ACIT, Circle-10(2), Kolkata, Kolkata V. M/s Philips Carbon Black Ltd., Kolkata

ITA 2628/KOL/2019

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0448 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIM CHOUDHURY
• Assessee Lawyers: MANISH KANOJIA
• Keywords: Depreciation; Transfer pricing; Additional depreciation; Earning of tax free income; Fair market value; Rule 8D
• Section: 147; 148; 143(3); 14A; 32(1)(iia); 10B; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 2628/Kol/2019 Assessment Year : 2013-14 ACIT, Circle-10(2), Kolkata Vs. M/s Philips Carbon Black Ltd. (PAN: AABCP 5762 E) Appellant Respondent Date of Hearing 11.05.2022 Date of Pronouncement 05.07.2022 For the Appellant Shri Ashim Choudhury, Advocate Shri Kinjal Buria, ACA For the Respondent Shri Manish Kanojia, CITDR Shri Tushar Dhawal Singh, CITDR ORDER Per Shri Rajesh Kumar, AM: This is an appeal preferred by the revenue against the order of the Commissioner of Income Tax(Appeals)-22, Kolkata [hereinafter referred to as ‘CIT(A)’] dated 28.08.2019 for the assessment year 2013-14. 2. In ground no. 1, the revenue has assailed the order of Ld. CIT(A) wherein the Ld. CIT(A) has deleted the addition on account of unrealized loss arising from foreign exchange fluctuations amounting to Rs. 2,28,42,000/- as against the rejection of claim of Forex Loss by the AO by holding that the loss represented the marked to market loss which is notional and contingent in nature and not eligible for setting off against the taxable income. 2.1. At the outset, the Ld. Counsel for the assessee submitted that this issue is recurring one and is covered in favour of the assessee by the decision of Co-ordinate Bench of Kolkata Tribunal in ITA No. 1273 & 1274/Kol/2015 in AY 2009-10 & 2010-11 vide order dated 4.7.2018 and in ITA No. 987/Kol/2017 in AY 2011-12 dated 14.08.2019. The ld counsel submitted that the assessee has suffered net loss on 2 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. foreign exchange transactions amounting to Rs. 2,28,42,000/- in respect of forward contracts which were outstanding and unsettled at the year end i.e. as on 31.03.2013 and the assessee calculated the loss on these financial instruments/ forward contracts based on the foreign exchange rate on the closing day of the financial year. The ld AR submitted that since no settlement of outstanding forward contract has actually taken place till the year end , the AO held this marked to market loss as notional loss and contingent in nature and accordingly disallowed the same. The Ld. Counsel for the assessee submitted that Co-ordinate Bench has decided the issue in favour of the assessee after following the decision of Hon’ble Apex Court in the case of CIT Vs. Woodward Governor India (P) Ltd., [2009] 179 Taxman 326 (SC), PCIT vs. Suzlon Energy Ltd. [2020] 121 taxmann.com 137 (SC) & Wipro Finance Ltd. vs. CIT [2022] 137 taxmann.com 230 (SC). The Ld. Counsel submitted that the Ld. CIT(A) has allowed the appeal of the assessee by following all these decisions and therefore the ground raised by the revenue may kindly be dismissed. The ld DR on the other hand relied on the grounds of appeal and the order of AO however agreed to the contentions of the assessee that the issue is decided in assessee own case in earlier years. 2.2. Having heard the rival submissions and perusing the material on record including the decision of Co-ordinate Bench in assessee’s own case in AY 2009-10, 2010-11 & 2011-12, we find that the issue is squarely covered in favour of the assessee wherein the Co-ordinate Bench has held that loss incurred on account of marked to market basis in respect of forward contracts which were outstanding at the year end on the basis of foreign exchange rate at the end of the year is not a notional loss and also not contingent in nature but a loss which the assessee is entitled to set off against the its income. In view of these facts and circumstances and the decisions of the coordinate bench supra, we are inclined to uphold the order of Ld. CIT(A) by dismissing the ground no. 1 in the revenue’s appeal. 3. The issue raised in ground no. 2 is against the order of Ld. CIT(A) wrongly deleting the disallowance of depreciation on energy saving devices comprising transformer of different KVA, switchyard and chimney etc. amounting to Rs. 3 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. 2,90,64,652/- by directing the AO to allow the depreciation @ 80% as against the depreciation of 15% allowed by the AO. 3.1. Facts in brief are that during the year, the assessee has claimed depreciation @ 80% on energy saving devices which comprised of purchases during the transformer, switchyard and chimney capitalized under the head energy saving devices, Co- generation system in plant and machinery block and claimed depreciation @ 80%. According to the AO, the transformer, switchyard and chimney etc. are mentioned in column 8(ix)(D) of New Appendix-I and these are not the energy saving devices. The AO observed that the main function of transformer is to stabilize the power fluctuation, and similarly switchyard also has no function of shaving energy and therefore this would be allowed @ 15% depreciation instead of 80% claimed by the assessee. Similarly is the position with regards to chimney. The AO noted that the main function of the chimney is to discharge exhaust gases into the atmosphere at a high elevation so as to avoid nuisance to the people living in the vicinity and hence depreciation has to be allowed as applicable to normal plant and machinery and not 80%. Accordingly the AO recomputed the depreciation and disallowed the excess amount of depreciation of Rs. 2,90,64,652/-. 3.2. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding that the AO has considered these items such as transformer, switchyard and chimney in isolation while the AO ought to have considered all these items as integral part of co-generation power system as the said co-generation system could not have functioned itself without the support and participation of transformer, switchyard and chimney etc. In other words, the Ld. CIT(A) held that all these are the parts of co-generation power system and all these three items were essential part of co-generation power system.. The Ld. CIT(A) allowed the appeal of the assessee by relying on the decision of the coordinate bench in the case of ACIT vs. Rakesh Gupta in [2013] 36 taxmann.com 546 (Chandigarh-Trib) wherein the similar finding has been given by Co-ordinate Bench. The Ld. CIT(A) has also recorded a finding of fact that the assessee has been allowed depreciation on all these items @ 80% in all for 4 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. preceding or succeeding assessment years which were assessed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) which have attained finality. The Ld. CIT(A) also noted that in the AY 2010-11 the assessment was framed u/s 143(3) of the Act the which was later on reopened by issuing notice u/s 148 of the Act on the ground that the assessee has been allowed wrong depreciation @ 80% in respect of transformer, switchyard, chimney. The said notice u/s 148 of the Act was challenged before the Hon’ble Calcutta High Court vide its order in WP No. 1059 of 2016 dated 13.03.2019 and the Hon’ble Court has quashed the notice issued u/s 148 of the Act by observing that there is no escapement within the meaning of section 147 r.w.s. 148 of the Act. 3.3. After hearing the rival parties and perusing the material on record, we note that the AO has not treated the transformer, switchyard and chimney purchased and capitalized by the assessee under the head energy saving as part of the co-generation power system on the ground that these are not energy saving devices but have their separate functions. This undisputed facts in all preceding and succeeding years these items of equipments have been treated as part of the energy saving devices and the assessee has been allowed depreciation @ 80%. In the assessment framed u/s 143(3) of the Act we would like to mention that AO reopened in AY 2010-11 in order to withdraw the excess depreciation allowed @ 80% on these machines which was challenged before the Hon’ble Calcutta High Court in WP No. 1059 of 2016 and Hon’ble High Court vide its order dated 13.03.2019 quashed the reopening of assessment by holding that there is no escapement of income within the meaning of section 148 of the Act. We note that the Ld. CIT(A) has recorded all these findings in the appellate order by allowing the appeal of the assessee. We have examined and perused the decision passed by Co-ordinate Benches as Maharaja Shree Umaid Mills Ltd. vs. DCIT in [2021] 125 taxmann.com 166 (Jaipur-Trib.), ACIT vs. Rakesh Gupta in [2013] 36 taxmann.com 546 (Chandigarh-Trib.), CIT vs. Mehru Electricals & Mechanical Engineers (P) Ltd. in [2017] 82 taxmann.com 102 (Rajasthan), Serum Institute of India Ltd. vs. ACIT [2012] 18 taxmann.com 305 (Pune) and CIT vs. K.K. 5 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. Enterprises [2-14] 51 taxmann.com 190 (Rajasthan) and find that in both these decisions the Co-ordinate Benches have held that transformer, switchyard and chimney are integral part of co-generation system and they are in the nature of energy saving devices. The Ld. CIT(A) has also given a very comprehensive items on the co- generation system and how the transformer, switchyard, chimney are integral part are energy power generation system not analyzing each item. Under these circumstances, we do not find any reason to interfere in the order passed by the Ld. CIT(A). Besides the issue has been accepted by the Department in all the preceding and succeeding assessment years. Therefore the revenue cannot be allowed to demand a different stand in the current assessment year in this year as there is no change of facts and circumstances during the year vis a vis preceding and succeeding years. The case of assessee also finds support from the decision of Hon’ble Apex Court in the case of Radhasoami Satsang vs. CIT (193 ITR 321)(SC), CIT vs. Excel Industries Ltd. (358 ITR 295) (SC) and Maharao Bhim Singh of Kota vs. CIT (390 ITR 532)(SC) on this issue that where there is change in the facts and circumstances vis a vis the earlier years and the revenue has accepted the position with regard to particular issue , then in the subsequent the revenue can not be allowed to take a different stand. In view of these facts and circumstances and considering the various decisions of the various judicial forums as referred to above, we are inclined to uphold the order of Ld. CIT(A) by dismissing the ground no. 2 of revenue’s appeal. 