT HOLDINGS The Tribunal's decision reaffirms the principles for applying the CUP method, emphasizing product comparability and market conditions. The key principles established include:
The Tribunal's final determination was to allow the appeal of the assessee, setting aside the lower authority's order and deleting the downward transfer pricing adjustment.
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