M/s Nectar Lifescience Ltd., Chandigarh V. DCIT, C-1(1), Chandigarh

ITA 1497/CHANDI/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8690 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 21-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: YOGESH MONGA
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 92C; 143(3); 92F; 133(6); 80IA; 64; 20

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “बी” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH (VIRTUAL COURT) ी एन.के .सैनी, उपा य! एवं ी स ु धांश ु ीवा&तव, या(यक सद&य BEFORE: SHRI. N.K.SAINI, VP & SHRI. SUDHANSHU SRIVASTAVA, JM ITA NO. 1497/Chd/2019 Assessment Year : 2015-16 Nectar Lifesciences Limited SCO 38-39, Sector 9D Chandigarh-160009 The DCIT, Circle-1(1) Chandigarh Ayakar Bhawan, Sector-17, Chandigarh 160017 PAN NO: AABCS6468G Appellant Respondent ! " Assessee by : Shri Yogesh Monga, CA # ! " Revenue by : Shri Sarabjeet Singh, CIT, DR $ % ! & Date of Hearing : 09/02/2022 '()* ! & Date of Pronouncement : 17/02/2022 आदेश/Order PER N.K. SAINI, VICE PRESIDENT This is an appeal by the Assessee against the order of the A.O. dt. 30/09/2019 passed under section 144C(13) r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) in pursuance to the direction given by the Dispute Resolution Panel-1 under section 144C(5) of the Act vide order dt. 25/07/2019. . 2. Following grounds have been raised in this appeal: 1. GENERAL GROUNDS 1.1 The assessment order passed by the Ld. AO in pursuance to the directions issued by the Hon'ble Dispute Resolution Panel ("DRP") is a vitiated order as the Hon'ble DRP erred both on facts and in law in confirming additions made by the Ld. AO/Ld. Transfer Pricing Officer ("TPO") to the Appellant's income by issuing an order without appreciation of facts and law. 2. Power Unit The Ld. AO/TPO erred on facts and in law in determining the arm's length price ("ALP") of the Assessee's Specified Domestic transactions pertaining to transfer of power units from eligible to non-eligible units at Rs. 5.2145/ unit as against Rs. 6.72/ unit and in doing so have grossly 2 2.1 erred in making addition of Rs. 6,95,84,383 on account of transfer of power units by taking power unit rate of Rs. 5.2145 (average of Rs. 6.93/ unit, tariff fixed by Punjab State Electricity Regulatory Commission for Biomass Gasifier Power Plants and Rs. 3.499/ unit, the average rate of power traded at Indian Energy Exchange), despite that fact that the assessee had Biomass Steam based Power plants and also the assessee could not have sold power units on Indian Energy Exchange due to statutory or regulatory restrictions and there was no evidence of actual delivery/supply of power traded at energy exchange by husk based power plant companies based in Punjab or anywhere in India. 2.2 erred in ignoring provisions of Income Tax Act and various ITAT/ High Court judgments regarding "Market Value" in relation to any goods or services being sold or supplied, which states that either sale price of electricity board or purchase price of electricity boards should be taken as a market value in the case of Captive Power Plants. 3. STEAM The Ld. AO/TPO erred on facts and in law in determining the arm's length price ("ALP") of the Assessee's Specified Domestic transactions pertaining to transfer of steam from eligible to non-eligible units at Rs. 1655.46/ MT as against Rs. 2160.00/ MT and in doing so have grossly 3.1 erred in making addition of Rs. 17,26,84,710 on transfer of steam by ignoring all the 5 transfer pricing methods provided in the Income Tax Act to arrive at Arm's Length Price and allowing transfer of steam from eligible unit to non-eligible unit at COSt. There are number of IT AT/ High Court/ Supreme Court judgments which have held that profit on transfer of steam is eligible for deduction u/s 80-IA of the Income Tax Act 1961. Had the Arm's Length Price of the steam is to be considered at the cost of generation of steam, there would have been no need of any judgment on this issue. 3.2 also erred in making addition of Rs. 17,26,84,710 on transfer of steam as against deduction of Rs. 14,40,12,290 claimed by the assessee u/s 80-IA for transfer of steam. 4 44 4. .. . That the Ld. AO/TPO erred on facts and in law in initiating penalty proceedings u/s 271(l)(c) of the Income Tax Act 1961 despite the fact that complete information was disclosed and nothing was concealed. 5. The assessee craves leave to alter, amend or withdraw all or any of the objections herein or at any further grounds as may be considered necessary and to submit such statement/documents and papers as may be considered necessary either before or during the hearing. 3. Ground Nos. 1 & 5 are general in nature while Ground No. 4 is prematurely raised so these grounds do not require any comment on our part. 3 4. Vide Ground No. 2 to 2.2 the grievance of the assessee relates to the addition of Rs. 6,95,84,383/- on account of transfer of power units and vide Ground No. 3 to 3.2 the grievance of the assessee relates to the addition of Rs. 17,26,84,710/- on account of transfer of steam from eligible unit to non eligible unit. 5. Facts of the case in brief are that the assessee company is engaged in the business of manufacturing and delivery of high quality pharmaceutical products and research in health sector. It requires high volume of electricity and power steam for heating, cooling, controlling the humidity and chemical reactions. The assessee had set up two electricity power plant of 6 MW each in Dera Bassi (Punjab) for fulfilling its captive needs. The said plants generating both electricity and steam aiding in the manufacturing