IVL DHUNSERI PETROCHEM INDUSTRIES PRIVATE LIMITED,KOLKATA vs. D.C.I.T., CIRCLE - 11(1), KOLKATA, KOLKATA

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 issue raised in ground No.1 is against the order of TPO/AO making downward adjustment of Rs.24,72,79,392/- in respect of transfer value of power by the captive power plant at Haldia, West Bengal.

Facts in brief to the ground No.1 are that the assessee company claimed deduction of Rs.24,72,79,392/- u/s.80IA of the Act for the eligible units against the specified domestic transactions. Accordingly, the TPO restricted the downward adjustment to the transfer price of power to the amount of claim made by the assessee u/s.80IA of the Act. The DRP also dismissed the objections filed by the assessee against the draft assessment order and the AO accordingly passed the final assessment order. Pertinent to note that the assessee has entered into specified domestic transactions with its AEs. The assessee had set up two captive power plants located in Haldia namely PU-I & PU-III in order to meet the power requirements of its PET resin manufacturing units at the same location . The assessee claimed tax holidays as per section 80IA in respect of their profits from generation of electricity from capitive power plants. The details of the transactions were duly mentioned in form 3CEB filed by the assessee. The assessee benchmarked the transfer power from the eligible units to the assessee on the tariff charged by the West Bengal State Electricity Board. The TPO in his order dated 28.07.2023 passed u/s 92CA(3) ,the transfer price of power was proposed to be reduced to Rs. 41,34,73,831/-. Since the assessee has claimed the deduction u/s 80IA of Rs. 24,72,79,392/-for eligible units against the specified domestic transactions and accordingly the downwards adjustments made by the TPO was restricted to the amount of claim u/s 80IA by the assessee.

At the outset, the counsel for the assessee submitted that the issue is squarely covered by the decision of the coordinate bench in the case of in its own case reported in (2022) 144 taxmann.com 110(Kol), wherein the issue has been decided in favour of the assessee. Therefore, the issue in the instant appeal is squarely covered by assessee’s own case in A.Y. 2015-16. The ld. AR also submitted that the issue has been finally settled by the Hon'ble Supreme Court in the case of Jindal Steel & Power Ltd, reported in (2023) 157 taxmann.com 207(SC) n which the similar issue has been decided by the Hon'ble Apex Court in favour of the assessee. Accordingly, the ld. AR of the assessee prayed that following the above decision, the ground No.1 raised in the present appeal of the assessee may be allowed.

On the other hand, ld. CIT-DR relied on the orders of the DRP/TPO/AO.

This brings to the fore as to what do we mean by the expression "open market" which is not a defined expression.

Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand.

Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub- section (8) of Section 80 IA would mean the price of such goods determined in an environment of free trade or competition. "Market value" is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply.

Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition.

Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit.

Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act.

Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of Section 80IA (8). On the contrary, the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under Section 80 IA of the Act.

Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act.

That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue.

Revenue has relied upon the decision of the Calcutta High Court in CIT Vs. ITC Ltd. (supra). In that case, the High Court rejected the first contention of the revenue that the assessee therein was not entitled to the benefit under Section 80-IA of the Act because the power generated was consumed at home or by other business of the assessee. After holding so, the High Court however, answered the question on the point of computation of profits and gains of the eligible business against the assessee. On going through the judgment, we find that facts of that case are clearly distinguishable from the facts of the present batch of appeals. It is noticeable that though an opportunity was granted by the assessing officer to the assessee to adduce evidence to justify the price of electricity sold by it to its paper unit, the same could not be availed of by the assessee. The electricity generated was sold by the assessee entirely to its paper unit. There was no surplus electricity to be supplied to the State Electricity Board and consequently, there was no contract between the assessee and the State Electricity Board determining the rate of tariff for the electricity supplied by the assessee to the State Electricity Board. On the other hand, it was noticed that the Electricity Act, 2003 had come into force whereby and whereunder, the rate at which electricity could be supplied is determined, notably by Sections 21 and 22 thereof. That apart, there is the tariff regulatory commission which has the mandate for fixing the rates for sale and purchase of electricity by the distribution licensee. Thus it was noted that there is an inbuilt mechanism to ensure permissible profit both to the generating companies and to the distribution licensees. Therefore, it was held by the High Court that the assessee's generating unit could not claim any benefit under Section 80-IA of the Act computing the profits and gains on the basis of the rate chargeable by the distribution licensee from the consumer and that the benefit could only be claimed on the basis of the rates fixed by the tariff regulatory commission for sale of electricity by the generating company. Facts being clearly distinguishable, this decision can be of no assistance to the revenue.

Before parting with this issue, we may mention that reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the definition of the expression "market value" as defined in the explanation below sub-section (6) of Section 80 A of the Act is totally misplaced inasmuch as sub-section (6) was inserted in the statute with effect from 01.04.2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne.

That being the position, we have no hesitation in answering this issue in favour of the assessee and against the revenue.

Considering the facts of the assessee's case vis a vis the decision of the Hon'ble Supreme Court(supra), we set aside the order of the DRP/AO/TPO and direct the AO to delete the downward adjustment of Rs.24,72,79,392/- in respect of the transfer value of power by the captive power plants at Haldia, West Bengal. Ground No.1 is allowed.

The issue raised in ground No.2 is against the order of NFAC in recommending the initiation of penalty proceedings u/s.270A of the Act, in respect of the claim of deduction for education cess to the tune of Rs.59,46,067/- despite the fact that the assessee had suo motto disallowed the same by way of filing of form 69.

Facts in brief are that the assessee claimed deduction for education cess of Rs.59,46,067/- as expenditure under the head 'any other amount allowable as deduction' and accordingly a refund of income tax was claimed. The AO accordingly issued a show cause notice to the assessee which was replied by the assessee by submitting that vide letter dated 10.08.2023, the assessee has already brought on record the fact that the assessee has already disallowed the education cess of the above amount claimed in the computation of taxable business income for the relevant assessment year 2020-2021 by filing Form 69 as notified in terms of provisions contained in Section 115(18) of the Act as introduced by the Finance Act, 2022 and also furnished copy of the said form. The assessee submitted that it has suo moto offered the disallowance in respect of the education cess for A.YU.2020-2021 at Sl.No.4 thereof copy of which is attached at page no. 212 to 220 of the paper book and in case the same is disallowed, it would result in double taxation. We note that that the assessee has filed form 69 on 29.11.2022. The AO further noticed that the CBDT clarified the issue of Education Cess vide Notification dated 28/09/2022 and as per the said notification the assessee is required to file Form No.69 before the due date i.e. 31/03/2023 and on receipt of the application in Form No.69, the AO shall recompute the total income by amending the relevant order and issue notice u/s.156 of the Act specifying the time period within which amount of tax payable, if any, to be paid. The AO further noticed that it is verified from the ITBA Module that the assessee has not furnished required Form No.70. Moreover, the assessee had claimed the amount against education cess in original return of income erroneously. The effect of the same had also not neutralized by filing revised computation of income. Accordingly, deduction claimed in respect of Education Cess is not allowable to the assessee and is required to be disallowed u/s.40(a)(ii) of the Act.

Ld. CIT-DR, on the other hand, relied on the orders of the DRP/TPO/AO.

After hearing the rival submissions of the parties and perusing the material available on record, we note that the assessee has correctly filed Form No.69 before the AO on 29.11.2022 furnishing the revised computation and requested the AO to recompute the income. Further the AO has mentioned that Form No.70 has not been uploaded, however, the assessee has already disallowed the same suo moto by filing Form No.69 which has also not been denied by the department. Moreover, it the /ao who issues the form 70 and not the assessee. Considering the facts and circumstances of the case, we are of the view that the penalty proceedings initiated by the AO is invalid and the AO is directed to drop the same. Thus, ground NO.2 is allowed.

The issue raised in ground No.3 is against the levy of interest of Rs.61,40,757/- u/s.234A of the Act.

After hearing the rival submissions of the parties and perusing the material available on record, we find that the assessee has filed return of income with the extended time but despite that the AO had charged interest u/s.234A of the Act. We note that the due date of filing of return originally was 30.09.2020 which was extended to 15.02.2021 and the assessee has filed return of income on 13.02.2021, which is within the extended due date. Accordingly, the action of the AO in charging interest u/s.234A of the Act is wrong and thus, the AO is directed to delete the same. Ground No.3 is allowed.

The issue raised in ground No.4 is against the order of the AO in not granting credit for advance tax of Rs.17,40,00,000/-, TDS of Rs.1,47,89,550/- and TCS of Rs.1,93,442/- while computing the tax payable/refundable.

Similarly, in ground NO.5 the issue raised is against the order of AO in not granting credit for DDT taxes of Rs.1,31,04,000/- paid u/s.115-O of the Act.

Ground No.6 is general in nature. The same does not require any adjudication.

In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 23/04/2025. Sd/- Sd/- (RAJESH KUMAR) (PRADIP KUMAR CHOUBEY) न्यानयक सदस्य / JUDICIAL MEMBER लेखा सदस्य/ ACCOUNTANT MEMBER कोलकाता Kolkata; ददनाांक Dated 23/04/2025 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतललपप अग्रेपर्त/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant- प्रत्यर्थी / The Respondent- 2.