Bharathi Cement Corporation Private limited, Hyderabad V. DCIT Circle-2(1), Hyderabad

ITA 159/Hyd/2022

AI Insights

The case involves Bharathi Cement Corporation Private Limited appealing against the order of the Deputy Commissioner of Income Tax, which had denied certain deductions under section 80-IA of the Income Tax Act, 1961, related to profits from its captive power plant. The primary contention was about the appropriate method and components to be considered in determining the ALP for the electricity supplied from the CPP to the cement manufacturing unit. The Tribunal examined the submissions, including various precedents and the specific provisions of the Electricity Act, 2003, and concluded that the rate charged by the Southern Power Distribution Company, which included all relevant charges, should be used to determine the ALP.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122322 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 13-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 03-05-2022
• Other Referred Cases: Gharda Chemicals Ltd vs DC1T, CIT vs Orient Abrasive Ltd, Star Paper Mills Limited Vs. DCIT, Circle \\u2013 4(2), Kolkata, Godawari Power & Ispat Ltd vs CIT, Gujarat Alkalis & Chemicals Ltd vs Pr. CIT, Kanoria Chemicals & Industries Ltd vs ACIT, Electrosteel Castings Ltd vs DCIT, Balrampur Chini Mills Ltd vs DCIT, M/s Kesoram Industries Limited vs DCIT, Reliance Infrastructure Ltd vs Addl. CIT, ITC Ltd vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S. KALYANASUNDARAM; MGVCL; DGVCL; ANDHRA PRADESH SOUTHERN POWER DISTRIBUTION CORPORATION LIMITED
• Keywords: Transfer pricing; Business expenditure; Question of law
• Section: 143(3); 142(1); 80IA; 144C; 143(2); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.159/Hyd/2022 Assessment Year: 2017-18 Bharathi Cement Corporation Private Limited, Hyderabad. PAN : AADCR3079G. Vs. Deputy Commissioner of Income Tax, Circle – 2(1), Hyderabad. (Appellant) (Respondent) Assessee by: Shri S. Kalyanasundaram, CA Revenue by: Shri Jeevan Lal Lavidiya, CIT-DR Date of hearing: 14.02.2023 Date of pronouncement: 17.02.2023 O R D E R Per Laliet Kumar, J.M. The appeal of the assessee for A.Y. 2017-18 arises from the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi’s order dated 26.03.2022 involving proceedings under section 143(3) r.w.s. 144C(13) read with section 144B of the Income Tax Act, 1961 (in short, “the Act”) raising the following grounds : 2 ITA No.159/Hyd/2022 “1. For that. in the facts and circumstances of the case, the order ("impugned order") of the Learned Assessing Officer, National Faceless Assessment Centre ("AO") and directions of the Hon'ble Dispute Resolution Panel-I, Bengaluru ("DRP") are erroneous in law and the additions upheld/claims denied deserve to be deleted. 2. For that, the AO and the DRP have erred in law by denying benefit amounting to INR 17,85,50,320 under section 80-IA of the Income Tax Act. 1961 ("Act") in respect of profits and gains made by its captive power plant. 3. For that, without prejudice to the above, the AO and the DRP have erred in law by applying a transfer price in respect of power generated by the captive power plant of the assessee to its cement manufacturing facility at a price that is not in accordance with the price charged by the Andhra Pradesh Southern Power Distribution Corporation Limited.” 3. The brief facts of the case are that the assessee is a company filed its return of income for the assessment year 2017-18 electronically on 30.11.2017 declaring total income of Rs.250,47,73,130/-. The return filed was taken up for scrutiny under CASS and subsequently notice u/s 143(2) of the Act was issued and served on the assessee. Notices u/s 142(1) of the Act along with detailed questionnaires were issued to the assessee to complete proceedings. The assessee had replied to the notice and submitted the information and documents electronically. Subsequently, this case was referred to the Transfer Pricing Officer (TPO) with the approval of the competent authorities. The TPO after considering the submissions of the assessee had passed an order u/s 144C r.w.s. 92CA(3) of the Act proposing transfer pricing adjustment at Rs.32,21,65,108/- to the Special Domestic Transactions (SDT). Total income of the assessee was computed as under : 3 ITA No.159/Hyd/2022 Income declared by the assessee in ITR 250,47,73,130/- Reduction in 80IA deduction on account of TP adjustments 32,21,65,108/- Total assessed Income 282,69,38,238/- Aggrieved with the draft assessment u/s 144C dt.17.04.2021 passed by the Assessing Officer after addition of TP adjustment of Rs.32,21,65,108/-, assessee filed objections before the Dispute Resolution Panel and the DRP vide order dt.28.01.2022 granted certain reliefs to the assessee. In view of the directions issued by Hon’ble DRP through order dt.28.01.2022 passed u/s 144C(5) of the Act and order giving effect by the TPO, the income of the assessee was recomputed u/s 143(3) r.w.s. 144C(13) of the Act as under : Income as per order u/s 144C dt.17.04.2021 282,69,38,238/- Less : Relief pronounced by the DRP vide order dt.28.01.2022 on account of TP adjustments 14,01,80,015/- Total assessed Income is reduced to 268,67,58,223/- Thus, final assessment was completed u/s 143(3) r.w.s. 144C(13) of the Act and total income was assessed at Rs.268,67,58,223/-. 4. Aggrieved with the final assessment order dt.26.03.2022, assessee is now in appeal before us. 4 ITA No.159/Hyd/2022 5. Before us Ld.AR for the assessee submitted that the only issue is whether the components like fixed demand charges, ToD charges, electric duty, and customer charge are to be considered when determining the Arms Length Price (ALP) or whether they are to be excluded. 6. Having considered the submissions of the assessee, the DRP has noticed that objections 1 and 2 raised pertain to two aspects. The DRP agreed with the view of the TPO and its observations pertaining to regarding Transfer Pricing and Bench marking of Electricity Unit received 171,683,000 units by CMU from the CPP, for which the CMU paid charges at the rate of 6.29 rupees per unit the finding was recorded by DRP in paragraphs 2.1.2 to 2.1.7 of its order which is to the following effect : “2.1.2 As regards determination of power tariff rate of electricity supplied by the assessee to the sister concern, we find that according to the TPO, the assessee arrived at the comparable unit rate of electricity at Rs. 6.29/- using CUP as MAM. According to TPO this rate includes demand charges, energy charges, fuel surcharge, peak hour charges, night unit charges and electricity duty (0.06paise) and this method is not correct to arrive at the ALP. The TPO also observed that the assesse did not make any adjustments to the uncontrolled price to account for the differences as mandated by sec 92(C) read with Rule 10B(1)(a). 2.1.3 We find that the AO was right in rejecting the CUP rate used by the assessee. The assessee has represented that the rate of Rs. 6.29 per unit charged by it is in line with the rate charged by southern power Distribution Company of AP Ltd for its industrial customers. In this connection, it is pertinent to note that the southern power distribution company of AP Ltd rate as submitted by the assessee is a composite rate, involving various duties and charges. In the submission made before DRP dated 12/01.2022 the assessee has submitted its computation of power transfer price as per the southern power Distribution Company of AP Ltd tariff structure. The said tariff is determined on the following calculations and assumptions. 5 ITA No.159/Hyd/2022 Calculation & Assumptions 1) Demand Charges is calculated considering 8000 KVA contracted MD 132 KV. 2) Demand charges is calculated on the basis of slab rate as per the tariff. 