process. The electricity produced by the said power plants was partly consumed for running the said plants and the remaining was distributed for carrying out the operation of the assessee company, i.e; manufacture of pharmaceutical products. A part of the steam generated during the process was also distributed for captive consumption as it acts as an inseparable part of the manufacturing process. The assesse worked out the rate per unit of electricity generated at Rs. 6.72 per unit on the basis of CUP (Comparable Uncontrolled Price Method) in the following manner : Details of Electricity units generated and distributed to Manufacturing process Month Total Generation of Electricity Units Auxiliary Consumption Units transferred to Manufacturing Processes Rate/ Unit Revenue Apr-14 3,900,800 932,400 2,968,400 6.72 19,947,648 May-14 3,901,000 981,900 2,919,100 6.72 19,616,352 Jun-14 4,215,000 1,033,100 3,181,900 6.72 21,382,368 Jul-14 5,200,500 1,091,500 4,109,000 6.72 27,612,480 Aug-14 5,798,300 1,085,700 4,712,600 6.72 31,668,672 Sep-14 5,568,500 1,109,900 4,458,600 6.72 29,961,792 Oct-14 4,966,600 1,033,500 3.933.100 6.72 26,430,432 Nov-14 4,478,500 1,021,900 3,456,600 6.72 23,228,352 4 For the purpose of calculating the profitability of Power Plants, company has considered electricity unit rate of Rs. 6.72 (same as in previous FY 13- 14) which is less than the purchase unit rate of Rs. 6.95 as fixed by Punjab State Electricity Regulatory Commission, sale unit rate of Rs. 7.15 as charged by Punjab State Power Corporation Limited from industrial undertakings in Punjab and unit rate of Rs. 7.48 actually paid by the company to Punjab State Power Corporation Limited. Therefore, electricity unit rate of Rs. 6.72 is to be treated as Arm's Length Price. 5.1 The A.O. made a reference under section 92C of the Act to the TPO for determining the arms length price in respect of specific domestic transaction undertaken by the assessee. The TPO after examining the transfer pricing adjustment and analyzing the specific domestic transaction with associated enterprises, proceeded to bench mark the power from eligible unit to non eligible unit specifically supply of electricity and steam. As per the TP study report the assessee had shown transfer of power from eligible unit to non eligible unit of Rs. 312,676,063/-. The TPO noted that the assessee had shown the price of electricity power at Rs. 6.72 per unit as against the average rate of power traded for Punjab region, ascertained from the website of the Indian Energy Exchange (IEX) at Rs. 3.499 per unit. The TPO required the assessee to show cause as to why external cup method shall not be applied and the sale rate of power shall not be taken at Rs. 3.499 per unit instead of Rs. 6.72 per unit shown by the assessee. In response the assessee furnished the written submission dt. 15/10/2018 which has been reproduced by the TPO in para 6 of his order, for the cost of repetition the same is not reproduced herein. The TPO proposed the adjustment of Rs. 7,00,49,674/- by observing in para 7.12 to 7.22 of his order as under: Dec-14 5,410,100 1,032.300 4,377,800 6.72 29,418,816 Jan-15 5,469,000 1,017,500 4,451,500 6.72 29,914,080 Feb-15 4,737,100 969.100 3,768,000 6.72 25,320,960 Mar-15 5,276,100 1,083,524 4.192.576 6.72 28,174,111 Total 58,921,500 12,392,324 46,529,176 312,676,063 5 7.12 The assessee has submitted that they have computed the sale of power at the rates at which the Punjab State Electricity Board is supplying electricity to them/ others. The contention of assessee is not acceptable, there are prescribed methods under transfer pricing guidelines which has to be followed while benchmarking any of the transaction. The methods prescribed under the Income-tax Act, 1961 are as unden- 1. Comparable Uncontrolled Price Method 2. Transactional Net Margin Method 3. Resale Price Method 4. Cost Plus Method 5. Profit Split Method and 6. Any Other Method prescribed by the Board. 7.13 The assessee has submitted that they have applied CUP method for benchmarking the transaction. Now the issue arises is that whether the assessee has applied correct CUP or not. On verification of the facts it is found that the assessee has applied wrong CUP. The assessee has applied CUP taking base rates for purchase of power. The correct CUP in this case is taking rates for sale of power. It may be mentioned that purchase price of electricity and sale price of electricity are different. The assessee has assumed value which was beneficial co them, but forget that it was not the correct price. The sale rate is much lower than the purchase rates. 7.14 It may be mentioned that sale rates of producers cannot be equated with the purchase rate of end users. The purchase rate of end user contains many factors which increases the rate. 7.15 In this case the infrastructure facility for transmission of power to different customers were not owned by the assessee, the transmission lines are owned by the SEBs. The power is transmitted to grids by the State Discoms through the transmission lines owned by the Electric Supply companies. From Grids the power is transmitted to Substations through transmission lines owned by the Electric Supply companies. From sub stations the power is supplied to end user. The sale rate of power to end user includes:- • Cost of transmission lines from assessee's metering point to Grid. • Cost of transmission lines from Grid to sub-stations and • Cost of transmission lines from sub-station to end user • Downgrading and upgrading cost. It may be mentioned that for transmission of power from one point to another the voltage is upgraded to very high level i.e. upto 33000 KV and power is lowered that is minimum ampere, for this process high capacity transformers are used. Thereafter the power is routed through various sub-stations to maintain voltage at desired level. For transmitting power to end user the voltage is lowered and ampere is increased. These process involves substantial cost. • It may be mentioned that the process of transmission results in transmission loss. Transmission loss cost is substantial. « HR cost for all thsse process. • Last but not the least, maintenance cost in case of breakdowns. 6 7.16 Therefore, it may be seen that the purchase prices of State Electricity Boards is much less and the sale rate is higher due to these overhead expenses. The assessee has thus applied wrong CUP by taking purchase rate of end customer i.e. sale rate of SEBs as sale rates for their power producing units. 7.17 On the basis of above discussion it is seen that the assessee has not applied correct CUP, correct internal CUP available in this case is rate at which any independent party would have sold power to other independent party. Since the assessee has not sold power to any third party therefore, the sale rate caanot be arrived at. However, a notice u/s 133(6) was issued to Indian Energy Exchange, which is the largest exchange to trade power to ascertain average price of power traded at that exchange. In response to this the IEX has submitted day to day average rate is Rs.3.499 per unit. It can be seen that average rate of power traded at IEX during F.Y.-2014-15 was Rs.3.499 per unit. It may be mentioned that trading rates at registered Exchanges can be taken as basis to draw comparability. Therefore, these rates are taken as basis for taking comparable rates. The assessee has shown sale rate at Rs.6.72 per unit by applying wrong CUP. Therefore, proper CUP is applied and rate of sale of power is taken at Rs. 3.499. 7.18 Therefore, it is seen that the units which are not used for captive consumption are calculating their profit at actual rate i.e. purchase rate of different parties but where the power is used captively the sale rate is taken as sale rate of SEBs. Thus the assessee itself is applying two methods for calculating profits of its different units. 7.19 Assessee's submission has been considered by the TPO, The assessee has compared sale of Punjab State Power Corporation with assessee's sale rate. It may be mentioned that both have different functions and cannot be compared. Punjab State Power Corporation is a trader where as the assessee is a producer, therefore, functionally they are different. Sale price of Punjab State Power Corporation, Trader, cannot be compared with assessee, manufacturer. 7.20 As far as assessee's contention that power generated by Bio Gasifier plants are not traded at IEX is concerned, it may be mentioned that IEX has not specified nature of power generator. It is rate of power and specifically based on fuel. Power was traded at IEX for Punjab region at Rs.3.499, therefore, it can be taken as a rate for determining average sale rate. 7.21 The assessee submitted that Punjab State Electricity Regulatory Commission has fixed tariff of Rs.6.72 per unit for Biogas Gasifier Power Projects. Contention of assessee is considered, it was found that Net Applicable Tariff Rate upon adjusting for Accelerated Depreciation benefit rate fixed by PSERC was Rs.6.93 per unit. It is further seen that this was generic tariff for RE technologies for F.Y.-2014-15. There are various other variable factors which have to be considered while deciding final tariff, these factors are- Plant Load Factor and number of operating days for Non-fossil fuel based Co-generation: fuel cost and return on equity. Since PSERC has not fixed tariff for assessee's unit, therefore, it cannot be presumed that these factors have been considered while deciding tariff of Rs.6.93 per unit. Under these circumstances solely Generic Tariff cannot be 7 taken as base for determining CUP. However it can be taken as a base to some extent. Therefore, the rates of power traded at IEX and generic rates decided by PSERC can be taken as base for comparability under CUP. With above discussion average of generic tariff and power traded at IEX is taken as comparable price. Thus Rs. 5.2145 per unit is taken as comparable price for calculating ALP under CUP. 7.22 With this remark, external CUP is applied in this case taking assessee as the tested party and arm's Length Rate is applied at Rs.5.2145 per Kwh, Adjustment as per ALP:- Name of power generating unit Captive consumption by assessee Value considering ALP of Rs.5.2145 Per unit Difference between value shown by assessee and ALP Units consumed Notional value shown by assessee (in Rs.) Rate per unit (Notional) (in Rs.) Power plant 46529176 31,26,76,063 6.72 24,26,26,388 7,00,49,674 On the basis of above discussion, an adjustment of Rs. 7,00,49,674/- is hereby made to the purchase price of power by the non-eligible units front captive power plants. 5.2 During the year under consideration the assessee’s power plant generated and transferred steam to generate electricity units and to manufacturing processes of various pharmaceutical and phyto-chemical products. The assessee submitted before the T.P.O as under: Month Total Steam Generated (MT) Steam used for Generation of Electricity Units (MT) Steam transferred to Manufacturing Processes (MT) Rate/ MT Revenue Apr-14 38,366 12.404 25,962 2,160 56,077,920 May-14 38,377 12,410 25,967 2,160 56,088,720 Jun-14 46,502 14,444 32,058 2,160 69,245,280 Jul-14 41,185 12,235 28,950 2,160 62,532,000 Aug-14 44,018 13,752 30,266 2,160 65,374,560 Sep-14 42,793 13,371 29,422 2,160 63,551,520 Oct-14 39,511 9,698 29,813 2,160 64,396,080 Nov-14 38,211 10.648 27,563 2,160 59,536,080 Dec-14 43,663 13.060 30,603 2,160 66,102,480 Jan-15 43,579 14.287 29,292 2,160 63,270,720 Feb-15 42.860 12.333 30,527 2,160 65,938,320 Mar-15 42,160 13.725 28,435 2,160 61,419,600 Total 501,225 152,367 348,858 753,533,280 8 The company has used "Comparable Uncontrolled Price Method" to arrive at the Arm's Length Price as per details below: - • 152,367 MT of steam has been used for generation of 58,921,500 electricity units, i.e. 1 MT of steam generates about 386.71 electricity units. Hence various steam transfer rates are calculated as under S. No. Particulars Rate/ Ml 1. On the basis of average electricity unit rate fixed by Punjab State Electricity Regulatory Commission for FY 2014-15 for Biomass based Power Projects. (Rs.6.95 386.71 Units) Rs. 2,687.63 2. On the basis of average electricity unit rate actually paid by the assessee company during FY 2014-15. (Rs.7.48X 386.71) Rs. 2,892.59 J. On the basis of electricity unit rate charged by Punjab State Power Corporation Limited (PSPCL) for FY 2014-15. (Rs.7.15 X386.71; Rs. 2,764.68 For the purpose of calculating the profitability of Power Plants, company has considered steam rate of Rs. 2,160/ MT (same as in previous FY 13-14) which is less than all the three rates above. Therefore, Steam rate of Rs. 2,160/ MT can be treated as Arm's Length Price. 5.3 As regard to bench marking of transfer of steam from captive power plant to non eligible unit, the TPO noted that the assessee for the purpose of calculating the profitability of power plant has considered steam rate of Rs. 2160 per MT and claimed the same to be at arms length price. The submission of the assessee are reproduced by the TPO at para 9 of his order, for the cost of repetition the same is not reproduced herein. The TPO did not find merit in the submissions of the assessee and proposed the adjustment of Rs. 753,533,280/- by observing in para 9.1 to 9.17 of his order as under: 9.1 The reply of the assessee has been considered and is not found to be acceptable. 9.2 In the separate audited financials of the eligible unit- New power plant, the assessee is showing revenue from sale of steam of Rs 75.35 Crore. The revenue 9 from sale of electricity (pre adjustment) is only Rs 17.66 Crore. Thus out of total revenue of Rs 106.20 Crore, sale of steam constitutes more than 76% of the total and sale of electricity is only 24% of the total. Since the primary activity of the power plant is captive generation of electricity, this is a scenario in which the residual by-product is being priced 3.2 times the cost of the main activity. Thus all in all, the assessee is claiming that residual heat from steam is more valuable to the assessee than the main function - i.e. electricity. 9.3 Considering the fact that the assessee is running a biomass based power plants which typically have a cost of Rs 3.5 - 4 per KwH of electricity (as per Ministry of New and Renewable Energy) and the steam turbines in these plants have an overall efficiency of around 80-90% - it is not possible for the value of steam to be 3.2 times that of electricity and for the profit margins of the plant to be 54,9%. 9.4 Further, as per the MNRE website FAQ's, it is mentioned that "The economic viability for the capacity below 6 MW is not sustainable." In the assessee's case the size of the power plant is 6MW, it is impossible that a size of plant just on the threshold of economic viability, in the initial years of its operation would have a return of 54.9% on its costs overall during the year in the New Power Plant and a return of 30.49% on its costs in the Old Power Plant. Check the benchmarking applied by the assessee first 9.5 As per the submission of the assessee, internal CUP/CPM for benchmarking the sale of steam has been used, but adequate/sufficient data has not been furnished to substantiate the ALP of the transaction. 9.6 To apply Cost Plus Method, we first have to find the Gross Margin on costs of the segmental on steam of the Captive Power Plant Unit. On perusal of the segmentals prepared by you to divide the profitability of the plant on electricity and steam components, the same appear to be without basis and prepared on the basis of assumptions only. The wastage on exhaust, friction etc. have not been attributed to the power and steam segments and the costs of condenser steam has also not been attributed between the two. Thus these segmentals cannot be accepted. 9.7 The assessee was required to submit "Statement of Cost of Production of steam manufactured during the period 01-04-2014 to 31-03-2015" in accordance with the Cost Accounting Standard- 4 (CAS-4) issued by the Council of the Institute of Cost and Works Accountants of India on "Cost of Production for Captive Consumption". Since, Statement of cost of production of steam manufactured during the period 01-04-2014 to 31.03.2015 is based on assumption provided by management, it does not stand the test of authenticity. The details of actual production and transfer value of steam during the year, the same are only based on assumptions, surmises and conjectures based on average calorific value of biomass, assumed costs etc. 9.8 Also, while applying CPM no market comparables have been identified by the assessee in the Transfer Pricing Study. On the basis of the above observations, the transfer pricing study report regarding steam is proposed to be rejected and 10 the benchmarking done by the assessee cannot be accepted. A search process was undertaken on Prowess Database to identify companies in the business of selling steam to third parties. However, no external companies could be identified. 9.9 The formulas used by the assessee is based on the assumption that the quantity of steam would be as per the quantity of heat produced by burning biomass. From this total heat quantity, a certain estimated percentage of heat in conduction losses and the heat utilized in Power generation has been subtracted. The remaining amount has simply been attributed as the heat transferred to the production process. This approach is not acceptable. Further losses after extraction of steam from the turbine to the point where it is actually a part of the production process has not been taken into account. Thus it is not possible to accurately determine the number of units of steam transferred to the production process. 9.10 Notwithstanding the above, the assessee has estimated the price per unit of steam on the basis of the price required to produce the same amount of calorific value. This formula will only work when the exact temperature and weight of steam transferred could be ascertained by the assessee. As has been established previously, the methodology used by the assessee is inadequate to quantify the same. 9.11 Since the data that the assessee has supplied cannot be relied upon, further it is seen that the entire costs of the power plant are being attributed to the primary activity i.e. generation of electricity. In this regard no definite cost of production can be attributed to the generation of steam. It is also pertinent to note that the absence of independent comparables clearly shows that the profitability of production of steam independently cannot be established. 9.12 On the basis of the above discussion, the Arms Length Price of Steam is being benchmarked at "Nil" since no accurate data regarding the costs has been furnished, no accurate data regarding the amount of steam transferred has been furnished thus no costs can be attributed to the production of steam and the entire costs are being attributed to the main activity. 9.13 As per the settled Law the initial onus is on the assessee to show that the international transaction was at the arm's length. This is also a settled law that for this purpose the assessee has to select the most appropriate method. This view has been propounded in several judicial decisions [e.g. Aztech Software Technology, ITAT, Bangalore 294 ITR (AT)(32); Maruti Suzuki India Ltd (Delhi High Court) (2010-TII-01-DEL-TP); Cherokee India Pvt.Ltd,ITAT, Mumhai(2011-TIM03-ITAT- Mum-TP), etc]. Further, if the assessee does not benchmark the transaction by following the most appropriate method the TPO has power to adopt the most appropriate method (refer Serdia Pharmaceuticals(2011-TII-02- 1TAT-MUM-TP) , Cherokee India, Aztech Software, etc). 9.14 As held by the ITAT in the case of Aztech Software (supra), it is the duty of the taxpayer to furnish complete information not only about the transactions entered into by it with the AE but also about the comparables cases as the 11 assessee is in that field and has knowledge about the comparables also. The ITAT further held that if the taxpayer does not furnish such information the TPO would be justified in determining the arm's length price on the basis of the information available with him. For some of the questions the taxpayer has simply stated that it is no privy to the information related to the AE. As held by the ITAT, Mumbai in the case of UCB India (2009-TII-02-ITAT-Mum-TP), it is the duty of the AE to furnish requisite information to the taxpayer if it wants to help the assessee in its tax matters. If the AE does not provide the relevant information then it is not for the revenue to conclude in subsidiary's favour. 9.15 On examining the process of power generation it can be seen that the Gasifier were not installed for steam production but for power generation. The unutilized part is only used for other purpose, as such entire cost is for power generation and being bye-product steam do not have any cost. 9.16 It may be mentioned that no where in the TP report the assessee has given CUP details of steam. Even during the TP audit the assessee submitted detail of steam pricing, but it was for power generation and not for entire steam. Therefore, the MAM applied by the assessee is rejected and Cost Plus Method is applied to benchmark the transaction. The assessee has submitted steam cost certificate and cost of steam segmental in its financial statements. The certificate issued by cost engineer on the basis of data provided by management only assumptions basis. However, on functional analysis of activity regarding production of steam it was found that the steam was produced as a result of burning of fuel in boiler. This steam is used for generation of electricity. Thus the cost of electricity absorbs entire cost of production of steam. Thus the resultant cost of excess steam is NIL. 9.17 It may be mentioned that steam is only a bye-product of the process of manufacturing power and It bears no cost. In case it was not utilized the same would have been wasted. The cost of steam is thus NIL. Since cost of steam is already considered while generating power therefore, the resultant cost is NIL, therefore no mark up has to be added for transferring the same to the non- exempt unit. In such eventuality arm's length price of steam is taken at NIL, resulting in adjustment of Rs.75,35,33,280/-. [Adjustment Rs.75,35,33,280 /-] 5.4 Thereafter the A.O. passed the draft assessment order dt. 28/12/2018 and proposed the addition of Rs. 82,35,82,954/- (Rs. 7,00,49,674/- + Rs. 75,35,33,280/-). 5.5 The assessee filed objections before the Dispute Resolution Panel (DRP) wherein the directions were given under section 144C(5) of the Act by following the earlier order for the A.Y. 2014-15. The objections raised by the assessee were 12 rejected, the relevant findings are given by the Ld. DRP in para 2.2.4 to 2.2.5 of the order dt. 25/07/2019 which read as under: 2.2.4 In our Directions for AY 2014-15 (supra) the DRP have observed and directed as under: "2.2.2 We have considered the submissions of the assessee and the TP order. We have also considered the judgments relied upon by the assessee. The various judgments referred to by the assessee have held that in terms of the provisions of sub-section (8) of s. 80IA of the Act the 'market value' referred to in the Explanation below the sub-section (8) should be taken as the rate, in this case the rate of power, to a consumer in the open market and not the rate at which power is sold to supplier. Thus, unambiguously it is held in these judgments that the rate at which the supplier sells in the open market should be considered for benchmarking the transactions. Therefore, the rate at which IEX or the Electricity Boards sells power to the consumer are para materia for determining the ALP of the impugned transactions. IEX is the central exchange which buys power from various producers of power irrespective of the sources material from which power is produced, and sells power to the consumer as per their demand. If the IEX sells power to consumers at lower price, any consumer would prefer to purchase power from IEX, or any other supplier of power, and certainly not from a supplier who sells power at high cost. 2.2.3 The assessee has submitted that the power provided by PSERC to the assessee, as per the electricity bills during the year in the name of the assessee for industrial connection, filed at pages-174 to 197 of the paper book, is @ Rs. 7.15 per unit and therefore the assessee, for cost saving, setup power plants for producing power from bio-mass fuel and the assessee said power to its non-eligible units @ the rate Rs. 6.72 per unit. No doubt, assessee did save cost in this manner, if compared to the rate of PSERC, but with substantial cost of investment and in view of the fact that the assessee is claiming deduction u/s 80IA of the Act in respect of the profits for the units producing power, the cost of transfer of power to other non-eligible unit is liable to be benchmarked within the meaning of sub-section (8) of s. 80IA and s. 92F of the Act. Under the facts and circumstances of the case, application of external CUP, as done by the TPO, was the only method which could be considered for determining the ALP of the power transferred to non-eligible units. The TPO has observed that the units which are not used for captive consumption are calculating their profit at actual rate, i.e. purchase rate of different parties, but where the power is used captively the sale rate is taken as sale rate of SEBs, and that Punjab State Power Corporation is a trader whereas the assessee is a producer and therefore functionally they are different. The TPO therefore adopted the average price of power traded at Indian Energy Exchange [IEX] of Rs.2.82 and the Net Applicable Tariff by Punjab State ESecfriaty Regulatory Commission of Rs 6.40. 2.2.4.1 There is no reason to differ from the earlier directions of DRP. The adjustment made by the TPO by taking the average of the rates of IEX and rate 13 specified by Punjab State Electricity Regulatory Commission is upheld so however that the rate of Rs 6.95 per unit for biomass steam plant should be adopted. 2.2.5 These objections are decided as above. 5.6 After the direction of the Ld. DRP the A.O. passed the assessment order dt. 30/09/2019 and made the addition of Rs. 6,95,84,383/- on account of transfer of power by observing in para 2.4 of the assessment order dt. 30/09/2019 which read as under: “2.4 In compliance of the directions of Hon'ble DRP u/s 144C(5) of Income Tax Act dated 25/07/2019, the concerned Transfer Pricing officer-1(3)(2), New Delhi passed an order dated 19.09.2019 giving effect to directions of Hon'ble DRP by revising the TP adjustment to Rs. 24,22,69,093/- against the earlier adjustment of Rs. 82,35,82,954/-. The relevant portion of the TP adjustment made by the ACIT, Transfer Pricing Officer-1(3)(2), New Delhi is reproduced as under: “Adjustment on account of transfer of Power:- On this ground the Hon'ble DRP observed that the adjustment made by the TPO by taking the average of the rate of IEX and rate specified by Punjab State Electricity Regulatory Commission is upheld so however that the rate of Rs. 6.95 per unit for biomass steam plant should be adopted. Accordingly the revised adjustment on account of transfer of power is recomputed as under:- Adjustment as per directions of Hon'ble DRP:- Name of power generating unit Captive consumption by assessee Value considering ALP of Rs. 5.2245 per unit Difference between value shown by assessee and ALP Units consumed National value shown by assessee (in Rs.) Rate per unit (National in Rs.) Power Plant 46529176 31,26,76,063 6.72 24,30,91,680 6,95,84,383 6. Now the assessee is in appeal. 7. Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that an identical issue having similar 14 facts was a subject matter of the assessee’s appeal in ITA No. 567/Del/2019 for the A.Y. 2013-14 before the ITAT Delhi Bench “I-1”, New Delhi wherein vide order dt. 13/09/2021 the issue has been decided in favour of the assessee and against the Department, copy of the said order was furnished which is placed on record. 8. The Ld. CIT DR in his rival submissions reiterated the observations made by the TPO, DRP and the A.O. in their respective orders and further submitted that the facts for the year under consideration are different from the earlier years. It was stated that the TPO liberally applied the rate for power transmission and that the State rates are not applicable when National Exchange Rates were available which are more reliable. Therefore the TPO rightly adopted the rate at Rs. 5.2145 per unit on the basis of comparable cost and calculated the difference at arms length price. He strongly supported the orders of the authorities below. 8.1 We have considered the submissions of both the parties and perused the material available on the record. In our opinion the facts of the issue under consideration are identical to the facts involved for the A.Y. 2013-14 in ITA No. 567/Del/2019, in assessee’s own case. So respectfully following the aforesaid decision dt. 13/09/2021 of the Coordinate Bench this issue is decided in favour of the assessee. The relevant findings have been given in para 17 to 20 of the said order which read as under: 17. After considering the aforesaid submissions and the facts and material discussed in the impugned order, we find that the Transfer Pricing Adjustment of the specified domestic transaction has been with regard to sale of electricity units to the other unit for manufacturing process of pharma and phyto-chemical products. 18. In so far as sale of electricity unit from eligible unit to other manufacturing units, it is seen that, assessee had sold the electricity @ 6.72 per unit. Ld. TPO has rejected the assessee’s method of benchmarking at the said rate by holding that average sale rate as per Indian Energy Exchange is much lower, i.e., 2.81909 per unit as against sale made by the assessee of Rs.6.72 per unit. He has incorporated 15 the detail obtained by him u/s. 133(6) from IEX which gives the average price of power trade in the exchange. From the submissions made before us as well as before the authorities below, the assessee’s main contention has been that the rates of IEX cannot be applied, because, firstly, there was no trade of Biomass based power plant in Punjab; and secondly, there was no actual delivery of electricity unit in this year. The other reason given has been highlighted in paragraph 9. 19. Here, in this case, what needs to be benchmarked for is, whether the sale of electricity unit rate by the eligible unit to its non eligible unit is as per the market rate or not i.e., whether it is an Arms’ Length Price. The external CUP has been adopted by taking the rate of charged by Punjab State Power Corporation Ltd. which has been charging sale unit rate of Rs. 7.15 from industrial undertaking in Punjab. Another reason to justify this CUP was that Assessee Company itself has paid for its own consumption at unit rate at Rs.7.57 per unit to Punjab State Power Corporation. To justify the sale rate to its other unit, the assessee-company has taken average per unit rate of Rs.6.24 fixed by Punjab State Electricity Commission and unit sale rate of Rs. 7.15 charged by Punjab Stated Corporation Ltd. Thus, it was stated that if these two rates are compared, then the assessee’s sale rate of Rs.6.72 per unit is definitely at Arm’s Length. What is also required to be seen here is, whether in the open market what is the rate of power or electricity is available to the consumer. If in open market the power is available to a customer from State Electricity Board at the rate charged by it then it is to be reckoned as market rate. Before us, following judicial pronouncements have been cited wherein sale rate or purchase rate of State Electricity Board has been accepted on market rate. a. High Court of Chhattisgarh in the case of Commissioner of Income Tax Raipur v/s M/s Godawari Power & Ispat Ltd. Raipur [2014] 42 taxmann.com 551 (Chhattisgarh) vide para 31 of its order held as under: - "The market value of the power supplied to the SteelDivision 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." b. High Court of Calcutta in the case of Commissioner of Income Tax Kolkata - III v/s ITC Ltd. [2015] 64 taxman.com 214 held as under: - Benefit under section 80-IA cannot be denied to assessee, merely because power generated by its power undertaking was consumed at home or by other business of assessee and was not sold to outsiders. Assessee's power generating unit could not as such claim any benefit under section 80-IA computed on basis of rates chargeable by distribution licensee from consumer and such benefit could only be claimed on basis of rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. c. Supreme Court of India in the case of ITC Limited v/s Commissioner of Income Tax Kolkata - III [2016] 74 taxman.com 244, has held as under 16 SLP granted against High Court's ruling that assessee's power generating unit could not as such claim any benefit under section 80-IA computed on basis of rates chargeable by distribution licensee from consumer and such benefit could only be claimed on basis of rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. d. High Court of Delhi in the case of Commissioner of Income Tax v/s Orient Abrasive Ltd. [2014] 271 CTR 626. 20. Once there was a direct internal CUP, i.e., the assessee company had purchased electricity from Punjab State Power Corporation at Rs.7.57, then it represents the market rate on which any industry undertaking or consumer is getting the electricity. Thus, we do not find any reason as to why such market rate or CUP should be rejected. Nowhere, it has been brought by the TPO as to why the average trading rate in Indian Energy Exchange should be applied as external CUP. Accordingly, we hold that the sale of electricity @ 6.72 per unit is at Arms’ Length and no adjustment is required in this segment/unit. 9. As regards to the another issue relating to the adjustment in the transfer of steam. 10. The Ld. Counsel for the Assessee submitted that an identical issue has already been decided by the ITAT Delhi Bench “I-1”, New Delhi in assessee’s own case in the aforesaid referred to order dt. 13/09/2021 in ITA No. 567/Del/2019 for the A.Y. 2013-14. 11. Ld. CIT DR in his rival submissions reiterated the observations made by the authorities below in their respective orders and submitted that the facts involved in the earlier year decided by the ITAT in assessee’s own case are different from the facts involved in the year under consideration. It was further submitted that for the year under consideration no mark up was to be added since it was without any basis and that there was shifting of profit by the assessee to the another unit to claim the deduction under section 80IA of the Act. The Ld. CIT DR strongly supported the direction given by the Ld. DRP. 12. After considering the submissions of both the parties and the material available on the record, it is noticed that the issue relating to the adjustment on account of transfer of steam was a subject matter of the assessee’s appeal before the ITAT “I-1” Bench, New Delhi in ITA No. 567/Del/2019 for the A.Y. 2013- 17 14. In the said year also the ITAT has considered the transfer pricing rate of Rs. 2160 per MT at arms length, the said cost has been taken by the assessee for the year under consideration, therefore, we have no reason to deviate from the view taken by the Coordinate Bench in assessee’s own case vide aforesaid referred to order dt. 13/09/2021 wherein the relevant findings have been given in para 21 to 23 of the said order which read as under: 21. In so far as adjustment in the transfer of steam, it is an undisputed fact that steam has been used for generation of electricity unit and for manufacturing process purely for captive consumption by the assessee, and therefore, it is fully eligible for deduction u/s.80IA. In the transfer pricing study report, the assessee had justified the price of transfer; firstly, by taking CUP in the manner specified hereinabove in paragraph 13. 22. Thereafter, the cost plus method was adopted and also the ld. TPO has required the assessee to furnish the cost of the steam produced. In response, the assessee has filed a report from approved senior chartered engineer who has given his report and the details of working. The ld. TPO without any cogent material or any expert report has rejected the working. Even if the cost plus method is adopted as held by the TPO, then how can he take the cost of steam at Nil and held that it is biomass which is byproduct therefore there is no cost. Such an observation of the TPO is de hors any proper reasoning because from a bare perusal of the calculation as given in the report as incorporated above in paragraph 14, we find that formula has been given as to how one ton rice husk has generated 3.96 MT of steam and also the basis for working of steam based on various factors including the steam from boiler sent to turbine at 100%. It has been demonstrated before the authorities below that the total steam generated in turbines was 232,688,432 M Kcal, out of which 46,526,053 M Kcal steam (20%) has been used for generating electricity units and balance (80%) steam was used for generating steam for transferring to manufacturing processes. Thus, there was a clearly cost for steam generation as per the report approved by chartered engineer and the steam unit taken for the purpose of captive power plant in profit ratio has been shown at 22.58%, and therefore, the transfer pricing of Rs. 2,160/- per MT was taken at Arms’ Length Price. The TPO has erroneously treated the assessee’s power plant as Biomass Gasifier Power Plant in which no steam is generated, instead of Biomass Steam Power Plants has wrongly came to conclusion that the cost of Steam generation is “Nil” as against Rs. 2160/ MT. Ld. TPO has failed to understand the operational working of Husk based power plants in which total expenditure is incurred first on generation of steam and thereafter part of steam is used for generation of electricity units and majority of steam is transferred to manufacturing processes of Pharma units of the assessee. 23. In any case, steam is a form of power eligible for deduction u/s.80IA and same cannot be denied by taking its steam cost at Nil. Further. He has grossly erred in ignoring the audited certificate by Senior Chartered Engineer who is an approved valuer by Income Tax Department and the Cost Accountant appointed by the Central Government without any accounts report, without any 18 agency or expert. Accordingly, for this unit also, we hold that no transfer pricing adjustment is required. 12.1 In view of the aforesaid discussion and by respectfully following the aforesaid referred to order dt. 13/09/2021 in ITA No. 567/Del/2019 in assessee’s own case for the A.Y. 2013-14 the impugned addition on account of adjustment in transfer of steam is deleted. 13. In the result, appeal of the assessee is allowed. (Order pronounced in the open Court on 17/02/2022 ) Sd/- Sd/- स ु धांश ु ीवा&तव एन.के .सैनी, (SUDHANSHU SRIVASTAVA) ( N.K. SAINI) या(यक सद&य/ JUDICIAL MEMBER उपा य! / VICE PRESIDENT AG Date: 17/02/2022 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar