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TMI Blog2019 (3) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer to restrict u/s 14A r.w.r. 8D disallowance(s) of Rs. 6,01, 17,716/- and Rs. 5,39,20,281/- to Rs. 16,85,257/- & Rs. 3,64,065/- (assessment year wise) for the purpose of MAT adjustment u/s 115JB Explanation (f) of the Act. The Revenue's identical first three substantive grounds in both of its appeals seek to revive the entire sum of section 14A disallowance. We therefore take up this common issue in all four cases together for the sake of convenience and brevity. We advert to the assessee's grounds first that the CIT(A) ought not to have directed the Assessing Officer to compute section 115JB Explanation (f) MAT adjustment computation for section 14A r.w.r 8D disallowance component of Rs. 16,85,257/- & Rs. 3,64,065/-. 3. Both parties reiterated their respective pleadings against and in support of the CIT(A) directions under challenge. We notice in this backdrop that the instant issue of section 14A r.w.r. 8D disallowance for the purpose of section 115JB MAT computation is no more res integra. Hon'ble Bombay high court's judgment in CIT vs. Bengal Finance & Investment P Ltd.; ITA No.337 of 2013 dated 10.02.2015 and this Tribunal's Special Bench decision in ACIT vs. Vire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the assessee stated that it has allocated a certain unspecified proportion of the salary of the G.M, Finance and his assistants, some part of the expenses on Telephone, Fax, Conveyance, Accounting charges etc. The Tax Audit Report, however, stated that the disallowance was made at a rate of 5% of the total dividend earned. It is seen that the said computation is based essentially on ad-hoc estimates, and as in the case of most such estimates, the same is arbitrary to a greater or lesser extent. However, what is more relevant is to consider whether any one or more expense related to the investment portfolio were omitted to be considered at all while making this computation. The assessee is seen to have acquired and disposed of investments during the year, as is evident form a general look at the balance sheet, as well as from examination of the lists of investments produced on requisition. It is also seen that, as may be expected, the assessee has incurred brokerage, STT, and other charges including stamp duty, service tax, Turnover tax etc., related to the said acquisition and disposal of investments. Inasmuch as these expenses relate directly to the income from investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormula devised in rule 8D [i.e., less than the amount provided for in rule 8D(2)(iii), being 0.5% of the average value of investments In view of the above, I hereby record my dissatisfaction with the assessee's computation in terms of sec.14A(2). In consequence, the disallowance u/s14A is being recomputed in terms of rule 8D as follows, subject to the following caveats: (a) While considering interest expenses such interest as are accounted for under bill discounting, packing credit, and buyer's credit are not being considered, since they are seen to be solely and directly related to business purposes. (b) While considering the average investments, investments in debt funds are being excluded, since the same do not yield tax exempt incomes. Computation of disallowance u/s14A with rule 8D 1. Disallowable expenses may be represented by the formula D+A x B/C + 0.5% of B Where D is the expenditure directly related to the investments as includible in terms of clause (i) of sub rule 2 of rule 8D A is the amount of expenditure by way of interest other than the amount of interest included in clause (i) of sub rule 2 rule 8D incurred during the P.Y. B is the average o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,18,02,973/- and added a sum of Rs. 6,01,17,716/- to the income of the assessee. 2.2 While applying Rule 8D(i), he considered expenses of Rs. 11,63,470/- being expenses incurred on brokerage, 5TT and other charges as directly attributable to the earning of dividend income. In this regard it is submitted that the expenses of Rs. 11,63,470/- were capitalized with the cost of investment and were not claimed in the return by way of debiting the P/L account (Ledger of current investments enclosed). Now since the expenses were not claimed in the return, the question of disallowance does not arise. Thus, it is prayed that addition to the extent of Rs. 11,63,470/- be deleted outright. 2.3. 1 W.r.t disallowance of Rs. 2,00,34,065/- on account of interest under Rule 8D(ii), it is submitted that the assessee in the instant case has sufficient own funds to justify investments in shares and mutual funds, Attention in this regard is invited to the Balance Sheet of the assessee-company as on 31.3.2012. A perusal of the same shows that the assessee has sufficient own funds (Rs. 1,70,302.44 lakhs) to justify investment in dividend earning investments, Thus, a presumption may be made that the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the average value of Investments has considered the strategic investments (eg. Lanco Industries Ltd., Electrosteel Steels Ltd.) Lanco Industries is engaged in the same line of business as that of the assessee-company and the given investments were made to financially assist the company in strengthening its business. Thus, investment in Lanco was strategic business purposes and not for the purposes of earning dividend income or capital gains. Thus, the AO erred in considering investments in Lanco while applying Rule 8D. 2.5.2 The aforesaid claim finds strength from the following: * Delhi High Court in case of CIT Vs. Holcim India (P) Ltd. * The ITAT (Chandigarh) in case of ACIT Vs. Spray Engineering Devices Ltd. [53 SOT 70] * ITAT(Chennai) in case if EIH Associated Hotels Ltd, Vs. DCIT * ITAT(Delhi) in case of Interglobe Enterprises Ltd. v, DCIT [40 CCH 22] 2.5.3 Following the aforesaid decisions, the ITAT(Kolkata) in assessee's own case (for AY 2008-09 to 2011-12 reported in 53 ITR(Trib) 5) at para 140 held that the strategic investments are to be excluded while computing disallowance u/s 14A. 2.6.1 Having said the above, disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon'ble Calcutta High Court in G. A. No. 3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. v. Deputy CIT [2013] 144 ITD 141 (Kolkata). It was pointed out that the assessee during the year earned no income on investment in NIMID, Canara Mutual Fund. Hence, the Assessing Officer erred in including the investment. 141. The second issue, that requires consideration is as to whether in computing the disallowance under section 14A of the Act read with rule 8D2(ii) and (iii) of the Rules, the Assessing Officer while adopting the average value of investments has to exclude the investments which are strategic investments. In this regard reliance was placed by the learned counsel for the assessee on the decision of the Hon'ble Delhi High Court in the case of CIT v. Holcim India P. Ltd. [2014] 90 CCH 81 (Delhi) wherein it was held, investments made by an assessee in the business of holding investments had to be excluded while computing disallowance under section 14A of the Act. Reference was also made to the decision of the Income-Tax Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (iii) of the Rules, the Assessing Officer while adopting the average value of investments has to exclude the investments which are strategic investments. 143. The learned counsel for the assessee filed before us a chart wherein he has given the figures with regard to submissions in paragraphs 138 and 139 above, viz. Investments of the assessee (Rs.15,894.02 lakhs), strategic investments (Rs. 5990.06 lakhs), investments which yielded dividend income during the previous year including strategic investments (Rs.13,650.89 lakhs) and investments in dividend yielding shares (excluding strategic investments) (Rs. 7,660.83 lakhs). 144. Without prejudice to the above submissions, it was also submitted on behalf of the assessee that the assessee had sufficient own funds if the overall funds position is taken. In this regard it was submitted by the learned counsel for the assessee that where own funds are sufficient to cover the investments that have to be considered for the purpose of section 14A disallowance, then a presumption has to be drawn that the investments were made out of own funds and not out of borrowed funds. The assessee has filed the necessary charts in this regard showin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the disallowance under Rule 8D(2)(iii) works out to Rs. 6,16,577/- which is less than the sum of Rs. 16,85,527/- suo moto offered and disallowed by the appellant. The Ld. AO is therefore directed to restrict the disallowance to Rs. 16,85,527/-. In view of the above and for the reasons discussed in the foregoing therefore, the Ld. AO is directed to restrict the disallowance u/s 14A to Rs. 16,85,527/- in computing total income as per the computational provisions as also in computing book profit u/s 115JB. Grounds No. 2 to 5 are therefore allowed." 5. The Revenue's first argument raised before us is that the Assessing Officer had rightly invoked section 14A r.w.r. 8D(i) direct expenses disallowance of Rs. 11,63,470/- on brokerage, security transaction tax and other similar charges. Suffice to say, it fails to dispute the crucial fact recorded in the CIT(A)'s findings that the assessee had capitalized the above direct expenditure than claiming it as revenue expenditure by debiting the same through Profit & Loss account. We further find that the Revenue's instant argument carries no substances since direct expenses sought to be disallowed have nowhere been claimed at assessee's beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anate from the action of the Ld. A.O in making a disallowance of Rs. 3,16,92,148/- by disallowing a portion of the claim of depreciation, holding the same to be excessive. The impugned matter has been dealt with by the Ld.AO as under: ii) Disallowance of excess claim of depreciation The assessee company receives or is liable to receive subsidy in the nature of Sales tax remission of Rs. 28,70,361/- and Industrial Promotion