3) Energy charges are calculated @ Rs. 5.25/unit. 4) Since assessee is having continuous process plant, units consumed is assumed to be even in all day and accordingly peak hour and night hour consumption is considered proportionately 5) Electricity duty is calculated @0.06 paisa. 6) Late payment charge, poor power Factor rebate, wheeling and transmission charges and loss is not considered in deriving transfer price. 7) Feeder cost is not factored as that will be incurred by user. 2.1.4. It is seen from the above chart that the calculation of unit rate is based various assumptions and 'energy charge' (Rs 5.25 per unit) is the only direct cost which is charged on the units of power supplied by the southern power distribution company of AP Ltd. 2.1.5. The other charges & duties arise due to different reasons. Some are collections on behalf of state/ central government and by D1SCOMs. (fuel surcharge and electricity duty). Some other charges arise due to the large investment made in distribution and transmission assets put up by southern power distribution company of AP Ltd for multiple industrial customers. (for example demand charges are arising out of providing firm commitment of sanctioned power to industrial power units by southern power distribution company of AP Ltd). The southern power distribution company of AP Ltd will be dealing in several Giga Watts of handled capacity and not therefore comparable to the small captive unit (30 MW) which does not suffer these overheads. 2.1.6. Hence, we find that the TPO has rightly rejected the CUP rate of 6.29 per unit adopted by the assessee in its TP analysis based on the southern power distribution company of AP Ltd tariff structure. Also, the economic logic of setting up a captive at considerable cost is to make available power at a cheaper cost to the cement plant and not at the highest possible southern power distribution company of AP Ltd grid rate. 2.1.7. In our considered view the most comparable price keeping both the factors in mind, viz, market price and the rationale of setting up a captive unit, would be Rs 5.25 per unit as determined by the TPO. We therefore uphold the action of the TPO.” 6 ITA No.159/Hyd/2022 7. With respect to Cost allocation of expenses between Captive Power Plant (CPP) and Cement Manufacturing Unit (CMU), assessee contended that there were certain factual errors in computation of total turnover and ratios between CPP and CMU by the TPO. The turnover adopted by the TPO for CMU was Rs.1285,75,06,607/- as against Rs. 1147,56,51,647/- adopted by it. The assessee further submitted that passive incomes like dividends, interest income, royalties, insurance claims, export incentives, liabilities written back have also been considered as turnover of CMU which are categorized as Misc Income in the Audited Financial Statements for the year 2016-17 and that for earning passive income, it need not incur any cost and hence need to be eliminated from the denominator adopted by the TPO. As a result the turnover ratio of CPP is computed as 7.69% as against 8.54%. The assessee stated that the TPO allocated all direct expenses of CMU such as packing materials, consumption of stores, advertisements, sales promotion and selling expenses, material handling expenses, mines restoration expenses etc to CPP even though such expenses have no relevance for generation of power. The assessee further submitted that the TPO allocated donations and CSR expenses to CPP even though these amounts are disallowed in the computation of total income. Before the DRP, assessee had also furnished some charts explaining as to how the TPO had committed errors in allocation of costs, which are running from page 7 to 14 of DRP’s order. The DRP after considering the submissions of the assessee and on perusal of charts and the remaining documents, directed the Assessing Officer/TPO to verify the mistakes pointed out with reference to the facts and recompute the adjustments, against this finding of DRP no appeal had been preferred by the assessee before us. 7 ITA No.159/Hyd/2022 8. With respect to ground of objection on Allowability of cess as business expenditure, the DRP had discussed various case laws and also sections 40(a)(ia), section 2(43) and section 4 of Income Tax Act at length and finally held that education cess is a tax for the purpose of section 40(a)(ii) and hence was not allowable as a deduction from computing the profits or gains of any business or profession, against this finding of DRP no appeal had been preferred by the assessee before us. 9. Before us, ld. AR submitted the brief synopsis of arguments on its behalf which is to the following effect : “General factual background Appellant established a captive power plant ("CPP") of 30MW capacity in the state of Andhra Pradesh that supplied power to its cement manufacturing unit ("CMU") in the same state. The CPP was an eligible business as defined in section 80-IA(4) and, thus, appellant was entitled to the tax holiday specified in section 80-IA. The transfer of power from the CPP to the CMU forms a specified domestic transaction ("SDT") as defined in section 92BA of the Income Tax Act, 1961 ("the Act") that came to be inserted by the Finance Act, 2012 from 01.04.2013. During the year under consideration, CPP transferred 17.17 crore units of power to CMU and, for the purpose of computation of the afore- mentioned tax holiday, applied a rate of INR 6.29 per unit. The rate was based upon the computation of the landed cost of power purchased by the CMU from the Southern Power Distribution Company of AP Limited. Details of how the rate has been arrived at were submitted to lower authorities as well as before the Hon'ble ITAT Bench. Summary of order of the Transfer Pricing Officer ("TPO") On reference, the TPO passed an order dt. 31.01.2021 u/s 92CA(3) that covered, inter alia, the transfer price relating to the transfer of power from the CPP to the CMU. The observations of the TPO in respect of such transfer of power were contained in the main in paragraphs 7, 8 and 9. The TPO was of the opinion that differences specified in rule 10B(1)(a)(ii) have to be taken into account and that only the base cost of energy (INR 5.25) supplied by the Distribution company could be applied for the purpose of 8 ITA No.159/Hyd/2022 benchmarking and none of the other components like ToD charges, Demand charges etc. do not apply. In arriving at his opinion, the TPO recorded relevant extracts from the reply of the Appellant to the Show Cause Notice issued by the TPO. Accordingly, TPO, applying CUP, considered only the energy cost of INR 5.25 unit in arriving at the Arms Length Price and did not take into consideration any of other components charged by the Distribution company. By doing so, the TPO was of the opinion that differences between the CPP and the Distribution company could be made comparable (refer last sub-paragraph of paragraph 9.4 of the TPO order). Summary of order of the Dispute Resolution Panel-1, Bengaluru The matter travelled on reference by Appellant to the Dispute Resolution Panel-1, Bengaluru who passed their directions on 17.04.2021. The DRP agreed with the view of the TPO and their observations are contained in paragraphs 2.1.2 through 2.1.7 of their order. Summary of Appellant's submissions The Appellant's submissions are summarised as follows: 1. The Most Appropriate Method is CUP and that is not in dispute. 2. The Arms Length Price is to be based on the rate charged by the Distribution company and that is also not in dispute. 3. The only issue is whether the components like Fixed Demand Charges, ToD charges, Electricity Duty, and customer charge are to be considered when determining Arms Length Price ("ALP") or whether they are to be excluded. 4. The weight of judicial opinion has ruled that all these components are to be included and some of the precedents that have so held have been included in the Case Compilation submitted before the Hon'ble Bench. These include judgments passed by different High Courts as well as orders of co-ordinate benches of the Hon'ble ITAT, all of which have examined the matter elaborately in arriving at their conclusion. 5. Internal CUP is preferred over External CUP and purchase of power by the CMU from the Distribution company is an internal CUP and represents the preferred way of benchmarking the price. In Gharda Chemicals Ltd vs DC1T [ITA NO. 2242/MUM/06], the co-ordinate Bench at Mumbai had held that ordinarily, the internal CUP should be preferred over the External CUP because as it neutralises several distinguishing factors such as local factors, economies available or unavailable to the assessee that may have a bearing on the price between unrelated parties. 9 ITA No.159/Hyd/2022 Similarly, in CIT vs Orient Abrasive Ltd. [2014] 271 CTR 626, it has been held by the Delhi High Court that once there was a direct internal CUP, that is, the assessee had purchased power from the Punjab State Power Corporation at Rs. 7.57, then it represents the market rate on which any industrial undertaking or consumer is getting electricity and there was, thus, no reason why such market rate or CUP should be rejected. 5. It is also to be noted that power purchased from the Distribution company satisfies the requirement of strict comparability that is imposed by CUP. The power purchased by the CMU from the Appellant is, in fact, identical in all respects with that purchased by the CMU from the Distribution company. It cannot be compared with, for example, transport by Volvo bus versus transport by a state transport undertaking because of the comparability factor. The transport by a Volvo bus affords luxury and comfort that is significantly different from that in a bus of the state transport undertaking that, quite conceivably, has to cater to a much wider customer-base at more affordable prices. 6. Attention of the Hon'ble Bench is also respectfully drawn to paragraphs 19 through 27 (pages 24 through 35 of the Case Law compilation). Although a perusal of all these paragraphs in instructive, we particularly draw attention to paragraph 24 (page 31) in which it is stated that open market value standards and arms length price standards would ordinarily yield the same results, unless the consideration and rules involved are different. 8. All other considerations become irrelevant in light of the above because the rate of INR 6.29 arrived at as ALP by adopting the internal CUP based on rate of power purchased from the Distribution company is the open market rate and is uniform for all consumers in the same category (that is, HT consumers) in the State, regardless of their size, turnover, complexities, locations, asset-base etc. Submission on the order of Co-ordinate Bench at Raipur During the course of hearing on 15.11.2022, it was submitted by Appellant that a Co¬ordinate Bench had ruled in favour of application of the rate at which power is supplied by the state electricity board. The order of the Co- ordinate Bench reproduces an earlier order of the Hon'ble Chattisgarh High Court in assessee's own case. Therefore, although the order of the Co- ordinate Bench was based on the High court judgment, the latter was a reasoned judgment and the reasoning applies equally to the case of the Appellant. One important point brought out in the order was that there is a difference between power sold by the CPP to another distributor and power sold by the CPP to a consumer (paragraph 15, reproducing 10 ITA No.159/Hyd/2022 observations of the first appellate authority) The case referred to is Deputy Commissioner of Income-Tax vs Godawari Power & /spat Ltd. 12018] 100 taxmann.com 528 (Raipur-Trib). 10. Ld. AR filed paper book containing various case laws in support of its case which include the decision of Kolkata Bench in the case of Star Paper Mills Limited Vs. DCIT, Circle – 4(2), Kolkata (ITA No.127/Kol/2021 dt.26.10.2021 wherein it was held as under : “18. We find merit in the Ld. AR's contention that this rate does not represent the comparable rate of electricity following the arm's length principle, for the reason that, no power generating station/company can or would sell electricity to any industrial consumer at these rates. The market conditions under which the power generating stations operate are significantly different from that of the captive power units operated by industries. At this juncture, it is first relevant to understand the intent and purpose for setting up of a CPP by any manufacturing industry. As rightly pointed out by the Ld. CIT, DR, the power tariff charged from industrial consumers is different from that of domestic & agricultural consumers, as the higher rates of the former subsidize the rates charged from the latter. Further, although India has surplus power generation capacity, it lacks adequate transmission and distribution infrastructure. As a consequence, due to the high power tariffs and unstable supply of power, there are significant cost overruns in the manufacturing unit. The captive power plant is thus set-up with the dominant intent to save power costs, which the manufacturing unit is otherwise required to incur & pay to the SEBs, and at the same time, to ensure stable supply of un-interrupted power for smooth production. This results in opportunity cost savings to the assessee company. Accordingly, while drawing up the stand-alone accounts of the eligible CPP and non-eligible manufacturing unit, the landed rate at which the manufacturing unit is procuring power from SEB is used as the comparable rate under the arm's length standards. 19. According to the Ld. CIT, DR however this landed rate at which the non- eligible unit purchases power from the SEB is regulated and therefore cannot be said to represent an uncontrolled transaction. This argument does not hold good in the given facts of the present case, for the reason that even the notified tariff order of the UPERC relied upon by the TPO is heavily regulated and is ascertained by the State Electricity Commission 11 ITA No.159/Hyd/2022 after taking into account several socio-political considerations, which is evident from the tariff order itself. The fact that the rates at I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited which SEB supplies power is regulated is of no consequence, as it is not a case that this rate has been fixed exclusively by the SEB for the assessee. Instead the SEB supplies power at the same tariff rate to all industrial consumers (similar to the assessee) in the same State, which thus represents the prevailing market rate. 20. As noted earlier, the application of CUP method requires high degree of comparability not only in the products sold and services provided but also in the economic circumstances in which the transactions take place. One should examine the market conditions in which the electricity is being sold. The tariff order relied upon by the TPO operates in an altogether different market, which is the Business to Business (commonly known as B2B) Model. This tariff rate is the rate at which electricity is purchased by distribution companies from generation companies. The conditions of this market are different and distinct from the consumer market. As noted earlier, no consumer of electricity can procure power in the market at the rate at which generation companies sell to distribution companies under the notified tariff order. In the circumstances, when the market conditions of the comparable transaction cited by the TPO are not similar to that of the assessee, his application of CUP fails. According to us, the comparable market condition, in the facts of the present case, is the Business to Consumer (commonly known as B2C) Model. This market comprises of rates at which the ultimate consumers (paper manufacturing unit in the instant case) can purchase power for their own consumption. This market comprises of power sold by SEBs, IEX etc. to different categories of consumers. In the present case, the assessee has adopted the comparable rate to be the landed rate at which the manufacturing unit is purchasing power from an independent SEB, apart from the CPP. As the economic & market conditions are similar, this benchmark rate adopted by the assessee is held to be fulfilling the CUP parameters. 21. As regards the Revenue's claim that the CPP and SEB being functionally dissimilar, the benchmarking of sale of CPP at the rate at which non- eligible unit brought electricity from SEB is not reliable, it is noted that this exact same argument has been considered and rejected by the coordinate Bench of this Tribunal in the case I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited of Gujarat Flurochemicals Ltd Vs DCIT (97 12 ITA No.159/Hyd/2022 taxmann.com 10) . The relevant findings of this Tribunal on this issue, are as under: "29. ... With regard to the assessment year 2013-14, the ld.DRP has observed that there is a little change in the statutory provision by virtue of section 80IA(8). The arm's length price of the goods sold by the assessee in the alleged captive power plant has to be determined. The ld.DRP thereafter observed that the TPO has determined value of the goods and services sold by its eligible units. According to the TPO captive power plant and electricity distributing companies are to be pitted at different pedestal. According to the DRP, there is a material difference between captive power plant as a seller and distribution/transmission entity. Thus, differences are both in terms of functions performed as well as asset used. In the case of distribution and transmission entities, apart from assets used for generation of electricity huge investments have gone in laying in transmission and distribution infrastructure. These investments and related transmission and distribution function are totally missing in the CPP. It also observed that sale of electricity is regulated activity, thus, as per the law, CPP could have sold to a distribution licensee (through transmission utility). The benchmarking of sale of CPP at the rate at which non-eligible units brought electricity from the grid is thus incorrect. The ld.DRP under this misconception construed that the rate at which electricity supply-companies are purchasing the electricity should be applied for benchmarking the value of electricity sold by the CPP to its manufacturing units. In other words, the DRP was of the view that non- eligible units cannot be taken for the benchmarking for determining the value at which electricity was sold by the CPP. DRP has emphasized that manufacturing units could have different source of procurement of electricity; say - from CPP or from electricity boards. But as electricity producer, in a CPP, it could only be sold to distribution licensee holder. In this way, the ld.DRP observed that value of electricity cannot be benchmarked by adopting the rate at which manufacturing units of the assessee has been purchasing the electricity, rather, according to the DRP, the rate at which supplier companies are purchasing the electricity ought to be applied. Before us, the ld. counsel for the assessee contended that this controversy has been silenced by the Hon'ble Gujarat High Court in the case of Pr. CIT v. Gujarat Alkalis & Chemicals Ltd. [2017] 88 taxmann.com 722. He placed on record copy of the Hon'ble High Court's decision and contended that for the purpose of computation of deduction admissible under section 80IA 13 ITA No.159/Hyd/2022 market price of the electricity supplied by a CPP is to be determined by adopting rate at which manufacturing unit has been purchasing the electricity from the open market. The ld. DR, on the other hand relied upon the order of the DRP, but unable to controvert the contentions raised by the assessee. 32. The Hon'ble High Court has replied this question by recording the following finding: '3. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under : 6. Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under sub-Section (8) of Section 80IA of the Act. However, in so far as the Tribunal's reasoning to adopt the market value of the goods at Rs. 5.40 ps. per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of Rs. 5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only Rs. 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered." 14 ITA No.159/Hyd/2022 4. This was followed in case of CIT v. Shah Alloys Ltd. in Tax Appeal No. 2093/2010. This was reiterated in Tax Appeal No.1646/2010 in case of ACIT v. Pragati Glass Works (P.) Ltd. (order dated 30.1.2012), in which following observations were made : "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed." 15 ITA No.159/Hyd/2022 ...... 6. Issues are thus considered on number of occasions by the Court and held against the Revenue. Questions are answered against the Revenue. Both the tax appeals are therefore, dismissed.' This judgment of Hon'ble High Court is directly on the issue. Hon'ble Court has considered section 80IA(8), therefore, it is not justifiable at the end of ld.DRP to ignore the judgment of Hon'ble jurisdictional High Court. 33. Respectfully following the authoritative pronouncements of the Hon'ble jurisdictional High Court, we allow these grounds of appeal. We direct the AO to grant deduction under section 80IA(4) on the value of electricity supplied by the CPP to its manufacturing units by adopting the average rate of electricity supplied to the assessee by MGVCL, DGVCL. 22. Useful reference in this regard may also be made to the decision of this Tribunal in the case of DCIT Vs Balrampur Chini Mills Ltd in ITA No. 1672/Kol/2019 for AY 2016-17 involving similar facts and circumstances as involved in the present case. In the decided case as well, identical benchmarking analysis was performed by the assessee to determine the ALP of power transferred by the CPP to the manufacturing unit for the purposes of Section 80-IA(8) of the Act. This benchmarking exercise was rejected by the TPO, who substituted it with the rate notified for sale of power by the power generating companies to distribution I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited companies, in the tariff order by the State Electricity Commission. This Tribunal adjudicated the issue in favour of the assessee, by observing as under: 5. On the contrary however, it is noted that the non-eligible undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelated enterprise i.e. SEB under uncontrolled conditions and prevailing market circumstances at the rate of Rs.ll.22/unit. Therefore the tariff at which the other non-eligible units purchased power from SEB can be taken to be a fair indicator to benchmark the transfer value of Rs.8.30/unit adopted by the appellant. It is noted that the transfer value of Rs.8.30 / unit was based on the tariff order issued by the SEB in respect of supply of power to units located in the 16 ITA No.159/Hyd/2022 same region as that of the non-eligible unit which procured power from the eligible unit. This tariff order issued by the SEB was available in open market and determined under uncontrolled conditions and is hence a reliable external CUP available in the given facts of the case. On comparing the rates in tariff order with the rates at which other non-eligible units procured power from open market under uncontrolled conditions; it is noted therefore that the transfer value of Rs.8.30/unit determined by the appellant is fair and reasonable. I therefore find merit in the submissions of the Ld. AR as well as the TPSR that the average landed tariff rate notified by the UPSCB is a fair, reliable and reasonable basis to benchmark the transfer value of power procured by the non-eligible undertaking from the eligible unit. 6. The Ld. TPO's reference to the judgment of the Hon'ble Calcutta High Court in ITC Limited (supra) is wholly distinguishable since the appellant has sufficiently demonstrated that not only is it is permitted to supply power independently to unrelated parties but it has actually supplied substantial quantities of power to unrelated parties. Instead I find that the issue of allowability of deduction under Section 80IA in respect of profits derived by CPP came up for consideration before another coordinate Bench of the Hon'ble Jurisdictional ITAT in the case of M/s Electrosteel Castings Ltd in I.T. (SS) No. 47 to 60/Kol/2014, 313 and 256/Kol/2015, 66 and 124/Kol/2016 dated 25th November 2016. In respect of appeals relating to abated assessment years, the Revenue had relied on the judgment of Calcutta High Court in the case of CIT Vs ITC Ltd. (supra) to contend that the deduction was required to be allowed taking into account the price at which distribution companies were purchasing electricity. After taking into account the provisions of the Electricity Act of 2003, and the regulatory provisions applicable in the State of West Bengal, the coordinate Bench accepted the assessee's contention that in view of the provisions of Electricity Act of 2003, which were applicable in the concerned AY 2011-12, the decision of Calcutta High Court in the case of CIT Vs ITC Ltd. (supra) was not applicable. .... 8.13. If it is taken that ALP is the market value, then we find there is no dispute that the MAM is CUP. The contention of the ld. D/R that when MAM is taken as CUP, we need not determine a tested party is erroneous. The ICAI in Guidance note u/s 94B of the Act has laid down that the tested party has to be identified even when MAM is CUP. In this case the assessee has taken that the tested party as the non-eligible unit and whereas the TPO has taken the tested party as the CPP i.e. the eligible unit. In our view 17 ITA No.159/Hyd/2022 I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited the profit of the non-eligible unit also has to be properly determined. The only purpose for which the manufacturing unit is taken as the tested party was to determine the market value at which the manufacturing unit purchases power from unrelated third parties. No other function etc. are in question. In our view taking the manufacturing unit as tested party for the purpose of determination of ALP with MAM being CUP, cannot be found fault with. The TPO has chosen to take the price specified in the PPAs for purchase of power as the market value. The PPA is a 20 year agreement. The assessee required to take statutory clearances and approvals. The price is regulated. The sale of power under the terms and conditions of PPA cannot be considered as the market value of the sale of electricity. Such sales cannot be considered as made in "uncontrolled conditions". The ld. D/R submitted that the power generating company does not have distribution costs. When a captive power plant in an industry supplies electricity to its own manufacturing unit, there is no power distribution cost. The savings of cost of power can be determined only when the rate at which the manufacturing unit of the company purchases power in the open market from the power distribution companies is considered. Imaginary costs which are not incurred cannot guide our decision. 8.14. Thus while determining the ALP under transfer pricing provisions, in our view the assessee has correctly identified the manufacturing unit as the tested party and CUP as the MAM and the purchase price of electricity in the open market from the State Electricity Board to the manufacturing units in uncontrolled conditions as the ALP. 23. Gainful reference in this regard may also be made to the following decisions of the Hon'ble High Courts. (A) CIT Vs Godavari Power & Ispat Ltd (223 Taxman 234) (Chattisgarh HC) "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. 18 ITA No.159/Hyd/2022 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." (B) CIT Vs Reliance Industries Ltd (421 ITR 686) (Bom HC) 4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assessee- company and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies. 19 ITA No.159/Hyd/2022 5. This controversy arose in the background of the fact that the assessee had set up a captive power generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1961 ("the Act" for short) in respect of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance Infrastructure Ltd. v. Addl. CIT [2011] 9 taxmann.com 186 (Mum. - Trib.). Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:-- "44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. We therefore dismiss ground No.4 of the revenue." 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:-- "6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short "MERC"). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the 20 ITA No.159/Hyd/2022 rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law." 8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved. 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of CIT v. Godawari Power & Ispat Ltd. I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited [2014] 42 taxmann.com 551/223 Taxman 234, in which the Court held and observed as under: ....... 10. Gujarat High Court in case of Pr. CIT v. Gujarat Alkalies & Chemicals Ltd. [2017] 395 ITR 247/88 taxmann.com 722 also had occasion to examine such an issue. It referred to earlier order in case of Asstt. CIT v. Pragati Glass Works (P.) Ltd. [Tax Appeal No. 1646 of 2010, dated 30-1- 2012] in which following observations were made:-- ....... 21 ITA No.159/Hyd/2022 11. Judgment of Calcutta High Court in case of CIT v. ITC Ltd. [2016] 236 Taxman 612/[2015] 64 taxmann.com 214 was also brought to our notice in which the said High Court has taken a different stand. However, since the issue has already been examined by this Court earlier and in view of the decisions of the Chhattisgarh and Gujarat High Court, we see no reason to entertain this question. 12. In the result, Income Tax Appeal is dismissed. 24. The contention of the Ld. CIT, DR that the above referred decisions are not applicable since they were rendered in the context of 'open market value' and not 'arm's length price' is found to be misplaced. We agree with the Ld. AR of the assessee that, the 'open market value' standards and 'arm's length price' standards would ordinarily yield the same results, unless the considerations and rules involved are different. On this particular issue of determination of the transfer price of power u/s 80-IA(8) of the Act, we note that the considerations taken into account under the open market valuation standards by the High Courts in the above decided cases (supra) are consistent with the considerations and guidelines under the arm's length standards set out in Chapter X of the Act and therefore the ratio laid down in the above decisions (supra) indeed applies in the present case as well. 25. As far as the Revenue's reliance on the judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd (supra) is concerned, we note that it is distinguishable on facts as well as in law and is thus not applicable to the assessee's I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited case. In the decided case, the relevant year in question was Financial Year 2001-02 i.e. prior to the introduction of Electricity Act, 2003. Until then, the electricity generating companies could only sell or supply power to the State Power Utility or company engaged both in generation & distribution and that too at the tariffs rates prescribed by the Regulatory Commission. Therefore, in absence of any alternate rates, the High Court held that the price at which electricity generating company sold power to SEBs was the only available open market rate. However subsequent to the enactment of Electricity Act, 2003, the functioning of the power sector was liberalized as the business became de-regulated and it was legally permissible for the private CPPs to supply power to other 22 ITA No.159/Hyd/2022 consumers and the prices could be determined through competitive bidding process or any other mutually agreed terms. Hence, the decision of Calcutta High Court (supra) is not applicable to the relevant FY 2015-16 in question, i.e. post introduction of the Electricity Act, 2003. 