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TMI Blog2025 (1) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the assessee during the year. 3. We have heard the rival submissions and perused the materials available on record. The return of income for the assessment year 2014-15 was filed by the assessee company on 27-11-2014 declaring total income of Rs 93,73,17,398/-. The assessee company is engaged in the business of activity of coal beneficiation, coal trading and power generation and sale as core business activities. A reference under section 92CA(1) of the Act was made by the Learned AO to the Learned Transfer Pricing Officer (TPO) for benchmarking the international transactions and domestic transactions of the assessee carried out with its associated enterprises. The Learned TPO passed an order under section 92CA(3) of the Act dated 17-08-2017 wherein a sum of Rs 2,74,40,110/- was made as transfer pricing adjustment with regard to transfer price of electricity from thermal unit to washeries division of the assessee. 4. The assessee has two different eligible units for claiming deduction under section 80 IA of the Act. These included a 15MW Windmill unit and a 30MW thermal power plant. The assessee claimed deduction of Rs 8,98,46,843/- under section 80IA(4) of the Act only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs 4 per unit to be at arm's length price and not Rs 2.868 per unit or Rs 4.57 per unit adopted by the Learned CITA. Hence the cross objections of the assessee vide Ground Nos. 3 to 7 and the appeal of the revenue in this regard are with regard to the solitary issue of transfer pricing adjustment and hence they are taken up together. 6. There is no dispute that assessee had transferred electricity from its thermal power plant to its washeries division at Rs 4 per unit. It is not in dispute that the rate charged by CSEB on the industry is Rs 4.05 per unit. Hence, the fair market value for the transfer rate of power or the selling rate of power in the industry by CSEB is Rs 4.05 per unit. Whether the said rate of Rs 4.05 per unit being the prevailing market rate could be used for transfer of electricity between two units of the same Assessee for captive consumption was subject matter of consideration by the Hon'ble Supreme Court in the case of CIT vs Jindal Steel & Power Ltd reported in 157 taxmann.com 207 (SC), wherein it was held as under:- "22. Reverting back to sub-section (8) of Section 80-IA, it is seen that if the assessing officer disputes the consideration for supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rate at which electricity could be supplied is determined, notably by Sections 21 and 22 thereof. That apart, there is the tariff regulatory commission which has the mandate for fixing the rates for sale and purchase of electricity by the distribution licensee. Thus it was noted that there is an inbuilt mechanism to ensure permissible profit both to the generating companies and to the distribution licensees. Therefore, it was held by the High Court that the assessee's generating unit could not claim any benefit under section 80-IA of the Act computing the profits and gains on the basis of the rate chargeable by the distribution licensee from the consumer and that the benefit could only be claimed on the basis of the rates fixed by the tariff regulatory commission for sale of electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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