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TMI Blog2024 (2) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... addition. TPO has considered the comparable who are not generating thermal power which the assessee dealt in. Here, the supply power in between eligible unit to non-eligible unit. The assessee had adopted the power tariff which is said to be ALP and the WBSEB was maintain this rate by selling the consumer. The rate was adopted by the ld. TPO in CUP method cannot be accepted as the WBSEB is not tested party. The assessee has only transactions with AE, not any other party. The fair market value is clearly covered in order of Jindal Steel and power Ltd. [ 2023 (12) TMI 417 - SUPREME COURT] and Birla Corporation Ltd. [ 2023 (2) TMI 341 - ITAT KOLKATA] . We respectfully relied on both the orders. We are not interfering in the appeal order in this issue. The assessment order is unjustified in this issue. Accordingly, the grounds of the revenue for ground nos. 1 and 3 are dismissed. Addition u/s 14A r.w.r.8D - HELD THAT:- We find that both Ld. AO and the Ld. CIT(A) had added back under Rule 8D(2)(iii) of the Rules 0.5% on average investment of Rs. 296.17 Lakh which works out amount to Rs. 1,48,085/-. But all the investments are not dividend yielding as a result only amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. 3. Whether on the facts and in circumstances of the case, Ld. CIT(A) has erred in law in holding that adding back the disallowance computed under rule 8D while assessing the book profit is unjustified. 4. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in holding that the Education Cess paid on Income Tax is an allowable expenditure under the Head Business profession. 5. That the appellant craves leave to add, delete and modify any of the grounds of appeal before or at the time of hearing. 5. Brief fact of the case is that the assessee engaged in the business of manufacturer of rectified spirit, Indian made foreign liquor, marine products and trading of marine feed and generation distribution of Thermal Power for captive consumption. The assessee set up of power generation plant, captive power plant (CPP) is to make the company to sufficient in supply of electricity power. The power is generated by ignition of coal and the heat generated is used for boilers, in turn , the boiler steam transfer to turbine generators. The power generated from turbines is transferred and consumed in main manufacturing unit. The determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of electricity power. The power is generated by ignition of coal and die heat generated is used for boilers, in turn, the boiler steam transfer to turbine generators. The power generated from turbines are transferred and consumed in main manufacturing unit. The determination of selling price per unit of power used for captive consumption is determined on average purchase price of electricity purchased from the State Electricity Boards which was fixed at Rs 8.48 per unit for 43,08,600 units transferred in the way to other business units. 3.2 In the way, the assessee had entered into Specified Domestic Transactions during the relevant financial year. Under the circumstances, the case was referred to the Transfer Pricing Officer (TPO) for determination of Arms Length Price as per provisions of Section 92CA of the LT.Act, 1961. 3.3. The TPO in its order dated 28.10.2016 u/s 92CA(3) of the I T Act, 1961 Has observed and compared the eligible unit of the assessee with some companies and Rs 3.23 per unit has been adopted as ALP and in the way, the transfer price of power for the eligible unit is reduced by Rs 2,26,20,150/-. 3.4. Accordingly, the assessee was asked to comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od what should be the most appropriate data and the price to be adopted. It is well understood that CUP 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, as is being done between the AEs. The CUP Method, can be broadly classified into two categories i.e. Internal CUP Method External CUP Method. Under the Internal CUP Method, the transaction between the AEs involving buy or sell of goods services are comparable to the transacted conducted by any of the AEs with unrelated parties for buy or sell of similar goods or services under similar conditions. However when such internal data is not available, then one may apply external CUP which involves comparison of prices paid/ charged between two unrelated third parties in uncontrolled conditions with the transaction conducted between the AEs. 3. Under Chapter X of the Act which became applicable to specified domestic transactions, not only the assessee is required to demonstrate that the profits are arrived at by adopting fair value of the goods services provided to related parties but i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule on random pick and chose basis without ascertaining as to whether the Tariff schedule was for Low Tension or for High Tension or for that matter for which class of consumers was the tariff rates notified. It is evident from the tariff orders that depending on the class of consumers e.g., Railways, Mines, Seasonal, Industrial /Nonindustrial, agriculture etc. the rates varied from Rs.1.80 to Rs.5,30 per unit. I therefore find merit in the contention of the Ld. AR. that the FAR as well as the Economic Analysis performed by. Ld. TPO was fundamentally flawed and unsustainable on facts and in law. 5. On the other hand, I find that the benchmarking exercise followed by the appellant not only fulfils the internal CU-P, parameters but reliable data is also available in this regard. Furthermore this benchmarking exercise followed by the appellant and their contention that the ALP of transfer of power by CPP to be equivalent to the landed cost of power at which the non-eligible unit procured power has been judicially approved by the jurisdictional ITAT, Kolkata in the cases of Birla Corporation Ltd for AYs 2008-09 to 2010-11 in ITA Nos, 971/Kol/ 2012 298/Kol/2013 and Kesora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the action of the Ld. TPO as also equally carefully perused the submissions made by the Ld. A.Rs, and the documents available in the Paper Book filed by the appellant. The claim of the appellant for deduction u/s 80IA in respect of profits of captive power plants ('CPPs') has been subject matter of dispute in the past as well. In the AYs 2008-09 2009-10, the matter with regard to determination of tariff rate for the purpose of computing profits of the CPPs travelled upto the Hon'ble ITAT, Kolkata, which vide its order dated 25.08.2017 in ITA No.971/Kol/2012 accepted the proposition put forth by the assessee that the profits of the eligible undertaking should be computed by adopting power tariff equal to monthly average landed cost of the power supplied to the other undertakings by the State Electricity Boards. The material difference during the year under consideration is that in the years decided by the Hon'ble ITAT, Kolkata. the adjustments were carried out by the Ld. AO in terms of Section 80IA(8) of the Act and there was no transfer pricing regulations in force. However the appeal relates to AY 2013-14 when the transfer pricing provisions contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. Per contra, the Ld. AR of the appellant has made detailed submissions rebutting the Ld. TPO's conclusion, which have extensively been extracted in the earlier paragraphs. From the foregoing the question to be decided is that for application of CUP Method what should-be the most appropriate data and the price to-be adopted. It is well understood that CUP 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, as is being done between the AEs. The CUP Method, can be broadly classified into two categories i.e. Internal CUP Method External CUP Method. Under the Internal CUP Method, the transaction between the AEs involving buy or sell of goods 8i services are comparable to the transacted conducted by any of the AEs with unrelated parties for buy or sell of similar goods or services under similar conditions. However when such internal data is not available, then one may apply external CUP which involves comparison of prices paid/ charged between two unrelated third parties in uncontrolled conditions with the transaction conducted betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchmarking performed by the appellant (also judicially approved by higher judicial forums in its own case) was justified. Accordingly the Ld. AO/TPO is directed to delete the transfer pricing adjustment and further direct the Ld. AO/TPO to grant the deduction u/s 80IA based on the transfer price of Rs.6.76/6.85 per unit Rs.6.79/Rs.6.84 per unit in respect of CPPs at Rajasthan 8i Madhya Pradesh respectively. While computing the deduction permissible, the Ld. AO/TPO shall give an opportunity of hearing to the appellant and will re-compute the deduction in terms of the directions above. Ground Nos. 2 to 5 are therefore allowed. 9.5. As relied by ld. Counsel for the assessee, we observe that similar issue came up before this Tribunal in the case of DCIT vs. M/s. Dhunseri Ventures Ltd.in ITA No. 1989/KOL/2019 order dated 29.08.2022 regarding the transfer pricing adjustment in relation to specified domestic transactions of transfer of power for captive consumption by eligible units to non-eligible units. This Tribunal after considering the catena of judgments held as follows: 9.5. We have heard rival submissions and perused the material as placed before us carefully includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CUP is product comparability and similar market conditions. Further the CUP method can be classified into two categories i.e. internal CUP method and external CUP method. Under internal CUP method the transactions between the AE's involving buying or selling of goods and services are comparable to the transactions entered into by the AE's with the unrelated parties for buying and selling similar goods and service under similar circumstances. However when such internal data was not available then one may apply external CUP which involves comparison of price paid/charged between the two unrelated parties in uncontrolled condition for transactions entered into between the AE's. In the instant case as noted elsewhere hereinabove that the CPPs bench marked the transactions with non eligible units at a rate at which power is supplied by the SEB to the non eligible units and therefore is the prevailing rate at which the power has been supplied by the SEB to other parties/factories located in the same geographical areas/location. It is also undisputed that both CPPs as well as SEB supplied/sold power during the year and thus there is no timing difference as well. Thus we are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of Rs. 3.47 per unit as calculated on the basis of sale data of power by independent CPPs /IPPs as determined by various tariff orders should be taken as ALP however can not overlook the fact that the said transactions did not take place under similar market conditions and that price cannot be taken as ALP under CUP method. The power supplied by the CPPs to non eligible units was business to consumer (commonly known As B2C) meaning thereby the rate at which the ultimate consumers can purchase the power for their consumption is relevant. In the instant case before us, the B2C market comprises the sale of power by SEB and other distribution companies to different categories of consumers. Thus the power sold by other CPPs/IPPs to unrelated parties was in altogether different market conditions which is business to business commonly known as B2B model and the said rate represented the rate at which the distribution companies purchased power from generation companies. Further no consumer can buy the power in the open market at a rate generation companies sell power to distribution companies. Thus we do not find any force in the contentions of the Id DR that rate at which the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80-IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the revenue that the assessee therein was not entitled to the benefit under section 80-IA of the Act because the power generated was consumed at home or by other business of the assessee. After holding so, the High Court however, answered the question on the point of computation of profits and gains of the eligible business against the assessee. On going through the judgment, we find that facts of that case are clearly distinguishable from the facts of the present batch of appeals. It is noticeable that though an opportunity was granted by the assessing officer to the assessee to adduce evidence to justify the price of electricity sold by it to its paper unit, the same could not be availed of by the assessee. The electricity generated was sold by the assessee entirely to its paper unit. There was no surplus electricity to be supplied to the State Electricity Board and consequently, there was no contract between the assessee and the State Electricity Board determining the rate of tariff for the electricity supplied by the assessee to the State Electricity Board. On the other hand, it was noticed that the Electricity Act, 2003 had come into force whereby and whereunder, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ld. CIT(A) for addition u/s 14A amount of Rs. 1,48,085/-. The Ld. D.R invited our attention in appeal order page 22 which is reproduced as below: 9. Ground no. 2 taken by the appellant contends that the Ld. AO s has erred in law without establishing proximate cause between earning of exempt income and the expenses incurred. The impugned matter has been dealt with by the Ld. AO as under: 4.1 It is seen from the records that during the relevant previous year, the assessee has earned dividend of Rs 25,000/- on different shares and mutual funds. The assessee, in its computation was not disallowed any expenditure related to such exempted income as laid down u/s 14A of the IT Act, 1961. 4.2. A company cannot earn dividend without its existence and management. Investment decisions are very complex in nature. They require substantial' market research, day to day analysis of market trends and decisions with regard to acquisition, retention, and sale of shares, units of mutual funds etc. at the most appropriate time. The investment requires availability of funds and consequential blocking of funds. It is well known that capital has cost and that element of cost is rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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