26. We note that this Tribunal in the case of DCIT Vs M/s Kesoram Industries Limited for AYs 2008-09 & 2009-10, through its lead order in ITA No. 1722/Kol/2012, after considering the judgment of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra), the provisions of Electricity Act, 2003 and the decision of Hon'ble Apex Court in the case of Thiru Arooran Sugars Ltd (227 ITR 432) upheld the assessee's contention that the open market value of electricity for the purposes of Section 80IA(8) should be the price at which the assessee procures power from SEBs. The relevant findings are as under: 21. We have considered the rival submissions and perused the documents in the paper book which inter alia contained Electricity Act, 2003, KERC Regulations 2004, copy of KERCs order dated 27.02.2007 approving 'open access' to CPPs for supply of electricity etc. The bone of contention between the parties is the adoption of the most appropriate rate at which sale of electricity would be valued for the purpose of determining the profitability of all the four CPPs. It is not in dispute that during the relevant year, the assessee operated four CPPs in the State of Karnataka, Orissa and West Bengal and the power generated was entirely supplied and consumed by manufacturing undertakings of the assessee. The A.O. per- se did not dispute the fact that the CPPs constituted separate and distinct undertakings and were eligible for claiming the deduction under section 80IA of the Act. However, on perusal of the working of the profitability, the A.O. found that the transfer price for power was I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited considered by the assessee equal to the price at which the electricity was procured by the manufacturing undertakings from the respective SEBs. Referring to explanation to section 80IA, the A.O. held that for the purposes of section 80IA,the term 'market value' means the price that such goods or services would ordinarily fetch in the open market. According to the A.O., such market value was to be ascertained from the view point of the power generating undertakings claiming the deduction and not from the perspective of the manufacturing undertaking which was the captive consumer of the CPP. We note that the A.O. proceeded on the premise that the CPP owned by the assessee was not allowed to sell its power to the 23 ITA No.159/Hyd/2022 final consumer but was allowed to sell the same only to grid of the SEB in case of excess production. Save and except such monopoly buyer, the CPP was not permitted to sell power to anyone else. According to the A.O., therefore, the market value which the assessee was likely to fetch by sale of excess power to monopoly buyer like SEB represented the market value. In the AO's opinion the rates at which the SEBs were selling power to the consumers were much higher than the price at which the power was purchased from the CPPs because in addition to profit margin of the SEB, such price also included the costs towards distribution, storage, transmission losses etc. 22. We note that the sole basis for AO's inference against the assessee was his belief that the CPP or independent power producer was not allowed to sell power to any person other than the SEBs or power distribution companies. According to the A.O., there was monopoly buyer who alone was permitted to purchase the power at the price determined in the sole discretion of the SEBs and therefore, the price at which the SEBs were purchasing power alone represented the market value for the power generated by CPPs. We also note that the premise on which the A.O. proceeded was analogous to the premise on which the Hon'ble Calcutta High Court decided the Revenue's appeal in the case of ITC Ltd. (supra). In that case also the Hon'ble High Court proceeded on premise that the independent power producers or CPPs could sell the power only to power distribution companies and that too at the rates determined by the State Regulatory Commission. In other words in the opinion of the A.O. and the Hon'ble High Court the power producers were necessarily required to sell the power in the regulated market where prices were fixed at the discretion of the State Electricity Boards and / or Regulatory Commissions and the power generating companies had no option or discretion to determine the selling rate. However, in the case in hand there is a change of scenario before us and the learned AR of the assessee in his detailed presentation (supra) has brought out the salient features of the Electricity Act 2003 by which CPPs were granted 'open access' by law. In terms of the 'open access' granted, the power generating companies were free to sell the power to any third party at the prices mutually agreed and in such case, the regulatory commission was required to determine only the 'wheeling charges' which the transmission companies / authorities could levy. In this regard, the useful reference may also be made to KERC's order dated 27.02.2007. In this order, the commission explained the salient features of the National Electricity Policy issued by the Government of India on 12.02.2005 with regard to captive generation. The said order explains that the Electricity Act 2003, put in place highly liberal frame work 24 ITA No.159/Hyd/2022 for power generation wherein there is no requirement of licensing for generation of power. The requirement of techno-economic clearance of CEA for thermal generation was no longer there. Captive generation has been freed I.T.A. No.127/Kol/2021 Assessment Year: 2016-17 Star Paper Mills Limited from all controls. The said policy further clarified that the captive generating plants were permitted to sell electricity to licensees and consumers when they were allowed 'open access' by SERCs under section 42 of the Electricity Act, 2003. The tariff policy issued by Government of India on 06.01.2006 also provided that the sole purpose of freely allowing captive generation was to enable industries to access reliable quality and cost effective power. As per the recommendation made, the SERCs were required to encourage the distribution licensees to procure power from CPPs through competitive bidding on a composite tariff basis. From a conjoint reading of the provisions of the Electricity Act 2003, KERCs 'open access' Regulation notified in 2004 and the order of the KERC dated 27.02.2007, it therefore, appears that there was no statutory bar on the CPPs to sell electricity to any third party and that too at the rate mutually agreed by and between the parties. We, therefore, find that the very foundation on which the A.O. held that the assessee had no option but to sell electricity to SEB alone was factually wrong and misplaced and therefore, legally untenable in the changed factual scenario as discussed above. 23. The learned AR drew our attention to the chart published by the Indian Energy Exchange (IEX) for the yearly power price prevailing on the IEX in different regions during the year2008-09. The said chart we note gave break up of power price at which the was purchased and sold by power producers, distribution companies etc in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was Rs. 7.53/-. Similarly for the Southern Region of Rs. 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.'s presumption that the assessee was legally obliged to sell electricity only to the power distribution companies and SEBs and that too at the controlled prices was devoid of any legal or factual foundation. We note that this specific issue was adjudicated by the Co-ordinate Bench of this Tribunal in the case of DCIT vs Birla Corporation Ltd. to which one of us was signatory. In the said decision, the Co-ordinate Bench of this Tribunal, after considering the ratio laid down by the Hon'ble Supreme Court in the case Thiru Arooran Sugar Ltd. held as follows: 25 ITA No.159/Hyd/2022 "5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon'ble Jurisdictional High Court. The ld AR fairly brought to our attention the decision of Hon'ble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case , as admittedly, the Asst Year before Hon'ble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002- 03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us) , the assessee would be governed by the provisions of Electricity Act, 2003. 5.6.1. We have already seen that the ITC's case in Hon'ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. ...... 26 ITA No.159/Hyd/2022 30. Following the judgment of the Hon'ble Gujarat High Court and decision of the Co- ordinate Bench, we direct the A.O. to allow the deduction under section 80IA(4) by adopting the weighted average landed cost of electricity at the rates of Rs. 6.35, Rs. 3.72 and Rs. 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively. 27. For the reasons set out above and following the above cited decisions (supra), we thus hold that the benchmarking analysis undertaken by the assessee to ascertain the arm's length transfer price of power by eligible unit to non-eligible unit at Rs.8.41/unit was justified. The AO/TPO is accordingly directed to delete the transfer pricing adjustment of Rs.13,71,40,567/-.” 11. ld.AR had also relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of Sree Rayalaseema Hi Strength Hypo Limited, Kurnool Vs. DCIT in ITA No.123/Hyd/2022 wherein the Co-ordinate Bench of the Tribunal had held as under : 9. We have gone through the record in the light of the submissions made on either side. It is an admitted fact that the assessee has been dealing in manufacturing and sale of industrial chemicals, trading in: generation and distribution of power and chemicals to the domestic as well as international markets. The assessee also has a captive thermal power plant of 10 MW capacity at Kurnool, in respect of which the deduction under section 80-IA of the Act has been claimed by the assessee with the distribution system of 11 KV capacity. It is also not in dispute that the assessee entered into specific domestic transaction with its AEs, namely, Sh. Rama Seema High-strength Hypo Ltd, Sh. SMR Galaxy Projects Pvt. Ltd and ATV Projects and Investments Private Ltd in respect of sale of power. 10. Dispute in this appeal revolves around the deduction of Rs. 3,75,68,330/-claimed by the assessee under section 80-IA of the Act in respect of the power generation through thermal sources by adopting Rs. 8.74 per unit as ALP for supply of power to its chemical division and other AEs. It is not in dispute that the state power distribution company charged Rs. 8.98 per unit from TGV Project and Investment Private Limited, Rs. 8.82 per unit from Gauri Gopal Hospital and Rs. 10.71 per unit for service No. 583 of SRHHL plant unit. 27 ITA No.159/Hyd/2022 11. Insofar as the assessee supplying power at Rs. 5.45 per unit for a period of two months till 25/06/2016 is concerned, it remains undisputed that such price was fixed in the financial year 2015-16 and in respect of the surplus power generated, based on a short-term tender invitation by the APSPDCL, under the circumstances that APSPDCL is the sole monopoly in generation, procurement and distribution of power in the area and the assessee being a private enterprise had to supply surplus power to the State Electricity Board and therefore, there was no option available to the assessee but to sell the same at the price prescribed by the APSPDCL. As a matter of fact, Ld. TPO on a consideration of the submissions made by the assessee, agreed with the assessee and recorded that the rate of Rs. 5.45 cannot be controlled transaction. 12. Now coming to the transaction it is submitted by the assessee in respect of TGV Projects and Investments Pvt. Ltd, Gauri Gopal Hospital and SRHHL, as comparable transactions, rate per unit charged by APSPDCL in respect of TGVPIPL is Rs. 8.98, in respect of Gauri Gopal Hospital it is Rs. 8.82 and in respect of SRHHL it is Rs. 10.71. Basing on these 3 transactions the assessee concluded that the rate per unit is about Rs. 8.82 to Rs. 10.71 and, therefore, the average at Rs. 8.74 per unit is taken to benchmark the transaction. Insofar as these rates are concerned, Ld. TPO does not dispute the same. According to the Ld. TPO, assessee is not entitled to claim the inclusion of the TOD charges, demand charges, penal demand charges, electrical duty, customer charges and late payment charges which the state electricity board collects from the consumer, since the assessee does not incur any expenditure relevant to such charges being a captive power plant. 13. It is relevant to note here that the assessee does not claim late payment charges. According to the assessee while adopting CUP method, the price at which the state Electricity Board adopted while supplying power to the assessee has to be considered instead of excluding so many charges levelled by the State Electricity Board to its consumers, more particularly to the assessee. Even in respect of the chemical division of the assessee in question, it procured power from the thermal division at Rs. 8.74 while the same chemical division procured power from the APSPDCL at Rs. 10.71 per unit. Insofar as this fact is concerned, neither the Ld. TPO nor the Ld. DRP dispute the same. 14. Coming to the case law relied on by the assessee, in the cases of Star paper mills Ltd (supra), Vishal fabrics Ltd (supra), Reliance Industries Limited (supra), Godavari Power and Ispat Ltd (supra), Gujrat Alkalis and Chemicals Ltd (supra) and Kanoria Chemicals and Industries Ltd (supra) are 28 ITA No.159/Hyd/2022 concerned with the supply of power generated by the captive power plants. In all these cases, and more particularly in the Nector Lifesciences Ltd (supra), Star paper Mills Ltd (supra), West Coast paper Mills Ltd (supra), Godavari Power (supra), Gujrat Alkalis (supra) and Kanodia Chemicals it is specifically held that when an assessee setsup a captive power generation plant and provided electricity to its AEs and claimed deduction under section 80-IA of the Act, in respect of the profits arising out of such activity, the valuation of the electricity provided to the AEs should be at rate at which the State Electricity Board charges for supply of electricity to the industrial consumers. 15. On the face of the admitted fact that the Ld. TPO himself conceded that the rate at which the assessee supplied the power to the APSPDCL during the financial year 2015-16 at Rs. 5.45 cannot be an uncontrolled transaction, the Ld. TPO cannot ignore the transaction as submitted by the assessee between TGV Projects, Gauri Gopal Hospital and SRHHL with the APSPDCL at Rs. 8.98, Rs. 8.82 and Rs. 10.71 per unit cannot be ignored. At the same time the consistent view taken by the higher judicial fora and also the Tribunal in the cases referred to by the assessee is to the effect that when the assessee had set up a captive power generating unit and provided electricity to its AEs and claimed deduction under section 80-IA of the Act in respect of profits arising out of such activity, for the purpose of such deduction the market value of power supplied by the assessee to its AEs should be computed considering the rate of power charged by the State Electricity Board for supply of electricity to industrial consumers. 16. We, therefore, respectfully following the decisions of various Hon'ble High Courts in the case of Reliance Industries Limited (supra), Godavari Power and Ispat Ltd (supra), Gujrat Alkalis and Chemicals Ltd (supra) and Kanoria Chemicals and Industries Ltd (supra) are of the considered opinion that the assessee is justified in adopting the ALP of the electricity supply bites captive power generation plant to its AEs at Rs. 8.74 and the Revenue is not justified in excluding certain heads of charges from out of it. With this view of the matter, we allow the grounds of appeal on this aspect. 12. On the other hand, ld.DR filed written submissions which are to the following effect : “In this case, the assessee has a specific domestic transaction between the captive power plant of the assessee and the assessee itself. This should have 29 ITA No.159/Hyd/2022 been benchmarked but the assessee has failed to do so. The same has been duly brought out in the assessment order and rightly confirmed in the Hon'ble DRP order. The gist of the matter is that the captive power plant, the AE cannot be compared to the Government Electricity Distribution Company and can only be compared to the electricity production company as there are many overheads for the power to reach the consumer after it has been produced viz. the transmission lines, the transmission losses, the whole gamut of transmission net work, the corresponding employees their salary, welfare, taxes etc. Thus, the comparison of the price at which captive Power Plant offers the power to its AE i.e. the assessee cannot be compared with open market rate at which the power is bought by the industrial undertakings. The reason being the production company is in house and saves itself of the whole gamut of distribution paraphermelia. Hence, the AO and the DRP were right in taking the basic price of the power excluding the distribution over heads. Further, the CPP has supplied the power to the industrial unit as well as whole of its township which are again the different areas as ascertaining the price of distribution.” 13. We have heard the rival submissions and perused the material on record. In the present case, the sole dispute before us is whether the lower authorities were erred in disallowing taking the rate of Rs.6.29 per unit Charged by the Southern Power company as comparable instance instead of base rate of Rs.5.25 per unit as held by Assessing Officer /DRP. It was the contention before us that Andhra Pradesh Southern Power Distribution Corporation Limited (APSPDCL) is charging Rs.6.29 per unit for the electricity supplied by it to its industrial consumers, hence discharging the similar functions as that of assessee. In the said rate of Rs.6.29 per unit, the APSPDCL had included various charges towards ToD rate, Electricity duty, customer charges and fixed demand while arriving at the said figure. In the present case, the TPO had adopted the CUP method to determine the ALP of the electricity supplied by the assessee to it’s A.E. to bench mark by comparing the charges charged by the APSPDCL Board with that of the charges charged by assessee. 30 ITA No.159/Hyd/2022 However, while doing so, it had reduced the ToD rates, Electricity duty, customer charges and fixed demand and arrived at the figure of Rs.5.25 per unit. In our view, the above said reduction of the charges by the TPO were without any basis, more particularly, when the electricity was received by the assessee/ sister concerns from the Electricity Board at the same rate. Further the electricity tariff charged by the Board can not be segregated into various components as done by the TPO, as all components will collectively constitute the electricity charges as had been decided by the Regulatory Commission while exercising its power under section 61 of Electricity Act 2003. APTE ( APPELLATE TRIBUNAL FOR ELECTRICITY ) had examined the issue of ToD (time of day) tariff, fixed charges etc in various decisions including in Udyog Nagar Association case wherein it had held that charges of electricity will consist of Fixed charges, customers charges etc. 14. In view of the above, the action of the DRP/TPO is without any basis and therefore, the assessee is entitled for the relief. It may be noted that in the said case, the assessment in the year under consideration is 2017-18 and the Tribunal had upheld the rate of Rs.8.74 per unit. Whereas, in the present case, the rates claimed by the assessee and granted by us are only Rs.6.29 per unit. If we compare the case of Sree Rayalaseema Hi Strength Hypo Limited, Kurnool (supra) as a comparable case, the assessee would be immensely benefitted as the Profile, Functions and Assets employed by Sree Rayalaseema Hi Strength Hypo Limited, Kurnool, are similar to that of assessee. However, the assessee cannot be granted the relief 31 ITA No.159/Hyd/2022 of benchmarking at Rs.8.74 per unit as against Rs.6.29 per unit claimed by the assessee in the present case. 15. In our view, the case of the assessee is covered by the decision of the hon’ble Bombay High Court in the case of Reliance Industries Ltd 102 Taxmann.com 372 wherein the identical issue had been decided by the Hon’ble Bombay High Court in favour of the assessee. The relevant para of the said decision are reproduced hereinbelow for the sake of completeness : 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:— "6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short "MERC"). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law." 8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved. 32 ITA No.159/Hyd/2022 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of CIT v. Godawari Power & Ispat Ltd. [2014] 42 taxmann.com 551/223 Taxman 234, in which the Court held and observed as under: "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." 10. Gujarat High Court in case of Pr. CIT v. Gujarat Alkalies & Chemicals Ltd. [2017] 395 ITR 247/88 taxmann.com 722 also had occasion to examine such an issue. It referred to earlier order in case of Asstt. CIT v. Pragati Glass Works (P.) Ltd. [Tax Appeal No. 1646 of 2010, dated 30-1- 2012] in which following observations were made:— "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT (Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit 33 ITA No.159/Hyd/2022 of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed." 16. Further, as mentioned hereinabove, the Coordinate Bench of the Tribunal in the case of Sree Rayalaseema Hi Strength Hypo Limited, Kurnool (supra), in the identical facts of the present case, had allowed the claim of the assessee thereby directing the Assessing Officer to treat the rate charge by the Electricity Board from the industrial consumer as a Benchmark for deciding the ALP of the electricity charges supplied by the assessee to its AEs. No contrary decision had been cited before us by the ld.DR for the Revenue. 17. Respectfully following the decision of the Hon’ble Bombay High Court in the case of Reliance Industries (Supra) and Coordinate Bench decision in the case of Sree Rayalaseema Hi Strength Hypo Ltd, Kurnool (Supra) we allow the appeal of the assessee. We, therefore, direct the AO to grant deduction under section 80IA(4) on the value of electricity supplied by the CPP to its manufacturing units by adopting the average rate of electricity supplied to the assessee by Andhra Pradesh Southern Power Distribution Corporation Limited 34 ITA No.159/Hyd/2022 (APSPDCL) at Rs.6.29 per unit. In the light of the above, the ground of the assessee is allowed. Accordingly, the appeal of the assessee is allowed. 18. In the result, the appeal of the assessee is allowed. Sd/- Sd/- (RAMA KANTA PANDA) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 17 th February, 2023. TYNM/sps Copy to: S.No Addresses 1 Bharathi Cement Corporation Private Limited, 8-2-26, Reliance Majestic, Road No.10, Banjara Hills, Hyderabad – 500034. 2 The Deputy Commissioner of Income Tax, Circle 2(1), Hyderabad. 3 DRP – 1, Bangalore. 4 Principal Commissioner of Income Tax – 2, Hyderabad. 5 DR, ITAT Hyderabad Benches 6 Guard File By Order