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TMI Blog2023 (9) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the TNERC purchased power from the power generating companies is not correct rate to be adopted, but the price at which the assessee purchased power from electricity supply companies is the rate to be compared for the purpose of determining ALP of price charged by the assessee to its other division. The ITAT Chennai Benches in the case of M/s The India Cements Limited vs. The DCIT, [ 2021 (12) TMI 390 - ITAT CHENNAI ] has considered an identical issue in light of deduction claimed u/s. 80IA for profit derived from eligible undertaking in respect of transfer of power from Windmill Division to other division and observed that while computing deduction u/s. 80IA for power generation units for captive consumption of power, rate at which Electricity Boards supplies power to its consumers should be considered instead of the rate at which the power generating companies supply power to the Electricity Boards. Hon ble Bombay High Court in the case of CIT-LTU v. Reliance Industries Ltd. [ 2019 (2) TMI 178 - BOMBAY HIGH COURT ] has also considered similar issue and held that for the purpose of computing deduction u/s. 80IA of the Act, the rate at which the assessee purchased power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong, erroneous, unjustified, incorrect, invalid and not sustainable both on facts and in law. 4. The NFAC erred in making the reference to the TPO for checking the correctness of the transaction under scrutiny under domestic transfer pricing regime and in this regard, ought to have appreciated that the reference to the TPO under domestic transfer pricing regime was invalid on various grounds. 5. The NFAC failed to appreciate that the mechanical adoption of the order(s) passed under TP regime in passing the final assessment order should be reckoned as bad in law based on technical grounds as well as on merits. 6. The NFAC erred in adding back Rs. 15,10,15,315/- after rejecting the transfer price of the electricity generated from windmills to the textile division for captive consumption at the rate of Rs. 6.35 per unit by substituting such rate by adopting the purchase rate(s) of TANGEDCO Ltd. resulting in downward adjustment without assigning proper reasons and justification. 7. The NFAC failed to appreciate that the entire approach of the TPO as well as the DRP in rejecting the rate(s) adopted by the appellant by reckoning TANGEDCO's selling rate(s) was wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of Rs. 9,78,114/- employees' contribution to EPF ESI by invoking the provisions of section 36(1)(va) read with section 43B of the Act without assigning proper reasons and justification. 13. The NFAC failed to appreciate that the consistent judicial trend by virtue of the decisions of the Madras High Court and Jurisdictional Bench of the Income Tax Appellate Tribunal after noticing the amendment was completely overlooked and brushed aside and ought to have appreciated that the binding decisions were completely ignored, thereby vitiating the decision on merits. 14. The NFAC failed to appreciate that the employees' contribution of PF ESI were admittedly remitted before the due date for filing of the return of income as per section 139 of the Act for the assessment year under consideration and hence ought to have appreciated that such factual matrix would be eligible for making the claim for deduction of such sum in the computation of taxable total income. 15. The NFAC failed to appreciate that there was no proper/reasonable opportunity given before passing the impugned order and ought to have appreciated that any order passed in violation of the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.73 per unit to Rs. 3.70 per unit. Therefore, issued a show cause notice and called upon the assessee to explain as to why deduction claimed u/s. 80IA of the Act, for Wind Power Mill Division shall not recomputed. In response, the assessee submitted that when the assessee has adopted CUP method as Most Appropriate Method and selected a comparable which is into similar kind of business, then, the TPO adopting rate charged by TNERC for power suppliers, is incorrect. The assessee had also relied upon certain judicial precedents, including ITAT Chennai Benches in the assessee s own case for earlier assessment years. The TPO after considering relevant submissions of the assessee and also taken note of relevant facts opined that the assessee company has mainly relied on the rate, at which, power is available to end user without considering various economic circumstances which is relevant to determine comparability. Therefore, by considering the decision of the Hon ble Calcutta High Court in the case of CIT v. ITC Ltd., reported in [2015] 64 taxmann.com 214 (Calcutta), opined that rate adopted by the assessee based on power tariff charged by M/s.TANGEDCO Ltd., to end users, is not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and upheld TP adjustment as suggested by the TPO by taking into account power purchase rate of TNERC from power generating companies, and then, compared with price charged by the assessee to its other divisions. 6 . The Assessing Officer, in pursuant to directions of the DRP, passed final assessment order and determined total income of Rs. 49,48,04,732/- by making additions towards TP adjustment as suggested by the TPO. The Assessing Officer had also made additions towards employee s contribution to PF u/s. 36(1)(va) of the Act r.w.s.43(b) of the Act. Aggrieved by the final assessment order, the assessee preferred an appeal before the Tribunal. 7. The Ld.Counsel for the assessee, Mr.S.Sridhar, Advocate, submits that the DRP is erred in not appreciating the fact that the entire approach of the TPO in rejecting the rate adopted by the assessee by reckoning M/s.TANGEDCO Ltd., selling rate was only unjustified, because, when it comes to CUP method external CUP is more accurate than internal CUP. The Ld. Counsel for the assessee further submits that although, there is a functional difference between wind energy generating companies and M/s.TANGEDCO Ltd., but when it comes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are entirely different. The TPO and the DRP after considering relevant facts has rightly rejected TP study conducted by the assessee and has adopted rate at which TNERC purchased power from power generating companies and compare with price charged by the assessee. Therefore, he submits that there is no error in the reasons given by the TPO to make downward adjustment towards deduction claimed u/s. 80IA of the Act, and their orders should be upheld. The Ld. DR has filed written submissions on this issue which has been reproduced as under: B. Written submission on merit: Without prejudice to the above the written submission on Merit is as under; The appellant claimed deduction of 80IA of the IT Act on sale of electricity from the eligible business . The TP study in this case referred to TPO was determination of arm's length price on sale of electricity by the eligible business of power generation that was captively consumed by other Be businesses of the appellant company. 