4. The issue raised in ground no. 3 is against the order of Ld. CIT(A) wrongly allowing additional depreciation claimed by the assessee @ 10% amounting to Rs. 92,82,415/- which was rejected and disallowed by the AO. 4.1. Facts in brief are that the assessee claimed additional depreciation of Rs. 92,82,415/- @ 15% on those assets which were acquired and put to use in earlier assessment year i.e. AY 2012-13 and were put to use for less than 180 days and on which the assessee claimed 50% of the normal depreciation as provided under the Act .Hence the assessee claimed additional depreciation which was not allowed in the earlier assessment year . The Act provides that the assessee would claim depreciation 6 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. @ 50% of normal rate of depreciation in a case as such where the asset is put to use for less than 180 days. Accordingly the AO called upon the assessee to justify the claim of the additional depreciation which was replied by the assessee by submitting that the assets were put to use less than 180 days in the earlier assessment year and according the depreciation was claimed at 50% of normal depreciation and hence the remaining depreciation was claimed in the current assessment year i.e. AY 2013-14. However, the submissions/contentions of the assessee did not find favour with the AO and he rejected the claim of the assessee by holding that there is no provisions in the Act to allow the addition depreciation in respect of these items of additions which were put to use in the earlier assessment year for less than 180 days. 4.2. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by holding that there is no restrictive condition in section 32(1)(iia) of the Act from claiming the remaining depreciation in the subsequent year and second proviso to section 32(1)(ii) of the Act does not expressly prohibit the allowance of balance depreciation in the subsequent year by following several decisions of coordinate benches in Kolkatta. 4.3. After hearing the rival parties and perusing the material on record, we find that the issue is squarely settled by the various judicial forums in several cases namely CIT vs. Rittal India (P) Ltd. [2016] 66 taxmann.com 4 (Karnataka), DCIT vs. National Engineering Industrial Ltd. [2022] 135 taxmann.com 193 (Kolkata-Trib.), Century Enka Ltd. vs. DCIT [2015] 58 taxmann.com 318 (Kolkata-Trib.) and Universal Cables Ltd. vs. DCIT [2015] 57 taxmann.com 95 (Kolkata-Trib.). In all the above citations, it has been held that the assessee is entitled to remaining 50% of the depreciation in the subsequent year which was not claimed in the year of addition because of the reasons that the asset was put to use for less than 180 days. The assessee has claimed 50% of the depreciation in consonance with second proviso to section 32(1)(ii) of Act. Accordingly we are inclined to uphold the order of Ld. CIT(A) by dismissing the ground no. 3 of revenue. 7 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. 5. The issue raised in ground no. 4 is against the order of Ld. CIT(A) whereby the Ld. CIT(A) deleted the addition on account of TP adjustment amounting to Rs. 6,37,37,035/- by upholding the internal CUP method to bench mark the transactions of sale of power by directing the AO/TPO to allow the deduction u/s 80IA(8) of the Act. 5.1. Facts in brief are that the assessee is engaged in the business of manufacture and sale of carbon black having its manufacturing units at Durgapur, Palej, Kochi and Mundra. The assessee has set up a captive power plant (hereinafter referred to as the eligible power unit or CPP at Palej, Gujrat in the assessment year 2008-09 in order to save the power overheads by using the gases generated in the manufacturing of carbon black . The power generated by the said CPP was consumed captively by other non- eligible unit of the assessee for carrying out the manufacturing activities. The other manufacturing unit has also consumed power by purchasing the same from State Electricity Board (hereinafter referred to as the SEB). According to the assessee the dominant object behind the setting up of power plant at Palej was to save overhead cost of procurement of power from SEB. The power plant at Palej also sold the surplus power to third parties namely Noida Power Co Ltd. , Global Energy, RPG Power Trading Co and IEX etc which are distribution companies selling power to the consumers. For the purpose of claiming deduction u/s 80IA of the Act, the assessee needs to determine the profits of CPP eligible unit on stand alone basis and thus required to determine the arms length price of the power transferred by the CPP to the non eligible unit. The assessee followed internal CUP for bench marking these specified domestic transactions of transfer to power from CPP to non eligible unit at average landed cost at which the non eligible unit used to procure electricity from the SEB i.e. Rs. 6.71 per unit. In other words in the transfer pricing study report, non eligible unit has been taken as the tested party and accordingly ALP of power captively consumed has been benchmarked as AALC of power purchased by the tested party from SEB. The aforesaid transactions were duly reported by the assessee in the audit report in Form 3CEB. During the assessment proceedings, the AO referred the matter to the TPO to determine the ALP of the specified domestic transactions of 8 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. captive power consumption by the non-eligible unit from the eligible unit. The TPO rejected the ALP determined by the assessee and considered the third parties to whom the eligible unit supplied power during the year as tested party and came to the conclusion that the price at which the power was sold to these third parties at 3.65 per unit would be the ALP. Accordingly the TPO recommended adjustment to the tune of Rs. 6,37,37,035/- and the draft assessment was passed making adjustment to the tune of Rs. 6,37,37,035/- to the total income of the assessee. However since the total income of the assessee was computed at loss and therefore deduction u/s 80IA was not available in the AY 2013-14 and thus it has no impact on the total income of the assessee. Nonetheless, it has certainly effect in subsequent years and hence the assessee assailed the order of TPO/AO before the Ld. CIT(A). 