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TMI Blog2023 (10) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no infirmity in the contention of the assessee that per unit electricity sold to the non-eligible unit at Rs. 6.90 per unit is the market value. DRP has taken M/s. Torrent Power Ltd. (TPL) which is the electricity generation entity supplying electricity to GEB - The price fixed for purchasing the electricity by GEB from M/s. Torrent Power Ltd. (TPL) cannot be compared with the prices on which eligible unit of the assessee is selling it to the other. Thus, once only comparable as chosen by the ld. DRP fails, then same loses the comparability for determining the ALP. In view of aforesaid discussion, we hold that the price on which eligible unit is selling the power, i.e., at Rs. 6.90 per unit which is the price available in the open market and also the same manufacturing unit is purchasing it from GEB at the same price, then it can be said to be the market value of the price. Accordingly, addition / disallowance of deduction made by the ld. CIT (A) is deleted and the ground Nos. 1-4 raised by the assessee are allowed. Taxing income under the head income from business and profession thereby levying additional tax in the computation sheet when there is no such additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex at Mithapur in Gujarat and a fertilizer complex at Babrala in Uttar Pradesh and Phosphatic fertilizers complex at Haldia in West Bengal. Assessee has reported Specified Domestic Transaction (SDT) with respect to sale of electricity from unit called Power Plant-TT-12) which has supplied 5,23,42,000 KWH units of electricity to the manufacturing unit of TCL at Mithapur at a transaction price of Rs. 36,09,44,480/-. In TP study report assessee justified the arm s length price by using CUP as the most appropriate method whereby the assessee stated that the price charged by the eligible unit has been compared with the prices charged by Gujarat Electricity Board (GEB) to TCL at Mithapur for supply of electricity under similar comparable circumstances. It was stated that electricity generated by TT-12 power plant unit which is an eligible unit u/s. 80-IA of TCL has been transferred to manufacturing unit of TCL at Mithapur at the same average rate of Rs. 6.90/- per unit. The average rate charged by GEB in similar transaction of sale of electricity to consumers and also to Mithapur unit was Rs. 6.90 per unit, therefore, it was reported that price charged by eligible unit was at arm s lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es held that valuation of electricity provided to another unit should be at the rate at which electricity distribution companies are allowed to supply electricity to the consumers. 5. However, TPO held that, the assessee has transferred / sold the power from its captive eligible unit to it‟s another non-eligible unit and there is absolutely no distribution cost involved in its pricing. Whereas the comparable (GEB) is not only purchasing the power but also being a distribution company incurs huge distribution cost and transmission losses which are factored in the sales price set by them. This material difference of distribution cost makes the difference in price and therefore, the price at which GEB is selling to the customers cannot be accepted. After referring to the provisions of Section 92BA, 92F and Rule 10B (2), TPO held that where the claim of deduction u/s. 80IA is made, the ALP for the purpose of specified domestic transactions is the price which would be applicable in the transactions between two persons other than the associated enterprises in uncontrolled conditions. The comparability of the specified domestic transaction has to be established in terms of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue used in this sub-section in two manner; firstly, the price that such goods and services would ordinarily fetch in the open market; and secondly, the ALP as defined in clause (ii) of section 92F if transfer of such goods is SDT under section 92BA. He held that, in so far as the price that such goods and services would ordinarily fetch in the open market means that the electricity generated by the eligible unit would ordinarily fetch in the open market if sold and not the rate in which non-eligible unit could procure the electricity in the open market and therefore, eligible unit alone has to be taken as tested party. He further held that the object of extending the application transfer pricing regulations to specified domestic transaction was to ensure that assessee do not inflate the profits to such transaction of the eligible units and the correct profits should be determined and therefore, the ALP has to be determined in terms of Clause (ii) to Explanation to Section 80-IA (8). TPO also referred to the Safe Harbour Rules‟ notified by CBDT wherein it provides that the company engaged in the business of generation of power, the rates for the supply of electricity would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the details as discussed above regarding the cost of production of the assessee, power purchase cost to the MSEDCL, return on capital pre tax of 24.05%, the profit element of the assessee company etc, the ALP of the power sold to the eligible units is treated to be at Rs. 3.94/unit and adjustment is worked out as tabulated below Electricity Units Actual Rate INR ALP ALP INR Adjustment 5,23,42,000 6.90 36,11,59,800 3.94 20,62,27,480 15,49,32,320 Therefore an adjustment of Rs. 15,49,32,320/- is proposed on this transaction. The adjustment has been proposed is in respect of the eligible units only. AO may accordingly compute the allowable deduction having regard to the above ALP adjustment. 