ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), RAIPUR vs. M/S ANIMESH ISPAT PRIVATE LIMITED, RAIPUR

आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals)-II, Raipur, dated 30.07.2020, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 20.12.2019 for assessment year 2016-17. The revenue has assailed the impugned order on the following grounds of appeal before us: 1. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs.5,41,09,614/- made on account of upward adjustment?" 2. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in giving a finding that the rate at which CSPDCL purchases power from captive power plant is not uncontrolled transactions and thereby ignoring the facts brought on the record by the A.O?" 3. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was erred in giving finding by ignoring the facts that when the external comparable uncontrolled price was available then as to why purchase price by CSPDCL -cannot be taken for determination of comparable uncontrolled price (CUP)?" 4. The order of Ld. CIT (A) is erroneous both in law and on facts. 5. Any other ground as may be raised during the course of appeal.

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No.of units Total sale value Average Rate/unit(In Rs.) 32208103 15,29,88,427 4.75

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had purchased electricity from the State Electricity Board was rightly adopted as a comparable for benchmarking the transaction under consideration. However, the TPO did not find favour with the aforesaid claim of the assessee. It was observed by the TPO that there was a basic difference between purchase of power by the assessee directly from its AE as against that made from a non-AE. On the basis of his aforesaid deliberations the TPO adopted the average rate of Rs.3.07 per unit at which Chhattisgarh State Power Distribution Company Ltd, i.e a non-AE had purchased power from Captive Power plant as a comparable to benchmark the ALP of per unit rate of 32208103 units of electricity purchased by the assessee company from its AE, viz. Mahendra Sponge & Power Limited. On the basis of his aforesaid observations, the TPO vide his order passed u/s. 92CA(3) of the Act, dated 30.10.2009 proposed an upward transfer pricing adjustment of Rs.5,41,09,614/-.

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2.3 I have gone through the submission of the appellant and also perused the assessment order. As per the above facts, the assessee has purchased power @ 4.75pu whereas the TPO has adopted purchase rate at Rs. 3.07pu. This is the rate at which CSPDCL (Chhattisgarh State Power Distribution Company Ltd) purchases power from CPP(Captive Power Producers) which cannot be compared with the rate at which the IPP(Independent Power Procedure) sells power to other parties, other than CSPDCL. The CUP (Comparable Uncontrolled Price) is that price at which another transaction has taken place in uncontrolled environment and other decisions in case of both the transactions are comparable. The CUP in respect of the assessee should be that price at which other CPP has purchased power. The attempt here is not to find the price at which assessee sells powers to CSEB, but we have to find a price at which assessee purchases power. Moreover, the internal CUP is preferable to the external CUP. However, the TPO has not applied internal CUP which the rate at which power has been purchased by the assessee from CSEB. Instead the TPO has applied external CUP. As per the order of TPO, the assessee should have purchased power from the AE @ Rs. 3.07 which is the rate at which CSPDCL purchases power

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from CPP. However on going through the facts of the case I find that this rate of Rs. 3.07 cannot be applied due to change of various factors, i.e. in other words the two transactions are not comparable transactions. In the matter of power purchase CSPDCL has monopoly and the rate of purchase is dictated by that company. In other words the rate at which CSPDCL purchases power from CPP is not uncontrolled transaction. Therefore, the rate adopted by the assessee is justified. CUP should be arrived on the basis of price of transaction between own related parties and the price should be own controlled price. In the case of sale of power by captive power traders the price is not uncontrolled price. As per the Electricity Act 2003 the traders are bound to sell power to Electricity Boards. He has no other option since he has no license to sell power to third parties. In case of sale to Electricity Boards the sell price is not uncontrolled but is decided by Electricity Board. For purchase of electricity from CPP the electricity boards execute power purchase agreement with the CPP, setting the terms and conditions and rates at which the power will be purchases. However even the price agreed upon in the Power Purchaser Agreement (PPA) is often not paid and several deductions are often made by the Electricity Boards. This is due to the reason that the state electricity units have monopoly business by law. No other entity is entitled to s 11 power to consumers directly. The same is the case here. Whereas CSPDCL sells power to the assessee at higher rate, but assessee has to execute PPA with CSEB to sell the lower rate. Even this rate could not be received by the assessee and actual rate of power is still lower. Due to these reasons the CUP derived on the basis of purchase price by CSPDCL cannot be adopted as the rate at which the assessee has purchased the power to from its sister concern. On Similar facts, recently by hon'ble Delhi ITAT has decided the appeal in the case of Nalwa Steel Power Limited vs. ACIT ITA no. 7176/DEL/2017. In this case the above facts have been recognized that generating stations are under obligation to sell the extra power at the lowest price and this lowest price cannot be considered as equivalent to the market price as defined u/s. 80IA(8) of the Act. In their decision hon'ble members have considered decision of ITAT Delhi in the case of M/s. General Steel Power Limited which is also located in the state of Chhattisgarh like the Plant of the assessee. The relevant parts of the decision in the Nalwa Steel (Supra) are as under : We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee is regularly claiming deduction u/s 80IA of the Act in respect of profits derived from the captive power plant/ undertaking. The assessee transfers the power for captive use as per the market rate/below on which CSEB selling the power which is @4.64 p.u. In the previous years the Revenue disputed CSEB rates consists @Rs.0.38 p.u. on account of electricity tax, cess and for which the transfer price or power price was adjusted to that extent by disallowing to that extent and for the remaining the assessee is entitled for

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transfer price by treating sale price of power transferred for captive use. The assessee filed appeal before the CIT (A) wherein the CIT (A) allowed the appeal of the assessee. Against the said order the Revenue 'filed appeal before the Tribunal wherein the Tribunal upheld the finding of CIT (A). The Ld. AR pointed out that as per the new Finance Act,2013 from A.Y. 2013- 14, the domestic transaction took place u/s 92C whereas the Assessing Officer adopted a figure that CSEB purchasing power @ 1.89 p.u.on the basis of the information gathered from the CSEB U/s 133(6). The TPO as not taken into consideration that there are criteria for purchase from State generating station when excess production are there. In such situation, the generating station are under obligation to sale the extra power at the lowest price & this lowest price cannot be considered as equivalent to the market rate as defined u/s 80IA(8) of the Income Tax Act, 1961. The matter further referred to the DR where the DRP adopted different approach i.e. the averaging of IEX rate but, the DRP has not given any reason for adopting the said rate. The Tribunal in assessee's own case held as under in A.Y. 2009-10: 59. We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the ITA No. 7176/Del/ 2011 various decisions cited before us. The only issue to be decided in the impugned ground is regarding the action of the Assessing Officer in excludingRs.0.2932/-per unit while computing the market price of power for the purposes of computing deduction admissible to power units u/s 80-1A of the IT. Act. We find the assessee in the instant case has sold the electricity to its captive plant at the rate of Rs.3.92 per unit i.e. rate at which CSEB was selling to industrial consumers as on 01.04.2008. The above rate -of Rs.3.92 included electricity duty at the rate of 8% of energy charges and cess ofRs.0.05 paise per unit. Since according to the Assessing Officer, the assessee has not been making actual sales to its other units because the power generated is const, led captively by other units. According to him, since the assessee is only generating power but it does not have the licence to distribute it, it cannot charge the electricity duty at the rate of 8% and cessO.05% on the transfer of power. Thus, according to him, the assessee has inflated the sale of power by Rs. 0.293 per unit and has accordingly inflated the deduction u/s 80IA by a sum of Rs.3.63 per unit. We find the Id. CIT (A)following various decisions including the decision of the Delhi Bench of the Tribunal in the case of Jindal Steel & Power Limited reported in (2007) 16SOT 509 decisions of the Mumbai Bench of the Tribunal in the case of D.C.WLtd. Vs. Addl. CIT (A) vide ITA Nos. 5560 & 5569/Mum/2008 deleted the addition made by the Assessing Officer . We do not find any infirmity in the order of the Ld.CIT(A) on this issue. 60. We find the Delhi Bench of the Tribunal in the case of Jindal Steel & Power Limited (supra) while deciding an identical issue has observed as under "3.6.1 Ground no. 6 of appeal is directed against rejections of the prevailing purchase price and adjustments made to the market price for the electricity

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thereby adding back the sum of Rs. 3,86,93,638/- as excess deduction u/s 80-1 A(8) claimed in its power plant. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee is regularly claiming deduction u/3 80IA of the Act in respect of profits derived from the captive power plant/ undertaking. The assessee transfers the power for captive use as per the market rate/below on which CSEB selling the power which is @4.64 p.u. In the previous years the Revenue disputed CSEB rates consists @Rs.0.38 p.u. on account of electricity tax, cess and for which the transfer price or power price was adjusted to that extent by disallowing to that extent and for the remaining the assessee is entitled for transfer price by treating sale price of power transferred for captive use. The assessee filed appeal before the C1T (A)wherein the CIT (A) allowed the appeal of the assessee. Against the said order the Revenue filed appeal before the Tribunal wherein the Tribunal upheld the finding of CIT (A). The Ld. AR pointed out that as per the new Finance Act,2013 from A.Y. 2013- 14, the domestic transaction took place u/s 92C-whereasthe Assessing Officer adopted a figure that CSEB purchasing power @ 1.89 p.u.on the basis of the information gathered from the CSEB U/s 133(6). The TPO has not taken into consideration that there are criteria for purchase from State generating station when excess production are there. In such situation, the generating station are under obligation to sale the extra power at the lowest pprice & this lowest price cannot be considered as equivalent to the market rate as define u/s 80IA(8) of the Income Tax Act, 1961. The matter further referred to the DRP where the DRP adopted different approach i.e. the averaging of lEX rate but, the DRP has not given any reason for adopting the said rate. The Tribunal in assessee's own case held as under in A.Y. 2009-10: 59. We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the \ 1 ITA No. 1116/De\/2Q 11 various decisions cited before us. The only issue to be decided in the impugned ground is regarding the action of the Assessing Officer in excluding Rs. 0.2932/-per unit while computing the market price of power for the purposes of computing deduction admissible to power units u/s 80-1A of the I. T. Act. We find the assessee in the instant case has sold the electricity to its captive plant at the rate of Rs.3.92 per unit i.e. rate at which CSEB was selling to industrial consumers as on 01.04.2008. The above rate of Rs.3.92included electricity duty at the rate of 8% of energy charges and cess of Rs.0.05 paise per unit. Since according to the Assessing Officer, the assessee has not been making actual sales to other units because the power generated is consumed captively by other units. According to him, since the assessee is only generating power but it does not have the licence to distribute it, it cannot charge the electricity duty at the rate of 8% and cess 0.05% on the transfer of power. Thus, according to him, the assessee has inflated the sale o fpower by Rs. 0.293 per unit and

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has accordingly inflated the deduction u/s 80IA by a sum of Rs.3.63 per unit. We find the Id. CIT (A) following various decisions including the decision of the Delhi Bench of the Tribunal in the case ofJindal Steel & Power Limited reported in (2007) 16 SOT 509 decisions of the Mumbai Bench of the Tribunal in the case of D.C.W Ltd. Vs. Addl. CIT(A) vide ITA Nos. 5560 & 5569/Mum/2008 deleted the addition made by the Assessing Officer . We do not find any infirmity in the order of the Ld. CIT(A) on this issue. 60. We find the Delhi Bench of the Tribunal in the case of Jindal Steel & Power Limited: (supra) while deciding an identical issue has observed as under"3.6.1 Ground no. 6 of appeal is directed against rejections of the prevailing purchase price and adjustments made to the market pr.ice for the electricity thereby adding back the sum of Rs. 3,86,93,638/- as excess deduction u/s 80-1 A (8) claimed in its power plant. In the present case, the power generated by the captive plants was consumed by the manufacturing units of the appellant at Raigarh. The appellant accounted for the revenue/profit on transfer of such power to its captive units at the rate of Rs. 3.92 per unit, which is the price charged by CSEB for supplying power 'to industrial consumers. This rate ofRs.3.92 charged b: the CSEB represents the market price. 3.6.4 It is also noteworthy that had the manufacturing units of the appellant purchased power from CSEB, then, the units would have paid Rs. 3.92 per unit. Therefore, for the manufacturing units, Rs.3.92 per units is the..purchase price, i.e. the price at which power is available in the open market. The composition of such market price, is not relevant for the purchaser of the power Insofar as the purchaser is concerned, what is only relevant is the purchase price, i.e. Rs.3.92 per unit, and not its composition. Therefore, whether Rs.3.92 per unit includes any government levies or not is totally irrelevant insofar as the purchaser is concerned. 3.6.5 In the case of Jindal Steel & Power Limited: (2007) 16 SOT 509, 14 ITA No. 7] 76/Del/2017 wherein, too, the assessee had adopted the price at which power is sold by the SEB as the transfer/ market price power. Hon'ble ITAT Delhi, while approving the profits so computed by the assessee, observe as under: Having held so, the natural corollary is to ascertain whether the price reordered by the assessee at Rs. 3.72 per unit can be considered to be the market value for the purposes 0 Section 80-IA(8) of the Act. The answer, to our mind is in the affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Boar, and the Board supplies such power at the rate of Rs. 3.72 per unit to its consumers. This is the price at which the consumers are able to procure the power. We may consider hypothetical situation as well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it

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would have supplied power the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of Rs.3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of powers/or, captive consumption at the rate of Rs. 3. 72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside, order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under Section 80-IAas claimed. Assessee succeeds on this ground. Having held so, the natural corollary is to ascertain whether the price recorded by the assessee at Rs. 3.72 per unit can be considered to be the market value for the purposes 0 Section 80-1 A (8) of the Act. The answer, to our mind is in the affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Boar, and the Board supplies such power at the rale of Rs. 3.72 per unit to its consumers. This is the price at which the consumers are able to procure the power. We may consider hypothetical situation as well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it would have supplied power of the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of Rs. 3. 72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of power for captive consumption at the rate of Rs.3. 72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under Section 80IA as claimed. Assessee succeeds on this ground. On similar facts ITAT Raipur is also of the same view in the case of M/s. Hira Ferro Alloys Limited 52 CCH 665, M/s. Godavari Power and Ispat Limited 133 ITAT 502 and in the assessee's own case for assessment year 2008-09. ITA 159/BLPR/2011. Further the jurisdictional High Court in the case of M/s. Godavari Power and Ispat Limited Tax case no. 31,32,34/2012 has confirmed the decision of the ITAT Raipur. In view of the fact that the decision on the same issue by jurisdictional ITAT is in favour of the assessee, the addition is hereby deleted and the appeal is allowed.

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We observe that the Hon’ble Supreme Court on March 08, 2021 vide its suo-motto order had initially excluded the period from March 15, 2020 till March 14, 2021 for calculating the period of limitation. Further, the Hon’ble Supreme Court had thereafter vide its order dated April, 27, 2021 restored its earlier order dated March 08, 2021, and it was therein provided that the period of limitation w.e.f. March 15, 2020 would stand extended till further order. On the basis of the aforesaid facts, considering that the present appeal filed by the department had been filed within the prescribed time limit, we admit the same.

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“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

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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., 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. 29. 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. 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. 31. 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. 32. 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. 33. 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. 34. 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. 35. 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.

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Also, we find that the aforesaid order of the ITAT in the case of Mahendra Sponge and Power Ltd, ITA No. 159/Blpr/2011 dated 19.06.2015 for AY 2008-09 had thereafter been upheld by the Hon’ble High Court of Chhattisgarh vide its order passed in tax case (Income tax Appeal) No. 8 of 2016, dated 19.02.2016.

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Order pronounced in open court on 28th day of April, 2023.

Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 28th April, 2023 Thirumalesh/ SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The Pr. CIT, Raipur-II (C.G) 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.