Assistance of Rs. 14,49,68,866/-. The assessee has treated the same to be capital subsidies, following the decision of the Jurisdictional High Court at Calcutta, in the case of Rasoi Ltd. In pursuance of judicial discipline, and following the treatment made in earlier years, the said amounts are being treated as capital subsidies. However, the assessee was seen not to have reduced the subsidy received, being capital subsidies, while determining the actual costs of the assets or blocks of assets, and thus this has resulted in claiming excess depreciation during the A.Y.2012-13. This, of course, is a recurrent issue in the case of the assessee. It is seen that in the A.Ys 2003-04 to 2009-10 the subsidy is received by the assessee company was claimed as capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relatable to such subsidy or grant of reimbursement shall not be included in the actual cost of the asset to the assessee i Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." 3.2.2 From a plain reading of the above it is clear that a subsidy received from the Government may be reduced from the actual cost only if the subsidy is given to directly or indirectly meet the cost of the asset. However, in the instant case, the Scheme nowhere specifies that the subsidy is to be used for the purpose of acquisition of fixed assets. The Subsidy is provided to extend financial assistance to entrepreneurs in setting up new units/expanding existing units in the backward areas. 3.3.1 The case of the assessee is also covered by the decision of ITAT(Kolkata) in the following cases: * ITAT(Kolkata) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67. From a plain reading of the above it is clear that a subsidy received from the Government may be reduced from the actual cost only if the subsidy is given to directly or indirectly meet the cost of the asset. However, in the instant case, the scheme nowhere specifies that the subsidy is to be used for the purpose of acquisition of fixed assets. The subsidy is provided to extend financial assistance to entrepreneurs in setting up new units/expanding existing units in the backward areas. There appears no restriction imposed on the assessee to utilise the subsidy for acquisition of fixed assets only. The assessee is at a liberty to utilise the funds in any manner it likes. Merely because the amount of subsidy is subject to a maximum of a specified percentage of gross value of fixed assets as on the first date of commercial production/gross value of the additional fixed assets as on the first date of commercial production does not mean that the subsidy was given to finance the acquisition of fixed assets only. Under the given circumstances, the amount of subsidy, is not deductible from the actual of the cost under section 43(1) read with Explanation 10 of the Act. 68. The Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under section 43(1) for the purpose allowing depreciation." In light of the above decisions, we hold that the amount of Rs. 55,79,540 disallowed on ground of excess depreciation claim, should be allowed. Thus ground No.5 raised by the Revenue is dismissed." is squarely covered in favour of the appellant-company by its own judgment have also perused the Industrial Scheme in terms of which the appellant-company received subsidy by way of sales tax remission from the State Government. It is noted that both the parties agree that the subsidy of Rs. 14,78,39,227/- received by way of sales tax remission is in the nature of a capital receipt. According to the ld. AO therefore such capital subsidy was required to be reduced from the actual cost of capital asset in terms of Explanation 10 to Section 43(1) of the Act. The ld. AO accordingly re-computed the WDV of the block of plant & machinery& depreciation thereon, after reducing the capital subsidy, and therefore disallowed the claim of exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s Length Interest Rate by following CUP method as 6.61% (cost of funds in hands of assessee) plus 7.5% (credit spread) based on creditworthiness of the AE. In doing so, he assigned a credit rating of 'C' to the AE. Accordingly, an upward adjustment of Rs. 1,83,45,330/- was made. Aggrieved by the said action of the AO, the assessee is in appeal before your Goodself. 4.2.1 With regard to the above, it is reiterated that fhe assessee is engaged in manufacturing and export of Ductile Iron Pipes and it was highly dependent on its AE-loan debtor for marketing of its product in their country. Thus, the interest-free loan extended by the assessee to the AEs to assist it financially was a part of its marketing strategy and the same was based on grounds of commercial expediency. The sole purpose behind the existence of such AE was marketing of the assessee's products. The AE mainly catered to the assessee and the majority of sales (approximately 90%) effected by the AE were of products purchased from the assessee. The AE made only emergency purchases abroad and was incorporated merely to market the assessee's products. Given such economic interdependence on the AE no adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s own case for AYs 2003-04 to 2011-12 (cited above) held LIEOR to be the Arm's length interest rate (para 79). Thus, upward adjustment, if any, may be computed in accordance with UBOR. Hence it is prayed that the AO be directed accordingly. 13. DECISION: 1. I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld. TPO/ AO. In Ground No. 11 to 14 raised in the appellant; the question to be decided is the determination of the ALP of the loans / advances given by the appellant to its AE, Electrosteel Algeria. 2. Before the Ld. TPO, the appellant contended that the sum advanced to the AE was for strategic purposes and hence in the nature of shareholder-activity. The appellant-company therefore claimed that the advance to AE could not be equated with a 'loan' and hence no benchmarking exercise was required to be carried out by it in this regard. On examination of the transfer pricing order, it is noted that the Ld. TPO was not in agreement with the contention put forth by the appellant. The Ld. TPO observed that the interest rate on the loans advanced to the AEs should be priced at the cost of funds in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP). 72. The Transfer Pricing Officer proposed to benchmark the interest-free loan transaction by taking into account the cost of funds in the hands of the assessee (base rate of 8 per cent was adopted on the reasoning that this would be the cost of borrowing in India by the assessee) + valuation of the risk based on the credit rating of the associated enterprise (7 per cent. was added to the base rate on the reasoning that since the credit rating of the associated enterprise would be "CC+" or "CC"), It was the plea of the assessee that such high rate of interest is unwarranted considering that the associated enterprise is located in a jurisdiction wherein the prevailing bank interest rates are low. It was also the plea of the assessee that credit rating of the associated enterprise as adopted by the Transfer Pricing Officer was irrelevant. Based on the arm's length price so computed, the Transfer Pricing Officer computed arm's length interest rate by following CUP method as 8 per cent. (cost of funds in hands of assessee) plus 7 per cent. (credit spread) based on creditworthiness of the associated enterprise. In doing so, he assigned a credit rating of "CC+" or "C" to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its part has in its appeal contended that the rate adopted by the Transfer Pricing Officer should be restored. The Transfer Pricing Officer in computing the arm's length price has considered the average cost of borrowed funds to the assessee/domestic interest rates (i.e., the rate at which banks in India lend for business) and added a spread of 300 basis points to the same as additional interest rate to cover the risk to a lender owing to the creditworthiness of the borrower. In this regard, it was pointed out that the loan was made in Euros i.e., foreign currency and hence domestic lending rates cannot be used as a base for calculating arm's length price (as done by the Transfer Pricing Officer). According to the learned counsel for the assessee/ the said view finds strength from the following judgments wherein it has been held that if the loan is made in foreign currency then LIBOR (not domestic lending rates) should be used as a benchmark. ..... 76. In view of the aforesaid decisions, we are of the view that instead of the base rate of 8 per cent, (based on lending rates of banks in India, for commercial borrowing), it would be appropriate to apply LIBOR rate (an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from CRISIL. The Tribunal accordingly held that : "We have no issue of the Transfer Pricing Officer applying the CUP method. But the problem arises when in the name of applying CUP method a wholly inapplicable comparable model applied which leads to distorted results. In our considered view, a significant sector of multi-national corporate set up involves creation of subsidiaries and associate enterprises for advancement of their overseas business. They help them in terms of finance by offering soft loans and subsidiary loans ; they are primary focused to spread the business of the principal unit. It would have been very reasonable, judicious and appropriate on the part of the Transfer Pricing Officer to have looked into such type of transactions and applying it as uncontrolled transactions. In our view, re-coursing straightaway to CRISIL, which deals in hardcore institutional finance transactions that too with clear commercial object of earning out of loans bereft on other considerations, is wholly inapplicable. There is no dispute on the issue that the real income theory has no application to a fictional working as provided by section 92 but this being part of the Income-Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n currency LIBOR rates than the domestic market credit ratings. We make it clear that the Revenue's pleadings before us in its corresponding grounds nos.6 to 9 have nowhere drawn any distinction on facts in all the assessment years. We accordingly adopt judicial consistency mutatis mutandis in the impugned assessment years to decline instant substantive grounds. 