9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (3) TMI 1367 - AT - Income TaxTP Adjustment - TPO determining the Transfer Pricing taking another suitable methodology with cogent reason - HELD THAT -The assessee has established 4 power plants as mentioned for captive power supplies to its cement unit at Nimbahera. These units are eligible for deduction u/s. 80IA of the Act whereas the cement plant was not eligible for the same. Total electricity generation of these power plants are being used in assessee s cement plant only and there is no outside sale of the electricity. The assessee adopted Comparable Uncontrolled Price (CUP) method based on the average price charged by the AVVNL to the cement plant i.e. Rs. 7.40 per unit. Whereas the TPO benchmarked the transaction based on the supplies made by the Sasan Power Ltd. Shree Cement Ltd. Coastal Gujarat Tata/ NTPC/ PTC and Reliance etc. As decided in M/s. Jindal Steel and Power Ltd. 2023 (12) TMI 417 - SUPREME COURT as held Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e. the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore the High Court was fully justified in deciding the appeal against the revenue. Determination of price of electricity is a regulated activity and therefore the price at which power is supplied by generation company to transmission or distribution company cannot be said to be under uncontrolled condition to be considered for benchmarking purpose. The activities of generation transmission and distribution of electricity is a regulated activity in India with the primary legislation being The Electricity Act 2003 under terms of which Central Electricity Regulation Commission ( CERC ) and State Electricity Regulation Commission ( SERC ) for various states have been established. A price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions it is evident that the transaction of purchase of electricity by State Electricity Boards from independent power producers is a regulated activity being subject to approval of SERC and therefore is not a transaction undertaken in uncontrolled conditions. Thus the transaction between power producers and state electricity board is not fit to be considered comparable to the tested transaction of sale of electricity by eligible unit to non- eligible unit. Thus the average rate of Rs 4.57 per unit being the price for transfer of electricity by power producers to third party customers cannot be treated as arm s length price as it is a price under controlled conditions. Decisions in favour of the Appellant supporting the ALP determination made by the Appellant. Thus we are of the considered opinion that the transfer price of electricity considered by the Appellant is ALP and therefore the additions proposed by the TPO and further confirmed by the Ld. DRP not sustainable in law. Hence directed to be deleted. Decided against revenue.
ISSUES PRESENTED and CONSIDERED
The primary issues considered in this appeal were: 1. Whether the Transfer Pricing Officer (TPO) can adopt a different methodology for determining the arm's length price (ALP) of electricity supplied by the assessee's captive power plants to its cement unit, contrary to the method used by the assessee. 2. Whether the market value adopted by the assessee for the electricity supplied is correct, and whether the revenue is justified in substituting this value with another, especially considering the amendments to section 80A(6) of the Income Tax Act. 3. Whether the assessee has the discretion to choose any market value from a basket of market values for claiming deductions under section 80IA(8), and the implications of this choice on the determination of the ALP. ISSUE-WISE DETAILED ANALYSIS 1. Methodology for Determining ALP The relevant legal framework involves sections 92CA and 80IA of the Income Tax Act, which pertain to transfer pricing and deductions for certain undertakings, respectively. The court examined whether the TPO's methodology, which differed from the assessee's, was justified. The assessee used the Comparable Uncontrolled Price (CUP) method based on the rate charged by the state electricity department, while the TPO used rates from third-party suppliers to state distribution companies. The court referenced precedents, including the Supreme Court's decision in CIT vs. Jindal Steel and Power Ltd., which emphasized that the market value should reflect the price in a competitive, open market. The court found that the TPO's approach did not align with this principle, as it compared the rate of electricity supplied to state boards rather than the rate charged to industrial consumers. 2. Market Value Adoption and Revenue Substitution The court considered whether the revenue could substitute the market value adopted by the assessee with another value. The legal framework involved section 80A(6) and its amendment, which introduced the concept of arm's length pricing for specified domestic transactions. The court analyzed the definition of "market value" as per the amendment, which aligns with the arm's length price defined in section 92F(ii). The court concluded that the market value should reflect the price at which electricity is supplied to industrial consumers, not the rate at which surplus electricity is sold to the state board, as the latter is a controlled transaction. 3. Discretion in Choosing Market Value for Deductions The issue revolved around the discretion granted to the assessee under section 80IA(8) to choose a market value from available options. The court examined whether this discretion was exercised appropriately, considering the factors that affect the determination of the ALP, such as assets employed and risks assumed. The court referred to precedents that supported the assessee's discretion in choosing a market value that reflects the price charged to industrial consumers. The court found that the assessee's choice was consistent with the principles established in these precedents, which emphasize a market value determined in an open market environment. SIGNIFICANT HOLDINGS The court upheld the CIT(A)'s decision, affirming the assessee's methodology and market value adoption. The court referenced the Supreme Court's ruling in CIT vs. Jindal Steel and Power Ltd., which established that the market value for electricity should be the rate charged to industrial consumers, not the rate at which surplus electricity is sold to the state board. "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 court concluded that the assessee's adoption of the state electricity department's rate as the market value was appropriate and aligned with the legal principles governing the determination of ALP and market value for section 80IA deductions. In conclusion, the court dismissed the revenue's appeal, affirming the CIT(A)'s order and supporting the assessee's methodology and market value determination as consistent with the legal framework and precedents.
|
