STAR PAPER MILLS LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 4(1), KOLKATA, KOLKATA

For that on the facts and in the circumstances of the case and in law, the methodology followed by the assessee to benchmark the arm's length value of the power transferred by the eligible unit to the non-eligible unit with the average landed cost at which power was purchased by the non-eligible unit from the SEB, fulfilled the internal CUP parameters and in that view of the matter no transfer pricing adjustment was permissible on the given facts and in law.

For that on the facts and in the circumstances of the case and in law, the methodology proposed by AO/TPO to benchmark the arm's length value of the power generated by the eligible unit was wholly fallacious and suffered from serious infirmities and in that view of the matter the downward adjustment of Rs. 16,18,75,076/- deserves to be deleted.

For that on the facts and in the circumstances of the case and in law, the AO be directed to re-compute the set-off of losses upon giving effect to this order and also pass a speaking order quantifying and allowing the carry forward of losses as per law.

For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.”

The sole issue that arises for our adjudication in the instant lis is regarding downward transfer pricing adjustment of Rs.16,18,75,076/- on account of computing arm’s length price for transactions of the transfer of power by the eligible unit to the non-eligible unit.

Briefly stated, the facts of the case are that, the assessee company is engaged in the business of manufacture & sale of paper having its 3 Assessment Year: 2018-19 Star Paper Mills Ltd.

Aggrieved, against this order, assessee is now in appeal before this Tribunal.

At the outset, the ld. Counsel for the assessee submitted that the issue stands squarely covered by the decision of this Tribunal in the assessee’s own case for Assessment Year 2016-17. Further it was submitted that though the revenue has gone in appeal before the Hon’ble Juri ictional High Court, but the same is still pending before the Hon’ble High Court and, therefore, as on date, this decision of the Hon’ble Tribunal in the assessee’s own case for assessment year 2016- 17, is applicable on the similar issue raised in the instant appeal.

On the other hand, the ld. D/R though failed to controvert the contention of the ld. Counsel for the assessee but still vehemently argued placing reliance on the finding of the lower authorities.

We have heard rival contentions and produced the material placed before us. We notice that the assessee runs a factory at Saharanpur, U.P.. It has set up a captive power plant (CPP) to meet the power requirements of the paper manufacturing unit. The CPP is qualified as an eligible unit engaged in the business of power generation as specified under Section 80IA(4) of the Act. The valuation of power generated by the assessee and consumed by the paper manufacturing unit being an entry unit transferring goods under the category specified for which necessary report on form 3CEB has been filed. The assessee has adopted per unit rate of Rs.9.08/- for the valuation of the 30892190 units transferred from CPP to its manufacturing unit. However, the ld. Assessing Officer while examining the issue in the course of the assessment proceedings carried out u/s 143(3) r.w.s. 144C(13) of the Act, referred the matter to ld. TPO, for examining the ALP adopted by assessee for valuing the power units transferred from CPP. The Ld. TPO issued following show cause notice on 23/07/2021, which is placed at page 110 to 114

80 (Bilateral & PXIL, IEX)/ UI Average

84 Based on the above rate, the Transfer Pricing adjustment for the transaction of transfer of power is determined as follos:- Tranfer Rate Arm’s length Units TP adjustment price transferred Transfer of 9.08 3.84 3,08,92,190 16,18,75,076 power for captive consumption

Necessary replies were filed by the assessee. However, the ld. TPO was not satisfied and he applied the per unit rate of Rs.3.84/- and proposed a downward TP adjustment. The ld. Assessing Officer took cognizance of the said TPO order and proceeded ahead on this issue in the following manner:- Calculation of transfer Pricing Adjustment Based on the appropriate rate, the transfer Pricing adjustment for the transaction of transfer of power is determined as follows: Transfer Rate Arm’s Length Units TP Price Transferred Adjustment Transfer of 9.08 3.84 3,08,92,190 16,18,75,076 power for captive consumption On the basis of reasons enumerated in his order, the T.P.O. made a Transfer Pricing adjustment of INR 16,18,75,076 in relation to the transaction of transfer of power from Captive Unit of Manufacturing Unit. The said order U/s.92CA(3) of the Act was passed after taking into account the assessee’s contention raised in the course of transfer pricing proceedings before the Transfer Pricing Officer. Hence, in view of the order passed u/s 92CA(3) dated 30.07.2021 by the transfer Pricing Officer, Kolkata, as addition of Rs 16,18,75,076/- was proposed to be made to the income of the assessee company in accordance with the provisions of section 92CA(4) of the Income Tax Act, 1961 which mandates that 9 Assessment Year: 2018-19 Star Paper Mills Ltd.

2 In view of the same, as the issue and objections are identical to AY 2016-17, the AO is directed to ascertain the legal status of further appeal by Revenue. In case the matter has attained finality and the decision of the Hon'ble ITAT have been accepted by Revenue, the adjustment / addition shall be deleted. If not, the adjustment / addition is upheld, until such finality is attained. Ground 1 is disposed of as above." Following the direction of the Ld. DRP, DCIT TP-2, Kolkata has passed a give effect order under Section 92CA(3) r.w.s 144C (5) of the Income Tax Act, 1961 as under - "A report in Form 3CEB was filed by the assessee along with its return of income for the A.Y. 2018-19. A reference for determination of Arm's Length Price (referred to as 'ALP' hereinafter} pertaining to Specified Domestic Transactions entered into by the assessee, with its Associated Enterprises, during the financial year 2017-18, relevant to the AY 2018-19, was received from the Assessing Officer, Technical Unit. Vide order passed u/s.92CA(3) of the Income Tax Act, dt. 30.07.2021, d downward ALP adjustment of Rs. 16, 18,75,076/- had been made in respect of Specified Domestic Transactions (transfer of power) entered into by the assessee with its Associated Enterprises pertaining to claim of deduction u/s. 801A of the Act, during the year under consideration. Being aggrieved with the aforesaid ALP adjustment, the assessee company had filed an objection before the Ld. Dispute Resolution Panel (DRP-2), New Delhi. The Ld. DRP, after hearing to the assessee's contentions, passed its directions u/s. 144C(5) of the Income Tax Act, dt. 29.04.2022 directing the AO/TPO to take recommended action. The said order of the DRP passed u/s 144C(5) of the Income Tax Act, was received in this office on 24.05.2022. On going through the aforesaid DRP direction, it is observed that the Ld. DRP panel has co-related the current year TP proceeding with the assessee's own case for the A.Y. 2016-17 wherein the Hon'ble ITAT, Kolkata had allowed relief to the assessee and directed to delete the TP adjustment towards transfer value of power.

Before us, the ld. Counsel for the assessee, contended that the issue stands squarely covered by the decision of this Tribunal in the assessee’s own case for the assessment year 2016-17, in ITA No. 127/Kol/2021; order dt. 26/10/2021. On perusal of this order of the tribunal which is placed at pages 123 to 154 of the paper book, we notice that similar type of downward TP adjustments was made for Assessment Year 2016-17 for the transfer value of power by the CPP to the manufacturing unit of the assessing. This Tribunal after considering the arguments of both the sides and following the settled judicial precedents, decided in favour of assessee observing as follows:- “11. We have heard both the parties and perused the material available on record. The admitted facts of the case are that, the assessee operates an eligible power generating undertaking at Saharanpur in the State of U.P, profits of which are eligible for deduction u/s 80-IA(8) of the Act. The power generated by the eligible unit is entirely consumed captively by the non-eligible unit. For the purposes of Section 80- IA(8) of the Act and in order to determine the stand-alone profits of the eligible unit, the assessee had ascertained the transfer value of power to non-eligible unit at Rs.8.41 per unit with reference to average landed cost at which the non-eligible unit procured power from the SEB. The said transaction being in the nature of specified domestic transaction had been benchmarked using internal CUP Method in the transfer pricing audit report filed in Form 3CEB. There is no dispute between

Before we proceed further, it is worthwhile to quote here the relevant provisions of Rule 10B of Income Tax Rules 1962 [herein after referred to as the 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,--

From the above Rule, it is evidently clear that, what is required to be seen 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 transaction conducted between the AEs.

In the facts of the present case, we note that the goods in question is ‘power’ which is transferred by the eligible unit to the paper manufacturing unit. Admittedly, the CPP has not sold power to any unrelated parties. On the other hand, the paper manufacturing 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 AE from its related party as well as unrelated party is the 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, the transaction involving purchase of power by the non-eligible unit from the SEB, is found to fulfill the internal CUP parameters and thus the landed cost paid by the paper manufacturing unit to the SEB is held to represent internal comparable arm’s length rate. We accordingly find sufficient merit in the benchmarking analysis undertaken by the assessee applying internal CUP Method.

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

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 U 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:

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,

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 stand-alone 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.

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.

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

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:

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 :

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 24 Assessment Year: 2018-19 Star Paper Mills Ltd.

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 juri ictional High Court.

Respectfully following the authoritative pronouncements of the Hon'ble juri ictional 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.

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

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.

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

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

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.

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.

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.

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.

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

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.

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)

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.

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

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:— "

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."

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:— "

As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction

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.

Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of CIT v. Godawari Power & Ispat Ltd.

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:— …….

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.

In the result, Income Tax Appeal is dismissed.

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

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 35 Assessment Year: 2018-19 Star Paper Mills Ltd.

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

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

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 Co-ordinate 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:

We find that the decision of the tribunal in the assessee’s own case for the assessment year 2016-17 is squarely applicable to the present case on hand. Ld. DRP has also referred to this decision of the tribunal given for assessment year 2016-17 observing that the issue and objections are identical to Assessment Year 2016-17, the ld. DRP has only directed the assessing officer to ascertain the legal status of further appeal by the revenue and in case the matter has attained

In the result, appeal of the assessee is allowed. Order pronounced in the Court on 10th July, 2023 at Kolkata. (SONJOY SARMA) ACCOUNTANT MEMBER Kolkata, Dated 10/07/2023 *SC SrPs Assessment Year: 2018-19 Star Paper Mills Ltd.

""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील ( ) / The CIT(A)- 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड" फाई/ Guard file.