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TMI Blog2022 (8) TMI 1342X X X X Extracts X X X X X X X X Extracts X X X X ..... e not comparable with the AE without giving any cogent reason. (3) That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that, the data set of loan comparables was identified taking into consideration the credit rating of AE and other associated factors. In respect of Transfer of Power (4) That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment made by the AO/TPO amounting to Rs. 6,75,22,000/- for transaction with respect to transfer of power/electricity. (5) That on the facts and circumstances of the case and in law, the Ld.CIT(A) had failed to appreciate the analysis undertaken by the TPO while concluding the said transaction were not at the arm's length. (6) That on the facts and circumstances of the case and in taw, the Ld.CIT(A) had failed to appreciate that, even if we consider the electricity board rate i.e. rate at which assessee purchases power from the distributors, for transfer pricing purpose, adequate adjustment has to be made for the costs which the distributors incurs towards transmission of power and other additional costs for arriving at arm's length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank, Singapore Branch and thus the corporate guarantee was benchmarked in the TP Study Report. 5. The ld. TPO had not disputed the method followed by the assessee to benchmark the corporate guarantee, interest savings approach which was the basis for determining the interest savings made by the AE, which was BB and loan connector database. However, ld. TPO held that five external loan comparables from loan connector database as identified by the assessee are same rated companies, i .e. BB. Further similar rated companies were not having sufficient datas and, therefore, he included the comparables having rating of BB (plus) & BB (minus) and thus expanded the comparable base. The ld. TPO on the basis of broad functional comparability approach under CUP Method computed the interest savings by applying the percentile approach at 137.5 bps and assuming that 50% benefit ought to have been paid by the AE to the assessee in the form of corporate guarantee fee, the ALP of the corporate guarantee fee was computed at 69 bps and thereby proposing an upward adjustment of Rs.28,56,796/-, which was added by the AO in the draft assessment order passed under section 144C read with section 92CA of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of BB+ & 3B- companies as well. By undertaking this expanded search, the Ld. TPO indentified further seven loan comparables viz., three loan comparables of BB+ companies and three loan comparables of BB- companies and one loan comparable of BB company. Adopting this broad comparability approach under CUP Method, the Ld. TPO re-computed the interest savings by applying the percentile approach at 137.5 bps. Assuming that 50% benefit ought to have been paid by the AE to the appellant in form of CG fee, the ALP CG fee was computed at 69 bps and hence further adjustment of Rs.28,56,796/- [69 bps - 30 bps] was recommended by the Ld. TPO. 4. After going through the contentions of both parties, I find that the undisputed position is that CUP Method is the most suitable method to benchmark the international transaction in question. It needs to be appreciated that CUP requires an apple to apple comparability of products (completed in all respects). CUP method cannot be applied where comparables are of different profiles different economics, different financial conditions etc. Meaning thereby if the comparables so identified are not absolutely identical, then CUP Method cannot be applied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case the margin of the appellant (as stated by the Ld. TPO) is 300 bps which is falling within the above median range and in that view of the matter the international transaction involving issuance of corporate guarantee is at arm's length. The CG fee of 30 bps as benchmarked by the appellant is hence held to fair and reasonable and no transfer pricing adjustment in this regard is found to be warranted. The Ld. AO/TPO is accordingly directed to delete the adjustment of Rs.28,56,796/-. Ground Nos. 1 & 2are therefore allowed". 6. We have heard the rival submissions and perused the relevant material available on record. From the impugned order of ld. CIT(A), we note that there is no dispute as to the fact that the assessee has issued standby letter of credit i .e. corporate guarantor to the lender i .e. Standard Chartered Bank, Singapore Branch from which the assessee- firm obtained loan. There is also no dispute as to the method followed by the assessee for benchmark the transactions, which was CUP basis adopted and interest savings approach aggregating of the AE, which was BB and loan connected data base. The assessee selected five comparables in the TP Study Report. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se India Pvt. Ltd. -vs. - DCIT (2021) 127 taxman.com 591 (Mumbai Trib.), wherein the Coordinate Bench has held that where a corporate guarantee to benchmark was issued by on behalf of the AE, the arm's length guarantee fees would be 0.5%. Considering the facts on record and perusing the rival submissions, we are of the view that it would be reasonable if corporate guarantee fee of 0.5% is appl ied to benchmark the international transactions. Accordingly we set aside the impugned order of ld. CIT(A) on this issue and direct the ld. AO to benchmark the transactions by applying 0.5%. Thus Ground No. 1 raised by the Revenue in respect of corporate guarantee fees is partly allowed. 7. The second issue raised by the Revenue in its appeal is against the order of ld. CIT(A) deleting the adjustment of Rs.6,75,22,000/- as proposed by the ld. AO/TPO for transactions with respect to transfer of power/electricity. 8. The facts in brief are that the assessee was having two Power Generation Plants (hereinafter referred to as CPPs) and the power generated by the CPPs was consumed captively by the assessee's PET Resin Manufacturing Units(hereinafter referred to as Non Eligible Units). The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, the transfer value of power to non-eligible unit was-adopted at" Rs.7.66- 7.87/unit having reference to average landed cost at which t-he non-eligible unit procured power from the SEB. The aforesaid transaction was reported by the appellant in the transfer pricing audit report filed in Form 3CEB and thereafter the Ld. AO referred the matters for transfer pricing scrutiny. Before the Ld. TPO the appellant was required to demonstrate that the profits of the eligible units were arrived at by adopting fair value of the goods & services provided to noneligible undertaking and also prove that the price charged was at arm's length. 2. From the orders of the lower authorities as also from the contentions of the appellant, it is noted that both the parties have in principle accepted and agreed that the most appropriate method for determination of ALP of power tariff is CUP Method. In the Ld. TPO's opinion however the average tariff orders issued by SEB in respect of other independent power producers was the most relevant indicator of the arm's length price for power supplied by CPPs to non-eligible unit as opposed to the appellant's internal CUP i.e. the rate at which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking as well as unrelated enterprises i.e. the SEB. In the circumstances it is noted that reliable internal CUP data was available with the appellant to benchmark the ALP of the power generated & supplied by the eligible undertaking to the non-eligible unit by taking the noneligible unit to be the tested party. 5. On the other hand, I find that the basis and benchmarking exercise followed by the Ld. AO/TPO suffered from apparent infirmities. From the facts on record I note that the Ld. TPO wrongly assumed that the CPP was neither discharging distribution functions nor transmission functions and therefore sought to functionally distinguish it from the SEBs. It is however found from the facts on record that the CPP was indeed distributing and supplying power to the non-eligible undertaking through transmission lines and hence the FAR analysis performed by the Ld. AO/TPO was unjustified. It is also observed that the Ld. TPO/AO erred in considering different forms of power units such as coal based, waste heat gas based etc. to be comparable to the assessee CPP when the jurisdictional fact remained that the assessee's CPP was a thermal based power plant. The Ld.TPO/A0 also selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other coordinate Bench in' the case of M/s Electrosteel Castings Ltd in I.T. (SS) No. 47 to 60/ Kol/ 2014, 313 and 256/Kol/2015, 66 and 124/Kol/2016dated 25th November 2016. In respect of appeals relating to abated assessment years, the Revenue had relied on the judgment of Calcutta High Court in the case of CIT Vs ITC Ltd (supra) to contend that the deduction was required to be allowed taking into account the price at which distribution companies were purchasing electricity. After taking into account the provisions of the Electricity Act of 2003, and the regulatory provisions applicable in the State of West Bengal, the coordinate Bench accepted the assessee's contention that in view of the provisions of Electricity Act of 2003, which were applicable in the concerned AY 2011-12, the decision of Calcutta High Court in the case of CIT Vs ITC Ltd (supra) was not applicable. 8. It is further noted that subsequent to rendering of the judgment of Calcutta High Court in the case of CIT Vs ITC Ltd (supra), the coordinate Benches of the Tribunal at Kolkata in the following cases dismissed the Revenue's appeal against the CIT(A)'s order wherein the relief was allowed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Hon'ble Calcutta High Court in case of CIT vs ITC Ltd (supra), Hon'ble Chattisgarh High Court in case of CIT v. Godawari Power & Ispat Ltd. (supra) & Hon'ble Gujarat High Court in the case of of Pr.CIT Vs Gujarat Alkalies & Chemicals Ltd (supra) held that the valuation of electricity provided by eligible unit to another non-eligible unit for the purposes of Section 801A (8) should be at rate at which electricity distribution companies were allowed to supply electricity to consumers. 13. I further rely on the decision of the Hon'ble ITAT, Kolkata in the case of Dy.CIT Birla Corporation Ltd (ITA Nos. 971/Kol/ 2012 & 298/Kol/2013) dated 25.08.2017 wherein the Hon'ble ITAT, Kolkata after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra) and the provisions of Electricity Act, 2003 and the decision of Apex Court n the case of ThiruArooran Sugars Ltd (227 ITR 432) upheld the assessee's contention that the open market value of electricity for the purposes of Section 80IA should be the price at which the assessees procures power from SEBs. Identical view was again expressed in the case of Dy.CIT Vs Kesoram In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted the average rate at which the power was sold by the power producing companies or CPPs/IPPs to power distribution companies or third parties at Rs. 3.47 per unit by treating the third parties as tested party. The Ld. A.R. ,while referring to the appellate order ,submitted that the Ld. CIT(A) has allowed the appeal of the assessee on this issue after going into the issue at great length and after giving comprehensive findings by relying on series of decisions as mentioned in the appellate order. The Ld. A.R reiterated his contentions as made before the Ld. CIT(A) by submitting that in the following decisions which were also considered by the Ld. CIT(A) in which ALC at which the power is purchased by non-eligible units is considered to be fair market value / transfer price/ ALP of power supplied by eligible units to the non-eligible units. The Ld. A.R. took us through the various decisions of various High Courts and Tribunals in order to prove his averments on the issue of pricing of captive consumption of power from eligible units to non-eligible units. The Ld. A.R. referred to the following decisions to defend his arguments: i) CIT vs. Reliance Industries Ltd. [2019] 102 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the Average Annual Landed Cost (AALC) at which the non-eligible unit procured power from SEB. Thus , the assessee followed internal CUP for bench marking the specified domestic transactions of transfer of power from CPPs to non eligible unit at average landed cost at which the non eligible units procured electricity from the SEB by taking non eligible units as the tested party in the TP Study Report and accordingly ALP of the power captively consumed has been benchmarked at ALC of power purchased by the tested party from SEB. The assessee also duly reported these transactions in the audited report in Form 3CEB. Accordingly to the TPO the average rate of Rs. 3.47 per unit calculated on the basis of sale data of power by independent CPPs/IPPs as determined by various tariff orders would be the ALP of the domestic specified transactions. Accordingly the TPO recommended adjustment to the tune of Rs. 6,75,22,00,000/- and the AO passed the draft assessment accordingly. According to the assessee the internal CUP has to be used for the determination of ALP at which the non-eligible units/manufacturing units procured the power from unrelated party i.e. SEB. Now the issue before us whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice at which the SEB sold power in the open market under uncontrolled conditions is reliable internal CUP and accordingly came to the conclusion that ALC notified by the SEB is a fair, reliable and reasonable basis to bench mark the power procured by non-eligible unit from the eligible unit. The Ld. CIT(A) while allowing the appeal of the assessee has relied on the series of decisions namely PCIT vs. Gujarat Alkalies & Chemicals Ltd. (supra), CIT vs. Godawari Power & Ispat Ltd. (supra) and Reliance Infrastructure Ltd. in ITA No. 2180 of 2011 (Bombay-High Court) and the decision of Coordinate Bench of Kolkata in the case of DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol/2012 for AY 2008-09. We note that in all the above decisions, the AALC at which the power is purchased by the non-eligible unit of the assessee was considered to be the fair market value / transfer price of power supplied by the eligible unit to the non-eligible unit. Before us, the Ld. A.R also argued that non-eligible units has to be held as a tested party and AALC at which the power was purchased by the tested party from SEB/ third party is the most appropriate ALP to bench mark the transfer of power supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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