13. Next come the Revenue's substantive ground nos.1 to 13 in Assessment Year 2012-13 & 6 to 8 in Assessment Year 2013-14 seeking to revive transfer pricing adjustments of Rs. 5,32,43,578/- and Rs. 4,71,72,325/- in respect of international transaction regarding corporate guarantees to its overseas AEs. The CIT(A)'s identical discussion reveals that he has followed this tribunal's order(s) in Assessment Years 2003-04 to 2011-12 (supra) in directing the TPO to reduce the impugned corporate guarantee commission @3% to 0.5% as under: "14. Ground Numbering 11 to 17 relate to the action of the Ld.AO/TPO in making an adjustment of Rs. 513243,578/- on account of guarantee transactions. The impugned matter has been dealt with by the Ld. AO/TPO as discussed supra. 15. In respect of this ground, during the course of the appeal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961. In this connection, it is submitted that no cost was incurred by the assessee-company to provide such guarantee to the AE. Thus, the said corporate guarantee did not have a bearing on the profits, income, losses or assets of the assessee company (read section 92B produced above). 5.2.2 The aforesaid claim finds strength from the following judgments: * ITAT(Delhi) in case of Bharti Airtel Ltd. Vs. Additional CIT [39 CCH 415] * ITAT(Mumbai) in case of Videocon Industries Ltd. Vs. Addl. CIT [43 CCH 113] * ITAT(Chennai) in case of Redington (India) Ltd. Vs. ACIT [41 ITR (Trib) 646] * ITAT(Ahmedabad) in case of Micro Ink Ltd. Vs. Addl. CIT [157 ITD 132] 5.3.1 Coming to the methodology adopted by the TPO to compute the ALP of the impugned guarantee transaction, it is observed that the same is arbitrary and has no basis whatsoever. 5.3.2 Firstly, he presumed the AE to have a lower credit rating and accordingly estimated its rating to be 'CC' or 'C' (in Standard & Poor's rating). The credit rating assigned to AE by the TPO has no basis and neither is he authorized to assign any such rating under the Act. The TPO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld. TPO, the appellant contended that the issuance of corporate guarantee was not an 'international transaction' and therefore no benchmarking exercise was required to be carried out by it in this regard. On examination of the transfer pricing order, it is noted that the Ld. TPO was not in agreement with the contention put forth by the appellant. The Ld. TPO computed the ALP CG fee rate at 3% in respect of the corporate guarantees issued by the appellant. The Ld. TPO therefore proposed upward adjustment of Rs. 5,32,43,578/-. In the appellate proceedings, the Ld. ARs of the appellant reiterated the submissions which were made before the ld. TPO and contended that the corporate guarantee was not the nature of "international transaction" and therefore provisions of Chapter X were not applicable in this regard. Alternatively the Ld. ARs contended that the TPO erred in determining the ALP CG Fee at 3%. The Ld. ARs of the appellant submitted that the corporate guarantees should be benchmarked at 0.5%, for which it placed reliance on several judgments including the jurisdictional ITAT, Kolkata in its own case for AYs 2003- 04 to 2011-12. 3. The Hon'ble ITAT, Kolkata i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record, we agree with the plea of the learned authorised representative that the arm's length guarantee commission adopted at 2 per cent by the Dispute Resolution Panel cannot be sustained. Various Benches of the Tribunal in the following decisions have considered 0.5 per cent as appropriate adjustment in facts identical to the case of the assessee: (1) Everest Kanto Cylinder Ltd. v. Asst. CIT (LTU) (ITA No.7073/Mum/2012), dated September 25, 2014 ; (2) Everest Kanto Cylinder Ltd. v. Deputy CIT (LTU) (ITA. No. 542/Mum/2012 dated November 23, 2012) (Mumbai-Tribunal) ; (3) Glenmark Pharmaceuticals Ltd. v. Addl. CIT (ITA No, 5031/M/2012) dated November 13, 2013) (Mumbai-Tribunal) ; (4) Godrej Household Products Ltd. v. Addl. CIT (ITA No. 7369/M/2010) (Mumbai- Tribunal), dated November 22, 2013); and (5) Asst. CIT v. Nimbus Communications Ltd. [2014] 30 ITR (Trib) 349 (Mum) (ITA No. 3664/M/2010) (Mumbai-Tribunal), dated June 12, 2011). 84(C). In the case of Everest Kanto Cylinder Ltd. (supra), the Tribunal while considering an identical issue has held in para 9 as under : "9. Now, coming to the merit of the addition so made, we found that the issue has alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find any reason to uphold any kind of upward adjustment in arm's length price in relation to charging of guarantee commission.' As the facts and circumstances of the case during the year under consideration are parimateria, respectfully following the decision of the Tribunal in the assessee's own case we direct the Assessing Officer to compute arm's length price of transaction as per the direction given by the Tribunal in the above order for the assessment year 2007- 08." 