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TMI Blog2025 (3) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... 's length price become available and specifically when the amendment to section 80A(6) was made by inserting clause (iii) in Explanation w.e.f. 01.04.2013 specifically holding that the arm's length price for specified domestic transactions had to be determined as per clause (ii) of section 92F? 3. Ground-(iii) Whether on the facts and in circumstances of the case, the Hon'ble CIT(A) (by referring decision of ITAT) is justified in holding that for making a claim u/s 801A(8), when a basket of market value is available, it is on the discretion of the assessee to adopt any one of these as market value without appreciating the fact that Arm's length price is to be determined taking in to account various crucial factors which include assets employed, risks assumed, laws and government orders in force etc., and such factor make the market value taken by the assessee illogical and wrong since the assessee has taken the purchase rate of end customers as ALP instead of the rate at which power is sold by generating units? 4. Ground-(iv) Whether on the facts and in circumstances of the case, the Hon'ble CIT(A) (by referring decision of ITAT) is justified in deleting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on company M/s. Ajmer Vidyut Vitran Nigam Ltd.(AVVNL) to the assessee, while the TPO taken the same at Rs. 6.14 and Rs. 5.52 for thermal based power, waste heat recovery system (WHRS) and solar power plant and wind energy plant respectively on the basis of power supplied by third parties to the state distribution companies. This resulted in an addition of Rs. 33,57,04,374/- Rs. 12,42,23,360/- Rs. 70,75,756/- and Rs. 4,99,71,390/- against Thermal power, WHRS, Solar Power and Wind Energy respectively. 5. All the grounds raised by the Revenue are inter-related, hence adjudicated together for sake of simplicity and harmony in various provisions of the statute. The assessee has established 4 power plants as mentioned (supra) for captive power supplies to its cement unit at Nimbahera. These units are eligible for deduction u/s. 80IA of the Act, whereas the cement plant was not eligible for the same. Total electricity generation of these power plants are being used in assessee's cement plant only and there is no outside sale of the electricity. The assessee adopted Comparable Uncontrolled Price (CUP) method, based on the average price charged by the AVVNL to the cement plant, i.e. Rs. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not claim Rs. 3.72 per unit for supplying the same electricity to its sister concern i.e., the industrial units. This view of the assessing officer was confirmed by the CIT (A). [Para 20] It is noticed that the Tribunal had rejected such contention of the revenue which has been affirmed by the High Court. In this proceeding, it is to be decided as to which of the two views is the correct one. [Para 21] Reverting back to sub-section (8) of Section 80-IA, it is seen that if the assessing officer disputes the consideration for supply of any goods by the assessee as recorded in the accounts of the eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under section 80-IA, the profits and gains of such eligible business shall be computed by adopting arm's length pricing. In other words, if the assessing officer rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of section 80-IA (8). On the contrary, the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under section 80-IA. [Para 29] Thus on a careful consideration, it is viewed that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been taken as ALP/ market value for determination of sale price of electricity for WPP. 11. In case the Appellant was not having a CPP, the Appellant would have to purchase the electricity from M/s. JVVNL that would have been supplied at the rate of Rs 7.77 per unit to the cement plant. Similarly, in case the credit of electricity generated by the WPP would have not been given by M/s. JVVNL in the electricity bill, the Appellant would had purchased the electricity from JVVNL at rate of Rs 7.10 per unit only and therefore the respective price, basis which the electricity value has been computed by the Appellant is the arm's length price as per section 92F (ii) of the Act. Determination of price of electricity is a regulated activity and therefore the price at which power is supplied by generation company to transmission or distribution company cannot be said to be under 'uncontrolled condition' to be considered for benchmarking purpose. 12. The activities of generation, transmission and distribution of electricity is a regulated activity in India with the primary legislation being The Electricity Act, 2003, under terms of which Central Electricity Regulation C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue." Although the same has been delivered w.r.t. deduction u/s. 80- IA of the Act, but simultaneously decided the issue of Arm's Length Price also for the purposes of section 92CA of the Act. * Chhattisgarh High Court in case of CIT, Raipur Vs. Godavari Power & Ispat Limited (2014) 42 taxmann.com 551 (Chhattisgarh) [PB 82-87] * Gujarat High Court in case of PCIT Vs. Gujarat Alkalis and Chemicals Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishable on facts and in law as the A.Y. concerned in case of the Appellant is A.Y. 2020-21 whereas the A.Y.s concerned in above cases were A.Y. 2002-03 (ITC), A.Y. 2008-09 (Chambal) and A.Y. 2012-13 (Shree Cement) wherein the provisions of the Act were different. 19. In case of ITC Ltd (supra), definition of market value was construed with respect to section 80-IA of the Act which was based upon the pre-amended provisions of section 80-IA of the Act wherein the term 'market value' was defined to mean 'the price that such goods or services would ordinarily fetch in the open market'. However, with effect from 1 April 2013, the definition of the term 'market value' was amended to refer to the arm's length price as defined in clause (ii) of section 92F of the Act. Also, section 80A of the Act overrides section 80-IA of the Act and the case law of ITC Ltd. is distinguishable as the definition of market value is different in section 80A(6) and 80-IA of the Act. 20. Similarly, in case of Chambal Fertilizers (supra) and Shree Cements (supra), definition of market value was construed with respect to clause (i) to explanation to section 80A (6) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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