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TMI Blog2021 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... gible unit referred to u/s 80-IA(8)/(10), the same will not have any bearing on the computation of total income, as the revised claim u/s 80-IA of the Act, even after the transfer pricing adjustment, would continue to remain NIL. The manner of computation of income, had the downward adjustment made u/s 80-IA(8)/(10) of the Act been upheld, as explained by the assessee in the above illustration, is thus held to be justified and in accordance with law. We agree with assessee that the ALP determined u/s 92BA, is in the context of Section 80-IA(8) of the Act, and thus the consequent transfer pricing adjustment, if any, has to be made to the quantum of the eligible deduction u/s 80-IA of the Act and not to the Business Income as held by the Ld. DRP. In the garb of making downward adjustment to the quantum of profits of the CPP eligible for deduction, the AO cannot artificially enhance the returned income, by making adjustment which is in excess of the deduction claimed under Chapter VI-A i.e. Section 80-IA of the Act. Such action is held to be unwarranted. Disallowance of club expenses - As per AO such expenses incurred by the company were personal in nature and he therefore d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available in law is not raised either inadvertently or an account of erroneous plea of complex legal position, in the return of income such a relief cannot be shut up for all the times to come merely because it is raised for the first time in appellate proceedings in absence of a revised return filed before the Assessing Officer. For the aforementioned reasons, we therefore admit this ground raised by the assessee. In the facts of the present case, the assessment year in question is AY 2016-17. Having regard to the provisions of Section 43B(1)(a) of the Act as applicable to this AY, we hold that fees is indeed included within the fold of Section 43B of the Act and is therefore allowable only on actual payment basis. For the reasons as aforesaid, this ground of appeal therefore stands dismissed. Direction to AO for re-computation of the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years - HELD THAT:- In terms of the above findings, we direct the AO to re-compute the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years while giving effect to this appeal. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation of profits of the eligible unit and deduction u/s 80IA was in accordance with the said provisions and hence the downward adjustment of ₹ 13,71,40,567/- computed by the TPO was unjustified on facts and in law. 5. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the lower authorities grossly erred in not holding that the methodology proposed by Ld. TPO to benchmark the market value or transfer price of the power generated by the eligible unit was wholly fallacious and suffered from serious infirmities and in that view of the matter the downward adjustment of ₹ 13,71,40,567/- made by him deserves to be deleted in full. 6. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the lower authorities erred in making addition on account of transfer pricing adjustment of ₹ 13,71,40,567/- computed in respect of the transaction referred to in Section 92BA(iii) (v) read with Section 80IA(8) (10) of the Act without appreciating the jurisdictional fact that the appellant did not claim any deduction u/s 80IA in the return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power, the profits of the CPP was worked out by the assessee at ₹ 19,03,49,419/- which was eligible for deduction u/s 80-IA of the Act. However as the Gross Total Income, after setting off brought forward losses was NIL, the assessee did not claim any deduction u/s 80-IA in the return of income filed for AY 2016-17. 6. The case of the assessee was selected for scrutiny on CASS parameters which inter alia included transfer pricing risk parameter. The AO accordingly referred the case of the assessee to the Transfer Pricing Officer [ hereinafter referred to as TPO ] u/s 92CA(2) of the Act. After examining the Transfer Pricing Study Report and the details furnished by the assessee, the TPO show caused the assessee to explain as to why the power generated by the eligible unit and transferred to the non-eligible unit should not be benchmarked at the rate at which power generating stations sold electricity to exchange boards/distribution companies. In response, the assessee filed detailed submission on 23.10.2019. The TPO however was not agreeable to the same. According to him, the CPP was a power generating unit and the SEB from which the non-eligible unit purchased power, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power procured by the non-eligible unit from the eligible unit was rightly benchmarked with reference to the price at which the tested party purchased power from unrelated parties. In support of its contention, the Ld. AR referred to several decisions of this Tribunal as well as the Hon ble High Courts (which will be discussed infra ) wherein the rate at which the non-eligible unit purchased power from SEB/distribution companies was held to be an appropriate benchmark rate to ascertain the sale value of power supplied by the eligible unit to non-eligible unit. He thus urged that the benchmarking analysis of the assessee be accepted and the downward adjustment made by the AO/TPO to the eligible profits u/s 80-IA of the Act be deleted. 9. Per contra, the Ld. TP CIT, DR Shri Gaurav Kanaujia supported the order of the lower authorities. He furnished a detailed note in support thereof. Inviting our attention to Paras 2 to 4 of his submissions, the Ld. CIT, DR contended that the decisions relied upon by the assessee was distinguishable in as much as in all the referred judgments, the Courts had determined the open market value of the power supplied by CPP to the non-eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the rules and principles of fair valuation standards was inconsistent with the arm s length standards that it may produce a result which may not be consistent. He pointed out that the manner in which open market value of the transfer price of power was determined by this Tribunal in the cases of DCIT Vs Balrampur Chini Mills Ltd (ITA No. 1672/Kol/2019) and Gujarat Fluro chemicals Ltd Vs DCIT (97 taxmann.com 10) and the High Court in the case of CIT Vs Godavari Power Ispat Ltd (223 Taxman 234) was consistent with the rules and considerations of CUP Method and therefore the approach followed by these judicial forums produced arm s length results. The Ld. AR further pointed out the inconsistency in the CUP methodology adopted by the lower authorities. 11. We have heard both the parties and perused the material available on record. The admitted facts of the case are that, the assessee operates an eligible power generating undertaking at Saharanpur in the State of U.P, profits of which are eligible for deduction u/s 80-IA(8) of the Act. The power generated by the eligible unit is entirely consumed captively by the non-eligible unit. For the purposes of Section 80- IA(8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction; the CUP Method . 13. From the above Rule, it is evidently clear that, what is required to be seen is the price at which a property , good or service has been acquired under a comparable uncontrolled transaction under similar market conditions. The application of CUP Method requires strict product comparability which has been transacted under similar conditions. This method can be applied where AEs buy or sell similar goods or services in comparable transactions with unrelated enterprises or when unrelated enterprises buy or sell similar goods or services under similar conditions, as is being done between the AEs. The CUP Method, is broadly classified into two categories viz. , Internal CUP Method External CUP Method. Under the Internal CUP Method, the controlled transactions between the AEs involving buying or selling of goods, is compared with the transactions conducted by any of the AEs with unrelated parties for the same goods under similar circumstances. If reliable data is available, then internal CUP is the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Pvt Ltd Vs DCIT (supra)which we find to be misplaced. Having perused the said order, we note that this decision was rendered in a different factual context and, in fact, the ratio laid down therein supports the case of the assessee. In the decided case, this Tribunal held that, for the determination of ALP using the CUP Method, the product comparability is the most relevant factor and for such reason it was held that identification of tested party under CUP is not necessary. In that case, the question before the Tribunal was determination of ALP of the INR denominated loan taken by the assessee from its AE. The Revenue had benchmarked the Indian Rupee denominated loan taking the foreign AE as tested party by using the USD denominated Corporate Bond Rate. It is in this factual context that this Tribunal had rejected the bench marking analysis of the Revenue by holding that the key factor under CUP was the product comparability and not tested party and therefore INR denominated debt taken by the assessee from its foreign AE was required to be benchmarked with reference to INR debt issuances in India. For arriving at this conclusion, the Tribunal observed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport their proceedings. 18. Coming back to the facts in the present case, it is noted that the TPO had taken the rates notified in the tariff orders of the UPERC to be the arm s length price. We find merit in the Ld. AR s contention that this rate does not represent the comparable rate of electricity following the arm s length principle, for the reason that, no power generating station/company can or would sell electricity to any industrial consumer at these rates. The market conditions under which the power generating stations operate are significantly different from that of the captive power units operated by industries. At this juncture, it is first relevant to understand the intent and purpose for setting up of a CPP by any manufacturing industry. As rightly pointed out by the Ld. CIT, DR, the power tariff charged from industrial consumers is different from that of domestic agricultural consumers, as the higher rates of the former subsidize the rates charged from the latter. Further, although India has surplus power generation capacity, it lacks adequate transmission and distribution infrastructure. As a consequence, due to the high power tariffs and unstable supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the circumstances, when the market conditions of the comparable transaction cited by the TPO are not similar to that of the assessee, his application of CUP fails. According to us, the comparable market condition, in the facts of the present case, is the Business to Consumer ( commonly known as B2C ) Model. This market comprises of rates at which the ultimate consumers ( paper manufacturing unit in the instant case ) can purchase power for their own consumption. This market comprises of power sold by SEBs, IEX etc. to different categories of consumers. In the present case, the assessee has adopted the comparable rate to be the landed rate at which the manufacturing unit is purchasing power from an independent SEB, apart from the CPP. As the economic market conditions are similar, this benchmark rate adopted by the assessee is held to be fulfilling the CUP parameters. 21. As regards the Revenue s claim that the CPP and SEB being functionally dissimilar, the benchmarking of sale of CPP at the rate at which non-eligible unit brought electricity from SEB is not reliable, it is noted that this exact same argument has been considered and rejected by the coordinate Bench of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to be applied. Before us, the ld. counsel for the assessee contended that this controversy has been silenced by the Hon'ble Gujarat High Court in the case of Pr. CIT v. Gujarat Alkalis Chemicals Ltd. [2017] 88 taxmann.com 722. He placed on record copy of the Hon'ble High Court's decision and contended that for the purpose of computation of deduction admissible under section 80IA market price of the electricity supplied by a CPP is to be determined by adopting rate at which manufacturing unit has been purchasing the electricity from the open market. The ld. DR, on the other hand relied upon the order of the DRP, but unable to controvert the contentions raised by the assessee. 32. The Hon'ble High Court has replied this question by recording the following finding: '3. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under : . 6. Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included ₹ 4.17 per unit which was the cost of electricity generation and ₹ 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of ₹ 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term Market Value is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of ₹ 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged ₹ 5 per unit for supplying electricity to other industries includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion. This Tribunal adjudicated the issue in favour of the assessee, by observing as under: 5. On the contrary however, it is noted that the non-eligible undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelated enterprise i.e. SEB under uncontrolled conditions and prevailing market circumstances at the rate of Rs.ll.22/unit. Therefore the tariff at which the other non-eligible units purchased power from SEB can be taken to be a fair indicator to benchmark the transfer value of ₹ 8.30/unit adopted by the appellant. It is noted that the transfer value of ₹ 8.30 / unit was based on the tariff order issued by the SEB in respect of supply of power to units located in the same region as that of the non-eligible unit which procured power from the eligible unit. This tariff order issued by the SEB was available in open market and determined under uncontrolled conditions and is hence a reliable external CUP available in the given facts of the case. On comparing the rates in tariff order with the rates at which other non-eligible units procured power from open market under uncontrolled conditions; i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also has to be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases power from unrelated third parties. No other function etc. are in question. In our view taking the manufacturing unit as tested party for the purpose of determination of ALP with MAM being CUP, cannot be found fault with. The TPO has chosen to take the price specified in the PPAs for purchase of power as the market value. The PPA is a 20 year agreement. The assessee required to take statutory clearances and approvals. The price is regulated. The sale of power under the terms and conditions of PPA cannot be considered as the market value of the sale of electricity. Such sales cannot be considered as made in uncontrolled conditions . The ld. D/R submitted that the power generating company does not have distribution costs. When a captive power plant in an industry supplies electricity to its own manufacturing unit, there is no power distribution cost. The savings of cost of power can be determined only when the rate at which the manufacturing unit of the company purchases power in the open market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re dismissed . (B) CIT Vs Reliance Industries Ltd (421 ITR 686) (Bom HC) 4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assesseecompany and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies. 5. This controversy arose in the background of the fact that the assessee had set up a captive power generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1961 ( the Act for short) in respect of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law. 8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved. 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of CIT v. Godawari Power Ispat Ltd. [2014] 42 taxmann.com 551/223 Taxman 234, in which the Court held and observed as under: . 10. Gujarat High Court in case of Pr. CIT v. Gujarat Alkalies Chemicals Ltd. [2017] 395 ITR 247/88 taxmann.com 722 also had occasion to examine such an issue. It referred to earlier order in case of Asstt. CIT v. Pragati Glass Works (P.) Ltd. [Tax Appeal No. 1646 of 2010, dated 30-1-2012] in which following observations were made:- . 11. Judgment of Calcutta High Court in case of CIT v. ITC Ltd. [2016] 236 Taxman 612/[2015] 64 taxmann.com 214 was also brought to our notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) is not applicable to the relevant FY 2015-16 in question, i.e. post introduction of the Electricity Act, 2003. 26. We note that this Tribunal in the case of DCIT Vs M/s Kesoram Industries Limited for AYs 2008-09 2009-10, through its lead order in ITA No. 1722/Kol/2012, after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra), the provisions of Electricity Act, 2003 and the decision of Hon ble Apex Court in the case of Thiru Arooran Sugars Ltd (227 ITR 432) upheld the assessee s contention that the open market value of electricity for the purposes of Section 80IA(8) should be the price at which the assessee procures power from SEBs. The relevant findings are as under: 21. We have considered the rival submissions and perused the documents in the paper book which inter alia contained Electricity Act, 2003, KERC Regulations 2004, copy of KERCs order dated 27.02.2007 approving 'open access' to CPPs for supply of electricity etc. The bone of contention between the parties is the adoption of the most appropriate rate at which sale of electricity would be valued for the purpose of determining the profitability of all the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presented the market value for the power generated by CPPs. We also note that the premise on which the A.O. proceeded was analogous to the premise on which the Hon'ble Calcutta High Court decided the Revenue's appeal in the case of ITC Ltd. (supra). In that case also the Hon'ble High Court proceeded on premise that the independent power producers or CPPs could sell the power only to power distribution companies and that too at the rates determined by the State Regulatory Commission. In other words in the opinion of the A.O. and the Hon'ble High Court the power producers were necessarily required to sell the power in the regulated market where prices were fixed at the discretion of the State Electricity Boards and / or Regulatory Commissions and the power generating companies had no option or discretion to determine the selling rate. However, in the case in hand there is a change of scenario before us and the learned AR of the assessee in his detailed presentation (supra) has brought out the salient features of the Electricity Act 2003 by which CPPs were granted 'open access' by law. In terms of the 'open access' granted, the power generating companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es etc in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was ₹ 7.53/-. Similarly for the Southern Region of ₹ 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.'s presumption that the assessee was legally obliged to sell electricity only to the power distribution companies and SEBs and that too at the controlled prices was devoid of any legal or factual foundation. We note that this specific issue was adjudicated by the Co-ordinate Bench of this Tribunal in the case of DCIT vs Birla Corporation Ltd. to which one of us was signatory. In the said decision, the Co-ordinate Bench of this Tribunal, after considering the ratio laid down by the Hon'ble Supreme Court in the case Thiru Arooran Sugar Ltd. held as follows: 5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Gujarat High Court and decision of the Coordinate Bench, we direct the A.O. to allow the deduction under section 80IA(4) by adopting the weighted average landed cost of electricity at the rates of ₹ 6.35, ₹ 3.72 and ₹ 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively. 27. For the reasons set out above and following the above cited decisions (supra), we thus hold that the benchmarking analysis undertaken by the assessee to ascertain the arm s length transfer price of power by eligible unit to non-eligible unit at ₹ 8.41/unit was justified. The AO/TPO is accordingly directed to delete the transfer pricing adjustment of ₹ 13,71,40,567/-. 