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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM :
The assessee has filed this appeal against the order passed by the CIT(DRP-2), Mumbai-1, dated 28.12.2021 for the assessment year 2017- 2018, on the following grounds :-
1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (“learned AO”) has erred in proposing an adjustment of Rs. 24,94,76,749/- to the total income of the Assessee even though Hon'ble Dispute Resolution Panel (“DRP”) held that there is no transfer pricing adjustment warranted since assessee has not claimed any deduction under section 80-IA of the Income Tax Act, 1961 (‘Act’).
2. On the facts and in the circumstances of the case, learned AO/ Hon’ble DRP has grossly erred in making adjustments of Rs 24,94,76,749 without appreciating the fact that the Company has incurred gross total losses in the instant AY 2017-18 and has not claimed any deduction under section 80-IA of the Act.
3. On the facts and in the circumstances of the case and in law, the Hon’ble DRP/ learned AO erred in determining the price for transfer of power between eligible units and non-eligible units as assessee has not claimed any deduction under section 80IA of the Act and thus, provisions of specified domestic transfer pricing as laid down in section 92BA of the Act do not apply.
4. On the facts and in the circumstances of the case and in law, the Hon'ble DRP/ learned AO has grossly erred in ignoring tariff order passed by CSERC for supplying power by Chattisgarh State Power Distribution Co. Ltd. (‘CSPDCL’) in the state of Chattisgarh for the purpose of determining arm’s length price in respect of transfer of power from eligible units to non-eligible units.
5. On the facts and in the circumstances of the case and in law, the Hon’ble DRP/ learned AO has grossly erred in considering the rate at which CSPDCL purchases short term power from captive power units to benchmark its transaction relating to transfer of power form eligible units to non-eligible units. 6. On the facts and in the circumstances of the case and in law, the Hon’ble DRP/ learned AO has grossly erred in not following judgment of jurisdictional Hon'ble Chhattisgarh High court's order in Assessee's own case in earlier years, i.e. AYs 2004-05 to 2006-07 wherein jurisdictional Hon'ble Chattisgarh High Court upheld the method adopted by assessee for transfer of captive power from eligible units to non-eligible units. 7. The Hon’ble DRP/ learned AO has erred on the facts and in circumstances of the case and in law in proposing to initiate penalty proceedings against the Assessee under section 270A of the Act, without appreciating the fact that the Assessee has not claimed any deduction under section 80IA of the Act and hence, there is no adjustment to the returned income declared by the Assessee. 2. Brief facts of the case are that the assessee company is engaged in the business of mining of iron ore, manufacturing of iron ore pellets, sponge iron, other iron and steel products and generation of electricity. The assessee filed its return of income for the A.Y. 2017-18 electronically furnished on 30/11/2017 disclosing total income at Rs. (-) 149,90,51,848/- Subsequently, assessee has electronically furnished revised return on 17/12/2018 disclosing total income at Rs. 51,000/- as Income from other sources and losses of current year to be carried forward at Rs. 149,70,60,412/-. The case was selected for Complete scrutiny under CASS. Subsequently, notice u/s 143(2) was issued and sent on 3 17/08/2018. Thereafter, notices under section 142(1) alongwith questionnaire were issued to the assessee, in response to which the assessee has submitted details and information from time to time through e-proceedings. With regard to determination of arm’s length price of ‘Domestic/international Transactions’, the AO noted that during the year under consideration the assessee has undertaken specified domestic transactions with its associated enterprises and the total transactions has been shown at Rs. 123,31,49,341/- as reported in Form 3CEB. In accordance with the provisions of section 92CA of the I.T. Act, reference was made to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price of the domestic transactions entered into by the assessee with the Associated Enterprises. The TPO has passed an order u/s 92CA(3) vide Order No. ITBA/TPO/F/92CA3/2020-21/1030221113(1) on 30/01/2021, wherein it has been determined that an adjustment of Rs. 49,52,68,006/- should be made to the value of international transactions entered into by the assessee company. Therefore, as per TPO order under section 92CA(3) dated 30/01/2021, a sum of Rs. 49,52,68,006/- was proposed to be added to the income of the assessee in the draft assessment order. In response to the same, the assessee filed objections before Ld DRP against the draft assessment order framed by the AO u/s 144C of the Income-tax Act. The Ld DRP-2 vide order dated 28/12/2021 in which directed the TPO to give effect in terms of provisions of section 144C(3) of the Act. The TPO vide letter dated 13/01/2022 received by AO’s office on 16/01/2022 forwarded the revised computation as per the 4 directions given by Ld DRP in order dated 28/12/2021. The TPO in its letter stated that - "the assessee has transferred power from Unit-2 at Rs.61,72,090,010/-. Accordingly total downward adjustment amounting to Rs. 24,94,76,749/-(61,72,09,010 - 36,77,32,261) is thus made to the income of eligible units of the assessee company. In view of the above discussion, assessing officer is therefore requested to take the transfer pricing adjustment of Rs. 24,94,76,749/- and is requested to give effect, accordingly". Accordingly, the AO vide order dated 25.01.2022 modified the draft order dated 31/03/2021 to that extent and added back an amount of Rs. 24,94,76,749/- to the income of the assessee.
3. Against the above order, the assessee preferred appeal before the Tribunal.
4. At the outset, ld. AR of the assessee before us submitted that the AO has erred in proposing an adjustment of Rs. 24,94,76,749/- to the total income of the assessee even though Ld Dispute Resolution Panel (“DRP”) held that there is no transfer pricing adjustment warranted since assessee has not claimed any deduction under section 80-IA of the Income Tax Act, 1961. Further, it was submitted that the AO/ld. DRP has grossly erred in making adjustments of Rs 24,94,76,749 without appreciating the fact that the Company has incurred gross total losses in the instant AY 2017-18 and has not claimed any deduction under section 80-IA of the Act. It was also submitted that the Ld. DRP/ Ld. AO erred in determining the price for transfer of power between eligible units and non- eligible units as assessee has not claimed any deduction under section 5 80IA of the Act and thus, provisions of specified domestic transfer pricing as laid down in section 92BA of the Act do not apply. According to the ld. AR, the ld. DRP/ learned AO has grossly erred in ignoring tariff order passed by CSERC for supplying power by Chattisgarh State Power Distribution Co. Ltd. ('CSPDCL') in the state of Chattisgarh for the purpose of determining arm’s length price in respect of transfer of power from eligible units to non-eligible units. It was also submitted that the ld. DRP/ learned AO has grossly erred in considering the rate at which CSPDCL purchases short term power from captive power units to benchmark its transaction relating to transfer of power form eligible units to non-eligible units. The ld. AR objected that ld. DRP/ learned AO has grossly erred in not following judgment of jurisdictional Hon’ble Chhattisgarh High court's order in Assessee's own case in earlier years, i.e. AYs 2004-05 to 2006- 07 wherein jurisdictional Hon’ble Chattisgarh High Court upheld the method adopted by assessee for transfer of captive power from eligible units to non-eligible units. It was also the arguments of the ld. AR that ld. DRP/ ld. AO has erred on the facts and in circumstances of the case and in law in proposing to initiate penalty proceedings against the Assessee under section 270A of the Act, without appreciating the fact that the Assessee has not claimed any deduction under section 80IA of the Act and hence, there is no adjustment to the returned income declared by the assessee is warranted and therefore, the addition made deserves to be vacated.
Ld. CIT-DR vehemently supported the orders of the ld. CIT(DRP)-2, Mumbai and the order of the ld. AO.
We have considered the rival submissions, perused the material available on record and judicial pronouncements pressed into our service. The sole issue of the appeal is related to determination of price of transfer of power between the eligible units and non-eligible units. Admittedly, the assessee has adopted the rate at which the Chhattisgarh State Electricity Board is charging for supply of electricity to the industrial consumers. This issue was deliberated in detail by the Hon’ble Jurisdictional High Court of Chhattisgarh in assessee’s own case for A.Y.2004-2005 to 2006-2007 and the procedure adopted by the assessee, which was not accepted by the AO, have been considered as correct and decided in favour of the assessee. The Hon’ble Jurisdictional High Court in assessee’s own case, reported in (2014) 42 taxmann.com 551 (Chhattisgarh), held that the market value of power supplied by assessee to its steel division should be computed considering rate of power charged by the Chhattisgarh State Electricity Board for supply of electricity to industrial consumers. Further reliance was placed on the following decision wherein recently similar findings were given and reference to the case of assessee CIT Vs. Godawari Power & Ispat Ltd. (2014) 42 Taxmann.com 551 (CG) was made: (i) Kolkata Bench of the Tribunal in the case of Star Paper Mills Ltd., reported in [2022] 134 taxmann.com 177 (Kolkata-Trib), wherein it is held as under :-
7 Section 92BA, read with section 80-IA, of the Income-tax Act, 1961 read with Income-tax Rules, 1962 - Transfer pricing - Domestic transaction (Section 80-IA deduction) - Assessment year 2016-17 - Assessee company, engaged in business of manufacture & sale of paper, had setup a Captive Power Plant (CPP) to meet power requirements of paper manufacturing unit - Such transfer of power being specified domestic transaction, under section 92BA, said transaction was benchmarked following internal CUP method and transfer price of power supplied by CPP was, accordingly, benchmarked at annual average of landed cost at which power was being purchased by manufacturing unit from SEB - TPO observed that rate at which power was being purchased by manufacturing unit from SEB could not be taken as open market value at which power could be sold by CPP in market and TPO, therefore, rejected benchmarking analysis performed by assessee and substituted transfer price of power determined by assessee, as notified by UPERC for sale of power by power generation stations to its State distribution company - Accordingly, arm's length sale value of eligible unit was computed resulting in downward adjustment - It was noted that paper manufacturing unit had procured power throughout year both from CPP as well as SEB and Both CPP and SEB had supplied power in all months of year and, therefore, there were no timing differences as well and in such circumstances, transaction involving purchase of power by non-eligible unit from SEB, was found to fulfil internal CUP parameters and, thus, landed cost paid by paper manufacturing unit to SEB was held to represent internal comparable arm's length rate - whether, on facts, assessee had correctly identified manufacturing unit as tested party and applied CUP as MAM and purchase price of electricity in open market from SEB to manufacturing units in uncontrolled conditions was ALP - Held, yes [Para 27] [In favour of assessee] (ii) The Hyderabad Bench of the Tribunal in the case of Sree Rayalaseema Hi Strength Hypo Ltd., reported in [2023] 146 taxmann.com 168 (Hyderabad-Trib), has held that :- Section 92C, read with section 80-IA, of the Income-tax Act, 1961 - Transfer pricing - Computation of arm’s length price (Adjustments - Others) - Assessment years 2017-18 and 2018-19 - Assessee had a captive thermal power plant, in respect of which deduction under section 80-IA was claimed - It had also entered into specific domestic transaction with its AEs in respect of sale of power, and hence, adopted Rs. 8.74 per unit as ALP - TPO being of view that rate adopted by assessee included demand charges, energy charges, fuel charge, etc. and such charges should be excluded from consideration, accordingly proposed average energy charges at Rs. 7.39 per unit - Assessee submitted that in respect of T, G and S, as comparable transactions, rate per unit charged by State Electricity Board was Rs. 8.98, Rs. 8.82 and Rs. 10.71 respectively 8 - Whether when assessee had set up a captive power generating unit and provided electricity to its AEs and claimed deduction under section 80-IA in respect of profits arising out of such activity, for purpose of such deduction market value of power supplied by assessee to its AEs should be computed considering rate of power charged by State Electricity Board for supply of electricity to industrial consumers - Held, yes - Whether, in view of aforesaid, assessee was justified in adopting ALP at Rs. 8.74 and TPO was not justified in excluding certain heads of charges out of it - Held, yes [Paras 15 and 16] [In favour of assessee] 7. Further, this Bench of the Tribunal in the case of M/s Mahendra Sponge & Power Pvt. Ltd., passed in ITA No.197/RPR/2017, order dated 29.07.2022, has followed the judgment delivered by the Hon’ble Jurisdictional High Court in the assessee’s own case, referred to supra, and has held as under :- 10. Controversy involved qua the issue in hand lies in a narrow compass, i.e., as to whether or not the A.O had rightly triggered the provisions of Section 80IA(8) of the Act by adopting the domestic purchase price of electricity by CSEB as the "market rate" and justifiably scaled down the assessee's claim for deduction u/s.80IA(4)(iv)(a) by an amount of Rs.4,38,75,880/-?. In our considered view, as claimed by the Ld. AR, and rightly so, the aforesaid issue as on date is squarely covered by the order of the Tribunal in the assessee's own case for the assessment year 2008-09, i.e. ACIT-1(2) Vs. Mahindra Sponge and Power Limited in ITA No.159/BLPR/2011, dated 19.06.2015. In its aforesaid order the Tribunal had after drawing support from the judgment of the Hon'ble High Court of Chhattisgarh in the case of CIT Vs. Godawari Power & Ispat Ltd. (supra), found favor with the claim of the assessee and observed, that the "market value" of the power supplied by the assessee to its steel division was rightly computed by considering the rate at which power was available in the open market, namely, the price that was charged by the electricity board. For the sake of clarity the relevant observations of the Tribunal in the assessee's own case for A.Y. 2008-09 are culled out as under: "6. At the outset, it is informed that the issue is squarely covered by the decision of Bilaspur Bench of the Tribunal in the case of ACIT V/s Godavari Power &Ispat Ltd. [2011] 133 ITD 502 (Bilaspur). In the compilation of the assessee at page 12, the respondent-assessee has also placed reliance on the order of Hon'ble High Court of Chhattisgarh at Bilaspur in the Tax case No.31, 34,32 of 2012 dated 2nd August, 2013 pronounced in the case of CIT V/s Godavari Power &Ispat Ltd., 9 wherein on this very fact that the said assessee was a manufacturer of Iron steel and captive power plant has supplied electricity to its manufacturer unit which was at higher rate than the power supplied to Chhattisgarh State Electricity Board; the Hon'ble High Court has held as under : "28. The Chhattisgarh-Company is a company which is generating power. It is neither consumer of the electricity, nor it is supplying power to a consumer. It also cannot sell power to any consumer directly: it has to compulsorily sell it to the Board.
The power sold by the Chhattisgarh-Company to the Board is a sale to a company which itself supplies power to the consumers. It is not sale of power to the consumer.
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 and 2006-07. It was this rate that was to be considered while computing the market value of the power.
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
Since, this issue has already been decided by Hon'ble Jurisdictional High Court as discussed hereinabove, therefore, we find no force in this ground of Revenue. Before we conclude this judgment it is also worth to mentioned that the ld. CIT(A) has taken into consideration "market price" and thereafter granted part relief by sustaining the disallowance of Rs.11,76,763/-. The relevant paragraph of ld.CIT(A) has already been reproduced above. The ld. AR has stated at BAR that the assessee has not challenged the said partial relief and no appeal was preferred. Thus, under the totality of the facts an circumstance of the case, as also law pronounced by the Hon'ble Jurisdictional High Court, we hereby reject this ground of revenue." 11. As the facts and issue involved in the present appeal of the assessee remains the same as were there before the Tribunal in its own case for AY 2008-09, therefore, we are unable to comprehend as to on what basis the A.O had declined to follow the same. At this stage, we may herein observe that it is neither a fact nor the case of the department that the aforesaid order of the Tribunal had either been set-aside or stayed by the Hon'ble High Court which would have otherwise justified the declining on its part to follow the same. Apart from that, we find absolutely no justification on the part of the A.O in not following the binding judgment of the Hon'ble High Court in the case of CIT Vs. Godawari Power & Ispat Ltd. (supra) which seizes the issue under consideration. Admittedly, the Department had assailed the aforesaid judgment of the Hon'ble High Court by filing a SLP before the Hon'ble Apex Court but again, as long as the said judicial pronouncement is not set-aside or stayed by the Hon'ble Apex Court the same holds the ground and have to be ritually followed by the lower authorities. We, thus, in terms of our aforesaid observations finding no merit in the declining of the assessee's claim for deduction u/s. 80IA(4)(iv)(a) of Rs.4,38,73,880/- by the A.O which had rightly been vacated by the CIT(Appeals), uphold the latter’s order. Thus, the Grounds of appeal
Nos. (a) to (c) raised by the Revenue are dismissed in terms of our aforesaid observations.
8. Respectfully following the judgment of the Hon’ble Jurisdictional High Court in assessee’s own case, referred to supra, which has been followed by the different coordinate benches of the Tribunal in the cases cited above including this Bench of the Tribunal, we are of the view that the binding decision laid down by the Hon’ble Jurisdictional High Court shall be followed in the present case. Admittedly, the aforesaid judgment 11 of the Hon’ble Jurisdictional High Court in assessee’s own case has been challenged by the department by filing an SLP before the Hon’ble Supreme Court and the same is yet to be decided, therefore, the order of the Hon’ble High Court still holds the ground and have binding precedence for us. In terms of our observations, respectfully following the judicial precedence, we are persuaded to accept the contention of the assessee regarding the method adopted by the assessee as upheld by the Hon’ble Jurisdictional High Court, for transfer of captive power from eligible units to non-eligible units.. Thus, ground Nos.1 to 6 in the present appeal of the assessee are allowed..
9. Ground No.7 relates to levy of penalty u/s.270A of the Act. Since we have allowed the issues raised in ground no 1 to 6 of this appeal by the assessee on quantum addition, therefore, the penalty levied u/s.270A of the Act which is consequential holds no ground to stand and thus deleted. Consequently, ground 7 of the appeal of assessee is also allowed.
10. In the result, appeal of the assessee is allowed. Order pronounced in the court on 24/04/2023. Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER लेखा सदस्य / ACCOUNTANT MEMBER रायपुर/Raipur; ददनाांक Dated 24/04/2023 Prakash Kumar Mishra, Sr.P.S(on tour) आदेश की प्रनतललपप अग्रेपित/Copy of the Order forwarded to : 1. अिीलार्थी / The Appellant- प्रत्यर्थी / The Respondent- 2. 3. आयकर आयुक्त(अपील) / The CIT(A), 4. आयकर आयुक्त / CIT