Star Paper Mills Limited Vs DCIT (ITAT Kolkata)
The appeal of Star Paper Mills Limited arose from the assessment order dated 30.03.2021 passed under Section 143(3) read with Section 144C of the Income Tax Act, 1961 for AY 2016-17, following the directions of the Dispute Resolution Panel. Grounds 1 and 2, challenging the assessment as void for non-compliance with Section 144C and as barred by limitation, were not pressed at the hearing and were dismissed.
The principal dispute concerned the benchmarking of the transfer value of electricity generated by the assessee’s captive power plant (CPP), an eligible unit under Section 80-IA(4)(iv), and captively consumed by its paper manufacturing unit, the non-eligible unit. The assessee maintained stand-alone accounts for the CPP and reported the inter-unit transfer as a specified domestic transaction under Section 80-IA(8) read with Section 92BA. Using the Comparable Uncontrolled Price (CUP) Method, the assessee adopted Rs.8.41 per unit, being the annual average landed cost at which the non-eligible unit purchased electricity from an unrelated State Electricity Board. The resulting CPP profit was Rs.19,03,49,419/-, but no Section 80-IA deduction was claimed because the gross total income after brought-forward losses was NIL.
The Transfer Pricing Officer rejected the internal CUP and adopted Rs.3.73 per unit, being the tariff notified by UPERC for sale of power by generating stations to the State distribution company. This reduced the arm’s length sale value from Rs.24,63,35,653/- to Rs.10,91,95,086/- and resulted in a downward adjustment of Rs.13,71,40,567/-. The DRP upheld the adjustment. Before the Tribunal, the assessee contended that reliable internal CUP data existed because the same manufacturing unit purchased identical electricity from the CPP and from an unrelated SEB throughout the year. The Revenue contended, among other things, that a generation-company tariff was the proper benchmark, that the concepts of open market value and arm’s length price were distinct, and that the manufacturing unit could not be treated as the tested party under CUP.