8. The ld. DRP, first of all held that eligible unit is the one which is less complex functional-wise as it is producing power for captive utilization whereas non-eligible unit is manufacturing multiple chemicals and consuming power for the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic external CUP in the case of electricity generation unit. Secondly, he submitted that wherever transfer of goods and services falls under SDT, then market price has to be determined as per principles of ALP under transfer pricing mechanism as provide in clause (ii) of Explanation to section 80IA(8). 10. The case of the ld. Counsel for the assessee is that, what is required to be seen as to how much a non-eligible unit will have to pay the price for buying electricity. If it has bought electricity from GEB which has supplied the electricity @6.90 per unit, then if at the same price the eligible unit has supplied, then there is direct CUP. The purpose of Section 80IA(8) is to see whether the goods and services has been transferred at market value. The market value here in this case is at Rs. 6.90 per unit. In support of his contention, he has filed 34 judgments of various Tribunals as well as the High Courts, and particularly the judgement of (i) Hon ble Chhattisgarh High Court in CIT vs. Godawari Power Ispat Ltd (2014) 42 taxmann.com 551; (ii) PCIT vs. Gujarat Alkalies Chemicals Ltd. reported in 395 ITR 247 (Guj), wherein the Hon ble Gujarat High Court specifically said tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious assets and assumes various risks and therefore, the price charged by the distribution company from the end customers cannot be the market value of the price on which assessee sold the price as power generation unit to another unit of the same assessee. Finally, the ld. DRP has given one comparable instance, of M/s. Torrent Power Ltd. (TPL) which was into generation of electricity in whose case, Gujarat Electricity Regulatory Commission (GERC) has determined the tariff for supply of electricity to State Electricity Board at Rs. 3.99 per unit. 12. Whereas the case of the assessee is that the manufacturing unit has bought the electricity from the eligible unit at Rs. 6.90 per unit which is the price from which it has procured electricity from GEB and therefore, the price charged by GEB is the market value of the transaction of sale of electricity. Section 80 IA provides that gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), then while computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue‟ in relation to any goods and services which has provided two manners to determine. The first is the price that such goods or services would ordinarily fetch in the open market and then the phrase or has been used. Secondly, the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to section 92BA. Section 92BA incorporates the determination of ALP under transfer pricing provision of sections 92,92C, 92D and 92E. It provides that any transfer of goods or services referred to in sub-section (8) of Section 80IA is also covered under the specified domestic transaction. 92F sub-clause (ii) defines the arm s length price, which means the price which is applied or proposed to be applied in a transaction between the persons other than associated enterprises in uncontrolled conditions. Thus, the second option for determining the market value is the mechanism of transfer pricing provision for determining the arm s length price. 14. The entire case of the department is that, since it is SDT in term of Section 80I (8), therefore, the market value has to be in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 80IA (8), the market value has to be compulsory governed by Explanation (ii) to Section 80IA (8), because in 92BA provides that such transfer of goods and services referred in this sub-section falls within SDT and therefore, arm s length price has to be determined as per Section 92F(ii). Further according to them Explanation (i) (ii) have separate application because it is separated by word or , but how they are separately applicable and under which circumstances has not been elaborated. If such an interpretation is to be accepted, then clause-(i) of the Explanation will become otios and redundant, because then the transfer of the goods and services falling u/s. 80IA(8) has to be compulsorily be determined under arm s length principle. Had it been so, then post introduction of SDT in Section 92BA w.e.f. 01/04/2013, then statute would have provided that for the purpose of Sub-section (8) to Section 80IA, market value in relation to goods or services means the arm s length price as defined in clause (ii) of Section 92F. If both the clauses exist then one has to see if the market value is discernable from the price for such goods would ordinarily fetch in the open market unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e become redundant and Explanation (i) is no more applicable after the introduction of Clause (ii) w.e.f. 01/04/2013, because, the statute has not omitted clause (i). Thus, in our opinion these judgments still holds the field and once the market value of such price on which electricity is sold to another unit of the assessee, the same can be compared with the electricity distribution entities for supplying to the customers in the open market. Accordingly, there is no infirmity in the contention of the assessee that per unit electricity sold to the non-eligible unit at Rs. 6.90 per unit is the market value. 17. The ld. DRP has taken M/s. Torrent Power Ltd. (TPL) which is the electricity generation entity supplying electricity to GEB. In that case Gujarat Electricity Regulatory Commission (GERC) has fixed tariff of Rs. 3.99 per unit for supplying it to the GEB for F.Y.2016-17. First of all nothing has been brought on record whether, M/s. Torrent Power Ltd. (TPL) was supplying to other entities or industry or it was purely supplying to GEB. What is culled out is that, these power generating entities were manufacturing and supplying 100% to the GEB and the price is influenced by GEB ..... X X X X Extracts X X X X X X X X Extracts X X X X
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