1. TP adjustment that has undergone TP study: This Specified Domestic Transaction (SDT) was referred to TPO and it was discussed from Pgae.No.4 -9 of the TP order. TPO cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of the tax arbitrage. For example, sale of goods or services from non-SEZ area, [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less taxable profit and non-taxable division will have a higher profit exemption. [Para 4] AH these complications arise in cases where fair market value is required to be assigned to the transactions between related parties in terms of section 40A(2). To get over this situation, the matter needs to be examined by the CBDT. The matter has been examined by the CBDT and it is of the view that amendments would be required to be made to the provisions of the Act, if such Transfer Pricing Regulations are required to be applied to domestic transactions between related parties under section 40A(2). [Para 5] In order to reduce litigation, certain provisions of the Act. Like section 404(2) and section 80-14(10), need to be amended to empower the Assessing Officer to make adjustments to the income declared by the assessse, having regard to the fair market value of the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity. However, no specific method to determine reasonableness of expenditure or fair market value to re-compute the income in such related transactions is provided under these sections. The Supreme Court in the case of CIT Vs. Glaxo SmithKline Asia (P) Ltd., in its order has, after examining the complications which arise in cases where fair market value is to be assigned to transactions between domestic related parties, suggested that Ministry of Finance should consider appropriate provisions in law to make transfer pricing regulations applicable to such related party domestic transactions. The application and extension of scope of transfer pricing regulations to domestic transactions would provide objectivity in determination of income from domestic related party transactions and determination of reasonableness of expenditure between related domestic parties. It will create legally enforceable obligation on assessees to maintain proper documentation. However, extending the transfer pricing requirements to all domestic t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market value of the goods as on date of transfer. These discussions were made by the TPO at para 7.3. 4. Here what is the good transferred? i. The good transferred or sold here is electricity. ii. The assessee company has generated power from eligible units andi transferred to other business carried on by them. iii. It was captively consumed by other business carried on by the assessee. iv. Hence first limb of section 80IA(8) discussed above is attracted. 5. Market value? for the purpose of section 80[A and arm's length price as per clause (ii) of section 92F Being the power generator in eligible units, the rate at which they can sell in open market to State Electricity Board is the market value . All the power generation units have to either captively consume or sell to State Electricity Board. That is the market rate as per the explanation discussed above and that is needed for determination of arm's length price. The arm's length price is explained in the pictorial diagram enclosed along with this submission. 6. What was the assessee's TP study or contention? In view of the above show cause notice was issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeal of AY 2017-18. This was brought out in TP order unambiguously and it was also argued in length before Hon'ble ITAT. 9. Summary: 1. The TP study was on determination of arm's length of eligible business that has claimed deduction u/s. 801A of the IT Act on sale of power by the power generation unit. 2. It was not on consumption of electricity by captive consumption unit of other business. Those units if they buy the electricity from open market, the rate was retail purchase rate. However, that is not the case here. 3. Hon ble SC has directed Ministry of Finance to enact separate legislation to determine arm's length in such specified domestic transaction. 4. Such legislation was enacted by parliament in Finance Act 2012. Accordingly, w.e.f. 1-4-2013 significant amendment was brought in the statue to address such specified domestic transaction. 5. TPO in compliance to the legislative enaction, determined the arm's length of the eligible business of the power generation units by comparing with the rate of other power generators. 10. Prayer: In view of the above, it is prayed that the decision of lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of determining ALP of price charged by the assessee to its other division. The ITAT Chennai Benches in the case of M/s The India Cements Limited vs. The DCIT, in ITA No. 2415 and 2210/Chny/2017 has considered an identical issue in light of deduction claimed u/s. 80IA of the Act, for profit derived from eligible undertaking in respect of transfer of power from Windmill Division to other division and observed that while computing deduction u/s. 80IA of the Act, for power generation units for captive consumption of power, rate at which Electricity Boards supplies power to its consumers should be considered instead of the rate at which the power generating companies supply power to the Electricity Boards. The relevant findings of the Tribunal are as under: 18.5 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee s own case for assessment year 2011-12 in ITA No.2412/Chny/2019 dated 12.12.2019, where the Tribunal under identical set of facts by following certain judicial precedents including the decision of Hon ble Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisgarh). As it is noticed that the learned CIT(A) has followed judicial discipline by following the decision of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax and Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra, as it is noticed this view has also been approved by the Hon ble High Courts referred to supra, we find no error in the order of the learned CIT(A) which calls for any interference. It may be mentioned here that the deduction u/s. 80IA is the deduction from the total income of theassessee the profits and gains of an eligible undertakings. The Hon ble Gujarat High Court has categorically admitted that the deduction u/s. 80IA is permissible for captive consumption and even the rate at which the deduction is to be computed. Consequently, the issue is held in favour of the assessee and against the Revenue. 18.6 In the present case, the facts are identical with that of the facts considered by the Tribunal in earlier year. The CIT(A) after considering relevant facts and also by following the decision of the ITAT, Chennai in the case of Eveready Spinning Mills (P) Ltd., vs. ACIT, (2012) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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