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Case Law Details

Case Name : DCIT Vs Kesoram Industries Ltd. (ITAT Kolkata)
Appeal Number : I.T.A. No. 1777/Kol/2019
Date of Judgement/Order : 28/10/2021
Related Assessment Year : 2012-13

DCIT Vs Kesoram Industries Ltd. (ITAT Kolkata)

The grievance raised by the assessee in their appeal in ITA No. 1650/Kol/2019 is against the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rules. After considering the rival submissions and perusing the relevant material on record, we find that the issued involved in this appeal is identical to that of Ground Nos. 1 to 3 of the appeal of the assessee in AY 2014­-15. We therefore follow our conclusions drawn on this issue in AY 2014-15 and accordingly uphold the Ld. CIT(A)’s order directing the AO to consider only the opening and closing value of those investments which actually yielded dividend income to the assessee during the relevant year for the purposes of computing the disallowance under section 14A of the Act read with Rule 8D(2)(iii). In case the re-worked disallowance is lower than the sum of Rs.1,06,159/- voluntarily disallowed by the assessee u/s 14A of the Act, then the AO shall restrict the disallowance to Rs.1,06,159/-. The appeal of the assessee is allowed for statistical purpose, as directed supra.

Deduction allowed in respect of employee’s contribution to PF & ESI which had been remitted on or before the due date for filing the return of income u/s. 139(1) of the Act

It is noted that although there was a delay in some payments of employees’ contribution to PF& ESI aggregating to Rs.67,16,882/-within the time limits as prescribed by the respective Acts but the alleged sums were duly deposited with the respective authorities before the due date of filing of return of income for the A.Y 2012-13 prescribed u/s. 139(1) of the Act. We note that, the Hon’ble Calcutta High Court has taken consistent view that employee’s contribution to PF/ESI paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. In this regard, we gainfully refer to the decisions of Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs. CIT in ITA No. 110 of 2011 dated 14.06.2016 and in the case of CIT Vs. Vijayshree Ltd.(2014) 43 taxmann.com 396 (Cal).

Respectfully following the aforesaid decision of the Hon’ble Calcutta High Court and this Tribunal, we are of the view that the Ld. CIT(A) has rightly allowed the deduction in respect of employee’s contribution to PF & ESI which had been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. We therefore do not find any infirmity in the order of the Ld. CIT(A) and, we confirm the same and dismiss this ground of appeal of revenue.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

These five appeals, two by the assessee and three by the Revenue relate to Assessment Years – 2012-13, 2014-15 & 2015-16. Since the issues involved are common, all the appeals were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of brevity, we dispose all the appeals by this consolidated order.

2. First, we take up the appeal for AY 2012-13 in ITA No.1777/Kol/2019 arising out of the order of the Ld. CIT(A) -7, Kolkata [herein after referred to as‘Ld. CIT(A)’] dated 29.03.2019 passed against the assessment order passed under section 143(3) passed by the A.O. dated 20.03.2015.

3. Ground No. 1 of the appeal of the Revenue is directed against the Ld. CIT(A)’s action of deleting the addition of Rs.67,16,882/- made by the AO on account of delayed deposit of employees contribution to PF and ESI u/s 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) despite the assessee contributing/depositing the same before the due date of filing of return of income u/s 139(1) of the Act.

4. We have heard both the parties and perused the material available before us. It is noted that although there was a delay in some payments of employees’ contribution to PF& ESI aggregating to Rs.67,16,882/-within the time limits as prescribed by the respective Acts but the alleged sums were duly deposited with the respective authorities before the due date of filing of return of income for the A.Y 2012-13 prescribed u/s. 139(1) of the Act. We note that, the Hon’ble Calcutta High Court has taken consistent view that employee’s contribution to PF/ESI paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. In this regard, we gainfully refer to the decisions of Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs. CIT in ITA No. 110 of 2011 dated 14.06.2016 and in the case of CIT Vs. Vijayshree Ltd.(2014) 43 taxmann.com 396 (Cal). In the order in the case of Vijayshree Ltd. (supra) the Hon’ble Calcutta High Court held as follows:

“The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees ‘Contribution to ESI and PF by invoking the provision of Section 36(1 )(va) read with Section 2(24 )(x) of the Act was correct or not. It appears that the Tribunal below, in View of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.390 ITR 306, held that the deletion was Justified.

Being dissatisfied, the Revenue has come up with the present appeal.

After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the Income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1 st April, 1988.

Such being the position, the deletion of the amount paid by the Employees’ Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act.

We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal.”

5. Further, this Tribunal in the case of Harendra Nath Biswas in ITA No. 186/Kol/2021 by order dated 16-07-2021 has dealt with this issue by holding as follows:-

“4. We have heard both the parties and perused the record. First of all we do not countenance this action of the Ld. CIT(A) for the simple reason that the Explanation 5 was inserted by the Finance Act, 2021, with effect from 01.04.2021 and relevant assessment year before us is AY 2019-20. Therefore the law laid down by the Jurisdictional Hon’ble High Court will apply and since this Explanation-5 has not been made retrospectively. So we are inclined to follow the same and we reproduce the order of Hon’ble Calcutta High Court in the case of Vijayshree Ltd. supra wherein the Hon’ble Calcutta High Court has taken note of the Hon’ble Supreme Court decision in CIT vs. Alom Extrusion Ltd. reported in 390 ITR 306. The Hon’ble Calcutta High Court’s decision in Vijayshree Ltd. supra is reproduced as under:

…………

In the light of the aforesaid discussion we do not accept the Ld. CIT(A)’s stand denying the claim of assessee since assessee delayed the employees contribution of EPF & ESI fund and as per the binding decision of the Hon’ble High Court in Vijayshree Ltd. (supra) u/s 36(1)(va) of the Act since assessee had deposited the employees contribution before filing of Return of Income. Therefore, the assessee succeeds and we allow the appeal of the assessee”.

6. Respectfully following the aforesaid decision of the Hon’ble Calcutta High Court and this Tribunal, we are of the view that the Ld. CIT(A) has rightly allowed the deduction in respect of employee’s contribution to PF & ESI which had been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. We therefore do not find any infirmity in the order of the Ld. CIT(A) and, we confirm the same and dismiss this ground of appeal of revenue.

7. Ground No. 2 of the appeal of the Revenue is directed against the Ld. CIT(A)’s action of deleting the disallowance of Rs.3,13,86,883/- made by the AO out of the discount & brokerage debited to the Profit & Loss Account. Briefly stated, the facts of the case are that, the assessee is engaged in the business of manufacture & sale of cement, rayon, fire bricks, cast iron pipes, tyres, tubes and various forms of chemicals. The assessee as a part of normal business policy allowed discounts to its dealers viz., (a) upfront/trade discounts which were allowed at the time of placement of order/invoicing and netted off against the sales, and (b) conditional / post sales discounts, such as (i) prompt payment (cash) discount, (ii) turnover discount, (iii) slab discounts etc.; which were allowed to the dealers based on several qualifying parameters and/or fulfillment of certain conditions (which arises after the sale transactions). These discounts were recognized by separately debiting them to the Profit & Loss Account under the head ‘Discount & Brokerage’. According to AO however, since the assessee allowed trade discounts at the time of sale, no further discounts could have been given or allowed by the company to the customers post the completion of sales. The AO was of the view the primary commitment of the assessee stood fulfilled once the sale was complete and therefore there was no necessity to give further discounts after the sales. The AO accordingly disallowed the discount of Rs.3,13,86,883/- given by the assessee to its customers post the completion of sales. Aggrieved by this action of the AO, the assessee preferred appeal before the Ld. CIT(A) who deleted the impugned disallowance.

8. Being aggrieved by the Ld. CIT(A)’s order, the Revenue is now in appeal before us.

9. We have heard both the parties and perused the records. We note that the issue in dispute before us, is squarely covered by the decision of this Tribunal in assessee’s own case in ITA No. 1781/Kol/2017 dated 30.11.2018, wherein on identical facts and circumstances, it was held as under:

2. The Revenue’s sole substantive ground pleaded in the instant appeal seeks to revive the Assessing Officer’s action disallowing / adding this taxpayer’s discount and brokerage claim of Rs.21,83,16,311/- during the course of assessment as reversed in lower appellate proceedings as follows:-

“Decision: In this case the AO has made the addition on the ground that discounts offered by the assessee have been netted from the sales so there cannot be an admissible claim for additional discount. It is the contention of the AO that once the discount has been deducted from the gross sales the assessee cannot claim further ITA No.1781/Kol/2017 A.Y. 2008-09 DCIT, Cir-5(1), Kol. Vs. M/s Kesoram Industries Ltd. Page 2 discount under the accounting head “Brokerage and Discount”. Accordingly, the order post sales discount claimed by the assessee was treated by the AO as a double claim and disallowed. Accordingly, disallowance of Rs.21,83,16,311/- was made by the AO.

I have gone through the submissions of the assessee and the findings of the AO carefully. It has been submitted that the assessee offers upfront discount at the time of the sales which is called trade discount. The sales are reported net of trade discount. The other discounts offered by the assessee which are mostly the post-sale are:

(a) Turn over discount (b) prompt payment discount

(c) Quantity discount; (d) slab discount

(e) discount on sale of disposal of second tubes;

It has also been submitted that assessment orders for assessment year 2005 to 2007-08 were passed u/s. 143(3). In all the earlier years same accounting policy regarding the discounts offered by the assessee was followed i.e. trade discounts were netted off again sales and the other post-sale discounts were shown separately and independently in the profit and loss account. In these years the AO has accepted the method of accounting followed by the assessee with respect to treatment of post- sale discount. In this case it has been argued that the AO has not rejected the books of account u/s.145(3). There is no change of facts as far as accounting treatment of discount is concerned. Accordingly, reliance was placed on the decision of the Apex Court in the case of RadhasoamiSatsang vs. CIT (193 ITR 321), wherein it observed s follows:

‘Where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.’ It was also submitted that on same set of facts that the order passed u/s.263 by the CIT in A.Yr. 2011-12 has been set aside by the Hon’ble ITAT.

Trade discount is offered upfront on sales. I have gone through the sample bill submitted by the A/R of the assessee, in the case of Eastern Tyre Corporation,, wherein the invoice amount is Rs.416680/- on which trade discount is R.140/-and therefore the net product value billeedis Rs.41540/-. Thereafter, VAT of 12.5% has been levied and the net invoice value is Rs.46733/-. The other discounts are not netted off against sales and are debited separately in the P/L Account. Like prompt payment discount of 0.5% is offered by the assessee to its customer if the payment is realized within 30-32 days. Turnover discou9ntof 1.5% is offered if the dealer of the assessee exceed the net billing limit by 3-4 times. Moreover, on identical facts the claim of the assessee in the A.Yr. 2005­-06 to 2007-08 in scrutiny assessments passed under section 143(3). The AO has not brought any new material facts on record which would necessitate a change in the stand taken as regard the accounting method with respect to treatment of post-sale discounts earlier accepted by the department. This accounting method has been continuously followed by the assessee and accepted by the department in scrutiny assessments. Respectfully following the decision of the Apex Court in RadhasoamiSatsang (supra) I am of the opinion that the AO has taken an entirely contrary stand in this year on the treatment of post-sale discounts which is not supported by any change in material facts which is not correct. Accordingly, the disallowance is hereby deleted.”

3. Learned CIT-DR vehemently contends that CIT(A) has erred in law as well as on facts in deleting the impugned discount and brokerage disallowance. We invited his attention to the fact that this tribunal has already reversed the CIT’s action in assessment year 2011-12 seeking to disallow the very claim in sec. 263 proceedings. Learned co-ordinate bench’s order to this effect in ITA No.1189/Kol/2016 decided on 04.11.2016. forms part ofserved before us. We are informed that Revenue’s appeal against the same is pending before hon’ble jurisdictional high court. There is no distinction on facts or law pointed out at either parties’ behest in these two assessment years qua the impugned identical issue. We therefore adopt judicial consistency in this facts and circumstances to affirm the CIT(A)’s findings under challenge deleting discount and brokerage disallowance of L121,83,16,311/-.

10. Since, the facts in the year under dispute are analogous to that in the earlier AY 2008-09, so following the order of this Tribunal (supra), we do not see any infirmity in the impugned order of the Ld. CIT(A), in this regard. Accordingly, Ground No. 2 of the Revenue is dismissed.

11. Now, we take up the appeals for AY 2014-15in ITA No.1197/Kol/2019 & 1778/Kol/2019 arising out of the order of the Ld. CIT(A) -22, Kolkata dated 28.02.2019 passed against the assessment order passed under section 143(3) passed by the A.O. dated 26.12.2017.

12. The sole grievance raised by the assessee in their appeal in ITA No.1197/Kol/2019 is against the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules,1962. Briefly stated, the assessee had filed the return of income declaring a loss of Rs.413,59,34,407/-. In the said return, sum of Rs.5,77,26,949/- received from dividend on the shares during the year under consideration was claimed to be exempt by the assessee-company u/s 10(34) of the Act. In relation thereto, the assessee had offered disallowance of Rs.1,06,441/-u/s 14A of the Act. Not being satisfied with the said disallowance offered by the assessee, the AO invoked Rule 8D of the Income Tax Rules [herein after referred to as Rules]and worked out the disallowance to be made u/s 14A of the Act at Rs.1,22,26,453/- which comprised of disallowance of interest of Rs.89,07,240/-under Rule 8D(2)(ii) and disallowance of administrative expenditure of Rs.33,18,000/- under Rule 8D(2)(iii). Being aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the interest disallowance of Rs.89,07,240/- made under Rule 8D(2)(ii) and restricted the computation of disallowance under Rule 8D(2)(iii) only with reference to those investments which actually yielded dividend income during the year. The relevant findings of the Ld. CIT(A) are as follows:

6. The Ld. AO has further disallowed 0.5% of the average investments amounting to Rs.33.18 lacs by invoking Rule 8D(2)(iii). It is noted that the Hon’ble ITAT, Kolkata in the appellant’s own case for AYs 2008-09 & 2009-10 through its lead order in ITA No. 1722/Kol/2012 has held that 0.5% of dividend bearing investments should be alone be considered i.e. investments from where dividends were actually received by the appellant for the purpose of Rule 8D(2)(ii). Respectfully following the aforesaid decision, the Ld. AO is directed to re-compute the disallowance under the third limb of Rule 8D(2)(iii) by considering the investments which actually yielded dividend income to the appellant for computing disallowance u/s 14A of the Act. In case the disallowance so worked out in the manner as set out in the foregoing to an amount lower than the sum of Rs.1,06,441/- voluntarily disallowed by the appellant u/s 14A in the return of income, then the Ld. AO shall restrict the disallowance u/s 14A to Rs.1,06,441/-.

13. Not being satisfied with the order of Ld. CIT(A), the assessee is now in appeal before us.

14. We have heard the arguments of both the sides and also perused the relevant material available on record. It is noted that the above findings were recorded by the Ld. CIT(A) following the order of this Tribunal dated 26.04.2010 passed in assessee’s own case in ITA Nos. 1722/Kol/2012for AYs. 2008-09 & 2009-10 wherein it was held as under:-

“10. Now coming to the disallowance of Rs. 19,17,487/- made under rule 8D(2)(iii), we find force in the alternate argument of learned AR that only dividend bearing investment of scrips are to be considered for making disallowance under section 14A of the Act. In this regard, reliance was placed by the learned AR on the decision of the Tribunal in the case REI Agro Ltd. reported in 143 ITD 141 Kolkata which we note is very well founded wherein it was held:

“(8.1) Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowances under section 14A read with rule 8D(2)(iii), which is issue in the assessee’s appeal, is restored in the file of the A.O. for re-computation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.”

11. In view of the aforesaid findings and respectively following the decision of the Coordinate Bench of this Tribunal, we remand this issue to the file of A.O. with the direction to consider only the investment which yielded dividend income to the assessee for computing the disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Rules.

12. We further direct that after re-working the gross disallowance of Rule 8D in terms of the discussion and direction given above, the A.O. shall reduce the sum of Rs. 10,00,000/- already suo-moto disallowed by the assessee under section 14A and the net sum so computed alone shall be added back to the total income. However, in case the revised disallowance under section 14A work out at a sum lower than the amount of Rs.10,00,000/- suo-moto disallowed by the assessee, then the A.O. shall restrict the disallowance under section 14A to Rs.10,00,000/-. Therefore, grounds raised by assessee’s appeal are partly allowed for statistical purposes.”

15. Since the facts and circumstances involved in the relevant year are similar to that of AYs 2008-09 & 2009-10, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and therefore uphold the same. This ground of appeal of the assessee is accordingly dismissed, so the assessee’s appeal stands dismissed.