84(D). Even the assessee has paid 0,40 per cent. as guarantee commission to a bank for similar services. The Safe Harbour Rules prescribing 2 per cent. as the guarantee commission is not relevant as those rules are relevant only to an eligible assessee who opts to be governed by those rules. Accordingly, following the decisions of the Tribunal referred to above, we direct the Assessing Officer/TPO to adopt the 0.5 per cent. as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the associated enterprise. Ground No. 3 raised by the assessee is accordingly partly allowed." [Unquote] 4. In view of the above and respectfully following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in case of Kanoria Chemicals & Industries Limited [ITA No. 58 of 2073] & Graphite India wherein purchase price from the Board was held to be the Arm's Length Price. The said transaction of sale of power was referred to the TPO for computation of the Arm's Length Price. 5.3 While arriving at the ALP, the TPO relied upon the judgment of the Calcutta High Court in case of ITC Ltd. wherein sale price of power made to distribution licensees was considered as the market value as opposed to price charged by the Board from the consumers (i.e. rate adopted by the assessee). 5.4 Relying on the sale data of power by independent Captive Power Plants to the distribution licensees the TPO arrived at an average rate of Rs. 3.23/unit. In doing so, he considered the rate of Rs. 2.53/unit i.e. the rate at which the power was sold to the Board. However, the given rate was again added to the rate of Rs. 3.23/unit to arrive at an even lower rate of 2.88/unit. Such an action of the TPO reflects his prejudiced mind which is clearly bad in law. 6.1 W.r.t the above, it is pertinent to note here that judgment of Calcutta High Court has been rendered on distinguishable facts. In the case befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utta High Court in its decision rendered in the case of ITC Ltd. 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 deal with applicability of the proviso to Section 80-IA(8) of the Act. Section 80-IA(8) lays down that when article or thing manufactured is used by the assessee himself for own consumption the profit of the undertaking manufacturing such article or thing has to be based on the market value in preference to the price as recorded by the Assessee in his books. Market Value for the said purpose has been defined to mean the price that such goods or services would ordinarily fetch in the open market. When price of power is subject to statutory controls one cannot ascertain the price such goods or services would ordinarily fetch in the open market because in such circumstances it cannot be said that there is an open market for the goods or services. There are exceptional difficulties in computing the profits and gains of the eligible bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant explained that it had applied the internal Comparable Uncontrolled Price Method. It was submitted that the price/rate at which the appellant-company purchased the electricity was the most appropriate comparable rate to benchmark the rate at which the CPP had transferred power to the appellant-company. The Ld. TPO/AO were however not agreeable with the explanation & details put forth by the appellant. According to Ld. TPO/AO the internal CUP adopted by the appellant-company was not the most appropriate method. Instead the Ld. TPO/AO was of the view that the price at which Electricity Board sold power to distribution licensees was a better parameter to benchmark the specified domestic transaction; i.e. transfer of power by CPP Unit to other non-eligible units of the appellant-company. This manner & methodology adopted by the Ld. TPO/AO was following the principles laid down in judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd (supra). The Ld. TPO/AO therefore computed ALP at Rs. 2.88/unit. 2. In the appellate proceedings, the Ld. ARs of the appellant reiterated the submissions made before the Ld. TPO/AO. The ld. ARs pointed out the infirmities and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80-IA(B) 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 DISCOMS 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 which the generating companies can sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 the case of ITC Ltd. (supra) will not apply to the case of the assessee. [Unquote] 4. In view of the above and the judgment of the Hon'ble ITAT, Kolkata in appellant's own case, I therefore hold that the ALP determined by the Ld. TPO in his order u/s 92CA(3) in terms of the principles laid down by the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) was unjustified. Following the judgment of the Supreme Court in the case of ThiruArooran Sugars Ltd. Vs. CIT (supra); I am of the considered view that the tariff rates at which the non-eligible units procured power from Electricity Board was the most appropriate and internal comparable rate to benchmark t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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