Tata Steel Ltd Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that the rates on which power is available through Indian Energy Exchange cannot be applied, because these are not the rates to the consumers but rates to the DISCOMs. Accordingly, transfer pricing adjustment deleted.
Facts- The assessee is a company engaged in the business of manufacturing iron and steel, bearings, Ferro alloys and sale of power and water. In so far as the transfer pricing adjustment of Specified Domestic Transactions made u/s. 80(A(8), the facts are that the assessee has three captive power plants on which claim of deduction u/s. 80IA has been made.
Notably, the price at which non-eligible units purchased power from third-party power distribution companies (DISCOMS) to be the market value of electricity was considered. The case of the ld. TPO was that once the transfer of goods and services referred to in sub-section (8) of section 80IA has been brought under the scope of SDT u/s.92BA therefore, the same principles have to be applied for determining the arm’s length price as provided u/s.92F r.w.r. 10B(2). TPO then held that DISCOM cannot be compared to captive power units. In working out the costs to be added to the cost of power purchased, the TPO reduced the employee cost to 20% of that incurred by the DISCOMs, denied inclusion of provision for doubtful debts, and denied inclusion of transmission cost.
Conclusion- Held that, the rates on which power is available through Indian Energy Exchange cannot be applied, because these are not the rates to the consumers but rates to the DISCOMs. Thus, our same reasoning given in the decision of M/s. Tata Chemicals Ltd. will apply to the case of the assessee. Accordingly, following the ratio in the decision of M/s. Tata Chemicals, this issue is decided in favour of the assessee and consequently the entire adjustment made by the ld. TPO is directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against final assessment order dated 19/01/2023, passed by AO in pursuance of directions given by DRP u/s. 144(5) dated 30/12/2022 for the A.Y.2019-20.
2. In various grounds of appeal assessee has raised following issues-
(i) (Ground 2 to 2.8) – Transfer pricing adjustment of 99,61,45,650/- with respect to transaction of sale of power from eligible unit (eligible for deduction u/s.80IA to non-eligible unit of the assessee.).
(ii) (Ground No.3-3.11) – Disallowance of interest paid on perpetual non-convertible debentures of Rs.266, 12,54,846/-.
(iii) (Ground No.4-4.4)- Disallowance of expenditure incurred on compensatory afforestation of Rs. 126,19,08,529/-.
(iv) (Ground No.5-5.4)- Disallowance of provision for leave encashment of Rs. 151,18,79,819/-
(v) (Ground No.6-6.3)- Disallowance u/s. 14A of the Act w.r.8D of Rs.7,09,74,178/-
(vi) (Ground No.7-7.2)- Addition of disallowance u/s. 14A of the Act to book profits u/s.115JB of the Act of Rs.7,09,74,178/-
(vii) (Ground No.8-8.3)- Claim of deduction of interest on PNCD amounting to Rs.266,12,54,846/- in computing book profit u/s. 11 5JB of the Act not granted.
(viii) (Ground No.9-9.2)- Disallowance of interest on PNCD amounting to Rs.266,12,54,846/- in computing book profit u/s.115JB of the Act.
(ix) (Ground No.10-10.1)- AO has not correctly computed book profit u/s. 1 15JB
(x) (Ground No.11-11.1)- AO has not given grant of available MAT credit
(xi) (Ground No.12-12.1)- Lastly, AO has erred in not considering the interest u/s.244A correctly.
3. The assessee is a company engaged in the business of manufacturing of Iron and steel, bearings, Ferro alloys and sale of power and water. In so far as the transfer pricing adjustment of Specified Domestic Transactions made u/s.80(A(8), the facts are that assessee has three captive power plants on which claim of deduction u/s.80IA has been made namely-
(a) Kalinga Nagar Power undertaking-I, located in the State of Orissa
(b) Jamshedpur Power Undertaking-H, located in the State of Jharkhand
(c) Jamshedpur Power Undertaking-1, located in the State of Jharkhand.
The above 3 units have generated power during the year under consideration, as under:-
a Kalinga Nagar Power undertaking, I- 9,12,73,329 KWH
b Jamshedpur Power Undertaking. H-10,44,54,865 KWH
c Jamshedpur Power Undertaking I-8,89,89,942 KWH
4. The power generated by the above units has been sold to the non-801A units of the assessee were as under:-
a. Kalinga Nagar Power undertaking. I (Orissa) – sold all power generated to Kalinganagar manufacturing unit.
b. Jamshedpur Power Undertaking- H(Jharkhand) – sold all power generated to Jamshedpur manufacturing unit.
c. Jamshedpur Power Undertaking. I (Jharkhand) sold all power generated to Jamshedpur manufacturing unit
5. The aforesaid non-eligible manufacturing units of the assessee, in addition to the above have also purchased power from third-party power distributions companies (DISCOMS) as under:-
a Kalinga Nagar Power Undertaking I (Orissa) – has purchased power from North-eastern Electricity Supply Company of Odisha Ltd (NESCO) at rate prescribed by Orissa Electricity Regulatory Commission (OERC) at Rs.7.64 per KWH
b Jamshedpur Power Undertaking H (Jharkhand) – has purchased power from Jamshedpur Utility Services Company Limited (JUSCO) at rate prescribed by Jharkhand State Electricity Regulatory Commission (JSERC) at Rs.8.46 per KWH
c Jamshedpur Power Undertaking. I (Jharkhand) – has purchased power from JUSCO at rate prescribed by JSERC at Rs.8.46 per KWH
6. Since the said non-eligible units were purchasing power from the DISCOMS NESCO and JBVNL (Discom company of Jharkhand), the price at which NESCO and JBVNL sold the power came to be the market value of the electricity in the respective State. Accordingly, the assessee considered the price at which the CPPs sold power to the non-eligible unit as under:-