5.2. The Ld. CIT(A) allowed the appeal of the assessee by holding that the specified domestic transactions entered into between the eligible unit and non-eligible unit are at ALP as the assessee has valued the transactions at a rate at which the power is procured by non-eligible unit from SEB by observing as under: “ 18. Findings & Decisions: 1. I have carefully considered the action of the Ld. TPO, as also equally carefully perused the submissions made by the Ld. A.R.s and the documents available n the paper book filed by the appellant. The appellant operated eligible power undertaking (CPP) at Palej. The power generated by the eligible unit was consumed captively by other non-eligible unit. For the purpose of Section 80IA(8) and in order to determine the stand-alone profits of the eligible unit, the transfer value of power to non-eligible unit was adopted at Rs. 6.71/unit having reference to average landed cost at which the non-eligible unit procured power from the SEB. The aforesaid transaction was reported by the appellant in the transfer pricing audit report filed in Form 3CEB and thereafter the Ld. AO referred the matters for transfer pricing scrutiny. Before the Ld. TPO the appellant was required to demonstrate that the profits of the eligible unit was arrived at by adopting fair value of the goods and services provided to non-eligible undertaking and also prove that the price charged was at arm’s length. 2. From the order of the lower authorities as also from the contentions of the appellant, it is noted that both the parties have in principle accepted and agreed that the most appropriate method for determination of ALP of power tariff is CUP Method. In the Ld. TPO's. opinion however the average rate at which the CPP sold power to external third parties constituted the representative arm's length price which the appellant actual realized and therefore should be considered for benchmarking the power supplied by CPP to non-eligible unit. Per contra the appellant's internal CUP i.e. the rate at which the non-eligible units procured from unrelated entity i.e. SEB apart from 9 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. the CPP formed the basis for determination of ALP. The Ld. TPO took into consideration the fact that during the relevant year the appellant itself had sold power generated by CPP to unrelated parties at an average rate of Rs.3.656/unit. Keeping in view these facts, the Ld. AO concluded that the rate adopted by the appellant at Rs.6.71/unit was excessive and did neither represent fair market value nor the ALP of the power supplied by CPP. On the contrary he adopted Rs.3.656/unit per unit as the ALP for the power generated by the eligible unit. 3. From the foregoing facts, the question to be decided is that for application of CUP Method what should be the most appropriate data and the price to be adopted. It is well understood that CUP Method can be applied where AEs buy or sell similar goods or services in comparable transactions with unrelated enterprises or when unrelated enterprises buy or-sell similar goods or services, as is being done between the AEs. The CUP Method, can' be broadly classified into two categories i.e. Internal CUP Method & External CUP Method. Under the Internal CUP Method, the transaction between the AEs involving buy or sell of goods services are comparable to the transacted conducted by any of the AEs with unrelated parties for buy or sell of similar goods or services under similar conditions. However when such internal data is not available, then one may apply external CUP which involves comparison of prices paid/ charged between two unrelated third parties in uncontrolled conditions with the transaction conducted between the AEs. 4. From the material on record it is noted that although the eligible CPP supplied power to AE as well as non-AEs, the price realized from non-AEs did not represent the fair market value of the power realized in uncontrolled conditions. From the - submissions of the Id. ARs, it is found that the appellant is primarily engaged in the business of manufacture of carbon black. In manufacture of carbon black, the principal raw material consumed is carbon black feed-stock (CBFS). In the process, of manufacture of carbon black, when CBFS is fed, waste off gases is produced in substantial quantity. Such gases are by-products which if not consumed immediately have to be released in the air and which causes atmospheric pollution. At the same time however, such gases can be used as the source material for generation of power which in turn can be used for operating the manufacturing plant. In - the circumstances therefore the appellant had .set up the. power generation plant in the immediate vicinity of the appellant's manufacturing unit for carbon black at Palej, As explained since the gases produced in manufacture of carbon black was in substantial quantity, the capacity of the power generating plant had to be suitably increased so that the entire gas produced in the process of manufacturing was effectively consumed for generation of power. Since the quantity of power generated by consuming waste gases was higher than the power required for carbon black manufacturing undertaking, the excess power generated had to be sold in open market particularly keeping in mind the fact that the power is a perishable commodity which cannot be stored for future consumption. I therefore merit in the Id. AR's submissions that that the sale of power to unrelated parties was made under compelling circumstances and with a view to realize some value for power which otherwise would have gone waste. Having regard to the peculiar facts and business model of the appellant, I find force in the Id. AR's submissions that by selling excess/surplus power the appellant was only recouping the cost .of power generation. The price realized by the CPP undertaking under compelling circumstances cannot be considered as the representative of the market value of the commodity under uncontrolled conditions. Since the sale of excess/surplus power was made only with a view to ensure that power generated does not go waste or lost, the price so realized did not constitute arm's length price of the power which the Ld. TPO adopted in the impugned order. 10 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. 5. On the other hand, I find that the benchmarking exercise followed by the appellant not only fulfils the internal CUP parameters but reliable data is also available in this regard. The landed cost payable to the SEB represents the rate which' is available in open market and determined under uncontrolled conditions and is hence a reliable Internal CUP available in the given facts of the case. 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 SEB is a fair, reliable and reasonable basis to benchmark the transfer value of power procured by the non-eligible undertaking from the eligible unit. The coordinate Benches of the Tribunal at Kolkata have allowed the assessee's claim for deduction under Section 80IA in respect of profits of CPPs by taking selling price of electricity equal to the landed cost at which the- electricity was supplied by SEBs to the assessee's other Units consuming electricity. Dy.CIT Vs Kanoria Chemicals & Industries Ltd (ITA No.944/K/16) Graphite India Ltd Vs Addl.CIT (ITA No. 304-305/K/08) Birla Corporation Ltd (ITA Nos. 971/Kol/ 2012 & 298/Kol/2013) Dy. CITVs Kesoram Industries Limited (ITA No.l722/Kol/2012) 6. I further note that the Hon'ble Gujarat High Court in its judgment dated 03.10.2016 in the case of Pr CIT Vs Gujarat AIkalies & Chemicals Ltd (ITA No.544 of 2016) dismissed the Revenue's appeal on the following specific question: "(II) Whether the Tribunal was right in law in allowing the assessee’s claim of deduction of Rs. 1954 Crores u/s 80IA(4) of the I.T. Act, 1961, when the assessee had adopted rate of power generation at Rs.4.73 per unit, rate on which the GEB supplied power to its consumers, ignoring the rate of Rs.2.36 per. unit, the rate on ' which power generating company supplied its power to GEB?" 7. The Hon'ble Gujarat High Court thus specifically decided the issue in favour of the assessee by holding that the deduction under Section 80IA in respect of CPP shall be computed by taking the per unit selling price of electricity equal to the rate at which the assessee purchased the electricity from SEB. 8. Reliance is further placed on the judgment of the Hon'ble 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." 9. This question again came up for consideration before the Hon'bie Bombay High Court in the case of CIT Vs Reliance Industries Limited [2019] (102 taxmann.com 372) wherein the Hon'ble Court after considering the judgment of the Hon'bie Calcutta High Court in case of CIT vs ITC Ltd (64 taxmann.com 214), Hon'ble Chattisgarh High Court in case of 11 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. CIT v. Godawari Power &Ispat Ltd. (supra) & Hon'ble Gujarat High Court in the case of ofPr.CIT Vs Gujarat Alkalies& Chemicals Ltd (supra) held that the valuation of electricity provided by eligible unit to another non-eligible unit for the purposes of Section 80IA(8) should be at rate at which electricity distribution companies were allowed to supply electricity to consumers. 10. For the reasons set out in the foregoing therefore I hold that the methodology and benchmarking performed by the appellant (also judicially approved by higher judicial forums discussed above) was justified! Accordingly the Ld. AO/TPO is directed to delete the transfer pricing adjustment and further direct the Ld. AO/TPO to grant the deduction u/s 80IA based on the transfer price of Rs.6.71/unit in respect of the power supplied by the CPP to non- eligible uni.t of the appellant. While computing the deduction permissible, the Ld. AO/TPO shall give an opportunity of hearing to the appellant and will re-compute the deduction in terms of the directions above. Ground Nos. 6 & 7are therefore allowed.” 5.3. The ld. D.R. vehemently argued before the Bench that the Ld. CIT(A) has erroneously deleted the addition by taking ALC non-eligible unit of Rs. 6.71 per unit as the rate for bench marking the captive consumption of power by ignoring the facts the rate of Rs. 3.656 per unit at which the electricity /power was supplied to the third independent parties by eligible unit. The Ld. D.R. also brought to the notice to the Bench the chart/details of quantum of power sold to the third parties vis-à-vis the captive consumption of power by the non-eligible unit and submitted that the power captively consumed was only 2,08,66,802 unit whereas the power sold to third parties was 5,40,12,125 units and therefore argued that the TPO has rightly calculated arm’s length price by taking the rate at which power was sold to third parties and rightly proposed TP adjustment of Rs. 6,37,37,035/- in respect of specified domestic transactions for the purpose of determining the profits of the eligible unit on standalone basis for allowing claim u/s 80IA of the Act. The Ld. D.R. finally submitted that the order of Ld. CIT(A) may kindly be reversed on this issue by restoring the order of AO by allowing the ground no. 4 of the revenue’s appeal. 5.4. The Ld. A.R. vehemently argued before us that the assessee has correctly bench marked the specified domestic transactions of transfer of power for captive consumption by taking the non eligible unit as tested party and taking the ALC at which the non eligible unit/tested party procured the electricity from SEB @ 6.71per unit. The Ld. A.R. submitted that the TPO has wrongly adopted the rate at which the power was sold by the eligible unit to third parties at Rs. 3.65 per unit by treating the 12 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. third parties as tested party. The Ld. A.R. ,while referring to the appellate order ,submitted that the Ld. CIT(A) has allowed the appeal of the assessee on this issue after going into the issue at great length and after giving comprehensive findings by relying various decisions as mentioned in para 18.6,18.7,18.8,18.8 and 18.9 of the appellate order. The Ld. A.R reiterated his contentions as made before the Ld. CIT(A) by submitting that in the following decisions which were also considered by the Ld. CIT(A) in which ALC at which the power is purchased by non-eligible unit is considered to be fair market value / transfer price/ ALP of power supplied by eligible unit to the non-eligible unit. The Ld. A.R. took us through the various decisions of various High Courts and Tribunals in order to prove his averments on the issue of pricing of captive consumption of power from eligible unit to non-eligible unit. The Ld. A.R. referred to the following decisions to defend his arguments: i) CIT vs. Reliance Industries Ltd. [2019] 102 taxmann.com 372 (Bombay) ii) CIT vs. Gujarat Alkalies & Chemicals Ltd. (ITA No. 544 of 2016) (Guj HC) iii) CIT vs. Reliance Infrastructure Ltd. (ITA No. 2180 of 2011) (Bom HC) iv) CIT vs. Godawari Power & Ispat Ltd. (223 Taxman 234) (Chhat. HC) v) ACIT vs. Birla Corporation Ltd. (ITA No. 971/Kol/2012)(ITAT Kol) 5.5. The Ld. A.R. has submitted that in the following cases non-eligible manufacturing unit was treated as tested party and ALC at which the power is purchased by the tested party from SEB was held to be most captively ALP consumed to benchmark the transfer price of power supplied by the eligible unit to the non- eligible unit: i) Star Paper Mills Ltd. vs. DCIT [2022] 134 taxmann.com 177 (Kolkata-Trib.) ii) DCIT vs. Balarampur Chini Mills Ltd. (IT Appeal No. 1672 (Kol) of 2019, dated 5.5.2021) 13 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. Finally the Ld. A.R. submitted that the arguments by the Ld. D.R. that the power sold to independent parties at Rs. 3.65 per unit should be taken as the arm’s length price for the purpose of calculating deduction u/s 80IA is wrong and contrary to the provision of the Act and various judicial precedents. The Ld. A.R. submitted that such arguments are fallacious as it is a settled position of law that for the purpose of computing deduction u/s 80IA the power used captively in the assessee’s non-eligible unit by transferring eligible unit has to be computed at the rate at which the electricity was procured by the non-eligible unit from SEB. The Ld. A.R. finally prayed before the Bench that the order of Ld. CIT(A) may kindly be upheld. 5.6. We have heard rival submissions and perused the material as placed before us carefully including the impugned order and case laws relied upon by the assessee. The undisputed facts in brief are that the assessee is engaged in the business of manufacture and sale of carbon black having its manufacturing units at Durgapur, Palej, Kochi and Mundra. The assessee has set up CPP at Palej, Gujrat in the assessment year 2008-09. The power generated by the said unit consumed captively by other non-eligible unit of the assessee for carrying out the manufacture and also supplied to other third parties namely Noida Power Co Ltd. , Global Energy, RPG Power Trading Co and IEX to the extent the power was in surplus. Noteworthy that non eligible unit has also consumed power by purchasing the same from SEB. We observe from the facts before us that assessee the set up the power plant at Palej to save overhead costs in respect of power which used to be procured from SEB. We note that the assessee determined the ALP of specified domestic transactions at 6.71 per unit which was the Average Annual Landed Cost (AALC) at which the non-eligible unit procured power from SEB. Thus , the assessee followed internal CUP for bench marking the specified domestic transactions of transfer of power from CPP to non eligible unit at average landed cost at which the non eligible unit procured electricity from the SEB i.e. Rs. 6.71 per unit by taking non eligible unit as the tested party in the TP Study Report and accordingly ALP of the power captively consumed has been benchmarked at AALC of power purchased by the tested party from SEB. The 14 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. assessee also duly reported these transactions in the audited report in Form 3CEB. Accordingly to the TPO the third parties to which the eligible unit supplied power during the year have to be taken as tested party and the price at which the power was sold to these independent parties at 3.65 per unit would be the ALP of the domestic specified transactions. Accordingly the TPO recommended adjustment to the tune of Rs. 6,37,37,035/- and the AO passed the draft assessment. However since the total income of the assessee was computed at loss, deduction u/s 80IA of the Act was not available in the AY 2013-14 as it was not having any impact on the total income of the assessee. The assessee challenged the issue as it had impact on the subsequent years. According to the assessee the internal CUP has to be used for the determination of ALP at which the non-eligible unit/manufacturing unit procured the power from unrelated party i.e. SEB. Now the issue before us whether the CUP method can be applied to bench mark specified domestic transactions of transferring power by CPP to non eligible unit where the CPP sells the similar goods or services to unrelated enterprises. We have also perused the provisions as contained in Rule 10B of the Income Tax Rules which provide as to where the CUP can be and has to be applied. We observe from the said rule 10B that we have to see the price at which the property ,goods or service has been acquired under similar market conditions. It is also settled that choice of tested party is of lesser significance for the purpose of application of CUP method but instead key factor in application of CUP is product comparability and similar market conditions. Further the CUP method can be classified into two categories i.e. internal CUP method and external CUP method. Under internal CUP method the transactions between the AE’s involving buying or selling of goods and services are comparable to the transaction entered into by the AE’s with the unrelated parties for buying and selling similar goods and service under similar circumstances. However when such internal data was not available then one may apply external CUP which involves comparison of price paid/charged between the two unrelated parties in uncontrolled condition for transactions entered into between the AE’s. In the instant case as noted elsewhere hereinabove that the CPP bench marked the transaction with non eligible unit at a rate at which power is supplied by the SEB to the non eligible 15 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. unit and therefore is the prevailing rate at which the power has been supplied by the SEB to other parties/factories located in the same geographical areas/location. It is also undisputed that both CPP as well as SEB supplied/sold power during the year and thus there is no timing difference as well. Thus we are in agreement with the conclusion of Ld. CIT(A) that transactions of purchase of power by the non eligible unit from SEB fulfill the internal CUP parameters vis product comparability and similar market conditions and thus the ALC paid by the non eligible unit to the SEB represented the internal comparable ALP. 5.7. We note that the Ld. CIT(A) has also dealt with the issue as to how the assessee has come to manufacture the power. We observe from the order of Ld. CIT(A) that the assessee engaged in the business of manufacture of carbon black and in the manufacturing process the principal raw material consumed is carbon black feed stock (CBFS). During the manufacturing of carbon black several gases are produced in the substantial quantity and if such gases, which are by-product of the manufacturing process, if not consumed immediately have to be released in the air which causes atmospheric pollution. At the same time, such gases can be used as source material for generation of power which in turn can be used for operating the manufacturing plant. For this purpose, the assessee had such generation plant in the immediate vicinity of the manufacturing unit. The Ld. CIT(A) also noted that since the manufacturing unit of the assessee was generating huge poisonous gases, therefore the power plant of the assessee has to be set up. The power generated by consuming the waste gases was in surplus and much higher than the power required by carbon black manufacturing unit and thus the excess power generated has to be sold in the open market at the lower rate as the power is a highly perishable commodity which cannot be stored for the future. On this reasoning, the Ld. CIT(A) has come to the conclusion that the selling the power by CPP in the open market was under compelling circumstances and was targeted to recover only the cost of power generation and therefore such price cannot be considered as representative of market value of the commodity under uncontrolled conditions. According to Ld. CIT(A), the excess surplus power sold in the open market 16 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. at a price which was lower than the price at which the manufacturing unit procured electricity from the SEB cannot the arm’s length price of the power. Thus, the Ld. CIT(A) reversed the order of TPO/AO by directing that the price at which the SEB sold power in the open market under uncontrolled conditions is reliable internal CUP and accordingly came to the conclusion that ALC notified by the SEB is a fair, reliable and reasonable basis to bench mark the power procured by non-eligible unit from the eligible unit. The Ld. CIT(A) while allowing the appeal of the assessee has relied on the series of decisions namely PCIT vs. Gujarat Alkalies & Chemicals Ltd. (supra), CIT vs. Godawari Power & Ispat Ltd. (supra) and Reliance Infrastructure Ltd. in ITA No. 2180 of 2011 (Bombay-High Court) and the decision of Co-ordinate Bench of Kolkata in the case of DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol/2012 for AY 2008-09. We note that in all the above decisions, the AALC at which the power is purchased by the non-eligible unit of the assessee was considered to be the fair market value transfer price of power supplied by the eligible unit to the non-eligible unit. Before us, the Ld. A.R also argued that non-eligible unit has to be held as a tested party and AALC at which the power was purchased by the tested party from SEB/ third party is the most appropriate ALP to bench mark the transfer of power supplied by eligible unit to non-eligible unit. The said view of the assessee is squarely covered by the two decisions of Hon’ble Benches namely Star Paper Mills Ltd. vs. DCIT (supra) and DCIT vs. Balrampur Chini Mills Ltd. (supra). Having considered the ratio laid down, we are of the view that there is no infirmity in the order of Ld. CIT(A) which is a very reasoned and speaking order passed after following the decision of various Hon’ble High Courts and decision of Co-ordinate Benches of the Tribunal. We have also noted the arguments advanced by the ld DR that rate at which the power was supplied to the unrelated parties should be taken as ALP however can not overlook the fact that the said transactions did not take place under similar market conditions and that price can not be taken as ALP under CUP method. The power supplied by the CPP to non eligible unit was business to consumer (commonly known As B2C) meaning thereby the rate at which the ultimate consumers can purchase the power for their consumption is relevant. In the instant case before us, the B2C market comprises 17 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. the sale of power by SEB and IEX etc to different categories of consumers. Thus the power sold by the CPP to unrelated parties namely Noida Power Co Ltd, Global Energy , RPG Power Trading Co, and IEX etc was in altogether different market conditions which is business to business commonly known as B2B model and the said rate represented the rate at which the distribution companies purchased power from generation companies. Further no consumer can buy the power in the open market at a rate generation companies sell power to distribution companies. Thus we do not find any force in the contentions of the ld DR that rate at which the power was sold to unrelated parties by the CPP is the ALP. We also note that decision of the Calcuta High court in the case of CIT Vs ITC 236 Taxman 612 which was relied by the TPO/AO and the functional dissimilarity between CPP and SEB have been considered by the coordinate bench of the tribunal in the case of Star Paper Mills Ltd Vs DCIT in ITA No. 127/Kol/2021. Therefore , we are inclined to uphold the order of Ld. CIT(A) by holding that the ALC at which the power is procured by non- eligible unit from SEB is the most appropriate ALP to bench mark the specified domestic transaction and accordingly the order passed by Ld. CIT(A) is upheld by dismissing the ground no. 4 of the revenue’s appeal. 6. The issue raised in ground No. 5 is against the deletion of disallowance by ld CIT(A) as made by the AO u/s 14A of the Act read with Rule 8D of the Rules. 6.1. Facts in brief are that the assessee has earned dividend income of Rs. 5,59,063/- and made suo-moto disallowance of Rs. 6,59,375/-. The assessee’s own interest free funds were available to Rs. 58,910.64 lacs whereas the investments were Rs. 7,236.76 lacs. According to AO, the suo-moto disallowance made by the assessee is not correct and AO after issuing show cause notice and after taking into the submissions9 of the assessee, invoked the provisions of Section 14A read with Rule 8D(2)(ii) and Rule 8D(2)(iii) and computed the disallowance at Rs. 2,74,23,000/- comprising Rs. 2,38,04,000/- under Rule 8D(2)(ii) and Rs. 36,18,000/- under Rule 8D(2)(iii). After allowing the credit of suo-moto disallowance, the net of disallowance of Rs. 2,67,63,625/- was made by the AO. 18 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. 6.2. The Ld. CIT(A) allowed the appeal of the assessee so far as the disallowance under Rule 8D(2)(ii) is concerned by holding that the assessee has sufficient own interest free funds available and therefore came to the conclusion that the investment in share and securities were made out of own interest free by relying the decision of Reliance Utilities & Power Ltd. (313 ITR 340), CIT vs. HDFC Bank Ltd. (383 ITR 529)(Bom-HC), CIT vs. UTI Bank Ltd. (32 taxmann.com 270) (Guj-HC) and CIT vs. Max India Ltd. (388 ITR 81) and assessee’s own case in ITA Nos. 1273 &1274/Kol/2015 for AYs. 2009-10 & 2010-11. So far as the disallowance under rule 8D(2)(iii) was concerned, the Ld. CIT(A) allowed the appeal of the assessee by holding that only those investments are required to be considered which yielded exempt income during the year by following the ratio laid down by co-ordinate Bench in assessee’s own case in ITA No. 1273 & 1274/Kol/2015 (supra) and came to the conclusion that the disallowance under rule 8D(2)(iii) worked out to Rs. 9635/- only. Since the assessee has suo-moto made disallowance of Rs. 6,59,374/- which is higher than the disallowance coming under Rule 8D(2)(iii), therefore no need for any disallowance and directed the AO to restrict the disallowance to the suo-moto disallowance. 6.3. Having heard rival submissions and perusing the material on records including the impugned order, we do not find any infirmity in the order of ld CIT(A). Accordingly, ground no. 5 of the revenue is dismissed. 7. In the result, the appeal of the Revenue is dismissed. Order is pronounced in the open court on 5 th July, 2022 Sd/- Sd/- (Sonjoy Sarma) (Rajesh Kumar) Judicial Member Accountant Member Dated: 5 th July, 2022 SB, Sr. PS 19 ITA No. 2628/Kol/2019 AY: 2013-14 M/s Philips Carbon Black Ltd. Copy of the order forwarded to: 1. Appellant- ACIT, Circle-10(2), Kolkata 2. Respondent – M/s Philips Carbon Black Ltd., Duncan House, 31, Netaji Subhas Road, Kolkata-700001. 3. The CIT(A)- 22, Kolkata 4. Pr. CIT- Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata 1. Date of Dictation.............................................. 2. Date on which the typed order is placed before the dictating Member and other Member..................................................... 3. Date of which the order came back to Sr. PS.......................................... 4. Date of which the file goes to the O.S....................................... 5. Date of dispatch of the order.............................................