Tata Chemicals Ltd. Vs DCIT-2(3)(1) (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal filed by Tata Chemicals Ltd. for AY 2019-20 and deleted the transfer pricing adjustment of Rs.12,99,46,410/- relating to inter-unit transfer of electricity from its Section 80IA-eligible Power Plant TT-12 to its non-eligible manufacturing unit at Mithapur. The assessee had benchmarked the transaction under the Comparable Uncontrolled Price (CUP) method by adopting the rate at which Gujarat Electricity Board (GEB) supplied electricity to the Mithapur unit. The Tribunal noted that the assessee’s eligible unit supplied electricity to the manufacturing unit at Rs.6.90 per unit, which was the same rate at which the manufacturing unit procured electricity from GEB. The TPO rejected this comparison and initially adopted Rs.4.09 per Kwh, being the rate at which Gujarat Urja Vikas Nigam Ltd. purchased power from coal-based thermal power generating units. The DRP subsequently directed adoption of the rate charged by Torrent Power Ltd. (TPL), resulting in a revised adjustment, which was ultimately restricted by the AO to the amount of deduction claimed under Section 80IA, i.e. Rs.12.99 crore.
Following the assessee’s own case for AY 2017-18, the Tribunal held that the price at which electricity was supplied by GEB to the manufacturing unit represented the appropriate market value under Explanation (i) to Section 80IA(8). The Tribunal relied upon the Supreme Court’s decision in CIT v. Jindal Steel & Power Ltd., which held that market value of power supplied by an assessee to its industrial units should be determined with reference to the rate at which the State Electricity Board supplied power to consumers in the open market, rather than the rate at which power was sold to the State Electricity Board. The Tribunal also rejected TPL as a proper comparable, noting that the coordinate bench had found the TPL transaction unsuitable where it exclusively supplied power to GEB and the price and conditions were influenced by GEB. The Tribunal further rejected the Revenue’s contention that Indian Energy Exchange (IEX) rates should be considered, observing that the facts were similar to the decision in DCM Shriram Ltd. v. Addl. CIT, where IEX rates were found unsuitable as an external CUP due to material differences, including the nature of spot exchange transactions and continuous supply by State Electricity Boards.
