Case Law Details
ACIT Vs Electrosteel Casting Ltd. (ITAT Kolkata)
It is clear from the rival contentions that determination price at which Power generated can be sold is subject to statutory control under the provisions of Section 61 & 62 of the Electricity Act, 2003. The Hon’ble Calcutta High Court in its decision rendered in the case of ITC Ltd. has specifically observed that in the case before it electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. No arguments were advanced before the Hon’ble High Court nor did it deal with applicability of the proviso to Section 80-IA(8) of the Act. Section 80-IA(8) lays down that when article or thing manufactured is used by the assessee himself for own consumption the profit of the undertaking manufacturing such article or thing has to be based on the market value in preference to the price as recorded by the Assessee in his books. Market Value for the said purpose has been defined to mean the price that such goods or services would ordinarily fetch in the open market. When price of power is subject to statutory controls one cannot ascertain the price such goods or services would ordinarily fetch in the open market because in such circumstances it cannot be said that there is an open market for the goods or services. There are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8) and therefore the proviso to section 80-IA(8) would apply and the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.
Coming to a market price applicable to the assessee’s case, attention of your Goodself is invited to the Tariff orders issued by West Bengal Electricity Commission for FY 2012-13. A perusal of the same together with the bills issued by the State Electricity Board on the assessee shows that charges recovered from the assessee are at par/lower than rates prescribed in the Tariff order. Further certain fixed charges like Contract Demand charges, Electricity duty etc. were recovered from the assessee by the Board which have been added to the energy charges per unit to arrive at the Arm’s length price/effective rate per unit which in turn has been used to compute deduction u/s 80-IA.
The appellant-company operates a captive power plant (‘CPP’) and the power generated therein is consumed by the appellant-company itself. For the purposes of computing profits of the captive power unit, eligible for deduction under Section 80IA, the appellant-company has adopted the tariff rates at which it purchased electricity in the State of West Bengal to be ‘open market value’ in terms of Section 80IA(8) of the Income-tax Act, 1961. In the transfer pricing proceedings, the appellant explained that it had applied the internal Comparable Uncontrolled Price Method. It was submitted that the price/rate at which the appellant-company purchased the electricity was the most appropriate comparable rate to benchmark the rate at which the CPP had transferred power to the appellant-company. The Ld. TPO/AO were however not agreeable with the explanation & details put forth by the appellant. According to Ld. TPO/AO the internal CUP adopted by the appellant-company was not the most appropriate method. Instead the Ld. TPO/AO was of the view that the price at which Electricity Board sold power to distribution licensees was a better parameter to benchmark the specified domestic transaction; i.e. transfer of power by CPP Unit to other non-eligible units of the appellant-company. This manner & methodology adopted by the Ld. TPO/AO was following the principles laid down in judgment of the Hon’ble Calcutta High Court in the case of ITC Ltd (supra).
The submission of the learned counsel for the assessee was that the decision of the Hon’ble Calcutta High Court is not applicable to the case of the assessee as in the case before the Hon’ble Calcutta High Court, the undertaking that generated power was situated in the State of Andhra Pradesh where electricity generated could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. In this regard an order of the Andhra Pradesh Electricity Regulatory Commission, Hyderabad in O. P, No, 1075/2000, dated June 20,2001 was filed before us, The said order deals with generation of non-conventional energy and it lays down in paragraph 25 of its order that third party sales of power generated by non-conventional means cannot be made. In paragraph 28 power generated by such generators have to be sold in public interest only to APTRANSCO at rates specified in the said paragraph, Our attention was drawn to paragraph 4 of the West Bengal Electricity Regulatory Commission (Open Access) Regulations, 2007, which lays down that a licensee or a generating company or a captive generating plant or a consumer or any person engaged in the business of supplying electricity to the public under the Act (Electricity Act, 2003) shall be eligible for open access to the intra-state transmission lines or associated facilities of the STU or any transmission licensee on payment of charges, as may be specified by the commission, for using the transmission system of the transmission licensee. It was submitted that power generators in West Bengal are free to trade in power on exchange or sell excess power to third parties. Therefore, the judgment of the Hon’ble Calcutta High Court in the case of ITC Ltd. (supra) will not apply to the case of the assessee.
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