Nectar Lifesciences Ltd., Chandigarh V. ACIT, Circle- 18(1), New Delhi

ITA 567/DEL/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5500 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Assessment Year: 2014-2015
• Appeal Filed On: 28-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEERA SRIVASTAVA
• Assessee Lawyers: YOGESH MONGA
• Keywords: Depreciation; Transfer pricing
• Section: 133(6); 250; 64; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. NO.567/DEL/2019 ASSESSMENT YEAR 2013-14 NECTAR LIFESCIENCES LTD., SCO 38-39, SECTOR-9D, CHANDIGARH. V. ACIT, CIRCLE-18(1), NEW DELHI. TAN/PAN: AABCS6468G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI YOGESH MONGA, CA RESPONDENT BY: MS. MEERA SRIVASTAVA, CIT-DR DATE OF HEARING: 27 07 2021 DATE OF PRONOUNCEMENT: 13 09 2021 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 29.11.2018 PASSED U/S.143( 3) R.W.S. 144C(1) FOR THE ASSESSMENT YEAR 2014-15 IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE LD. DISPUTE RESOLUTION PANEL VI DE ORDER DATED 20.09.2018. IN THE GROUNDS OF APPEAL, THE ASSES SEE HAS CHALLENGED THE ADDITION ON TRANSFER PRICING ADJUSTMENT AT RS.33,36,66,839/-. THE GROUNDS OF APPEAL READS AS U NDER: 1.1 THE ASSESSMENT ORDER PASSED BY THE LD. AO IN PURSUA NCE TO THE DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL (DRP) IS A VITIATED ORDER AS THE HONBLE DRP ERRED BOTH ON FAC TS AND IN LAW IN CONFIRMING ADDITIONS MADE BY THE LD. AO/LD. TRANSFE R PRICING OFFICER (TPO) TO THE APPELLANTS INCOME BY ISSUING AN ORD ER WITHOUT APPRECIATION OF FACTS AND LAW. 1.2 THE LD. AO ERRED ON FACTS BY CONSIDERING POWER PLA NTS OF THE I.T.A. NO.567/DEL/2019 2 ASSESSEE AS BIOMASS GASIFIER POWER PLANTS INSTEAD OF BIOMASS STEAM POWER PLANTS. THIS HAS BEEN CLARIFIED VIDE OUR LETTER DATED 02.02.2017 AND CHARTERED ENGINEER CERTIFICATE. THE RAW MATERIALS AND OPERATIONAL WORKING OF BOTH POWER PLANTS ARE AL TOGETHER DIFFERENT. 2. POWER UNIT THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN DETERMI NING THE ARMS LENGTH PRICE (ALP) OF THE ASSESSEES SPECIFIED DO MESTIC TRANSACTIONS PERTAINING TO TRANSFER OF POWER UNITS FROM ELIGIBLE TO NON-ELIGIBLE UNITS AT RS. 4.609545/ UNIT AS AGAINST RS. 6.72/ UNIT AND IN DOING SO HAVE GROSSLY 2.1 ERRED IN TAKING UNIT RATE OF RS. 4.609545 (AVERAGE OF RS. 6.40/ UNIT, TARIFF FIXED BY PUNJAB STATE ELECTRICITY REGU LATORY COMMISSION FOR BIOMASS GASIFIER POWER PLANTS AND RS. 2.81909/ UNIT, THE AVERAGE RATE OF POWER TRADED AT INDIAN ENERGY EXCHANGE), DE SPITE THAT FACT THAT THE ASSESSEE HAD BIOMASS STEAM BASED POWER PLANTS AND ALSO THE ASSESSEE COULD NOT HAVE SOLD POWER UNITS O N INDIAN ENERGY EXCHANGE DUE TO STATUTORY OR REGULATORY RESTRICTIONS AND THERE WAS NO EVIDENCE OF ACTUAL DELIVERY/SUPPLY OF POWER TRAD ED AT ENERGY EXCHANGE BY HUSK BASED POWER PLANT COMPANIES BASED IN PUNJAB OR ANYWHERE IN INDIA. 2.2 ERRED IN IGNORING PROVISIONS OF INCOME TAX ACT AND VARIOUS ITAT/ HIGH COURT JUDGMENTS REGARDING MARKET VALUE IN RE LATION TO ANY GOODS OR SERVICES BEING SOLD OR SUPPLIED, WHICH STA TES THAT EITHER SALE PRICE OF ELECTRICITY BOARD OR PURCHASE PRICE OF ELE CTRICITY BOARDS SHOULD BE TAKEN AS A MARKET VALUE IN THE CASE OF CAPTIVE P OWER PLANTS. 3. STEAM THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN DETERMI NING THE ARMS LENGTH PRICE (ALP) OF THE ASSESSEES SPECIFIED DO MESTIC TRANSACTIONS PERTAINING TO TRANSFER OF STEAM FROM ELIGIBLE TO NO N-ELIGIBLE UNITS AT NIL AS AGAINST RS. 2160/ MT AND IN DOING SO HAVE GROSSLY I.T.A. NO.567/DEL/2019 3 3.1 ERRED IN TREATING ASSESSEES POWER PLANT AS BI OMASS GASIFIER POWER PLANT, IN WHICH NO STEAM IS GENERATED, INSTEA D OF BIOMASS STEAM POWER PLANTS AND THEREFORE FAILED TO UNDERSTA ND THE OPERATIONS OF HUSK BASED POWER PLANTS IN WHICH TOTAL EXPENDITU RE IS INCURRED FIRST ON GENERATION OF STEAM AND THEREAFTER PART OF STEAM IS USED FOR GENERATION OF ELECTRICITY UNITS AND MAJORITY OF STE AM IS TRANSFERRED TO MANUFACTURING PROCESSES OF PHARMA UNITS OF THE ASSE SSEE. 3.2 ERRED IN IGNORING NUMBER OF ITAT/ HIGH COURT/ SUPREME COURT JUDGMENTS WHICH HAVE HELD THAT STEAM IS A FOR M OF POWER ELIGIBLE FOR DEDUCTION U/S 80-IA OF THE INCOME TAX ACT 1961. HAD THE STEAM COST BEING NIL, THERE WOULD HAVE BEEN NO NEED OF ANY JUDGMENT ON THIS ISSUE. 3.3 ERRED IN IGNORING AUDIT CERTIFICATES OF SENIOR CHARTERED ENGINEER (APPROVED BY INCOME TAX DEPTT.) (PAGE 164 TO 166) , COST ACCOUNTANT (APPOINTED BY CENTRAL GOVT, TO CONDUCT C OST AUDIT OF THE COMPANY) (PAGE 167) AND CHARTERED ACCOUNTANT (APPOI NTED BY SHAREHOLDERS OF THE COMPANY) (PAGE 168 - 171). ALL THESE AUTHORITIES CANT BE WRONG IN CALCULATING ACTUAL COST OF STEAM. 4. THAT THE LD. AO/TPO ERRED ON FACTS AND IN LAW I N MAKING ADDITION OF ADJUSTMENT OF TRANSFER PRICING OF RS. 33,36,66,8 39/- AND IN DOING SO HAVE GROSSLY. 4.1. ERRED IN NOT RESTRICTING THE ADDITION UNDER C HAPTER VI-A TO RS. 31,87,41,278/-. 4.2. ERRED IN NOT CONSIDERING REVENUE OF RS. 20,05 ,82,507/- (4,35,14,600 UNITS @ RS.4.609545) ALLOWED BY TPO IN HIS ORDER. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DELIVERY OF HIG H QUALITY PHARMACEUTICAL PRODUCTS AND RESEARCH IN HEALTH SECTOR. THE PRODUCTION OF ITS PHARMACEUTICALS PRODUCTS REQUIRES HI GH VOLUME OF ELECTRICITY AND POWER STEAM FOR HEATING, COOLING, CONTROLLING AND I.T.A. NO.567/DEL/2019 4 HUMIDITY AND CHEMICAL REACTIONS. IT HAS SET UP TWO ELE CTRICITY POWER PLANT OF 6 MW EACH IN DERA BASSI (PUNJAB) FOR FULFILLING THE CAPTIVE CONSUMPTION NEEDS OF THE ASSESSEE-COMPANY. TH E SAID PLANTS GENERATE BOTH ELECTRICITY AND STEAM AIDING IN THE MANUFACTURING PROCESS. SINCE, THE ASSESSEE HAS ENTERE D INTO SPECIFIC DOMESTIC TRANSACTION WITHIN THE MEANING OF SEC TION 92BA WITH ITS ASSOCIATED ENTERPRISES; THE ASSESSING OFFICE R REFERRED THE MATTER TO THE TPO FOR DETERMINING THE ARMS LENGTH PRICE . THE TPO AFTER EXAMINING THE TRANSFER PRICING ADJUSTMENT AND AFT ER ANALYZING ALL THE SPECIFIC DOMESTIC TRANSACTIONS WITH THE AE, HAS PROCEEDED TO BENCHMARK THE POWER FROM ELIGIBLE UNIT TO NON ELIGIBLE UNIT SPECIFICALLY SUPPLY OF ELECTRICITY AND STEAM FROM ELIGIBLE UNIT TO NON-ELIGIBLE UNIT. AS PER THE TP STU DY REPORT, THE ASSESSEE HAD SHOWN TRANSFER OF POWER FROM ELIGIBLE U NIT TO NON ELIGIBLE UNIT AT RS.17,66,97,024/-. THE TPO NOTED THAT TRANSFER OF THE ELECTRICITY POWER FROM ELIGIBLE UNIT TO NON ELIGIB LE UNIT, THE AVERAGE SALES PRICE AS PER INDIAN ENERGY EXCHANGE ( IEX) BY TAKING IT AS EXTERNAL CUP COMES TO RS.2.81909 PER UNIT, WHER EAS ASSESSEE HAS SHOWN RS. 6.72 PER UNIT. THE TPO WAS OF THE VIEW THAT BENCHMARKING OF THE SALE OF ELECTRICITY PER UNIT CAN NOT BE DONE WITH THE SALE PRICE FIXED BY STATE ELECTRICITY BOARD AS BENCHMARKED BY THE ASSESSEE, BECAUSE STATE ELECTRICITY BOARD PURC HASES ELECTRICITY ON A MUCH LESSER PRICE AND SALE PRICE I S MUCH HIGHER BECAUSE OF VARIOUS FIXED HEADS AND EXPENSES, THEREFO RE, IT WAS NOT A RIGHT CUP. 4. TPO CALLED UPON INFORMATION U/S. 133(6) FROM I NDIAN ENERGY EXCHANGE AND AFTER INCORPORATING THE DAY TO DAY OF EN ERGY RATE OF POWER TRADE BY IEX, HELD THAT AVERAGE RATE OF POWER TR ADED BY IEX FOR THE FINANCIAL YEAR 2013-14 WAS RS. 2.81909 PER U NIT AND I.T.A. NO.567/DEL/2019 5 WHEREAS THE ASSESSEE HAD SHOWN SALE RATE AT RS. 6.72 PER UNIT WHICH IS NOT CORRECT. ACCORDINGLY, HE MADE THE ADJUSTM ENT OF RS.918,35,605/- AFTER OBSERVING AS UNDER: 7.20 ASSESSEES SUBMISSION HAS BEEN CONSIDERED BY THE TPO , THE ASSESSEE HAS COMPARED SALE OF PUNJAB STATE POWER CO RPORATION WITH ASSESSEES SALE RATE. IT MAY BE MENTIONED THAT BOTH HAVE DIFFERENT FUNCTIONS AND CANNOT BE COMPARED. PUNJAB STALE POWE R CORPORATION IS A TRAILER WHERE AS THE ASSESSEE IS A PRODUCER, THER EFORE, FUNCTIONALLY THEY ARE DIFFERENT. SALE PRICE OF PUNJAB SLATE POWE R CORPORATION, TRADER, CANNOT BE COMPARED WITH ASSESSEE, MANUFACTU RER. 7.21 AS FAR AS ASSESSEES CONTENTION THAT POWER GENERAT ED BY RIO GASIFIER PLANTS ARE NOT TRADED AT IEX IS CONCERNED, IT MAY BE MENTIONED THAT IEX HAS NOT SPECIFIED NATURE OF POWE R GENERATOR. IT IS RATE OF POWER AND SPECIFICALLY BASED ON FUEL. POWER WAS TRADED AT IEX FOR PUNJAB REGION AT RS. 281909, THEREFORE, IT CAN BE TAKEN AS A RATE FOR DETERMINING AVERAGE SALE RATE. 7.22 THE ASSESSEE SUBMITTED THAT PUNJAB STATE ELECTRICI TY REGULATORY COMMISSION HAS FIXED TARIFF OF RS.6,52 P ER UNIT; FOR BIOGAS GASIFIER POWER PROJECTS. CONTENTION OF ASSESSEE IS CONSIDERED , IL WAS FOUND THAT NET APPLICABLE TARIFF ROTE UPON ADJUSTIN G FOR ACCELERATED DEPRECIATION BENEFIT RATE FIXED BY PSERC WAS RS.6.4 0 PER UNIT, IT IS FURTHER SEEN THAT THIS WAS GENERIC TARIFF FOR RE TE CHNOLOGIES FOR F.Y .- 2013-14. THERE ARE VARIOUS OTHER VARIABLE FACTORS W HICH HAVE TO BE CONSIDERED WHILE DECIDING FINAL TARIFF, THESE FACTO RS ARE- PLANT LOAD FACTOR AND NUMBER OF OPERATING DAYS FOR NON-FOSSIL FUEL BASED CO- GENERATION: FUEL COST AND RETURN ON EQUITY. SINCE P SERC HITS NOT FIXED TARIFF FOR ASSESSEES UNIT, THEREFORE, IT CANNOT BE PRESUMED THAT THESE FACTORS HAVE BOON CONSIDERED WHILE DECIDING TARIFF OF RS.6.40 PER UNIT. UNDER THESE CIRCUMSTANCES SOLELY GENERIC TARIFF CAN NOT BE TAKEN AS BASE FOR DETERMINING CUP. HOWEVER IT CAN BE TAKEN A S A BASE TO SOME EXTENT. THEREFORE, THE RATES OF POWER TRADED AT TEX AND GENERIC RATES I.T.A. NO.567/DEL/2019 6 DECIDED BY PSERC CART BE TAKEN AS BASE FOR COMPARAB ILITY UNDER CUP. WITH ABOVE DISCUSSION AVERAGE OF GENERIC TARIFF MID POWER TRADED AT IEX IS TAKEN AS COMPARABLE PRICE. THUS RS. 4.609545 PER UNIT IS TAKEN AS COMPARABLE PRICE FOR CALCULATING ALP UNDER CUP. 7.23 WITH THIS REMARK, EXTERNAL CLP IS APPLIED IN THIS CASE TAKING ASSESSEE AS THE TESTED PARTY AND ARMS LENGTH RATE IS APPLIED AT RS.4.609545 PER KWH. ADJUSTMENT AS PER ALP:- NAME OF POWER GENERATING UNIT CAPTIVE CONSUMPTION BY ASSESSEE VALUE CONSIDERING ALP OF RS.4,609545 PER UNIT DIFFERENCE BETWEEN VALUE SHOWN BY ASSESSEE AND ALP UNITS CONSUMED NOTIONAL VALUE SHOWN BY ASSESSEE (IN RS.) RATE PER UNIT (NOTIONAL) (IN RS.) NEW POWER PLANT 26294200 173397024 6.72 12,12,04,298 5,54,92,726 OLD POWER PLANT 17220400 115721088 6.72 7,93,78,209 3,63,42,879 9,18,35,605 ON THE BASIS OF ABOVE DISCUSSION, AN ADJUSTMENT OF RS.9,18,35,605/- IS HEREBY MADE TO THE PURCHASE PRICE OF POWER BY TH E NON-ELIGIBLE UNITS FROM CAPTIVE POWER PLANTS. (ADJUSTM ENT RS.9,1835,605/-) 5. SIMILARLY, WITH REGARD TO BENCHMARKING OF TRANSF ER OF STEAM CAPTIVE POWER PLANT TO NON ELIGIBLE UNIT, TPO NOTED THAT AS PER FORM 3CEB, THE ASSESSEE HAS TRANSFERRED STEA M VALUING RS.68,44,75,920/- FROM EXEMPT UNITS/ POWER GENERATING UNITS TO NON EXEMPT UNITS FOR MANUFACTUR ING OF BULK DRUGS. THE TPO REQUIRED THE ASSESSEE TO FURNIS H THE COST OF GENERATION OF STEAM PRODUCED; AND IN RESPONSE TH E ASSESSEE FILED CERTIFICATE OF COST ACCOUNTANT AND S UBMITTED I.T.A. NO.567/DEL/2019 7 THAT COST OF GENERATING OF ONE POWER UNIT COMES TO RS. 5.10 PER UNIT. HOWEVER, THE LD. ASSESSING OFFICER REJECT ED THE ASSESSEES CONTENTION AND MADE THE ADJUSTMENT OF RS.68,44,75,920/- AFTER OBSERVING AS UNDER: 8.2 ASSESSES-S SUBMISSION HAVE BEEN EXAMINED. COST CERTIFICATE SUBMITTED BY THE ASSESSEE HAVE ALSO BEEN EXAMINED. THE COST CERTIFICATE IS REGARDING ARRIVING AT COST OF POWER GENERATED. IT MAY BE MENTIONED THAT PRODUCTION OF STEAM IS NOT THE OBJEC TIVE OF THE ASSESSEE. THE ASSESSEE HAS INSTALLED BIO GASIFIER T URBINE TO PRODUCE ELECTRICITY. TOTAL STEAM PRODUCED WAS 446636 MT OUT OF F WHICH TRANSMISSION LOSS WAS 43500 MT AND NET QUANTITY WAS 103136 MT. THE COST ACCOUNTANT HAS WORKED OUT PRICING BASED ON (HIS QUANTITY. IT MAY BE MENTIONED THAT THE ENTIRE STEAM WAS UTILIZED TO RUN TURBINE FOR POWER GENERATION BASED ON CAPACITY OF POWER PLANT. THEREFORE, THE COSTING IS FOR POWER GENERATION AND FOR PLAIN USE O F STEAM. THEREFORE, THE COST CERTIFICATE SUBMITTED BY THE ASSESSEE DO N OT SERVE (HE PURPOSE. STEAM PRODUCED IS UTILIZED FOR POWER GENER ATION. THE 'UNUTILIZED PART OF STEAM MAY HAVE BEEN USED BY THE ASSESSEE FOR OTHER PURPOSES BUT OBVIOUSLY IT DOES NOT HAVE ANY C OST. ENTIRE COST HAS BEEN UTILIZED FOR GENERATION OF POWER. BEFORE PROCE EDING FURTHER IT IS IMPORTANT THAT PROCESS OF POWER GENERATION IS UNDER STOOD:- RAW WATER IS GENERATED FROM GROUNDS AND COLLECTED I N A STORAGE LANK AND AFTER THE TREATMENT I.E. REMOVING ALL THE SALTS , CARBONATES, BICARBONATES BY THE MYTHOLOGY USING INN- EXCHANGE, EXTRACT ALL THE MINERALS FROM WATER AND FEED TO THE BOILER VIA DE-A ERATOR. THESE SALTS ARC REMOVED FROM WATER TO AVOID THE BOILER AND STEA M TURBINE FROM SCALING. IN DE-AERATOR, STEAM IS GIVEN TO REMOVE THE DISSOLV ED OXYGEN IN WATER FOR FURTHER POLISHING THE WATER. I.T.A. NO.567/DEL/2019 8 AFTER THE DE-AERATOR, THIS WATER FEED TO THE BOILER WITH THE HELP OF BOILER FEED PUMP AND SIMULTANEOUSLY BIN MASS FUEL I S FEED TO BOILER IN BOILER FURNACE AND BURNING OF BIOMASS FUEL CONTINUO USLY FOR HEATING THE BOILER AND GENERATE THE STEAM @ 67 KG/CM2, 485 DEG E. THIS STEAM GOES TO STEAM TURBINE AND RUN THE TURBIN E (A), 8200 RPM & ROTATE THE ALTERNATOR @ 1500 RPM BY USING THE REDUC TION GEAR BOX. THIS ALTERNATOR GENERATE THE 11 KV AND SUPPLY TO PR OCESS PLANT AND THEN STEP DOWN THE 11 KV TO 440 V WITH THE HELP OF TRANSFORMER AND RUN THE MOTORS, FANS OTHER EQUIPMENTS. ON THE OTHER SIDE, THE STEAM LEFT IN STEAM TURBINE COMES OUT THE FROM TURBINE @ 6 KG/CM2, 250 DEG E WHICH IS SUPPLIED TO PROCESS PLANT FOR HEATING AND COOLING PURPOSE. PARTIAL STEAM INSIDE THE TURBINE HAVING VERY LOW PR ESSURE AND GOES TO CONDENSER WHICH PRESSURE IS 0.1 KG/CM2 @ 50 DEG E A ND CONDENSE IT WITH THE HELP OF COOLING TOWER WATER AND AGAIN FEED TO THE DE-AERATOR FOR REUSE FOR BOILER. 8.3 ON EXAMINING THE PROCESS OF POWER GENERATION IT CAN BE SEEN THAT THE GASIFIER WERE NOT INSTALLED FOR STEAM PROD UCTION BUT FOR POWER GENERATION. THE UNUTILIZED PART IS ONLY USED FOR OT HER PURPOSE, AS SUCH ENTIRE COST IS FOR POWER GENERATION AND BEING BYE-PRODUCT STEAM DO NOT HAVE ANY COST. 8.4 IT MAY BE MENTIONED THAT NO WHERE, IN THE TP R EPORT (HE ASSESSORS HAS GIVEN CUP DETAILS OF STEAM. EVEN DURI NG LIRE IT AUDIT THE ASSESSES SUBMITTED DETAIL OF STEAM PRICING, BUT IT WAS FOR POWER GENERATION AND NOT FOR ENTIRE STEAM. THEREFORE, THE MAM APPLIED BY THE ASSESSES IS REJECTED AND COST PLUS METHOD IS AP PLIED TO BENCHMARK THE TRANSACTION. THE ASSESSEE HAS FAILED TO SUBMIT COST OF THE STEAM PRODUCED. HOWEVER, ON FUNCTIONAL ANALYSIS OF ACTIVITY REGARDING PRODUCTION OF STEAM I T WAS FOUND THAT TH E STEAM WAS PRODUCED AS A RESULT OF BURNING OF FUEL IN BOILER. THIS STEAM IS USED FOR I.T.A. NO.567/DEL/2019 9 GENERATION OF ELECTRICITY. THUS THE COST OF ELECTRI CITY ABSORBS ENTIRE COST OF PRODUCTION OF STEAM. THUS THE RESULTANT COST OF EXCESS STEAM IS NIL. 8.5 IT MAY BE MENTIONED THAT STEAM IS ONLY A BYE P RODUCT OF THE PROCESS OF MANUFACTURING POWER AND IT BEARS NO COST . IN CASE IT WAS NOT UTILIZED THE SAME WOULD HAVE BEEN WASTED. THE C OST OF STEAM IS THUS NIL. SINCE COST OF STEAM IS ALREADY CONSIDERED WHILE GENERATING POWER THEREFORE, THE RESULTANT COST IS NIL. THEREFO RE NO MARK UP HAS TO BE ADDED FOR TRANSFERRING THE SAME TO THE NON-EXEMP T UNIT. IN SUCH EVENTUALITY ARMS LENGTH PRICE OF STEAM IS TAKEN AT NIL, RESULTING IN ADJUSTMENT OF RS.68,44,75,920/-. [ADJUSTMENT RS.68,44,75,920/-] 5.1 ACCORDINGLY, HE WORKED OUT THE ADJUSTMENT OF RS.77,63,11,525/-. SINCE THE ASSESSEE HAS CLAIMED D EDUCTION U/S.80IA AMOUNTING TO RS.33,36,66,839/- FROM THESE UNITS AND ACCORDINGLY HE RESTRICTED THE ADJUSTMENT OF RS.33,36,66,839/-. 6. BEFORE THE DRP A VERY EXHAUSTIVE SUBMISSIONS ALO NG WITH DETAILED ANALYSIS WAS FILED. HOWEVER, THE LD. DRP CONFIRMED THE ADJUSTMENT MADE BY THE TPO. 7. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUS ED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. THE ASSESSEE- COMPANY IS HAVING TWO BIOMASS STEAM TURBINE BASED C APTIVE POWER PLANTS OF 6.00 MW EACH SITUATED IN DERA BASSI (PUNJAB) WHICH ARE GENERATING ELECTRICITY UNITS & STEAM FOR DISTRIBUTING THE SAME TO THE MANUFACTURING PROCESSES OF VARIOUS PHARMACEUTICAL AND PHYTO-CHEMICAL PRODUCTS SITUATED WITHIN THE SAME PREMISES IN DERABASSI (PUNJAB). THE POWER PLANTS I.T.A. NO.567/DEL/2019 10 HAVE STARTED GENERATING POWER & STEAM W.E.F JUNE 20 07 & JAN 2013, RESPECTIVELY. SINCE ASSESSEE WAS GENERATI NG ELECTRICITY AND STEAM FROM ITS ELIGIBLE UNIT ON WHI CH IT HAS CLAIMED DEDUCTION U/S.80IA WHICH IS NOT IN DISPUTE, BECAUSE THE CONDITIONS LAID DOWN IN SECTION 80-IA(4)(IV) OF THE INCOME TAX ACT WAS FULLY APPLICABLE. IN SO FAR AS ELIGIBLE UNIT WHICH WAS GENERATING ELECTRICITY UNIT, THE DETAILS OF ELE CTRICITY UNIT GENERATED AND DISTRIBUTED TO MANUFACTURING PROCESS OF PHARMA AND ANOTHER PRODUCTS WAS AS UNDER: DETAILS OF ELECTRICITY UNITS GENERATED AND DISTRIBU TED TO MANUFACTURING PROCESS 8. IN THE TRANSFER PRICING STUDY REPORT, THE ASSESS EE HAS USED CUP METHOD, BY TAKING RATE FIXED BY PUNJAB STAT E ELECTRICITY REGULATORY COMMISSION ELECTRICITY AND P ER UNIT RATE CHARGED BY PUNJAB STATE POWER CORPORATION LIMI TED FOR MO NTH TOTAL GENERATION OF ELECTRICITY UNITS AUXILIARY CONSUMPTION UNITS TRANSFERRED TO MANUFACTURING PROCESSES RATE/ UNIT REVENUE APR - 13 4,796,500 872,000 3,924,500 6.72 26,372,640 MAY - 13 5,046,700 939,300 4,107,400 6.72 27,601,728 JUN - 13 5,005,800 944,60 0 4,061,200 6.72 27,291,264 JUL - 13 5,277,000 952,200 4,324,800 6.72 29,062,656 AUG - 13 5,481,200 1,021,500 4,459,700 6.72 29,969,184 SEP - 13 5,149,600 959,000 4,190,600 6.72 28,160,832 OCT - 13 5,256,500 1,004,100 4,252,400 6.72 28,576,128 NOV - 13 3,127,90 0 618,900 2,509,000 6.72 16,860,480 DEC - 13 4,107,800 909,000 3,198,800 6.72 21,495,936 JAN - 14 2,579,000 606,200 1,972,800 6.72 13,257,216 FEB - 14 3,609,500 827,300 2,782,200 6.72 18,696,384 MAR - 14 4,672,300 941,100 3,731,200 6.72 25,073,664 TOTAL 54,10 9,800 10,595,200 43,514,600 292,418,112 I.T.A. NO.567/DEL/2019 11 FY 2013-14 FOR BIOMASS BASED POWER PROJECTS TO ARRI VE AT ARMS LENGTH PRICE BY TAKING POWER RATES AS UNDER: S. NO. PARTICULARS RATE 1 AVERAGE ELECTRICITY UNIT RATE FIXED BY PUNJAB STATE ELECTRICITY REGULATORY COMMISSION FOR FY 2013-14 FO R BIOMASS BASED POWER PROJECTS RS. 6.24 2 AVERAGE ELECTRICITY UNIT RATE ACTUALLY PAID BY THE ASSESSEE COMPANY DURING FY 2013-14 (RS. 32,400,489 PAID FOR 4,281,392 UNITS) RS. 7.57 3 ELECTRICITY UNIT RATE CHARGED BY PUNJAB STATE POWER CORPORATION LIMITED (PSPCL) FOR FY 2013-14 FROM INDUSTRIAL CONSUMERS IN PUNJAB RS. 7.15 9. BEFORE US, IT HAS BEEN CONTENDED THAT THE TPO HA S ERRONEOUSLY TAKEN THE RATES AVAILABLE AT INDIAN ENE RGY EXCHANGE WHICH CANNOT BE HELD TO BE APPLICABLE IN T HE CASE OF THE ASSESSEE, BECAUSE IN FINANCIAL YEAR 2013-14, NO BIOMASS BASED POWER PLANT OF PUNJAB WAS TRADED IN INDIAN ENE RGY EXCHANGE, AND THEREFORE, NO ACTUAL DELIVERY OF ELEC TRICITY UNITS HAS TAKEN PLACE. OTHER DISTINGUISHING FEATURE WAS H IGHLIGHTED BY THE LD. COUNSEL IN THE FOLLOWING MANNER: REQUIREMENTS OF INDIAN ENERGY EXCHANGE APPLICABILITY ON NECTAR THE OBJECT CLAUSE OF THE COMPANY SHOULD CONTAIN 'PURSUING BUSINESS OF FACILITATING SALE AND PURCHASE OF ELECTRICITY CONTRACTS AND RENEWABLE ENERGY CERTIFICATES CONTRACTS OR ANY OTHER CONTRACTS TRADED ON THE PLATFORM OF INDIAN ENERGY EXCHANGE THERE IS NO SUCH OBJECT CLAUSE MENTIONED IN THE MEMORANDUM AND ARTICLE OF NECTAR. I.T.A. NO.567/DEL/2019 12 FOR A COMPANY TO BE ELIGIBLE TO TRADE ON THE PLATFORM OF INDIAN ENERGY EXCHANGE, THERE SHOULD BE APPROVAL FROM CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC), WHICH IS A REGULATORY AUTHORITY FOR ALL THE ELECTRICITY DISTRIBUTORS AND SUPPLIERS. NECTAR DOESNT POSSESS ANY SUCH APPROVAL FROM CERC. THE COMPANY SHOULD BE A GRID- CONNECTED ENTITY FOR AFFECTING DELIVERY OF ELECTRICITY AS CLEARED AND SETTLED BY THE INDIAN ENERGY EXCHANGE. NECTAR DOESNT HAVE GRID CONNECTIVITY FOR AFFECTING DELIVERY OF ELECTRICITY. 10. IT HAS BEEN FURTHER SUBMITTED THAT FOR THE PURP OSE OF CALCULATING THE PROFITABILITY OF POWER PLANTS, COMP ANY HAS CONSIDERED ELECTRICITY UNIT RATE OF RS. 6.72, WHICH IS LESS THAN SALE UNIT RATE OF RS. 7.15 AS CHARGED BY PUNJAB STAT E POWER CORPORATION LIMITED FROM INDUSTRIAL UNDERTAKINGS IN PUNJAB; AND UNIT RATE OF RS. 7.57 ACTUALLY PAID BY THE COMP ANY TO PUNJAB STATE POWER CORPORATION LIMITED. THE COMPANY HAD TAKEN AVERAGE PER UNIT RATE OF RS.6.24 FIXED BY PUN JAB STATE ELECTRICITY COMMISSION AND UNIT SALE RATE OF RS.7.1 5 CHARGED BY PUNJAB STATE POWER CORPORATION LIMITED, I.E. RS 6 .72 PER UNIT. THEREFORE, ELECTRICITY UNIT RATE OF RS. 6.72 IS TO BE TREATED AS ARMS LENGTH PRICE. THUS, MOST OF THE METHODS IN THE CASE OF THE ASSESSEE COULD HAVE BEEN EITHER CUP OR RESAL E PRICE METHOD WHEREIN THE RATE OF RS.6.24 PER UNIT WHICH W AS THE PURCHASE RATE FIXED BY PUNJAB STATE ELECTRICITY REG ULATORY COMMISSION WOULD HAVE BEEN TAKEN OTHERWISE THE CUP METHOD IS TO BE APPLIED WHICH IS NOT EVEN DISPUTED BY THE AUTHORITIES BELOW. HERE, IN THIS CASE, THE ASSESSEE HAS TAKEN AVERAGE ELECTRICITY UNIT RATE FIXED BY PUNJAB STATE ELECTRICITY I.T.A. NO.567/DEL/2019 13 REGULATORY FOR ASSESSMENT YEAR 2014-15 FOR BIOMASS BASED POWER PLANT AND BASED ON SUCH RATE, SELLING RATE PE R UNIT WAS AT ARMS LENGTH. 11. REGARDING ADJUSTMENT IN SELLING OF STEAM FROM TH E ELIGIBLE UNIT, IT WAS SUBMITTED THAT STEAM IS THE E SSENTIAL AND MOST VITAL FOR PHARMA & PHYTO-CHEMICAL MANUFACTURIN G UNITS, IS USED IN DIFFERENT TYPE OF THE PROCESSES FOR HEAT ING UP AND COOLING OF RAW MATERIALS/CHEMICALS TO CREATE SOME R EACTIONS AND FINALLY TO CONVERT IT TO FINISHED PRODUCT. STEA M IS REQUIRED MAINLY USED IN 3 SOLVENT RECOVERY PLANTS, 2 PHYTO C HEMICAL PLANTS, 8 ORAL DRUG MANUFACTURING PLANTS AND UTILIT IES AS DETAILED BELOW: - I). SOLVENT RECOVERY PLANTS: - THE COMPANY IS HAVING 3 SOLVENT RECOVERY PLANTS. TH E RESIDUAL WASTE SOLVENTS FROM THE ORAL MANUFACTURING PLANTS ARE BEING FURTHER PROCESSED IN THESE SOLVENT RECOVERY PLANTS SO THAT THEY CAN BE USED FURTHER FO R MANUFACTURING PROCESS. THE WASTE SOLVENTS FROM THE MAIN MANUFACTURING PLANTSARE COLLECTED AND THEN FED TO T HE DISTILLATION COLUMNS AND HEATED WITH THE HELP OF ST EAM UP TO THE BOILING POINT OF THE PARTICULAR SOLVENT. WIT H THE HELP OF STEAM THE EXTRA WATER PRESENT IN THE SOLVENTS GE TS ORATED AND RESIDUAL CONCENTRATED GOOD SOLVENT IS BE ING COLLECTED AND SENT TO THE MAIN MANUFACTURING PLANT FOR MANUFACTURING OF FINISHED GOODS. II). PHYTO-CHEMICAL PLANT: - I.T.A. NO.567/DEL/2019 14 THE RAW MATERIAL I.E. CRUDE MENTHA OILS (CMO) IS PURCHASED FROM THE FARMERS WHICH CONTAINS IMPURITIE S. THIS IMPURE RAW MATERIAL IS BEING SENT TO MANUFACTU RING PLANT FOR REMOVING IMPURITIES AND FOR ITS FURTHER PROCESSING. WITH THE HELP OF THE STEAM, THE CRUDE M ENTHA OIL IS HEATED IN DISTILLATION COLUMNS UP TO ITS BOI LING POINT, SO AS TO REMOVE THE IMPURITIES. AFTER REMOVING CMO S IMPURITIES, IT IS FURTHER HEATED WITH THE HELP OF S TEAM ON DIFFERENT BOILING POINTS FOR MANUFACTURING / EXTRAC TING OF VARIOUS FINISHED GOODS. III). ORAL PLANTS: - THE COMPANY IS HAVING 8 ORAL MANUFACTURING PLANTS I N DERABASSI. DIFFERENT FINISHED PRODUCTS ARE BEING MANUFACTURED IN DIFFERENT ORAL PLANTS. IN ALL THE P LANTS, THE RAW MATERIAL IS BEING POURED INTO VESSELS AND THEN WITH THE HELP OF STEAM THE MATERIAL IS BEING HEATED UP T O ITS BOILING POINT. ONCE THE MATERIAL REACHES ITS BOILIN G POINT, OTHER MATERIALS ARE ADDED IN THAT VESSEL SO AS TO M AKE THE CHEMICAL REACTION AND MANUFACTURE FINISHED GOODS. IV). UTILITIES: - LIKE HEATING IS A PART OF MANUFACTURING PROCESS, CO OLING IS THE NEXT STEP IN THAT MANUFACTURING PROCESS. ONCE T HE CHEMICAL REACTION TOOK PLACE, WE NEED CHILLED WATER FOR COOLING EFFECT WHICH IS GENERATED WITH THE HELP OF VAPOR ABSORPTION MACHINE (VAM) WHICH IS OPERATED THROUGH STEAM. I.T.A. NO.567/DEL/2019 15 12. DURING THE YEAR UNDER REVIEW, POWER PLANTS HAVE GENERATED AND TRANSFERRED STEAM TO GENERATE ELECTRI CITY UNITS AND TO MANUFACTURING PROCESSES OF VARIOUS PHARMACEU TICAL AND PHYTO-CHEMICAL PRODUCTS AS PER DETAILS BELOW: MONTH TOTAL STEAM GENERATED (MT) STEAM USED FOR GENERATION OF ELECTRICITY UNITS (MT) STEAM TRANSFERRED TO MANUFACTURING PROCESSES (MT) RATE/ MT REVENUE APR-13 37,890 12,967 24,923 2,160 53,833,680 MAY-13 40,039 13,147 26,892 2,160 58,086,720 JUN-13 38,912 13,022 25,890 2,160 55,922,400 JUL-13 40,520 12,330 28,190 2,160 60,890,400 AUG-13 41,512 12,648 28,864 2,160 62,346,240 SEP-13 39,785 13,448 26,337 2,160 56,887,920 OCT-13 40,269 13,611 26,658 2,160 57,581,280 NOV-13 29,464 5,931 23,533 2,160 50,831,280 DEC-13 34,791 9,036 25,755 2,160 55,630,800 JAN-14 25,182 3,281 21,901 2,160 47,306,160 FEB-14 31,623 8,580 23,043 2,160 49,772,880 MAR-14 46,649 11,748 34,901 2,160 75,386,160 TOTAL 446,636 129,749 316,887 25,920 684,475,920 13. THE ASSESSEE-COMPANY HAD JUSTIFIED THE CUP METHO D TO ARRIVE AT ALP IN THE FOLLOWING MANNER: 129,749 MT OF STEAM HAS BEEN USED FOR GENERATION OF 54,109,800 ELECTRICITY UNITS, I.E. 1 MT OF STEAM GE NERATES ABOUT 417.03 ELECTRICITY UNITS. HENCE VARIOUS STEAM TRANS FER RATES ARE CALCULATED AS UNDER: S. NO. PARTICULARS RATE/ MT 1 . ON THE BASIS OF AVERAGE ELECTRICITY UNIT RATE FIXED BY PUNJAB STATE ELECTRICITY REGULATORY COMMISSION FOR FY 2013-14 FO R BIOMASS BASED POWER PROJECTS. (RS.6.24 AF 417.03 UNITS) RS. 2,602.27 2. ON THE BASIS OF AVERAGE ELECTRICITY UNIT RATE ACTUA LLY PAID BY THE ASSESSEE COMPANY DURING FY 2013-14. (RS.7.57 X 417.03) RS. 3,156.92 3. ON THE BASIS OF ELECTRICITY UNIT RATE CHARGED BY PU NJAB STATE POWER CORPORATION LIMITED (PSPCL) FOR FY 2013-14. (RS.7.1 5 A417.03) RS. 2,981.76 I.T.A. NO.567/DEL/2019 16 FOR THE PURPOSE OF CALCULATING THE PROFITABILITY OF POWER PLANTS, COMPANY HAS CONSIDERED STEAM RATE OF RS. 2,160/ MT WHICH IS LESS THAN ALL THE THREE RATES ABOVE. THEREFORE STEA M RATE OF RS. 2,160/ MT CAN BE TREATED AS ARMS LENGTH PRICE. 14. IT WAS FURTHER SUBMITTED THAT EVEN IF THE COST PLUS METHOD IS TAKEN INTO CONSIDERATION THEN ONE HAND IS TO BE BORNE IN MIND THAT THE STEAM IS NOT A COMMERCIAL CO MMODITY AND WAS NOT BROUGHT TO THE MARKET FOR SALE AND PURC HASE. SINCE, IT IS NOT TRADABLE COMMODITY, THEREFORE, IT CANNOT BE PURCHASED AND HENCE MARKET PRICE CANNOT BE DETERMIN ED AS AN ALTERNATIVE CPM WAS BEING USED BY CALCULATING TH E TRANSFER RATE PER MT FOR STEAM TO MANUFACTURING PROCESS. REL YING UPON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF DCIT VS. KR PULP & PAPERS LTD. IN ITA NO.1920/DEL/2013 O RDER DATED 13.01.2016 WHEREIN IT WAS HELD THAT THE FORMULA OF COST OF STEAM SHOULD BE ADOPTED IN THE RATIO OF ENE RGY CONSUMED. ACCORDINGLY, THE ASSESSEE HAD FURNISHED R EPORT OF SHRI R.D. SHARMA, SENIOR CHARTERED ENGINEER APPROVE D BY INCOME TAX DEPARTMENT AND BANKS WHOSE REPORT CAN BE SUMMARIZED:- TOTAL RICE HUSK CONSUMPTION IS 112,786,868 KGS (RS. 562,003,635/-). ONE TON RICE HUSK HAS GENERATED 3.9 6 MT OF STEAM AS PER THE FOLLOWING ACCEPTED FORMULA : - STEAM GENERATION /TON OF FUEL = (EFFICIENCY X GROSS CALORIFIC VALUE OF FUEL) = (ENTHALPY OF STEAM - ENTHALPY OFFEED WATER) X100 78X3200 78X3200 78X3200 78X3200 = 3.96 (746-115) X100 I.T.A. NO.567/DEL/2019 17 STEAM GENERATION FROM 112,786,868 KGS OF HUSK = 112,786,868 X 3.96 = 446,635,997 KGS I.E. 446,636 MT THE BASIS FOR WORKING OF STEAM AND UNITS IS BASED O N THE FOLLOWING FACTORS: S. NO FACTORS KCAL / KGS GEN ERATED 1. 1 KG STEAM TO TURBINE @ 67KG/CM 2 , 485 DEG.E 746 KCAL (ENTHALPY OF STEAM GENERATION) AS PER PROPERTIES OF STEAM 2. 1 KG OF EXTRACTION STEAM @ 6KG/CM 2 , 250 DEG. C 567 KCAL (ENTHALPY OF STEAM EXTRACTION) AS PER PROPERTIES OF STEAM 3. 1 KGS OF CONDENSER STEAM 50 KCAL (ENTHALPY OF STEAM CONDENSING) AS PER PROPERTIES OF STEAM STEAM FROM BOILER SENT TO TURBINE AT 100%, WHI CH IS HAVING THE FOLLOWING ALLOCATION STEAM TO TURBINE @ 67KG/CM2, 485 DEG.E = 446,636X 746 333,190,456 MKCAL LESS: FRICTION, EXHAUST, RADIATION AND CONVENTION L OSSES (30.1635%) 100,502,024 MKCAL (A) 232,688,432 MKCAL EXTRACTION STEAM @ 6KG/CM2, 250 DEG. C = 316,887 X 567 (B) 179,674,929 MKCAL CONDENSER (129,749 X 50) (C) 6,487,450 MKCAL TOTAL ENERGY CONSUMED IN POWER GENERATION (A- B -C) 46,526,053 MKCAL AS PER FORMULA OF STEAM 1 KCAL/KG = .001163 X1000 X 46,526,053 (D) 54,109,800 UNITS LESS: AUXILIARY CONSUMPTION (19.58%) (E) 10,595,200 UNITS UNITS TRANSFERRED TO PHARMA UNITS (D-E) 43,514,600 UNITS FROM THE ABOVE WORKING, TOTAL STEAM ENERGY GENERATE D IN TURBINES WAS 232,688,432 MKCAL, OUT OF WHICH 46,526,053 MKCAL STEAM (20%) HA S BEEN USED FOR GENERATING ELECTRICITY UNITS AND BALANCE (80%) STEAM WAS USED FOR GENERATING STEAM FOR TRANSFERRING TO MANUFACTURING PROCESSES. ON THE BASIS OF ABOVE CALCULATIONS, THE POWER PLANT PROFITABILITY IS BIFURCATED INTO STEAM AND ELECTRICITY UNITS AS PER DETAILS BELOW: - I.T.A. NO.567/DEL/2019 18 THE COMPUTATION OF ARMS LENGTH PRICE IS AS UN DER: - PARTICULARS RATE/ MT COST OF STEAM GENERATION RS. 1,672.30 STEAM UNIT RATE TAKEN FOR THE PURPOSE OF CAPTIVE PO WER PLANT PROFITABILITY RS. 2,160.00 PROFIT RATIO 22.58% 15. THUS, IT WAS SUBMITTED THAT TRANSFER PRICING OF RS.2,160/- PER MT IS TO BE TREATED AS ARMS LENGTH PRICE ALSO FOR THE REASON THAT NORMALLY PROFITABILITY OF STEAM GENERATING UNITS IN PRIVATE SECTOR IS BETWEEN 25% TO 35% AND THERE HAS BEEN HELD SO IN THE CASE OF DCIT VS. VISHAL FABRICS PVT. LTD. IN ITA NO.125/AHD/2015 (ITAT AHD) . 16. ON THE OTHER HAND, LD. CIT-DR REFERRED TO VARIO US ANALYSIS AND OBSERVATIONS OF THE ASSESSING OFFICER AND THE DRP, HE SUBMITTED THAT SIMILAR ARGUMENTS WERE RAISE D BEFORE THE AUTHORITIES BELOW. IT HAS BEEN DEALT BY THE TPO AND HAS BEEN REJECTED UNDER COGENT GROUND. PARTICULARS STEAM POWER TOTAL ENERGY CONSUMED 185,862,379 MKCAL 46,526,053 MKCAL 232,688,432 MKCAL %AGE 80% 20% 100% REVENUE 684,475,920 292,418,112 976,894,032 CARBON CREDIT - 5,285,280 5,285,280 TOTAL REVENUE 684,475,920 297,703,392 982,179,312 RAW MATERIAL CONSUMED 449,602,908 112,400,727 562,003,635 OTHER MANUFACTURING EXPENSES 7,664,305 1,916,076 9,580,381 PERSONNEL EXPENSES 19,783,977 4,945,994 24,729,971 DEPRECIATION 52,868,651 13,217,163 66,085,814 TOTAL EXPENSES 529,919,841 132,479,9 60 662,399,801 NO. OF UNITS TO MANUFACTURING UNITS 316,887,000 43,514,600 COST/UNIT 1.6723/ KG 3.0445/ UNIT I.T.A. NO.567/DEL/2019 19 DECISION 17. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND THE FACTS AND MATERIAL DISCUSSED IN THE IMPUGNED ORDER, WE FIND THAT THE TRANSFER PRICING ADJUSTMENT OF THE SPECIFIE D DOMESTIC TRANSACTION HAS BEEN WITH REGARD TO SALE OF ELECTRI CITY UNITS TO THE OTHER UNIT FOR MANUFACTURING PROCESS OF PHARMA AND PHYTO-CHEMICAL PRODUCTS. 18. IN SO FAR AS SALE OF ELECTRICITY UNIT FROM ELIG IBLE UNIT TO OTHER MANUFACTURING UNITS, IT IS SEEN THAT, ASSESSE E HAD SOLD THE ELECTRICITY @ 6.72 PER UNIT. LD. TPO HAS REJECT ED THE ASSESSEES METHOD OF BENCHMARKING AT THE SAID RATE BY HOLDING THAT AVERAGE SALE RATE AS PER INDIAN ENERGY EXCHANGE IS MUCH LOWER, I.E., 2.81909 PER UNIT AS AGAINST SA LE MADE BY THE ASSESSEE OF RS.6.72 PER UNIT. HE HAS INCORPORAT ED THE DETAIL OBTAINED BY HIM U/S. 133(6) FROM IEX WHICH G IVES THE AVERAGE PRICE OF POWER TRADE IN THE EXCHANGE. FROM THE SUBMISSIONS MADE BEFORE US AS WELL AS BEFORE THE AU THORITIES BELOW, THE ASSESSEES MAIN CONTENTION HAS BEEN THAT THE RATES OF IEX CANNOT BE APPLIED, BECAUSE, FIRSTLY , THERE WAS NO TRADE OF BIOMASS BASED POWER PLANT IN PUNJAB; AND SECONDLY , THERE WAS NO ACTUAL DELIVERY OF ELECTRICITY UNIT IN THIS YEAR. THE OTHER REASON GIVEN HAS BEEN HIGHLIGHTED IN PARAGRAP H 9. 19. HERE, IN THIS CASE, WHAT NEEDS TO BE BENCHMARKE D FOR IS, WHETHER THE SALE OF ELECTRICITY UNIT RATE BY THE EL IGIBLE UNIT TO ITS NON ELIGIBLE UNIT IS AS PER THE MARKET RATE OR NOT I.E., WHETHER IT IS AN ARMS LENGTH PRICE. THE EXTERNAL C UP HAS I.T.A. NO.567/DEL/2019 20 BEEN ADOPTED BY TAKING THE RATE OF CHARGED BY PUNJAB STATE POWER CORPORATION LTD. WHICH HAS BEEN CHARGING SALE UNIT RATE OF RS. 7.15 FROM INDUSTRIAL UNDERTAKING IN PUN JAB. ANOTHER REASON TO JUSTIFY THIS CUP WAS THAT ASSESSEE COMPANY ITSELF HAS PAID FOR ITS OWN CONSUMPTION AT UNIT RATE AT RS.7.57 PER UNIT TO PUNJAB STATE POWER CORPORATIO N. TO JUSTIFY THE SALE RATE TO ITS OTHER UNIT, THE ASSESSE E-COMPANY HAS TAKEN AVERAGE PER UNIT RATE OF RS.6.24 FIXED BY PUNJAB STATE ELECTRICITY COMMISSION AND UNIT SALE RATE OF RS. 7.15 CHARGED BY PUNJAB STATED CORPORATION LTD. THUS, IT WAS STATED THAT IF THESE TWO RATES ARE COMPARED, THEN T HE ASSESSEES SALE RATE OF RS.6.72 PER UNIT IS DEFINIT ELY AT ARMS LENGTH. WHAT IS ALSO REQUIRED TO BE SEEN HERE IS, W HETHER IN THE OPEN MARKET WHAT IS THE RATE OF POWER OR ELECTR ICITY IS AVAILABLE TO THE CONSUMER. IF IN OPEN MARKET THE PO WER IS AVAILABLE TO A CUSTOMER FROM STATE ELECTRICITY BOAR D AT THE RATE CHARGED BY IT THEN IT IS TO BE RECKONED AS MAR KET RATE. BEFORE US, FOLLOWING JUDICIAL PRONOUNCEMENTS HAVE BE EN CITED WHEREIN SALE RATE OR PURCHASE RATE OF STATE ELECTRI CITY BOARD HAS BEEN ACCEPTED ON MARKET RATE. A. HIGH COURT OF CHHATTISGARH IN THE CASE OF COMMISSIONER OF INCOME TAX RAIPUR V/S M/S GODAWARI POWER & ISPAT LTD. RAIPUR [2014] 42 TAXMANN.COM 551 (CHHATTISGARH) VIDE PARA 31 OF ITS ORDER HELD AS UNDER: - 'THE MARKET VALUE OF THE POWER SUPPLIED TO THE STEE L- DIVISION SHOULD BE COMPUTED CONSIDERING THE RATE OF POWER I.T.A. NO.567/DEL/2019 21 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 CONSUM ER OR THE STEEL-DIVISION COULD HAVE PURCHASED POWER IN THE OP EN MARKET. THE RATE OF POWER TO A SUPPLIER IS NOT THE MARKET RATE TO A CONSUMER IN THE OPEN MARKET.' B. HIGH COURT OF CALCUTTA IN THE CASE OF COMMISSIONER OF INCOME TAX KOLKATA - III V/S ITC LT D. [2015] 64 TAXMAN.COM 214 HELD AS UNDER: - BENEFIT UNDER SECTION 80-IA CANNOT BE DENIED TO ASS ESSEE, MERELY BECAUSE POWER GENERATED BY ITS POWER UNDERTA KING WAS CONSUMED AT HOME OR BY OTHER BUSINESS OF ASSESS EE AND WAS NOT SOLD TO OUTSIDERS. ASSESSEE'S POWER GENERATING UNIT COULD NOT AS SUCH CLAIM ANY BENEFIT UNDER SECTION 80-IA COMPUTED ON BASIS O F RATES CHARGEABLE BY DISTRIBUTION LICENSEE FROM CONSUMER A ND SUCH BENEFIT COULD ONLY BE CLAIMED ON BASIS OF RATE S FIXED BY TARIFF REGULATION COMMISSION FOR SALE OF ELECTRI CITY BY GENERATING COMPANIES. C. SUPREME COURT OF INDIA IN THE CASE OF ITC LIMITED V/S COMMISSIONER OF INCOME TAX KOLKATA - II I [2016] 74 TAXMAN.COM 244, HAS HELD AS UNDER SLP GRANTED AGAINST HIGH COURT'S RULING THAT ASSESS EE'S POWER GENERATING UNIT COULD NOT AS SUCH CLAIM ANY B ENEFIT UNDER SECTION 80-IA COMPUTED ON BASIS OF RATES CHAR GEABLE BY DISTRIBUTION LICENSEE FROM CONSUMER AND SUCH BEN EFIT I.T.A. NO.567/DEL/2019 22 COULD ONLY BE CLAIMED ON BASIS OF RATES FIXED BY TA RIFF REGULATION COMMISSION FOR SALE OF ELECTRICITY BY GE NERATING COMPANIES. D. HIGH COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOME TAX V/S ORIENT ABRASIVE LTD. [2014] 271 CTR 626. 20. ONCE THERE WAS A DIRECT INTERNAL CUP, I.E., THE ASSESSEE COMPANY HAD PURCHASED ELECTRICITY FROM PUNJAB STATE POWER CORPORATION AT RS.7.57, THEN IT REPRESENTS THE MARK ET RATE ON WHICH ANY INDUSTRY UNDERTAKING OR CONSUMER IS GETTI NG THE ELECTRICITY. THUS, WE DO NOT FIND ANY REASON AS TO WHY SUCH MARKET RATE OR CUP SHOULD BE REJECTED. NOWHERE, IT HAS BEEN BROUGHT BY THE TPO AS TO WHY THE AVERAGE TRADING RA TE IN INDIAN ENERGY EXCHANGE SHOULD BE APPLIED AS EXTERNA L CUP. ACCORDINGLY, WE HOLD THAT THE SALE OF ELECTRICITY @ 6.72 PER UNIT IS AT ARMS LENGTH AND NO ADJUSTMENT IS REQUIR ED IN THIS SEGMENT/UNIT. 21. IN SO FAR AS ADJUSTMENT IN THE TRANSFER OF STEA M, IT IS AN UNDISPUTED FACT THAT STEAM HAS BEEN USED FOR GENERA TION OF ELECTRICITY UNIT AND FOR MANUFACTURING PROCESS PURE LY FOR CAPTIVE CONSUMPTION BY THE ASSESSEE, AND THEREFORE, IT IS FULLY ELIGIBLE FOR DEDUCTION U/S.80IA. IN THE TRANSFER PR ICING STUDY REPORT, THE ASSESSEE HAD JUSTIFIED THE PRICE OF TRAN SFER; FIRSTLY, BY TAKING CUP IN THE MANNER SPECIFIED HEREINABOVE I N PARAGRAPH 13. I.T.A. NO.567/DEL/2019 23 22. THEREAFTER, THE COST PLUS METHOD WAS ADOPTED AN D ALSO THE LD. TPO HAS REQUIRED THE ASSESSEE TO FURNISH TH E COST OF THE STEAM PRODUCED. IN RESPONSE, THE ASSESSEE HAS F ILED A REPORT FROM APPROVED SENIOR CHARTERED ENGINEER WHO HAS GIVEN HIS REPORT AND THE DETAILS OF WORKING. THE LD. TPO WITHOUT ANY COGENT MATERIAL OR ANY EXPERT REPORT HAS REJECTED T HE WORKING. EVEN IF THE COST PLUS METHOD IS ADOPTED AS HELD BY THE TPO, THEN HOW CAN HE TAKE THE COST OF STEAM AT NIL AND H ELD THAT IT IS BIOMASS WHICH IS BYPRODUCT THEREFORE THERE IS NO COST. SUCH AN OBSERVATION OF THE TPO IS DE HORS ANY PROPER REASONING BECAUSE FROM A BARE PERUSAL OF THE CALCUL ATION AS GIVEN IN THE REPORT AS INCORPORATED ABOVE IN PARAGR APH 14, WE FIND THAT FORMULA HAS BEEN GIVEN AS TO HOW ONE TON RICE HUSK HAS GENERATED 3.96 MT OF STEAM AND ALSO THE BASIS F OR WORKING OF STEAM BASED ON VARIOUS FACTORS INCLUDING THE STEAM FROM BOILER SENT TO TURBINE AT 100%. IT HAS B EEN DEMONSTRATED BEFORE THE AUTHORITIES BELOW THAT THE TOTAL STEAM GENERATED IN TURBINES WAS 232,688,432 M KCAL, OUT OF WHICH 46,526,053 M KCAL STEAM (20%) HAS BEEN USED F OR GENERATING ELECTRICITY UNITS AND BALANCE (80%) STEA M WAS USED FOR GENERATING STEAM FOR TRANSFERRING TO MANUFACTUR ING PROCESSES. THUS, THERE WAS A CLEARLY COST FOR STEAM GENERATION AS PER THE REPORT APPROVED BY CHARTERED ENGINEER AN D THE STEAM UNIT TAKEN FOR THE PURPOSE OF CAPTIVE POWER P LANT IN PROFIT RATIO HAS BEEN SHOWN AT 22.58%, AND THEREFOR E, THE TRANSFER PRICING OF RS. 2,160/- PER MT WAS TAKEN AT ARMS LENGTH PRICE. THE TPO HAS ERRONEOUSLY TREATED THE A SSESSEES I.T.A. NO.567/DEL/2019 24 POWER PLANT AS BIOMASS GASIFIER POWER PLANT IN WHIC H NO STEAM IS GENERATED, INSTEAD OF BIOMASS STEAM POWER PLANTS HAS WRONGLY CAME TO CONCLUSION THAT THE COST OF STE AM GENERATION IS NIL AS AGAINST RS. 2160/ MT. LD. TP O HAS FAILED TO UNDERSTAND THE OPERATIONAL WORKING OF HUS K BASED POWER PLANTS IN WHICH TOTAL EXPENDITURE IS INCURRED FIRST ON GENERATION OF STEAM AND THEREAFTER PART OF STEAM IS USED FOR GENERATION OF ELECTRICITY UNITS AND MAJORITY OF STE AM IS TRANSFERRED TO MANUFACTURING PROCESSES OF PHARMA UN ITS OF THE ASSESSEE. 23. IN ANY CASE, STEAM IS A FORM OF POWER ELIGIBLE FOR DEDUCTION U/S.80IA AND SAME CANNOT BE DENIED BY TAK ING ITS STEAM COST AT NIL. FURTHER. HE HAS GROSSLY ERRED IN IGNORING THE AUDITED CERTIFICATE BY SENIOR CHARTERED ENGINEE R WHO IS AN APPROVED VALUER BY INCOME TAX DEPARTMENT AND THE COST ACCOUNTANT APPOINTED BY THE CENTRAL GOVERNMENT WITH OUT ANY ACCOUNTS REPORT, WITHOUT ANY AGENCY OR EXPERT. ACCORDINGLY, FOR THIS UNIT ALSO, WE HOLD THAT NO TR ANSFER PRICING ADJUSTMENT IS REQUIRED. 25. IN THE RESULT, THE ADDITIONS, MADE BY THE ASSES SING OFFICER ARE DIRECTED TO BE DELETED AND CONSEQUENTLY , THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER, 2021. SD/- SD/- [DR. B.R.R. KUMAR] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 TH SEPTEMBER, 2021 PKK: