DCIT Vs Balarampur Chini Mills Ltd (ITAT Kolkata)
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-22, Kolkata, concerning Assessment Year 2015-16. The dispute related to the determination of the price at which electricity generated by the assessee’s Captive Power Plant (CPP) and transferred to its manufacturing units should be valued for computing deduction under Section 80IA of the Income-tax Act, 1961.
The assessee was engaged in manufacturing and sale of sugar, molasses, industrial alcohol, ethanol, organic manure and generation and distribution of steam and electricity. Its factories and power undertakings were situated at different locations in Uttar Pradesh, while its head office was in Kolkata. The assessee claimed deduction under Section 80IA in respect of profits from generation and distribution of power and valued electricity transferred to its other units at Rs.8.30 per Kwh, based on tariff orders issued by the Uttar Pradesh Electricity Regulatory Commission and tariff rates notified by Uttar Pradesh Power Corporation Limited for sale of electricity in the relevant area.
The Assessing Officer referred the specified domestic transaction to the Transfer Pricing Officer. The TPO determined an arm’s length price of electricity at Rs.4.90 per Kwh and consequently made a transfer-pricing adjustment of Rs.41,65,23,644/-. The TPO relied upon the regulatory framework governing electricity supplied by generating companies to distribution licensees and the judgment of the Calcutta High Court in CIT Vs ITC Ltd., reported in 236 Taxman 612. The Assessing Officer thereafter restricted the assessee’s Section 80IA deduction by Rs.40,82,45,314/-.
