TATA CHEMICALS LTD,MUMBAI vs. DCIT - 2 (3)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JM & MS PADMAVATHY S, AM I.T.A. No. 3093/Mum/2023 (Assessment Year: 2019-20)

Tata Chemicals Ltd. DCIT-2(3)(1), 24, Homi Mody Street, Room No. 562, Aayakar Bhavan, Bombay House, Fort, Vs. M.K. Road, Mumbai-400020. Mumbai-400001. PAN : AAACT4059M Appellant) : Respondent) Appellant/Assessee by : Shri Nitesh Joshi a/w Samkit Chauradiya, CA Revenue/Respondent by : Shri K.C. Selvamani, CIT-DR : 15.05.2024 Date of Hearing : 28.05.2024 Date of Pronouncement O R D E R Per Padmavathy S, AM: This appeal is against the final order of assessment passed by the Assessing Officer, Assessment Unit [for short 'the AO'] under section 143(3) r.w.s. 144C(13) of the Income Tax Act (the Act) dated 12.07.2023 for the AY 2019-20. The assessee raised the following grounds of appeal:

“Addition on account of Transfer Pricing adjustment (Rs. 12.99 Cr.) 1 The Ld. Assessing Officer ('AO')/ Ld. Transfer Pricing Officer ('TPO') [following the directions of Dispute Resolution Panel-2, Mumbai ('DRP') under section

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144C(5) of the Income-tax Act, 1961 ('Act')] grossly erred, on fact and in law, in making upward transfer pricing addition of Rs. 12,99,46,410/- u/s. 92 of the Act in respect of specified domestic transaction of inter-unit transfer of power from the eligible undertaking u/s 80-IA of the Act namely, Power Plant TT-12 to Other Manufacturing undertaking of the Appellant. In doing so, on the facts and in law, the Ld. AO/Ld. TPO grossly erred:

1.1. in considering the Gujarat Electricity Regulatory Commission's order in case No.1696 of 2018 dated 31.03.2018 in case of M/s Torrent Power Ltd. - Generation, Ahmedabad as a lone suitable comparable instance for the purpose of application of the "Comparable Uncontrolled Price Method" ('CUP method") as prescribed in the Income-tax Rules, 1962.

1.2. in not appreciating that the level of market of the comparable transaction adopted by the Ld. AD/Ld. TPO (following the directions of DRP under section 144C (5) of the Act) is different as compared with the level of market in which the Appellant operates being transaction of power supply between power producer and end consumer.

1.3. in rejecting the economic/benchmarking analysis of the Appellant whereby the rate of Rs.6.58 p.u. being the rate applicable for purchase of power by Appellant from Gujarat Electricity Board that was adopted as arm's length price for such inter-unit transfer of power.

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transfer pricing was applicable to specified domestic transaction as defined under the provisions of section 92BA of the Act.”

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directed the TPO to adopt the rate at which electricity is supplied by Torrent Power Ltd (TPL) and accordingly the TP Adjustment was revised to Rs.14,37,31,020. The AO in the final assessment order restricted the disallowance to Rs.12,99,46,410/- being the amount claimed by the assessee under section 80IA of the Act. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO pursuant to the directions of the DRP.

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defective. The TPO proceeded to adopt the power purchase cost charged by Gujarat Urja Vikas Nigam Ltd. (GUVNL) while purchasing power from coal based thermal power generating units in Gujarat and the power charged by power generating units in Gujarat which are functionally similar to the assessee. The TPO adopted the rate of Rs. 4.09 per kwh i.e. the cost at which the power from the coal based thermal power generating units are purchase by GUVNL and accordingly made a TP Adjustment of Rs. 15,10,08,540/-. On further appeal before the DRP, the DRP followed its own decision for AY 2017-18 and directed the TPO to adopt the rate at which electricity is supplied by TPL. Accordingly the TP Adjustment was revised to reduced to Rs.14,37,31,020 which got restricted to Rs. 12,99,46,410/- being the amount claimed as deduction under section 80IA(8) of the Act.

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since both are not charging purely un-controlled pricing. The ld DR further argued that in that case rate charged in independent platforms like rates of Indian energy exchange needs to be considered for the purpose of ALP. Accordingly the ld DR supported the order of the TPO and the finding of the DRP.