16. Now we take up the Revenue’s appeal in ITA No. 1778/Kol/2019. Ground Nos. 1 to 3 of the appeal relate to the transfer pricing adjustment made by the TPO to the claim of deduction u/s 80-IA of the Act. Briefly stated, the facts of the case are that, the assessee is a multi-product and multi-locational company which is engaged in the production of automobile tyres and cement and other various products. The assessee had set up four power plants [herein after referred to as ‘CPP’ or ‘eligible unit’] viz., three CPPs for its cement unit at Vasavdatta, in the State of Karnataka and one CPP for its rayon unit at Hooghly, West Bengal. The total electricity generated by the three CPPs at Vasavdatta was 22,51,61,246 units, out of which 17,57,55,635 units were captively consumed by the cement unit [herein after referred to as ‘non-eligible unit’] and the remaining 4,94,05,611 units were sold to external unrelated parties i.e. IEX and GEPL. The electricity generated by the CPP at Hooghly was entirely transferred and consumed by the rayon unit [herein after referred to as ‘non-eligible unit’]. All these CPPs qualified as eligible unit engaged in the business of generation of power u/s 80-IA(4)(iv) of the Act and for that reason the assessee prepared stand-alone accounts of these eligible units to quantify the profits eligible for deduction u/s 80-IA of the Act. As the power generated by the CPPs were captively consumed by the non-eligible units, such intra-unit transfer of power qualified as reportable specified domestic transaction u/s 80-IA(8) read with Section 92BA(iii) of the Act. Accordingly, such intra-unit transfer of power was reported by the transfer pricing auditor in Form 3CEB for AY 2014-15 and it was benchmarked by applying the Comparable Uncontrolled Price Method [herein after referred to as ‘CUP Method’]. For benchmarking the transfer rate of power, the non-eligible units was considered as the ‘tested party’ as it regularly procured power both from the CPP as well as independent State Electricity Boards [herein after referred to as ‘SEB’]. Hence, the landed rate at which the non-eligible unit purchased power from the SEBs was taken as the ALP rate to benchmark the transfer price of power supplied by the CPPs to the non-eligible units. Having regard to the aforesaid transfer rates, the stand alone profits of the three CPPs at Vasavdatta were computed at Rs.6,50,877/-, Rs.4,25,02,613/- and Rs.3,08,98,008/- and the profit of the CPP at Hooghly was determined at Rs.8,37,15,597/-, which was eligible for deduction u/s 80-IA of the Act. However, as the assessee had returned loss of Rs.413,59,34,407/-, it was neither entitled to nor did it claim any deduction u/s 80-IA of the Act in the return of income filed for AY 2014-15.

17. In the course of assessment, the AO referred the case of the assessee to the Transfer Pricing Officer [herein after referred to as ‘TPO’] u/s 92CA(2) of the Act to examine the above referred specified domestic transactions u/s 80-IA(8) of the Act involving intra-unit transfer of power between eligible units and non-eligible units. According to the TPO, although CUP Method was the Most Appropriate Method in the given facts of the present case, but the assessee’s benchmarking analysis was in contravention to the principles of CUP Method. The TPO held that the ALP should have been arrived at by following the order of the Hon’ble Calcutta High Court in the case of CIT vs ITC Ltd. (64 taxmann.com 214). The TPO observed that there were similar power generating companies which were supplying power to distribution companies at the notified tariff issued by the State Electricity Regulatory Commission. According to him, these power generation companies were comparable to the CPPs and therefore the notified Tariff Order was a reliable external CUP for determination of ALP. The TPO accordingly re-computed the transfer price of power supplied by these eligible units to the non-eligible units located at Vasavdatta and Hooghly at Rs.3.75 per unit and Rs.3.23 per unit respectively. The transfer pricing adjustment made to the sale value of power of the eligible units was thus computed by the TPO in the following manner:

Name of CPP Units
captively
consumed
Rate
adopted by
assessee
Rate adopted by
TPO
TP Adjustment
made
(A) (B) (C) (D) (B)*[(C)-(D)]
Vasavdatta TPP 2 28,31,441

242,42,868

5.85

6.23

3.75 59,46,026

6,01,22,313

Vasavdatta TPP 3 57,58,953

580,49,350

5.80

6.09

3.75 1,18,05,854

13,58,35,479

Vasavdatta TPP 4 57,43,246

791,29,777

5.80

5.96

3.75 1,17,73,654

17,48,76,807

Hooghly 3,30,87,945 8.96 3.23 18,95,93,925
Total 58,99,54,058

18. Pursuant to the transfer pricing order dated 26.10.2017 passed by the TPO u/s 92CA(3) of the Act, the AO re-computed the stand-alone eligible profits of the four CPPs. After making the above transfer pricing adjustment, the reported profit of Rs.8,37,15,597/- of the CPP at West Bengal became a loss figure of Rs.(-)10,58,78,328/- [Rs.8,37,15,597 – Rs.18,95,93,925]. Similarly, the reported aggregate profit of Rs.7,40,51,498/- of the three CPPs at Vasavdatta stood adjusted to a loss figure of Rs.(-)32,63,08,635/-[(Rs.6,50,877+ Rs.4,25,02,613 + Rs.3,08,98,008) – (Rs.6,60,68,339 + Rs.14,76,41,333 + Rs.18,66,50,461].Hence, there was a notional carry forward of losses of these eligible units to the tune of Rs.(-)43,21,86,963/-[Rs.10,58,78,328 + Rs.32,63,08,635] which, according to the AO, was to be adjusted/ set off against the eligible profits, if any, computed u/s 80-IA of the Act in the subsequent years. In the relevant AY 2014-15 however, the claim of deduction u/s 80-IA continued to remain NIL, as the assessed Gross Total Income was a loss.

19. Being aggrieved by the aforesaid order, the assessee preferred an appeal before the Ld. CIT(A) who noted that the assessee’s computation for claim of deduction u/s 80-IA of the Act had been in dispute in the earlier years as well. Following the decision rendered by this Tribunal in assessee’s own case in ITA No. 1722/Kol/2012 for AYs 2008-09 & 2009-10, the Ld. CIT(A) held that, in order to compute the ALP sale price of power supplied by CPPs to the non-eligible units, the most appropriate benchmark rate was the average landed cost of power procured by the same non-eligible units from the SEBs. Accordingly, the Ld. CIT(A) upheld the assessee’s benchmarking analysis and deleted the transfer pricing adjustment made by the TPO/AO. Aggrieved, the Revenue is now in appeal before us.

20. We have heard both the parties and perused the records. The Ld. CIT, DR, Shri Gaurav Kanaujia, appearing on behalf of the Revenue, vehemently supported the order of the TPO. He contended that the Ld. CIT(A) had grossly erred in following the order of this Tribunal passed in assessee’s own case for earlier years. According to him, this Tribunal in the earlier years had decided the question involving the determination of ‘open market value’ of the power supplied by the CPPs to the non-eligible units and not the ‘arm’s length price’ of power. He took us through the provisions of specified domestic transactions which were introduced by the Finance Act 2012 with effect from AY 2013-14 and onwards and the corresponding amendments made by the Legislature to Section 80-IA(8), Section 80-IA(10) and Explanation to Section 80-A of the Act. According to him, post the introduction of specified domestic transactions from AY 2013-14 and onwards, the transactions referred to in Section 80-IA(8) were required to be benchmarked under the transfer pricing principles which mandated determination of ‘arm’s length price’ and not ‘open market value’. The Ld. CIT, DR submitted that, there was a marked distinction between the concept of ‘open market value’ and ‘arm’s length price’ which according to him had not been considered by the Ld. CIT(A). According to him therefore, the decision rendered by this Tribunal in assessee’s own case for AYs 2008-09 & 2009-10 was no longer valid. He further submitted that the assessee’s action of first identifying the ‘tested party’ before application of CUP Method was unjustified for the reason that there is no such requirement set out in Rule 10B which requires ascertainment of ‘tested party’ for performing the CUP analysis. At the same time, he however contended that the TPO had rightly taken the eligible unit as the ‘tested party’ since it is less complex than the non-eligible unit. Supporting the TPO’s benchmarking analysis, he submitted that the power generating companies identified by the TPO from the Tariff Order of the State Electricity Regulatory Commission were functionally comparable to the eligible units and therefore the TPO had rightly computed the ALP rate with reference to the rates notified in these Tariff Orders.

21. Per contra, the Ld. AR of the assessee, Shri Akkal Dudhwewala, assailed the order of the Ld. CIT(A). The Ld. AR contended that the purported difference being carved out by the Ld. CIT, DR between the concept of ‘open market value’ and ‘arm’s length price’ was without any basis in the given facts of the present case, in as much as the benchmarking analysis of the assessee met both the fair valuation standards as well as the transfer pricing guidelines. Inviting our attention to the Guidance Note issued by the IRS of United States of America, relied upon by the Ld. CIT, DR, he submitted that, the Guidance Note clearly stated that ordinarily the fair market valuation standards produces arm’s length results and it is only in some instances where the rules and principles of fair valuation standards is inconsistent with the arm’s length standards that it may produce a result which may not be same. He submitted that the benchmarking analysis performed in the Transfer Pricing Study Report fulfilled the CUP parameters and therefore it was not a case that the assessee had determined the ‘open market value’ and not the ‘arm’s length price’. He further invited our attention to Paras 6.1 & 6.10 of the Ld. CIT(A)’s order wherein, the Ld. CIT(A) had taken due cognizance of the change in law viz., introduction of specified domestic transfer pricing provisions by the Finance Act 2012. He pointed out that the Ld. CIT(A) had categorically held that the ratio laid down by this Tribunal in assessee’s own case in the earlier years determining the ‘open market value’ also met the transfer pricing guidelines and thus the transfer rate, as determined by the assessee, was the ‘arm’s length price’ of power. The Ld. AR submitted that the assessee had followed internal CUP Method. The non-eligible units were procuring power both from the CPPs as well as unrelated third party i.e. the SEBs. According to him therefore, there was reliable internal CUP data available with the assessee to benchmark the transfer price of power. The Ld. AR thus submitted that there was no infirmity in the order of the Ld. CIT(A)upholding the benchmarking analysis of the assessee. In support of the order of the Ld. CIT(A), the Ld. AR relied on the decision rendered by this Tribunal in assessee’s own case for earlier years and in the cases of DCIT Vs Balrampur Chini Mills Ltd (ITA No. 1672/Kol/2019) and Gujarat Fluro chemicals Ltd Vs DCIT (97 taxmann.com 10).

22. We have considered the rival submissions of both the parties. The admitted facts of the case are that, the assessee operates eligible CPPs at Vasavdatta, in State of Karnataka and at Hooghly, in the State of West Bengal, profits of both CPP units are eligible for deduction u/s 80-IA(8) of the Act. The power generated by these eligible units was consumed captively by the non-eligible units. For the purposes of Section 80-IA(8) of the Act and in order to determine the stand-alone profits of the eligible units, the assessee had ascertained the arm’s length transfer value of power to non-eligible units with reference to the average landed cost at which the non-eligible units procured power from the SEBs. The said transaction being in the nature of specified domestic transaction had been reported to have been benchmarked using the CUP Method in the transfer pricing audit report filed in Form 3CEB. There is no dispute between both the parties that the transfer value of power has to be determined under the arm’s length principle and that the Most Appropriate Method to benchmark the transfer price of power is the Comparable Uncontrolled Price (CUP) Method. The dispute is regarding the manner of benchmarking the transfer price of power under the CUP Method. According to the Revenue, the average rate at which the power generating stations sold power to the Grid, in terms of the notified tariff order, constituted the representative arm’s length price. Per contra, it is the assessee’s contention that their internal CUP i.e. the rate at which the non-eligible unit procured power in an uncontrolled transaction from an unrelated entity i.e. SEB, was the right basis for determination of ALP. Hence, the question for our consideration is what should be the most appropriate data and the price to be adopted for applying the CUP Method.

23. Before we proceed further, it is worthwhile to quote here the relevant provisions of Rule 10B of Income Tax Rules. Clause (a) of sub-rule (1) of Rule 10B defines CUP Method as follows:

“Rule 10B. Determination of arm’s length price under section 92C.

(1) For the purposes of sub-section (2) of section 92C, the arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:

(a) comparable uncontrolled price method, by which,–

(i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified;

(ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market;

(iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm’s length price in respect of the property transferred or services provided in the international transaction;” the CUP Method.

24. From the above Rule, it is evidently clear that, what is required to be seen in CUP Method, is the price at which a property, good or service has been acquired under a comparable uncontrolled transaction under similar market conditions. The application of CUP Method requires strict product comparability which has been transacted under similar conditions. This 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 under similar conditions, as is being done between the AEs. The CUP Method is broadly classified into two categories viz., Internal CUP Method & External CUP Method. Under the Internal CUP Method, the controlled transactions between the AEs involving buying or selling of goods, is compared with the transactions conducted by any of the AEs with unrelated parties for the same goods under similar circumstances. If reliable data is available, then internal CUP is the most appropriate method. In a case where such reliable internal data is not available, one resorts to application of external CUP which involves comparison of prices paid/ charged for the same goods between two unrelated third parties, with the comparable transaction conducted between the AEs.

25. Keeping in mind the above transfer pricing principles, we first proceed to examine the arm’s length price of power transferred by the three CPPs at Vasavdatta, Karnataka to the cement unit. The admitted fact is that, the total electricity generated by the three CPPs at Vasavdatta was 22,51,61,246 units, which was majorly consumed captively by the cement unit (17,57,55,635 units) and some portion of the power generated (4,94,05,611 units) were sold to external unrelated parties at an average rate of Rs. 6.24 per unit. The assessee had benchmarked the power captively consumed by the non-eligible unit at the landed rate at which the same non-eligible unit procured power from independent party i.e. the SEB, which ranged from Rs.5.96 per unit to Rs.6.23 per unit. It is noted that the TPO had disregarded both these internal comparable rates i.e. the rate at which the same eligible units sold power to unrelated parties and also the rates at which the same non-eligible unit purchased power from SEB. We note that no cogent reasoning was given by the TPO before rejecting this internal CUP data. The TPO instead adopted the average tariff rate of Rs.3.75 per unit fixed by the Karnataka Electricity Regulatory Commission for sale of electricity by the power generating stations to the State distribution company, BESCOM to be the ALP rate. The Ld. CIT(A) did not agree with this action of the TPO and accordingly deleted the transfer pricing adjustment made in relation to the CPPs at Vasavdatta, by observing as under:

“5. In the facts of the present case, the transaction in question involves supply of power by the eligible units at Karnataka & West Bengal to the non-eligible units of the appellant in the respective States. From the facts on record, it is noted that the CPPs at Karnataka had generated 22,51,61,246 units out of which 17,57,55,635 units were captively consumed by the non-eligible factory unit and the balance 4,94,05,611 units were sold to external parties, IEX & GEPL. From the material on record and the impugned transfer pricing order, it is apparent that the average rate at which power was sold to external third parties was Rs.6.24 per unit in comparison to the rates ranging from Rs.5.96 per unit to Rs.6.23 per unit at which power was captively consumed by the non-eligible units. On these facts therefore I find that reliable data for applying internal CUP is available and the material on record clearly demonstrates that prices at which power was transferred by the CPPs to the company’s non-eligible unit was comparable with the prices at which the CPPs sols power to unrelated parties and therefore the rate at which power generated by the CPP has been shown to have been captively consumed is held to be at arm’s length.

6. In light of the facts as set out above, the Ld. TPO’s reference to the judgment of the Hon’ble Calcutta High Court in ITC Limited (supra) is wholly distinguishable since the appellant has sufficiently demonstrated that not only is it permitted to supply power independently to unrelated parties but it has actually supplied substantial quantities of power to unrelated parties. Furthermore, once reliable internal CUP data is available, then the Ld. TPO could not have resorted to application of external CUP Method. Accordingly, the Ld. TPO’s action of applying external CUP is the facts of the present case is held to be unsustainable on facts and in law.

7. It is interesting to note that identical fact situation was also involved in the immediately preceding year and in the transfer pricing assessment framed u/s 92CA(3); the Ld. TPO’s predecessor had specifically accepted this same manner of application of internal CUP in respect of the power supplied by CPP at Karnataka and the transaction was held to be at arm’s length. I therefore agree with the appellant that in absence of any change of facts or any amendment in law, the Ld. TPO was unjustified in disturbing the accepted and settled position. The judgment of Supreme Court in the case of RadhosaomiSatsang vs CIT (193 ITR 321) enunciating the principles of judicial consistency is squarely applicable to the facts of the instant case. For the reasons set out in the foregoing therefore, the rat at which the CPPs at Karnataka supplied power to its non-eligible units is held to be at arm’s length and accordingly the adjustment of Rs.40,03,60,133/- made in respect of the transfer value of power of CPPs at Karnataka is hereby deleted.”

26. From the above it is noted that, even if the Ld. CIT, DR’s contention is accepted at its face value and the eligible unit is taken as the ‘tested party’, we still find that there was reliable internal CUP data available to benchmark the transfer price of power supplied by the CPPs to the cement unit. If the rates at which the CPPs sold power to IEX, GEPL (Rs. 6.24/unit) is taken as the benchmark ALP rate, even then the transfer price of power adopted by the assessee (Rs.5.96 – Rs.6.23/unit) was comparable and accordingly no adjustment was permissible in this regard. We find that, on same set of facts and circumstances, the Revenue had categorically accepted this manner of application of internal CUP Method in respect of power supplied by the CPPs at Karnataka in the immediately preceding AY 2013-14 and accordingly no transfer pricing adjustment was made in relation thereto. When enquired in this regard, the Ld. CIT, DR fairly agreed with the Ld. CIT(A)’s above findings qua the CPPs at Vasavdatta, Karnataka. For the reasons as aforesaid, we do not find any infirmity in the order of the Ld. CIT(A) deleting the transfer pricing adjustment of Rs.40,03,60,133/- made by the TPO to the transfer value of power supplied by the CPPs at Vasavdatta, Karnataka to the non-eligible cement unit.

27. With regard to the CPP at Hooghly, West Bengal, it is noted that the power generated by this CPP was entirely consumed captively by the non-eligible rayon unit and the CPP had not sold power to any unrelated parties. On the other hand, the rayon unit has procured power throughout the year both from the CPP as well as unrelated external party i.e. the SEB. Undeniably, the product purchased by the non-eligible unit from the eligible unit as well as unrelated SEB is identical i.e. power/electricity. The rate at which power has been supplied by the SEB to the assessee is the prevailing market rate at which SEB supplies power to other factories/units located in the same geographical location. From the data provided by the assessee, it is noted that both the CPP and SEB have supplied power in all the months of the year and therefore there are no timing differences as well. In the circumstances, we find merit in the findings of the Ld. CIT(A) that the transaction involving purchase of power by the non-eligible unit from the SEB, fulfilled the internal CUP parameters and thus the landed cost paid by the rayon unit to the SEB represented internal comparable arm’s length rate.

28. Coming to the contention of the Ld. CIT, DR that the Ld. CIT(A) did not consider the change in law whereupon transfer pricing principles were introduced into the provisions of Section 80-IA(8) & (10) of the Act from AY 2013-14 and onwards and that the Ld. CIT(A) had adjudicated the issue solely based on the concept of ‘open market value’ as laid down by this Tribunal in assessee’s own case in earlier AYs 2008-09 & 2009-10; we find this argument to be factually incorrect. We find that the Ld. CIT(A) had indeed taken into account the amendment made by the Legislature to Explanation to Section 80-IA(8) by the Finance Act, 2012 introducing the transfer pricing regulations, and had held that the ‘open market value’ as determined by this Tribunal in the earlier years in relation to the power transferred by the CPPs to the non-eligible units was in adherence to the arm’s length principle enunciated in Section 92C of the Act. The relevant findings of the Ld. CIT(A) is reproduced below:

“6.1 have carefully 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 80 IA in respect of profits of captive power plant (‘CPP’) 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 CPP travelled upto the Hon’ble ITAT, Kolkata, which vide its order in ITA No. 1722/Kol/2012 accepted the proposition put forth by the assesse 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 consideration is that in the year decided by the Hon’ble ITAT, Kolkata the adjournments were carried out by the Ld. AO in terms of Section 80IA(8) of the Act and there was no transfer pricing provisions contained in Chapter X of the Act became applicable to specified domestic transaction and therefore not only the assesse is required to demonstrate that the profits are arrived at by adopting fair value of the goods & services provided to related parties was on arm’s length. In this regard, the provisions of Chapter X that the arm’s length price for the goods or services should be determined on the basis of methods prescribed in Section 92C of the Act. In the circumstances therefore apart from the fact that the power tariff should be shown to be fair value, it must also be demonstrated that the price adopted for determination of profits of the eligible undertaking, the assessee had adopted power tariff which could be said to be arrived at on arm’s length principle.

……………..

6.8 In respect of the eligible CPP at West Bengal; it is noted that the said CPP supplied power only to the AE i.e. the non- eligible unit and it did not have any transaction with any unrelated enterprises. In the circumstances the unit at West Bengal cannot be considered as the tested party for the purposes of application of CUP. On the contrary, it is noted that the non- eligible unit was sourcing power both from the AE i,e, the eligible undertaking as well as unrelated enterprises i.e. the SEB. In the circumstances it is noted that reliable internal CUP data was available with the appellant to benchmark the ALP of the power generated & supplied by the eligible undertaking to the non-eligible unit.

6.9 In respect of the basis and benchmarking exercise followed by the Ld. AO/TPO, I note that it suffered from apparent infirmities. From the fact on record I note that the Ld. TPO wrongly assumed that the CPP was neither discharging distribution functions nor transmission function and therefore sought to functionally distinguish it from the SEBs. It is however found from the facts on record that the CPP was indeed distributing and supplying power to the non-eligible undertaking through transmission lines and hence the FAR analysis performed by the LD. TPO/AO was unjustified. It is also observed that the Ld. TPO/AO erred in considering different forms of power units such as coal based, waste heat gas based etc. to be comparable to the assesse CPP when the jurisdictional fact remained that the assesse’s CPP was a thermal based power plant. The Ld. TPO/AO also selected the tariff 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 consumer was tariff rates notified. It is evident from the tariff orders that depending on the class of consumers e.g., Railways, Mines, Seasonal, Industrial/ Non- Industrial, 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 fact and in law.

6.10 On the other hand, I find that the benchmarking exercise followed by the appellant not only fulfils the internals CUP 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 its own case for AYs 2008-09 & 2009-10. I therefore find that even after introduction of domestic transfer pricing provisions to specified domestic transactions and becoming applicable to the appellant, the ratio laid down by the Hon’ble ITAT, Kolkata in the appellant’s own case for AYs 2008-09 & 2009-10 remains equally valid.”

29. As far as the other contentions put forth by the Ld. CIT, DR is concerned, we find that similar arguments were raised by the Revenue in the case of M/s Star Paper Mills Ltd. Vs DCIT, which has been decided by this Tribunal by its order dated 26.10.2021 in ITA No 127/Kol/2021. In this decided case also, the question before this Bench was regarding the manner of application of CUP Method to ascertain the arm’s length price of power transferred by an eligible CPP to a non-eligible manufacturing unit. This Tribunal upheld the assessee’s methodology of benchmarking the transfer rate of power supplied by the eligible CPP with the landed rate at which the non-eligible unit purchased the same product i.e. power from independent SEB and rejected the TPO’s analysis. While arriving at this conclusion, this Tribunal had followed the ratio laid down by the co-ordinate bench in assessee’s own case for AYs 2008-09 & 2009-10. The relevant findings of this Tribunal are as follows:

15. Before us the Ld. TP CIT, DR had argued that, the choice of ‘tested party’ is irrelevant for the purposes of application of CUP Method. We agree that the key factor in application of CUP is ‘product comparability’ and choice of ‘tested party’ is of lesser significance. In the present case, we note that reliable comparable data is available for the same product purchased by non-eligible unit from eligible unit. Hence, as the significant criteria i.e. product comparability is found to be met, we do not see any infirmity in the manner in the assessee’s application of CUP Method to ascertain the transfer price of power u/s 80-IA(8) of the Act.

16. In this regard, the Ld. CIT, DR had relied on some of the observations made by the Mumbai Bench of this Tribunal in the case of India Debt Management Pvt Ltd Vs DCIT (supra)which we find to be misplaced. Having perused the said order, we note that this decision was rendered in a different factual context and, in fact, the ratio laid down therein supports the case of the assessee. In the decided case, this Tribunal held that, for the determination of ALP using the CUP Method, the ‘product comparability’ is the most relevant factor and for such reason it was held that identification of “tested party” under CUP is not necessary. In that case, the question before the Tribunal was determination of ALP of the INR denominated loan taken by the assessee from its AE. The Revenue had benchmarked the Indian Rupee denominated loan taking the foreign AE as ‘tested party’ by using the USD denominated Corporate Bond Rate. It is in this factual context that this Tribunal had rejected the bench marking analysis of the Revenue by holding that the key factor under CUP was the ‘product comparability’ and not ‘tested party’ and therefore INR denominated debt taken by the assessee from its foreign AE was required to be benchmarked with reference to INR debt issuances in India. For arriving at this conclusion, the Tribunal observed as under:

“12. In wake of this background, the first and foremost issue for our adjudication is whether, while applying the CUP Method, it is necessary to identify the “tested party”. Although Indian TP regulation does not laid down any specific procedure or guidelines for choice of “tested party”, however, OECD provides that, as a general rule, tested party should be the one to which transfer pricing method can be applied in most reliable manner and for which most reliable comparables can be found. In other words, the tested party ought to be the enterprise that offers high degree of comparability and requires least amount of adjustment. It should be, most often the one that has least complex functional analysis. Under CUP method, what is required to be seen is the price at which a controlled transaction is carried out as compared to the price obtained in a comparable uncontrolled transaction under similar conditions. Thus, it is a direct method for determination of Arm’s length price. Product Comparability is the main ‘key factor’.”

17. It is thus noted that the facts involved in the above case were materially different from the facts involved in the assessee’s case. One has to bear in mind that the ratio of any decision is rendered in the context of the facts which are before the Court. It is settled legal proposition that the observations of the any Court must be read in the context of the facts and the issues before the Court for consideration. The Hon’ble Supreme Court in the case of CIT Vs Sun Engineering Works (P) Ltd (198 ITR 297) has observed as follows:

“It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of the Court and not pick out words or sentences from the judgment, divorced from the context of the questions under consideration by the Court, to support their proceedings.”

18. Coming back to the facts in the present case, it is noted that the TPO had taken the rates notified in the tariff orders of the UPERC to be the arm’s length price. We find merit in the Ld. AR’s contention that this rate does not represent the comparable rate of electricity following the arm’s length principle, for the reason that, no power generating station/company can or would sell electricity to any industrial consumer at these rates. The market conditions under which the power generating stations operate are significantly different from that of the captive power units operated by industries. At this juncture, it is first relevant to understand the intent and purpose for setting up of a CPP by any manufacturing industry. As rightly pointed out by the Ld. CIT, DR, the power tariff charged from industrial consumers is different from that of domestic & agricultural consumers, as the higher rates of the former subsidize the rates charged from the latter. Further, although India has surplus power generation capacity, it lacks adequate transmission and distribution infrastructure. As a consequence, due to the high power tariffs and unstable supply of power, there are significant cost overruns in the manufacturing unit. The captive power plant is thus set-up with the dominant intent to save power costs, which the manufacturing unit is otherwise required to incur & pay to the SEBs, and at the same time, to ensure stable supply of un-interrupted power for smooth production. This results in opportunity cost savings to the assessee company. Accordingly, while drawing up the stand­alone accounts of the eligible CPP and non-eligible manufacturing unit, the landed rate at which the manufacturing unit is procuring power from SEB is used as the comparable rate under the arm’s length standards.

19. According to the Ld. CIT, DR however this landed rate at which the non-eligible unit purchases power from the SEB is regulated and therefore cannot be said to represent an uncontrolled transaction. This argument does not hold good in the given facts of the present case, for the reason that even the notified tariff order of the UPERC relied upon by the TPO is heavily regulated and is ascertained by the State Electricity Commission after taking into account several socio-political considerations, which is evident from the tariff order itself. The fact that the rates at which SEB supplies power is regulated is of no consequence, as it is not a case that this rate has been fixed exclusively by the SEB for the assessee. Instead the SEB supplies power at the same tariff rate to all industrial consumers (similar to the assessee) in the same State, which thus represents the prevailing market rate.

20. As noted earlier, the application of CUP method requires high degree of comparability not only in the products sold and services provided but also in the economic circumstances in which the transactions take place. One should examine the market conditions in which the electricity is being sold. The tariff order relied upon by the TPO operates in an altogether different market, which is the Business to Business (commonly known as B2B) Model. This tariff rate is the rate at which electricity is purchased by distribution companies from generation companies. The conditions of this market are different and distinct from the consumer market. As noted earlier, no consumer of electricity can procure power in the market at the rate at which generation companies sell to distribution companies under the notified tariff order. In the circumstances, when the market conditions of the comparable transaction cited by the TPO are not similar to that of the assessee, his application of CUP fails. According to us, the comparable market condition, in the facts of the present case, is the Business to Consumer (commonly known as B2C) Model. This market comprises of rates at which the ultimate consumers (paper manufacturing unit in the instant case) can purchase power for their own consumption. This market comprises of power sold by SEBs, IEX etc. to different categories of consumers. In the present case, the assessee has adopted the comparable rate to be the landed rate at which the manufacturing unit is purchasing power from an independent SEB, apart from the CPP. As the economic & market conditions are similar, this benchmark rate adopted by the assessee is held to be fulfilling the CUP parameters.

21. As regards the Revenue’s claim that the CPP and SEB being functionally dissimilar, the benchmarking of sale of CPP at the rate at which non-eligible unit brought electricity from SEB is not reliable, it is noted that this exact same argument has been considered and rejected by the coordinate Bench of this Tribunal in the case of Gujarat Flurochemicals Ltd Vs DCIT (97 taxmann.com 10) . The relevant findings of this Tribunal on this issue, are as under:

“29. … With regard to the assessment year 2013-14, the ld.DRP has observed that there is a little change in the statutory provision by virtue of section 80IA(8). The arm’s length price of the goods sold by the assessee in the alleged captive power plant has to be determined.

The ld. DRP thereafter observed that the TPO has determined value of the goods and services sold by its eligible units. According to the TPO captive power plant and electricity distributing companies are to be pitted at different pedestal. According to the DRP, there is a material difference between captive power plant as a seller and distribution/transmission entity. Thus, differences are both in terms of functions performed as well as asset used. In the case of distribution and transmission entities, apart from assets used for generation of electricity huge investments have gone in laying in transmission and distribution infrastructure. These investments and related transmission and distribution function are totally missing in the CPP. It also observed that sale of electricity is regulated activity, thus, as per the law, CPP could have sold to a distribution licensee (through transmission utility). The benchmarking of sale of CPP at the rate at which non-eligible units brought electricity from the grid is thus incorrect. The ld.DRP under this misconception construed that the rate at which electricity supply-companies are purchasing the electricity should be applied for benchmarking the value of electricity sold by the CPP to its manufacturing units. In other words, the DRP was of the view that non-eligible units cannot be taken for the benchmarking for determining the value at which electricity was sold by the CPP. DRP has emphasized that manufacturing units could have different source of procurement of electricity; say – from CPP or from electricity boards. But as electricity producer, in a CPP, it could only be sold to distribution licensee holder. In this way, the ld.DRP observed that value of electricity cannot be benchmarked by adopting the rate at which manufacturing units of the assessee has been purchasing the electricity, rather, according to the DRP, the rate at which supplier companies are purchasing the electricity ought to be applied.

Before us, the ld. counsel for the assessee contended that this controversy has been silenced by the Hon’ble Gujarat High Court in the case of Pr. CIT v. Gujarat Alkalis & Chemicals Ltd. [2017] 88 taxmann.com 722. He placed on record copy of the Hon’ble High Court’s decision and contended that for the purpose of computation of deduction admissible under section 80IA market price of the electricity supplied by a CPP is to be determined by adopting rate at which manufacturing unit has been purchasing the electricity from the open market. The ld. DR, on the other hand relied upon the order of the DRP, but unable to controvert the contentions raised by the assessee.

32. The Hon’ble High Court has replied this question by recording the following finding:

‘3. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under :

…………………

6. Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture.

7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under sub-Section (8) of Section 80IA of the Act. However, in so far as the Tribunal’s reasoning to adopt the market value of the goods at Rs. 5.40 ps. per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of Rs. 5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only Rs. 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered.”

4. This was followed in case of CIT v. Shah Alloys Ltd. in Tax Appeal No. 2093/2010. This was reiterated in Tax Appeal No.1646/2010 in case of ACIT v. Pragati Glass Works (P.) Ltd. (order dated 30.1.2012), in which following observations were made :

“7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term “Market Value” is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed.”

……………

6. Issues are thus considered on number of occasions by the Court and held against the Revenue. Questions are answered against the Revenue. Both the tax appeals are therefore, dismissed.’

This judgment of Hon’ble High Court is directly on the issue. Hon’ble Court has considered section 80IA(8), therefore, it is not justifiable at the end of ld. DRP to ignore the judgment of Hon’ble jurisdictional High Court.

33. Respectfully following the authoritative pronouncements of the Hon’ble jurisdictional High Court, we allow these grounds of appeal. We direct the AO to grant deduction under section 80IA(4) on the value of electricity supplied by the CPP to its manufacturing units by adopting the average rate of electricity supplied to the assessee by MGVCL, DGVCL.

22. Useful reference in this regard may also be made to the decision of this Tribunal in the case of DCIT Vs Balrampur Chini Mills Ltd in ITA No. 1672/Kol/2019 for AY 2016-17 involving similar facts and circumstances as involved in the present case. In the decided case as well, identical benchmarking analysis was performed by the assessee to determine the ALP of power transferred by the CPP to the manufacturing unit for the purposes of Section 80-IA(8) of the Act. This benchmarking exercise was rejected by the TPO, who substituted it with the rate notified for sale of power by the power generating companies to distribution companies, in the tariff order by the State Electricity Commission. This Tribunal adjudicated the issue in favour of the assessee, by observing as under:

5. On the contrary however, it is noted that the non-eligible undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelated enterprise i.e. SEB under uncontrolled conditions and prevailing market circumstances at the rate of Rs.ll.22/unit. Therefore the tariff at which the other non-eligible units purchased power from SEB can be taken to be a fair indicator to benchmark the transfer value of Rs.8.30/unit adopted by the appellant. It is noted that the transfer value of Rs.8.30 / unit was based on the tariff order issued by the SEB in respect of supply of power to units located in the same region as that of the non-eligible unit which procured power from the eligible unit. This tariff order issued by the SEB was available in open market and determined under uncontrolled conditions and is hence a reliable external CUP available in the given facts of the case. On comparing the rates in tariff order with the rates at which other non-eligible units procured power from open market under uncontrolled conditions; it is noted therefore that the transfer value of Rs.8.30/unit determined by the appellant is fair and reasonable. I therefore find merit in the submissions of the Ld. AR as well as the TPSR that the average landed tariff rate notified by the UPSCB is a fair, reliable and reasonable basis to benchmark the transfer value of power procured by the non-eligible undertaking from the eligible unit.

6. The Ld. TPO’s reference to the judgment of the Hon’ble Calcutta High Court in ITC Limited (supra) is wholly distinguishable since the appellant has sufficiently demonstrated that not only is it is permitted to supply power independently to unrelated parties but it has actually supplied substantial quantities of power to unrelated parties. Instead I find that the issue of allowability of deduction under Section 80IA in respect of profits derived by CPP came up for consideration before another coordinate Bench of the Hon’ble Jurisdictional ITAT in the case of M/s Electrosteel Castings Ltd in I.T. (SS) No. 47 to 60/Kol/2014, 313 and 256/Kol/2015, 66 and 124/Kol/2016 dated 25th November 2016. In respect of appeals relating to abated assessment years, the Revenue had relied on the judgment of Calcutta High Court in the case of CIT Vs ITC Ltd. (supra) to contend that the deduction was required to be allowed taking into account the price at which distribution companies were purchasing electricity. After taking into account the provisions of the Electricity Act of 2003, and the regulatory provisions applicable in the State of West Bengal, the coordinate Bench accepted the assessee’s contention that in view of the provisions of Electricity Act of 2003, which were applicable in the concerned AY 2011-12, the decision of Calcutta High Court in the case of CIT Vs ITC Ltd. (supra) was not applicable.

…….

8.13. If it is taken that ALP is the market value, then we find there is no dispute that the MAM is CUP. The contention of the ld. D/R that when MAM is taken as CUP, we need not determine a tested party is erroneous. The ICAI in Guidance note u/s 94B of the Act has laid down that the tested party has to be identified even when MAM is CUP. In this case the assessee has taken that the tested party as the non-eligible unit and whereas the TPO has taken the tested party as the CPP i.e. the eligible unit. In our view the profit of the non-eligible unit also has to be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases power from unrelated third parties. No other function etc. are in question. In our view taking the manufacturing unit as tested party for the purpose of determination of ALP with MAM being CUP, cannot be found fault with. The TPO has chosen to take the price specified in the PPAs for purchase of power as the market value. The PPA is a 20 year agreement. The assessee required to take statutory clearances and approvals. The price is regulated. The sale of power under the terms and conditions of PPA cannot be considered as the market value of the sale of electricity. Such sales cannot be considered as made in “uncontrolled conditions”. The ld. D/R submitted that the power generating company does not have distribution costs. When a captive power plant in an industry supplies electricity to its own manufacturing unit, there is no power distribution cost. The savings of cost of power can be determined only when the rate at which the manufacturing unit of the company purchases power in the open market from the power distribution companies is considered. Imaginary costs which are not incurred cannot guide our decision.

8.14. Thus while determining the ALP under transfer pricing provisions, in our view the assessee has correctly identified the manufacturing unit as the tested party and CUP as the MAM and the purchase price of electricity in the open market from the State Electricity Board to the manufacturing units in uncontrolled conditions as the ALP.

23. Gainful reference in this regard may also be made to the following decisions of the Hon’ble High Courts.

(A) CIT Vs Godavari Power & Ispat Ltd (223 Taxman 234) (Chattisgarh HC)

“30. The Steel-Division of the Assessee is a consumer. The CPP of the Assessee supplies electricity to the Steel-Division. Had the Steel-Division not taken power from the CPP then it had to purchase power from the Board. The CPP has charged the same rate from the Steel-Division that the Steel-Division had to pay to the Board if the power was purchased from the Board.

31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market.

32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.

33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power.

34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders.

35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals have no merit. They are dismissed.”

(B) CIT Vs Reliance Industries Ltd. (421 ITR 686) (Bom HC)

4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assessee-company and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies.

5. This controversy arose in the background of the fact that the assessee had set up a captive power generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1961 (“the Act” for short) in respect of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit.

6. The Tribunal in the impugned judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance Infrastructure Ltd. v. Addl. CIT [2011] 9 taxmann.com 186 (Mum. – Trib.). Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:—

“44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee’s case. We therefore dismiss ground No.4 of the revenue.”

7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:—

“6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short “MERC”). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law.”

8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved.

9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of CIT v. Godawari Power & Ispat Ltd. [2014] 42 taxmann.com 551/223 Taxman 234, in which the Court held and observed as under:

……………….

10. Gujarat High Court in case of Pr. CIT v. Gujarat Alkalies & Chemicals Ltd. [2017] 395 ITR 247/88 taxmann.com 722 also had occasion to examine such an issue. It referred to earlier order in case of Asstt. CIT v. Pragati Glass Works (P.) Ltd. [Tax Appeal No. 1646 of 2010, dated 30-1-2012] in which following observations were made:—

11. Judgment of Calcutta High Court in case of CIT v. ITC Ltd. [2016] 236 Taxman 612/[2015] 64 taxmann.com 214 was also brought to our notice in which the said High Court has taken a different stand. However, since the issue has already been examined by this Court earlier and in view of the decisions of the Chhattisgarh and Gujarat High Court, we see no reason to entertain this question.

12. In the result, Income Tax Appeal is dismissed.

24. The contention of the Ld. CIT, DR that the above referred decisions are not applicable since they were rendered in the context of ‘open market value’ and not ‘arm’s length price’ is found to be misplaced. We agree with the Ld. AR of the assessee that, the ‘open market value’ standards and ‘arm’s length price’ standards would ordinarily yield the same results, unless the considerations and rules involved are different. On this particular issue of determination of the transfer price of power u/s 80-IA(8) of the Act, we note that the considerations taken into account under the open market valuation standards by the High Courts in the above decided cases (supra) are consistent with the considerations and guidelines under the arm’s length standards set out in Chapter X of the Act and therefore the ratio laid down in the above decisions (supra) indeed applies in the present case as well.

25. As far as the Revenue’s reliance on the judgment of the Hon’ble Calcutta High Court in the case of ITC Ltd (supra) is concerned, we note that it is distinguishable on facts as well as in law and is thus not applicable to the assessee’s case. In the decided case, the relevant year in question was Financial Year 2001-02 i.e. prior to the introduction of Electricity Act, 2003. Until then, the electricity generating companies could only sell or supply power to the State Power Utility or company engaged both in generation & distribution and that too at the tariffs rates prescribed by the Regulatory Commission. Therefore, in absence of any alternate rates, the High Court held that the price at which electricity generating company sold power to SEBs was the only available open market rate. However subsequent to the enactment of Electricity Act, 2003, the functioning of the power sector was liberalized as the business became de-regulated and it was legally permissible for the private CPPs to supply power to other consumers and the prices could be determined through competitive bidding process or any other mutually agreed terms. Hence, the decision of Calcutta High Court (supra) is not applicable to the relevant FY 2015-16 in question, i.e. post introduction of the Electricity Act, 2003.

26. We note that this Tribunal in the case of DCIT Vs M/s Kesoram Industries Limited for AYs 2008-09 & 2009-10, through its lead order in ITA No. 1722/Kol/2012, after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra), the provisions of Electricity Act, 2003 and the decision of Hon’ble Apex Court in the case of Thiru Arooran Sugars Ltd (227 ITR 432) upheld the assessee’s contention that the open market value of electricity for the purposes of Section 80IA(8) should be the price at which the assessee procures power from SEBs. The relevant findings are as under:

21. We have considered the rival submissions and perused the documents in the paper book which inter alia contained Electricity Act, 2003, KERC Regulations 2004, copy of KERCs order dated 27.02.2007 approving ‘open access’ to CPPs for supply of electricity etc. The bone of contention between the parties is the adoption of the most appropriate rate at which sale of electricity would be valued for the purpose of determining the profitability of all the four CPPs. It is not in dispute that during the relevant year, the assessee operated four CPPs in the State of Karnataka, Orissa and West Bengal and the power generated was entirely supplied and consumed by manufacturing undertakings of the assessee. The A.O. per-se did not dispute the fact that the CPPs constituted separate and distinct undertakings and were eligible for claiming the deduction under section 80IA of the Act. However, on perusal of the working of the profitability, the A.O. found that the transfer price for power was considered by the assessee equal to the price at which the electricity was procured by the manufacturing undertakings from the respective SEBs. Referring to explanation to section 80IA, the A.O. held that for the purposes of section 80IA,the term ‘market value’ means the price that such goods or services would ordinarily fetch in the open market. According to the A.O., such market value was to be ascertained from the view point of the power generating undertakings claiming the deduction and not from the perspective of the manufacturing undertaking which was the captive consumer of the CPP. We note that the A.O. proceeded on the premise that the CPP owned by the assessee was not allowed to sell its power to the final consumer but was allowed to sell the same only to grid of the SEB in case of excess production. Save and except such monopoly buyer, the CPP was not permitted to sell power to anyone else. According to the A.O., therefore, the market value which the assessee was likely to fetch by sale of excess power to monopoly buyer like SEB represented the market value. In the AO’s opinion the rates at which the SEBs were selling power to the consumers were much higher than the price at which the power was purchased from the CPPs because in addition to profit margin of the SEB, such price also included the costs towards distribution, storage, transmission losses etc.

22. We note that the sole basis for AO’s inference against the assessee was his belief that the CPP or independent power producer was not allowed to sell power to any person other than the SEBs or power distribution companies. According to the A.O., there was monopoly buyer who alone was permitted to purchase the power at the price determined in the sole discretion of the SEBs and therefore, the price at which the SEBs were purchasing power alone represented the market value for the power generated by CPPs. We also note that the premise on which the A.O. proceeded was analogous to the premise on which the Hon’ble Calcutta High Court decided the Revenue’s appeal in the case of ITC Ltd. (supra). In that case also the Hon’ble High Court proceeded on premise that the independent power producers or CPPs could sell the power only to power distribution companies and that too at the rates determined by the State Regulatory Commission. In other words in the opinion of the A.O. and the Hon’ble High Court the power producers were necessarily required to sell the power in the regulated market where prices were fixed at the discretion of the State Electricity Boards and / or Regulatory Commissions and the power generating companies had no option or discretion to determine the selling rate. However, in the case in hand there is a change of scenario before us and the learned AR of the assessee in his detailed presentation (supra) has brought out the salient features of the Electricity Act 2003 by which CPPs were granted ‘open access’ by law. In terms of the ‘open access’ granted, the power generating companies were free to sell the power to any third party at the prices mutually agreed and in such case, the regulatory commission was required to determine only the ‘wheeling charges’ which the transmission companies / authorities could levy. In this regard, the useful reference may also be made to KERC’s order dated 27.02.2007. In this order, the commission explained the salient features of the National Electricity Policy issued by the Government of India on 12.02.2005 with regard to captive generation. The said order explains that the Electricity Act 2003, put in place highly liberal frame work for power generation wherein there is no requirement of licensing for generation of power. The requirement of techno-economic clearance of CEA for thermal generation was no longer there. Captive generation has been freed from all controls. The said policy further clarified that the captive generating plants were permitted to sell electricity to licensees and consumers when they were allowed ‘open access’ by SERCs under section 42 of the Electricity Act, 2003. The tariff policy issued by Government of India on 06.01.2006 also provided that the sole purpose of freely allowing captive generation was to enable industries to access reliable quality and cost effective power. As per the recommendation made, the SERCs were required to encourage the distribution licensees to procure power from CPPs through competitive bidding on a composite tariff basis. From a conjoint reading of the provisions of the Electricity Act 2003, KERCs ‘open access’ Regulation notified in 2004 and the order of the KERC dated 27.02.2007, it therefore, appears that there was no statutory bar on the CPPs to sell electricity to any third party and that too at the rate mutually agreed by and between the parties. We, therefore, find that the very foundation on which the A.O. held that the assessee had no option but to sell electricity to SEB alone was factually wrong and misplaced and therefore, legally untenable in the changed factual scenario as discussed above.

23. The learned AR drew our attention to the chart published by the Indian Energy Exchange (IEX) for the yearly power price prevailing on the IEX in different regions during the year2008-09. The said chart we note gave break up of power price at which the was purchased and sold by power producers, distribution companies etc in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was Rs. 7.53/-. Similarly for the Southern Region of Rs. 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.’s presumption that the assessee was legally obliged to sell electricity only to the power distribution companies and SEBs and that too at the controlled prices was devoid of any legal or factual foundation. We note that this specific issue was adjudicated by the Co-ordinate Bench of this Tribunal in the case of DCIT vs Birla Corporation Ltd. to which one of us was signatory. In the said decision, the Co­ordinate Bench of this Tribunal, after considering the ratio laid down by the Hon’ble Supreme Court in the case Thiru Arooran Sugar Ltd. held as follows:

“5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon’ble Jurisdictional High Court. The ld AR fairly brought to our attention the decision of Hon’ble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case , as admittedly, the Asst Year before Hon’ble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002-03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us) , the assessee would be governed by the provisions of Electricity Act, 2003.

5.6.1. We have already seen that the ITC’s case in Hon’ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act.

……………….

30. Following the judgment of the Hon’ble Gujarat High Court and decision of the Co­ordinate Bench, we direct the A.O. to allow the deduction under section 80IA(4) by adopting the weighted average landed cost of electricity at the rates of Rs. 6.35, Rs. 3.72 and Rs. 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively.

27. For the reasons set out above and following the above cited decisions (supra), we thus hold that the benchmarking analysis undertaken by the assessee to ascertain the arm’s length transfer price of power by eligible unit to non-eligible unit at Rs.8.41/unit was justified. The AO/TPO is accordingly directed to delete the transfer pricing adjustment of Rs.13,71,40,567/-.

30. It was further brought to our notice by the Ld. AR that this Tribunal has dismissed the Revenue’s appeal on the same ground in assessee’s own case for AY 2013-14, i.e. post introduction of the specified domestic transfer provisions by the Finance Act 2012. In the preceding year, although the TPO had accepted the transfer rate of power supplied by the CPPs at Vasavdatta, Karnataka, but he had made similar transfer pricing adjustment to the transfer rate of power supplied by the CPP at Hooghly, West Bengal to the rayon unit. The reasoning given was identical to that of the relevant AY 2014-15 On first appeal, the Ld. CIT(A) had found merit in the internal CUP analysis of the assessee benchmarking the specified domestic transaction involving transfer of power with the rate at which the rayon unit purchased power from the SEB. The substantive ground taken by the Revenue in appeal before this Tribunal in AY 2013-14, was that the Ld. CIT(A) had erred in accepting the assessee’s claim by following the relief allowed by this Tribunal in the earlier AYs 2008-09 & 2009-10, without appreciating that the Revenue had preferred appeal against these appellate orders before the Hon’ble Calcutta High Court which is pending adjudication. Dismissing the appeal of the Revenue, this Tribunal held as under:

“4. A perusal of the same demonstrates that the issue in question is covered in favour of the assessee by the decision of the Tribunal in the assessee’s own case for the earlier Assessment Years 2008-09 & 2009-10 in I.T.A. No 1722/Kol/2012, I.T.A. No. 505/Kol/2017 &ors., Though the Revenue has challenged this order of the Tribunal before the Hon’ble Calcutta High Court, we are bound by the order of the Co-ordinate Bench of this Tribunal on this issue. Hence, we uphold the order of the ld. CIT(A) and dismiss this appeal of the revenue.”

31. For the reasons set out above and following the above cited decisions (supra) inter alia including the decisions of this Tribunal in assessee’s own case for earlier years, we uphold the order of the Ld. CIT(A) deleting the transfer pricing adjustment of Rs.18,95,93,925/-made in relation to the transfer price of power supplied by the CPP at Hooghly, West Bengal to the rayon unit.

32. In view of the above, this ground of Revenue stands dismissed.

33. Ground No. 2 of this appeal of the Revenue relates to disallowance of discount of Rs.2,36,88,659/- allowed to customers. After considering the rival submissions, it is observed that the issue involved in this ground is similar to Ground No. 2 of the Departmental Appeal in AY 2012-13. Following our conclusions drawn in AY 2012-13, we dismiss this ground of the Revenue.

34. Now, we take up the appeals for AY 2015-16 in in ITA No.1650/Kol/2019 & 1864/Kol/2019 arising out of the order of the Ld. CIT(A) -22, Kolkata dated 28.05.2019 passed against the assessment order passed under section 143(3) passed by the A.O. dated 31.12.2018.

35. The grievance raised by the assessee in their appeal in ITA No.1650/Kol/2019 is against the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rules. After considering the rival submissions and perusing the relevant material on record, we find that the issued involved in this appeal is identical to that of Ground Nos. 1 to 3 of the appeal of the assessee in AY 2014­15. We therefore follow our conclusions drawn on this issue in AY 2014-15 and accordingly uphold the Ld. CIT(A)’s order directing the AO to consider only the opening and closing value of those investments which actually yielded dividend income to the assessee during the relevant year for the purposes of computing the disallowance under section 14A of the Act read with Rule 8D(2)(iii). In case the re-worked disallowance is lower than the sum of Rs.1,06,159/- voluntarily disallowed by the assessee u/s 14A of the Act, then the AO shall restrict the disallowance to Rs.1,06,159/-. The appeal of the assessee is allowed for statistical purpose, as directed supra.

36. Now we take up the Revenue’s appeal in ITA No. 1864/Kol/2019. Ground Nos. 1 to 5 of the appeal relate to the transfer price adjustment of Rs.43,73,25,785/- made by the TPO to the transfer price of power supplied by the eligible CPPs u/s 80IA of the Act to the non-eligible units. After considering the rival submissions, we find that all the material facts relevant to the issue involved in the year under consideration as well as the arguments raised by both the sides are similar to Ground No. 1 to 3 of the Departmental Appeal in AY 2014-15. Following our conclusions drawn in AY 2014-15, we dismiss these grounds of the Revenue.

37. Ground Nos. 6 of this appeal of the Revenue relates to disallowance of discount of Rs.2,16,05,442/- allowed to customers. After considering the rival submissions, it is observed that the issue involved in this ground is similar to Ground No. 2 of the Departmental Appeal in AY 2012-13. Following our conclusions drawn in AY 2012-13, we dismiss this ground of the Revenue.

38. Ground Nos. 7 & 8 of this appeal of the Revenue is against the Ld. CIT(A)’s alleged action of deleting the disallowance of losses incurred in dealing in shares of five companies. The Ld. AR of the assessee pointed out that these grounds do not emanate from the orders of the lower authorities in as much as neither was there any such share dealing loss which was disallowed by the AO nor was any claim of share trading loss allowed by the Ld. CIT(A). Upon query from the Bench, the Ld. CIT, DR fairly agreed that there grounds taken in the appeal are irrelevant as they do not emanate from the lower authorities’ orders. These grounds are accordingly dismissed.

39. In the result, all the appeals of the revenue for AYs 2012-13, 2014­15 and 2015-16 stands dismissed and the appeal of the assessee for AYs 2014-15 stands dismissed, and the appeal for AY 2015-16 is allowed for statistical purpose.

Order is pronounced in the open court on 28th October, 2021.

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