28. There is yet another connected issue raised by the assessee in Ground Nos. 6 7 of the appeal. It is noted that, although the profits of the eligible unit was determined by the assessee at ₹ 19,03,49,419/-, but since the Gross Total Income, after setting off brought forward losses, as declared in the return of income was NIL, the assessee had not claimed any deduction for ₹ 19,03,49,419/- determined u/s 80- IA of the Act. It is the contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NIL NIL B. Deduction under Chapter VI - Deduction u/s 80-IA Less: TP adjustment Eligible Deduction after TP Adjustment (Restricted to the extent of GTI) 19,03,49,419 - __________ 19,03,49,419 NIL - - 19,03,49,419 13,71,40,567 5,32,08,852 NIL Assessed Income NIL NIL NIL 29. The Ld. DRP however did not agree with the above contention of the assessee and held that the transfer pricing adjustment made by the TPO is distinct from claim of deduction u/s 80-IA of the Act. According to the Ld. DRP, any transfer pricing adjustment would result in enhancement of business income of the assessee and not reduction in the claim made u/s 80-IA of the Act. The Ld. DRP accordingly upheld the action of the AO in increasing the business income of the assessee by the impugned transfer pricing adjustment. Bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and without prejudice to the preceding grounds, the AO grossly erred on facts and in law in disallowing club expenses of ₹ 8,65,913/- even though the appellant had substantiated such expenditure. 35. Briefly stated, the AO noted that the tax auditor had reported sum of ₹ 8,65,913/-in the tax audit report being expenses incurred at clubs associations. According to the AO, such expenses incurred by the company were personal in nature and he therefore disallowed it u/s 37(1) of the Act. On appeal, the Ld. DRP held that the club expenses were in the nature of pure business expense allowable u/s 37 of the Act. It further held that the membership fees of trade associations were also for business purposes. It however directed the AO to verify whether the membership was in the nature of company or the individuals and accordingly allow deduction for the said expenditure. The AO noted that, the club memberships were in the names of Directors and not the company and thus added back the entire club expenses of ₹ 8,65,913/- to the total income. Being aggrieved by the action of the lower authorities, the assessee is now in appeal before us. 36. We have heard bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year and was therefore allowable u/s 43B of the Act, but he failed to allow the deduction thereof while computing the final assessable income for the relevant AY 2016-17. 10. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the AO be directed to allow deduction for entry tax of ₹ 62,90,188/- paid during the year and accordingly re-compute the total income for the relevant year . 41. It is noted that, before the Ld. DRP, the assessee had raised an additional claim for deduction of entry tax paid under protest during the relevant year u/s 43B of the Act, which had not been claimed in the return of income. Upon examining the details furnished by the assessee and having regard to the provisions of Section 43B of the Act, the Ld. DRP admitted this new claim and directed the AO to allow the deduction u/s 43B after verification of the payment details. Following the directions issued by the Ld. DRP, the AO allowed the claim at Para 4 of his assessment order. The relevant findings recorded by the AO are as follows: 4. Regarding deduction in respect of ₹ 62,90,188/- paid by the assessee towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has for the first time claimed that such mandi fees payable by it, was not in the nature of statutory liability by way of tax, duty or cess. Relying on the judgment of the Hon ble Apex Court in the case of CIT Vs Mcdowell Co Ltd (180 Taxman 514), the assessee contended that such fees did not fall within the ambit of Section 43B of the Act and thus the same was required to be allowed on mercantile basis during the relevant year. Per contra, the Ld. CIT, DR appearing on behalf of the Revenue opposed the admission of this fresh claim by relying on the decision of the Hon ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (284 ITR 323). He further submitted that the judgment relied upon by the assessee was not applicable in as much as there has been a change in law and the provisions of Section 43B(1)(a) had been amended from 01.04.1989 to include fees within its ambit. 45. We have heard both the parties. As regards the admissibility of this ground, we note that the assessee can raise additional ground before the appellate authority, as allowed by the Hon'ble Supreme Court in Goetze (India) Ltd. Vs. CIT (supra), though not raised before the AO. In this d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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