“9. We have heard both the parties at length and also perused the relevant finding given in the impugned orders. Before us, the ld. DR referred to various observations made by the ld. TPO in its TP order and submitted that the captive power generating unit which is eligible for deduction u/s.80IA, not only is to be taken as a tested party but also the FAR analysis has to be done from power generating entities and not the distribution entities because distribution companies incurred various other costs of transmission loss and distribution cost apart from other administrative costs for such distribution. The price at which Distribution Company sells the power to the customers cannot be the price at which power generating units sells the electricity. In this case, the ld. DRP has taken M/s. Torrent Power Ltd. (TPL) ITA No.468/Mum/2022 M/s. Tata Chemicals Ltd. 11 which is an electricity generation unit in whose case per unit has been determined at Rs.3.99/- which is in accordance with Safe Harbour Rules and also specific external CUP in the case of electricity generation unit. Secondly, he submitted that wherever transfer of goods and services falls under SDT, then market price has to be determined as per principles of ALP under transfer pricing mechanism as provide in clause (ii) of Explanation to section 80IA(8). 10. The case of the ld. Counsel for the assessee is that, what is required to be seen as to how much a non-eligible unit will have to pay the price for buying electricity. If it has bought electricity from GEB which has supplied the electricity @6.90 per unit, then if at the same price the eligible unit has supplied, then there is direct CUP. The purpose of Section 80IA(8) is to see whether the goods and services has been transferred at market value. The market value here in this case is at Rs.6.90 per unit. In support of his contention, he has filed 34 judgments of various Tribunals as well as the High Courts, and particularly the judgement of (i) Hon‟ble Chhattisgarh High Court in CIT vs. Godawari Power & Ispat Ltd (2014) 42 taxmann.com 551; (ii) PCIT vs. Gujarat

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Alkalies & Chemicals Ltd. reported in 395 ITR 247 (Guj), wherein the Hon‟ble Gujarat High Court specifically said that generation of power for captive consumption has to be computed considering the rate of power at each electricity board supplied power to its customers. He further referred to the decision of another Jurisdictional High Court in the case of CIT vs. ITA No.468/Mum/2022 M/s. Tata Chemicals Ltd. 12 Reliance Industries Ltd., reported in 421 ITR 686 (Bom), wherein the Hon‟ble High Court held that, if assessee had set up a captive power generating unit and provided electricity to its another unit and claimed deduction under section 80-IA in respect of profits arising out of such activity then the valuation of electricity provided to another unit should be at rate at which electricity distribution companies were allowed to supply electricity to consumers. Besides this, catena of decisions of the Co- ordinate Bench has also been filed wherein similar view has been taken. 11. The entire controversy germinates from the fact, as to whether the sale of electricity by eligible unit entitled for deduction u/s.80IA which has supplied 5,23,42,000 KWH units of electricity to the manufacturing unit of TCL at Mithapur at transaction price of Rs. 36,09,44,480/- at the rate of Rs. 6.90/- per unit is at market value or not. In so far as determining market value in terms of Section 80 IA (8), the premise of the ld. TPO is that, firstly, it is a specific domestic transaction u/s.92BA and therefore, the market value of the electricity supply has to be determined in terms of transfer pricing provisions so as to determine the correct market value and the profits of eligible unit as per ALP within the scope and ambit of Section 80IA (8). Secondly, the ld. TPO has held that since the eligible unit is captive power generation unit and therefore, the price at which it has sold the electricity should be benchmarked with the comparables who are generating electricity and supplying it to the State Electricity Board which here in this case is GEB. ITA No.468/Mum/2022 M/s. Tata Chemicals Ltd. 13 Another point which has been raised by the ld. TPO is that, what is to be benchmarked is the profits of the eligible unit and therefore, eligible unit alone should be taken as a tested party and the FAR analysis has to be done of the eligible unit vis-à-vis the other units which are generating electricity. Lastly, he has given the detailed analysis as to why the price charged by the distribution companies cannot be compared with the assessee because it undertakes various functions, deploys various assets and assumes various risks and therefore, the price charged by the distribution company from the end customers cannot be the market value of the price on which assessee sold the price as power generation unit to another unit of the same assessee. Finally, the ld. DRP has given one comparable instance, of M/s. Torrent Power Ltd. (TPL) which was into generation of electricity in whose case, Gujarat Electricity Regulatory Commission (GERC) has determined the tariff for supply of electricity to State Electricity Board at Rs.3.99 per unit.

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both manner are available with the assessee to demonstrate that market value of the goods and services has to be either by showing that the price of such goods and services is in consonance with the price available in the open market; or if assessee is not able to establish the price available in the open market, then the price of goods and services has to be established through arm‟s length principle. Secondly, if the price of the transfer of goods and services is in consonance with the price available in the open market then the profits of the eligible business shown as per this price is eligible for deduction and in that case the second option may not be necessary. 15. Both the authorities, i.e., ld. TPO and ld. DRP have held that in case of 80IA (8), the market value has to be compulsory governed by Explanation (ii) to Section 80IA (8), because in 92BA provides that such transfer of goods and services referred in this sub-section falls within SDT and therefore, arm‟s length price has to be determined as per Section 92F(ii). Further according to them Explanation (i) & (ii) have separate application because it is separated by word “or”, but how they are separately applicable and under which circumstances has not been elaborated. If such an interpretation is to be accepted, then clause-(i) of the Explanation will become otios and redundant, because then the transfer of the goods and services falling u/s.80IA(8) has to be compulsorily be determined under arm‟s length principle. Had it been so, then post introduction of SDT in Section 92BA w.e.f. 01/04/2013, then statute would have provided that for the purpose of Sub-section (8) to Section 80IA, “market value” in relation to goods or services means the arm‟s length price as defined in clause (ii) of Section 92F. If both the clauses exist then one has to see if the market value is discernable from the price for such goods would ordinarily fetch in the open market unless such price is not available, then there is an option for determining the market value as per the arm‟s length price. 16. Here in this case what is required to be seen is, whether the market value in the price charged by the eligible unit for the sale of electricity to another unit can be benchmarked with the price on which GEB is supplying to the customers. From the records, it is seen that the manufacturing unit of the assessee also buys electricity from GEB at the same price of Rs.6.90/- per unit and the same price is being paid to the eligible unit also. The case of the department is that since assessee is generating electricity and supplying it to the manufacturing unit, therefore, functionally it is similar to entities which are generating electricity and not which are into distribution of electricity. What is required to be seen u/s. 80IA (8) is that, where any goods or services provided by the eligible business or transfer to any other business carried on by the assessee, the same should correspond to market value of such goods and services. The market value has to be seen qua the price in which such goods or services would ordinarily be fetched in the open market, i.e., whether in the open market the price of such

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goods and services are available or not? Here assessee is a captive service provider for generating electricity and to supply and distribute to the manufacturing unit which otherwise would have bought from the open market. The price has to be seen what the manufacturing unit is paying in the open market. This precisely has been dealt by the Hon‟ble Gujarat High Court in the case of PCIT vs. Gujarat Fluorochemicals Ltd., and also by the Hon‟ble Jurisdictional High Court in the case of CIT vs. Reliance Industries Ltd., wherein the Courts had held that if the assessee had set up a captive power generating unit and provided electricity to its another unit and claimed deduction under section 80-IA in respect of profits arising out of such activity, then violation of electricity provided to another unit should be at the rate at which electricity distribution companies were allowed to supply electricity to the consumers. This judgment has been distinguished by ld. TPO / ld. DRP holding that these judgments relate to assessment years where SDT provisions were not applicable. We are not inclined to agree to such a view that these judgments have become redundant and Explanation (i) is no more applicable after the introduction of Clause (ii) w.e.f. 01/04/2013, because, the statute has not omitted clause (i). Thus, in our opinion these judgments still holds the field and once the market value of such price on which electricity is sold to another unit of the assessee, the same can be compared with the electricity distribution entities for supplying to the customers in the open market. Accordingly, there is no infirmity in the contention of the assessee that per unit electricity sold to the non-eligible unit at Rs.6.90 per unit is the market value. 17. The ld. DRP has taken M/s. Torrent Power Ltd. (TPL) which is the electricity generation entity supplying electricity to GEB. In that case Gujarat Electricity Regulatory Commission (GERC) has fixed tariff of Rs.3.99 per unit for supplying it to the GEB for F.Y.2016-17. First of all nothing has been brought on record whether, M/s. Torrent Power Ltd. (TPL) was supplying to other entities or industry or it was purely supplying to GEB. What is culled out is that, these power generating entities were manufacturing and supplying 100% to the GEB and the price is influenced by GEB, although fixed by GERC, but if there is only one party to whom sale is made and the prices and other conditions are purely influenced by that entity, then it becomes a tainted transaction. The reason being, Section 92A dealing with the meaning of the associated enterprises stipulates that two enterprises shall be deemed to be associated enterprises if any time during the previous year, the goods or articles manufactured or processed of one enterprise are sold to other enterprise which is specified by the other enterprises and the prices and the conditions are influenced by the other enterprise. This has been specifically provided in 92A (2)(i) which reads as under:-

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(i) The goods or articles manufactured or processed by one enterprise are sold to the other enterprise or to the persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise. 18. If M/s. Torrent Power Ltd. (TPL) is purely supplying to GEB and GEB is controlling the prices and other conditions, although determined by regulatory authority, then it falls in the category of aforesaid clause and any such price under the condition, where one entity, i.e. GEB is influencing the price, then it becomes an controlled transaction between two associated enterprises. In that scenario, the prices on which GEB purchased the electricity from M/s. Torrent Power Ltd. (TPL) cannot be considered as comparative price. Thus, the price fixed for purchasing the electricity by GEB from M/s. Torrent Power Ltd. (TPL) cannot be compared with the prices on which eligible unit of the assessee is selling it to the other. Thus, once only comparable as chosen by the ld. DRP fails, then same loses the comparability for determining the ALP. In view of aforesaid discussion, we hold that the price on which eligible unit is selling the power, i.e., at Rs.6.90 per unit which is the price available in the open market and also the same manufacturing unit is purchasing it from GEB at the same price, then it can be said to be the market value of the price. Accordingly, addition / disallowance of deduction made by the ld. CIT (A) is deleted and the ground Nos. 1-4 raised by the assessee are allowed.” 8. We notice that in the above decision, the coordinate bench has held the issue in favour of the assessee stating that the rate charged by GEB to the assessee i.e. the price at which the electricity is procured by the assessee in the open market is the right comparison as per explanation (i) to section 80IA(8) of the Act. The said view is strengthened by the decision of the Hon'ble Supreme Court in the case of JindalSteel & Power Ltd (supra) where it is held that

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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.

The facts for year under consideration being similar respectfully following the above decision of the co-ordinate bench we hold that the TP Adjustment is not sustainable and the addition made in this regard hereby deleted.

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the power was purchased by the assessee in Rajasthan from SEBs ₹ 8.35 per kilowatt. This shows that the rates at which the power is sold by SEBs is 3.30 times higher than the rates which are quoted by Indian energy exchange. It is also undisputed fact that most of the power is supplied in Rajasthan region by Jaipur Vidhyout Vitran Nigam Limited and used by the consumers. Whereas there is no data available that how much power is being sold at the platform of Indian energy exchange in Rajasthan region. 31. It is also an undisputed fact that product comparability is a critical element while applying cup method and needs to be closely examined. In case if there are any differences identified between the controlled and uncontrolled transaction that would affect price, adjustment should be made to the price of the uncontrolled transaction is in order to make the same comparable to the controlled transaction is. No doubt the product similarity exist in the above transactions. However comparability Under the cup method depends on the similarity with respect to the following factors also which could materially affect the price in uncontrolled transaction i. quality of the product ii. contractual terms (i.e. scope and terms of warranties provided, sales are purchased volume, credit terms, transport terms) iii. level of market (i.e. whole sale or retail etc) iv. geographic market in which the transaction takes place v. date of the transaction vi. intangible property associated with the sale, foreign currency risks and alternatives realistically available to the buyer and seller the learned transfer pricing officer has used the average sale price for the financial year 2013 – 14 available at the Indian energy exchange. Therefore there cannot be much of the grievance when the assessee also charges the same rate for the whole year. However the claim made by the assessee before us which remains uncontroverted is that Indian energy exchange is not the main exchange where the power is traded. As per the Indian power market journey so far and way forward June 2014 report published by Indian energy exchange which is available in public domain has categorically stated that the size of power exchange-based market has grown to 3% approximately of the total electricity generated. Therefore the argument of the learned transfer pricing officer that Indian energy exchange is the main exchange where nearly 95 – 96% of power is traded is a negative by the report of Indian energy exchange itself. Therefore it is apparent that it is the very minuscule part of the total power traded. Further the Indian energy exchange is a spot exchange and cannot be compared with the continuous power supplied by SEBs to the assessee. Of course, in Indian energy exchange there would always be a doubt about the availability of continuous power. This shows that there are material differences existing between the transaction entered into by the assessee for transfer of power and the rates stated by Indian energy exchange. Undoubtedly the rates

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quoted at Indian energy exchange are based on the bid price rather than the actual quantity consumed by the assessee. Even otherwise the data is not available in the public domain and learned transfer pricing officer has used the powers u/s 133 (6) of the act to obtain such rates i.e. data. Furthermore the Indian energy exchange rates are also required to be adjusted for the various levies and other variable charges of transmission et cetera as well as the transmission loss. Even otherwise the assessee has submitted the land rate at Indian energy exchange which shows the average price at ₹ 6.36 per kilowatt by taking base rate at Rs 2.55. Even if the average of the SEBI rates at ₹ 8.35 per kilowatt and the landed rate at Indian energy exchange at ₹ 6.36 per kilowatt is averaged out it comes to ₹ 7.355 per kilowatt which is more than the rates at which the power is transferred from eligible unit to non-eligible unit at Kota Rajasthan by the assessee i.e. at ₹ 6.30 kilowatt. 32. There is no doubt that the rates at which the SEBs supplies power to the assessee is an perfect external cup. Such rates are ₹ 8.35 per kilowatt. Rates of Indian energy exchange shown at Rs 2 .55 per kilowatt. If the rates of SEB compared with the rates of Indian energy exchange clearly shows that there is a wide disparity between the two rates. It is not in dispute that SEB in Rajasthan is supplying power to majority of the consumer using electricity. Therefore, much sanctity is attached to the rates adopted by SEBs. However, the learned transfer pricing officer has failed to show the reason of such a wide disparity between the rates of Indian energy exchange which is a spot exchange compared with the rates at which the energy is actually consumed in that geographical region. This does not mean that the quoted price cannot be used for the comparability analysis in cup method. But if the prices are so divergent and the difference between the two external cup becomes irreconcilable, the external cup price which is more reliable should be used. Therefore, in our view, IEX rates for these reasons cannot be said to be an external cup available for invoking the provisions of first proviso to Section 92C (2) of the act.

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further adjustment is necessary and that the addition done in this regard is hereby deleted.

“1. That the profits eligible for deduction under section 80-IA of the Income-tax Act, 1961 in respect of transfer of steam from the 80-IA eligible undertaking ought to have been computed by taking its market value instead of cost.” 12. With regard to the admission of additional ground the ld AR submitted that the assessee while the appeal is pending before the Tribunal came across Tribunal ruling in the case of Nectar Lifesciences Ltd. Vs DCIT in ITA NO. 1497/Chd/2019 pronounced on 17.02.2022 by Chandigarh Bench of Tribunal holding the view that even transfer of steam by an 80-IA eligible undertaking is to be valued at market value. The ld AR further submitted that the assessee's eligible unit has also produced Steam which has been presently transferred to its non-eligible undertaking at cost and therefore wishes to claim 80-IA deduction for transfer of steam at market value. The ld AR also submitted that additional claim through additional ground could not be raised earlier as the assessee was not aware that such claim is permissible and as soon as it came to know thereafter, it took professional advice and immediately raised this additional ground. It is submitted that claim of deduction under section 80IA towards transfer of steam is already part of the return of income and since the transfer is done at cost the amount claimed is nil. Therefore the ld AR argued that the revenue is not correct in contending that this is fresh claim by the assessee and that this is only an incremental claim made based on market rate. The ld AR further argued that the issue contended through additional ground is purely legal and that the relevant facts pertaining to the issue are already part of the record. The ld AR also argued

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that since the assessee was not aware that the claim under section 80IA for transfer steam could be done at market rate and came to know of it only during the research done during the process of hearing before the Tribunal and therefore there is a reasonable cause as to why the same was not made before the lower authorities. The ld AR relied on the decisions of the Bombay High Court in the case of CIT vs Pruthvi Brokers & Shareholders ([2012] 23 Taxmann.com 23 (Bom)) and Ultratech Cements Ltd vs ACIT ([2017] 81 taxmann.com 74 (Bom)). The ld AR also submitted additional evidence of Report on determination of market value of Steam and prayed for the admission of the additional evidence also.

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the assessee as well as the Department have a right to file an appeal/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 6. In the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688, this Court, while dealing with the powers of the AAC, observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. 7. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) takes too narrow a view of the powers of the Tribunal - vide, e.g., CIT v. Anand Prasad [1981] 128 ITR 388/ 5 Taxman 308 (Delhi), CIT v. Karamchand Premchand (P.) Ltd. [1969] 74 ITR 254 (Guj.) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499/[1984] 19 Taxman 278 (Guj.) (FB). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 8. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits. 17. In the given case, the issue raised in additional ground i.e. the claim of deduction under section 80IA towards transfer of steam on the basis of market value is legal issue and that relevant facts pertaining to the same except how to

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determine the market value of steam are already part of the records. The next question is whether there is any bona fide reason for raising this additional ground before the Tribunal. The assessee in the submissions has stated that the additional ground is raised based on the decision of the Tribunal which the assessee was not aware of at the time of assessment or at the time of appellate proceeding before DRP. We are of the considered view that the assessee has a reasonable cause for not raising the issue before the lower authorities and therefore we are inclined to admit the additional ground for adjudication by placing reliance on the decisions of the Apex Court in the case of National Thermal Power Co. Ltd (supra) and Jute Corpn. of India Ltd (supra)

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the issue and decide in accordance with law. Needless to say that the assessee be given a proper opportunity of being heard. It is ordered accordingly

Order pronounced in the open court on 28-05-2024.

Sd/- Sd/- (ANIKESH BANERJEE) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai