JAYANT AGRO ORGANICS LTD., MUMBAI V. ADDL. CIT (TP) 2 (2), MUMBAI

ITA 6073/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6165 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 25-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BRAJENDRA KUMAR
• Keywords: Capital asset; Transfer pricing; Question of law; Cost of acquisition
• Section: 80IA; 64; 13; 92CA

Judgement Text

1 I.T.A. NOS.6073 &6074/MUM/2019 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) I.T.A. NO.6073/MUM/2019 - ASSESSMENT YEAR 2013-14 I.T.A. NO.6074/MUM/2019 - ASSESSMENT YEAR 2014-15 JAYANT AGRO ORGANICS LIMITED 701, TOWER A, PENINSULA BUSINESS PARK, SENAPATI BAPAT MARG, LOWER PAREL (W), MUMBAI-400 013 PAN : AAACJ7581Q VS ADDL. CIT (TP)-2(2), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI MADHUR AGARWAL / SHRI SIDDHANT BANWAT, AR RESPONDENT BY SHRI BRAJENDRA KUMAR (DR) DATE OF HEARING 04-08-2021 DATE OF PRONOUNCEMENT 14-09-2021 O R D E R PER : SAKTIJIT DEY (JM) : CAPTIONED APPEALS BY THE ASSESSEE ARISE OUT OF A C OMMON ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-56, MUMBAI PER TAINING TO ASSESSMENT YEARS 2013-14 AND 2014-15. ITA NO.6073/MUM/2019 ASSESSMENT YEAR 2013-14 2 I.T.A. NOS.6073 &6074/MUM/2019 2. IN GROUND 1 ASSESSEE HAS CHALLENGED THE ADDITION OF RS.30,94,162/- MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF A SPECIFIED DOMESTIC TRANSACTION WITH THE ASSOCIATED ENTERPRISE (AE). 3. BRIEFLY THE FACTS ARE, THE ASSESSEE, A RESIDENT COMPANY, IS ENGAGED IN THE ACTIVITY OF MANUFACTURING AND EXPORTING OF CASTOR O IL AND ITS DERIVATIVES. THE ASSESSEE IS ALSO ENGAGED IN GENERATION OF POWER THR OUGH WINDMILL. FOR THE ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE HAD FILED I TS RETURN OF INCOME ON 30-11- 2013 DECLARING TOTAL INCOME OF RS.14,37,11,390/-. S INCE, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO CERTAIN SP ECIFIED DOMESTIC TRANSACTIONS WITH ASSOCIATED ENTERPRISE (RELATED PARTY), A REFER ENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA OF THE INC OME TAX ACT, 1961. ON PERUSING THE REPORT FURNISHED BY THE ASSESSEE IN FORM 3CED, THE TPO NOTICED THAT THE ASSESSEE HAD PURCHASED CASTOR CAKES/MEALS WORTH RS. 21,32,09,594/- FROM ONE OF ITS AES VIZ. IHESEDU AGRO CHEM PVT LTD (IAPL). FURT HER, HE FOUND THAT SOME PRODUCTS WERE ALSO PURCHASED BY THE ASSESSEE FROM I NDEPENDENT THIRD PARTIES. THE CASTOR MEALS/CAKES SO PURCHASED HAVE BEEN RESOL D TO BUYERS LOCALLY AS WELL AS OUTSIDE INDIA. FROM THE DETAILS FURNISHED, THE TPO FOUND THAT IN RESPECT OF RESALE OF CASTOR MEALS/CAKES PURCHASED FROM AE, ASSESSEE H AD SHOWN GROSS MARGIN OF 5.99%. WHEREAS, IN RESPECT OF RESALE OF CASTOR MEAL S PURCHASED FROM INDEPENDENT THIRD PARTIES, THE ASSESSEE HAS SHOWN NEGATIVE GROS S MARGIN OF (6.97%). ON VERIFYING THE TRANSFER PRICING STUDY REPORT, HE FOU ND THAT THE ASSESSEE HAD BENCHMARKED THE TRANSACTION WITH AE BY APPLYING RES ALE PRICE METHOD (RPM) BASED ON INTERNAL COMPARABLES. THE TPO OBSERVED, SI NCE CASTOR MEAL IS A BY- PRODUCT GENERATED IN THE PROCESS OF MANUFACTURING C ASTOR OIL, THE ASSESSEE ALSO PRODUCES CASTER MEAL. FOR BENCHMARKING PURPOSE UND ER RPM, THE ASSESSEE HAS 3 I.T.A. NOS.6073 &6074/MUM/2019 CONSIDERED THE AVERAGE SALE PRICE OF CASTOR MEAL GE NERATED BY IT AS WELL AS PROCURED FROM THE AE FOR DETERMINING GROSS PROFIT M ARGIN BY REDUCING THE COST OF CASTOR MEALS PURCHASED AND PRODUCED BY IT RESPECTIV ELY. THE TPO, HOWEVER, WAS NOT SATISFIED WITH THE BENCHMARKING OF THE ASSESSEE . HE OBSERVED, WHEN SIMILAR TRANSACTION RELATING TO PURCHASE OF CASTOR MEAL FRO M INDEPENDENT THIRD PARTIES ARE AVAILABLE, COMPARABLE UNCONTROLLED PRICE (CUP) METH OD WOULD BE MOST APPROPRIATE. AFTER CALLING FOR NECESSARY DETAILS RE LATING TO PURCHASE OF CASTOR MEAL FROM THE AE AS WELL AS INDEPENDENT THIRD PARTIES, T HE TPO NOTICED WHILE THE PURCHASE PRICE OF CASTOR MEAL FROM AE VARIED BETWEE N RS.4,500 PER M.T. TO RS.5,343/- PER M.T, WORKING TO AVERAGE PRICE OF RS. 4,821/- PER M.T, THE PURCHASE COST FROM THIRD PARTIES VARIED BETWEEN RS.4,025/- P ER M.T. TO RS.5,732/- PER M.T. WORKING OUT TO AN AVERAGE PRICE OF RS.5,485/- PER M .T. HOWEVER, ACCORDING TO THE TPO, ON VERIFYING THE DATE-WISE COMPARISON OF THE P URCHASE PRICE PAID TO THE AE AND THIRD PARTIES HE FOUND THAT THE AVERAGE PRICE P AID TO AE FOR THE MONTH OF APRIL IS MORE THAN THE PRICE PAID TO INDEPENDENT THIRD PA RTIES, WORKING OUT TO A DIFFERENCE OF RS.30,94,162/-. THUS, HE ULTIMATELY TREATED SUCH DIFFERENCE AS THE ADJUSTMENT TO BE MADE TO THE PRICE PAID TO THE AE FO R PURCHASE OF CASTOR MEAL. ASSESSEE CHALLENGED THE AFORESAID ADJUSTMENT BEFORE LEARNED COMMISSIONER (APPEALS). HOWEVER, LEARNED COMMISSIONER (APPEALS) SUSTAINED THE ADJUSTMENT MADE BY THE TPO. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, THE ASSESSEE HAD PURCHASED CASTOR MEAL BOTH, FROM AE AND NON AES AND SOLD TO T HIRD PARTIES. HE SUBMITTED, SINCE THE TRANSACTION WITH THE AE RELATES TO PURCHA SE OF A PRODUCT FOR RESALE, RPM IS THE MOST APPROPRIATE METHOD. HE SUBMITTED, THE F ACT THAT THE AVERAGE PURCHASE PRICE PAID TO AE IS LESS THAN THE AVERAGE PURCHASE PRICE PAID TO NON AE 4 I.T.A. NOS.6073 &6074/MUM/2019 HAS NOT BEEN DISPUTED BY THE TPO. FURTHER, HE SUBM ITTED, THE GROSS PROFIT MARGIN SHOWN BY THE ASSESSEE UNDER RPM HAS ALSO NOT BEEN D ISPUTED. HE SUBMITTED, THE GROSS PROFIT MARGIN IN RESPECT OF RESALE OF CASTOR MEAL PURCHASED FROM AE IS MUCH MORE THAN THE GROSS PROFIT MARGIN OF SIMILAR TRANSA CTION RELATING TO NON AE. THUS, HE SUBMITTED, THERE IS NO JUSTIFIABLE REASON FOR REJE CTING RPM. 5. WITHOUT PREJUDICE, HE SUBMITTED, EVEN UNDER CUP M ETHOD ALSO IF THE AVERAGE PURCHASE PRICE PAID TO AE IS COMPARED WITH THE AVERAGE PRICE PAID TO NON AE, THE TRANSACTION WOULD BE AT ARMS LENGTH. HE S UBMITTED, THOUGH, THE TPO WHILE APPLYING CUP HAS REFERRED TO DATE-WISE COMPAR ISON TO WORK OUT DIFFERENCE, HOWEVER, NO SUCH DATE-WISE DATA RELATING TO NON AE TRANSACTION IS AVAILABLE ON RECORD. IN THIS CONTEXT, HE DREW OUR ATTENTION TO PAGE 146 OF THE PAPER BOOK TO DEMONSTRATE THAT DATE-WISE PRICE OF NON AE TRANSACT ION, IS NOT AVAILABLE. THUS, HE SUBMITTED, THE TPO HIMSELF HAS TAKEN THE AVERAGE PR ICE OF NON AE TRANSACTION TO COMPARE WITH THE DATE-WISE PRICE OF AE TRANSACTION. FURTHER, DRAWING OUR ATTENTION TO THE CALCULATION OF AVERAGE PURCHASE PR ICE AND AVERAGE SALE PRICE AT PAGE 146 OF THE PAPER BOOK, HE SUBMITTED, THERE IS HUGE DIFFERENCE IN THE QUANTITY OF PURCHASE BETWEEN AE AND NON AES. HE SU BMITTED, WHILE THE ASSESSEE HAD PURCHASED HUGE QUANTITIES FROM AE, THE PURCHASE FROM NON AE IS SUBSTANTIALLY LOWER. THEREFORE, IN SUCH CIRCUMSTANCES, CUP METHOD CANNOT BE THE MOST APPROPRIATE METHOD. WITHOUT PREJUDICE, HE SUBMITTED, EVEN IF CUP IS APPLIED, THE AVERAGE PRICE PAID BOTH, TO THE AE AND NON AE HAS T O BE COMPARED AND IN SUCH CASE, THE TRANSACTION WOULD BE AT ARMS LENGTH. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED C OMMISSIONER (APPEALS). 5 I.T.A. NOS.6073 &6074/MUM/2019 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THE SPECIFIED DOMESTIC TRANSACTION UN DER DISPUTE IN THE PRESENT APPEAL RELATES TO PURCHASE OF CASTOR MEAL FROM ONE OF THE AES. THERE IS NO DISPUTE THAT THE ASSESSEE HAD PURCHASED CASTOR MEAL FROM BO TH AE AND NON AE FOR RESALE. THUS, IT IS A SIMPLE CASE OF PURCHASE AND SALE OF A PARTICULAR PRODUCT WITHOUT ANY VALUE ADDITION. A REFERENCE TO RULE 10B(1)(B) WOULD INDICATE THAT WHERE THE TRANSACTION WITH THE AE RELATES TO PURCHASE OF A PR ODUCT OR SERVICE FOR RESALE TO AN UNRELATED PARTY, RPM WOULD BE THE MOST APPROPRIATE METHOD. THE MODE AND MANNER OF COMPUTING THE ARMS LENGTH PRICE (ALP) UN DER RPM HAS ALSO BEEN PROVIDED IN THE AFORESAID PROVISION. IT IS A FACT O N RECORD THAT THE ASSESSEE HAS SOLD THE CASTOR MEAL PURCHASED FROM THE AE AS IT IS , WITHOUT MAKING ANY VALUE ADDITION OR VARIATION TO THE PRODUCT. IT IS ALSO OB SERVED, THE ASSESSEE HAD PURCHASED SIMILAR PRODUCT FROM NON AES FOR RESALE. IN THE TP STUDY REPORT, THE ASSESSEE HAS DEMONSTRATED THE ARMS LENGTH NATURE O F TRANSACTION WITH THE AE BY COMPARING THE GROSS PROFIT MARGIN FROM SALE OF PROD UCT PURCHASED FROM AE SHOWN AT 5.99% AS AGAINST SALE OF SIMILAR PRODUCTS PURCHA SED FROM NON AE AT GP MARGIN OF (-) 6.97%. IT IS OBSERVED, THE AVERAGE PURCHASE PRICE FROM AE IS RS.4,821/- PER M.T. AS AGAINST THE AVERAGE PURCHASE PRICE OF RS.5, 485/- PER M.T. FROM NON AES. 8. THESE FACTS HAVE NOT BEEN DISPUTED BY THE DEPART MENTAL AUTHORITIES. IN SUCH FACTUAL POSITION, WHEN THE ASSESSEE HAS ESTABL ISHED THAT THE TRANSACTION WITH THE AE IS AT ARMS LENGTH UNDER RPM, THERE IS NO RE ASON TO DISCARD ASSESSEES BENCHMARKING WITHOUT ANY GENUINE AND VALID REASON. THUS, IN OUR CONSIDERED OPINION, THE DEPARTMENTAL AUTHORITIES HAVE GROSSLY ERRED IN REJECTING RPM FOLLOWED BY THE ASSESSEE FOR BENCHMARKING THE SPECI FIED DOMESTIC TRANSACTION WITH AE. MORE SO, WHEN THE DEPARTMENTAL AUTHORITIES HAVE NOT FOUND ANY 6 I.T.A. NOS.6073 &6074/MUM/2019 DEFICIENCY OR ERROR IN THE GROSS PROFIT MARGIN COMP UTED BY THE ASSESSEE IN RESPECT OF BOTH, AE AND NON AE TRANSACTIONS. THUS WE HOLD T HAT BENCHMARKING BY THE ASSESSEE UNDER RPM HAS TO BE ACCEPTED. 9. EVEN ASSUMING THAT CUP WOULD BE THE MOST APPROPR IATE METHOD TO BENCHMARK THE TRANSACTION, THE FACTS ON RECORD CLEA RLY REVEAL THAT THE AVERAGE PURCHASE PRICE OF CASTOR MEAL FROM AE WORKS OUT TO RS.4,821/- PER M.T AS AGAINST THE AVERAGE PURCHASE PRICE FROM UNRELATED PARTIES W ORKING OUT TO RS.5,485/- PER M.T. THE AFORESAID FACTUAL POSITION HAS NOT BEEN D ISPUTED BY THE TPO. WHAT THE TPO HAS DONE TO REJECT THE ASSESSEES CLAIM IS, HE H AS VENTURED INTO DATE-WISE COMPARISON OF PURCHASE PRICE OF AE AND NON AE TRANS ACTIONS. EVEN, WHILE DOING SO, THE TPO WAS VERY MUCH CONSCIOUS THAT EXCEPT THE MONTH OF APRIL, THE PURCHASE PRICE PAID TO THE AE IS LESS THAN THE PURC HASE PRICE PAID TO NON AES. THEREFORE, HE HAS CONVENIENTLY RESTRICTED HIMSELF T O THE MONTH OF APRIL WHERE THE PURCHASE PRICE PAID TO AE IS SLIGHTLY MORE THAN THE PURCHASE PRICE PAID TO NON AES, WHILE, IGNORING THE FIGURES FOR THE REST OF THE YEA R AS IT WOULD NOT HAVE WORKED OUT TO HIS LIKING. THUS, IF THE AVERAGE PURCHASE PRICE OF AE AND NON AE TRANSACTIONS ARE CONSIDERED EVEN UNDER CUP, THE TRANSACTION WITH AE WOULD BE AT ARMS LENGTH. THOUGH, THE TPO CLAIMED TO HAVE WORKED OUT THE DIFF ERENCE BETWEEN THE PRICE PAID TO AE AND NON AE, PURPORTEDLY, BASED ON A DATE -WISE COMPARISON; HOWEVER, FACTUALLY IT IS NOT SO. AS DEMONSTRATED BEFORE US B Y LEARNED COUNSEL FOR THE ASSESSEE, THOUGH DATE-WISE PRICE OF AE TRANSACTION IS AVAILABLE; HOWEVER, NO SUCH DATE-WISE PRICE IN RESPECT OF NON AE TRANSACTION FO R THE MONTH OF APRIL IS AVAILABLE. THE PER MT PRICE OF NON AE TRANSACTION C OMPARED WITH DATE-WISE AE TRANSACTION IN REALITY IS THE AVERAGE PRICE OF NON AE TRANSACTION FOR THE MONTH OF APRIL. THIS FACT IS CLEARLY DISCERNIBLE FROM THE WO RKING NOTE SHOWING CALCULATION OF 7 I.T.A. NOS.6073 &6074/MUM/2019 AVERAGE PURCHASE PRICE AND AVERAGE SALE PRICE AS PL ACED AT PAGE 146 OF THE PAPER BOOK. THUS, THE AFORESAID FACTS MAKE IT ABUNDANTLY CLEAR THAT THE WORKING OF PRICE DIFFERENCE MADE BY THE TPO IS FLAWED, AS HE HAS COM PARED DATE-WISE PRICE OF AE TRANSACTION WITH AVERAGE PRICE OF NON AE TRANSACTIO N FOR THE MONTH OF APRIL 2012. THUS, IT IS VERY MUCH CLEAR THAT THE TPO HAS ADOPTE D A PURELY SELECTIVE APPROACH FOR DETERMINING THE ALP OF THE SPECIFIED DOMESTIC T RANSACTION. THUS, IN OUR CONSIDERED OPINION, EVEN APPLYING CUP METHOD ALSO A SSESSEES TRANSACTION WITH AE HAS TO BE CONSIDERED TO BE AT ARMS LENGTH. ACCO RDINGLY, WE DELETE THE ADJUSTMENT. THIS GROUND IS ALLOWED. 10. IN GROUNDS 2 AND 3, ASSESSEE HAS CHALLENGED TRA NSFER PRICING ADJUSTMENT OF RS.41,37,879/- IN RESPECT OF SPECIFIED DOMESTIC TRA NSACTION RELATING TO TRANSFER OF ELECTRICITY TO OTHER UNITS. 11. BRIEFLY THE FACTS ARE, THE ASSESSEE HAS SET UP A UNIT FOR GENERATION OF ELECTRICITY THROUGH WINDMILL. THE SAID ELECTRICITY GENERATION UNIT IS OF THE CAPACITY AT 1.6 MEGA WATT AND IS ELIGIBLE FOR DEDUCTION UNDE R SECTION 80IA OF THE ACT. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH GUJARAT ENERGY TRANSMISSION CORPORATION LTD (GETCO) FOR SALE OF THE ELECTRICITY GENERATED FROM THE 80IA UNIT. AS PER THE TERMS OF THE AGREEMENT WITH GETCO, THE E LECTRICITY GENERATED IS TRANSFERRED TO GETCO SUB-STATION. CORRESPONDING CRE DIT OF THE ELECTRICITY UNITS GENERATED BY THE 80IA UNIT IS GRANTED AGAINST ELECT RICITY CONSUMED BY ASSESSEES OTHER TWO MANUFACTURING UNITS AS BILLED ON MONTHLY BASIS BY THE DISTRIBUTION COMPANY AFTER DEDUCTING 4% TOWARDS TRANSMISSION LOS S. THE TPO FOUND THAT THE ASSESSEE HAS BENCHMARKED THE TRANSACTION RELATING T O TRANSFER OF ELECTRICITY TO OTHER TWO UNITS BY USING CUP AS THE MOST APPROPRIAT E METHOD. WHILE DOING SO, THE ASSESSEE HAS COMPARED THE PRICE CHARGED TO THE NON ELIGIBLE UNITS WITH THE 8 I.T.A. NOS.6073 &6074/MUM/2019 PRICE CHARGE BY GETCO TO THE ASSESSEE FOR SUPPLY OF ELECTRICITY. THE TPO, HOWEVER, WAS NOT CONVINCED WITH THE BENCHMARKING OF THE ASSE SSEE. HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY T HE RATE GIVEN BY THE DISTRIBUTION COMPANY IN THE REGION FOR PURCHASE OF POWER FROM POWER PRODUCERS SHOULD NOT BE ADOPTED FOR BENCHMARKING THE TRANSACT ION. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE TRANSACTION WITH THE AE HAS BEEN BENCHMARKED BY ADOPTING OTHER SPECIFIED METHOD AS P ROVIDED UNDER RULE 10AB SINCE NO OTHER OPTION WAS PROVIDED IN THE AGREEMENT WITH GETCO OTHER THAN GIVING CREDIT FOR THE UNITS AGAINST ITS OWN ELECTRI CITY CONSUMPTION. THE TPO; HOWEVER, DID NOT FIND ASSESSEES SUBMISSION ACCEPTA BLE. RELYING UPON A DECISION OF HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS IT C LTD (ITA 426 OF 2006), THE TPO HELD THAT THE RATE AT WHICH DISTRIBUTION COMPANIES ARE SUPPLYING ELECTRICITY CANNOT BE TAKEN FOR COMPARISON. FOR SUCH PURPOSE, THE TPO SOUGHT INFORMATION FROM A THIRD PARTY, VIZ. DAKSHIN GUJARAT VIJ CO. LTD REGARD ING THE RATE AT WHICH, THE DISTRIBUTION COMPANY IS PURCHASING POWER FROM POWER PRODUCERS. ON VERIFYING THE INFORMATION RECEIVED, HE FOUND THAT AS AGAINST THE PER UNIT RATE OF RS.6.42 ADOPTED BY THE ASSESSEE, THE PURCHASE RATE PER UNIT AS PER THIRD PARTY IS RS.4.71. THUS ADOPTING SUCH RATE/PRICE, HE DETERMINED THE AL P OF THE TRANSACTION AT RS.1,13,99,580/- AS AGAINST THE PRICE OF TRANSACTIO N REPORTED BY THE ASSESSEE AT RS.1,55,37,459/-. THUS, THE DIFFERENTIAL AMOUNT OF R.41,37,879/- WAS PROPOSED TOWARDS ADJUSTMENT. THOUGH, THE ASSESSEE CONTESTED T HE AFORESAID ADJUSTMENT BEFORE LEARNED COMMISSIONER (APPEALS); HOWEVER, REL YING UPON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT (SUPRA), HE CONFIRM ED THE ADDITION. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, NOW IT HAS BEEN FAIRLY WELL SETTLED BY A CATENA OF DECISIONS OF DIFFERENT HIGH COURTS THAT THE RATE AT WHICH THE 9 I.T.A. NOS.6073 &6074/MUM/2019 ELECTRICITY COMPANY SELLS TO THE CUSTOMERS SHOULD B E TAKEN AS CUP. HE SUBMITTED, EXCEPT THE DECISION OF THE HONBLE CALCUTTA HIGH CO URT REFERRED TO BY THE DEPARTMENTAL AUTHORITIES WHICH IS AGAINST THE ASSES SEE, ALL OTHER DECISIONS INCLUDING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN CASE OF CIT VS RELIANCE INDUSTRIES LTD (2020) 421 ITR 686 (BOM) HAS HELD TH AT THE RATE AT WHICH THE DISTRIBUTION COMPANY SELLS THE ELECTRICITY TO THE C USTOMER HAS TO BE ADOPTED AS THE PRICE AT WHICH THE TRANSACTION BETWEEN ELIGIBLE AND NON ELIGIBLE UNIT HAS TAKEN PLACE. IN SUPPORT OF SUCH CONTENTION, LEARNED COUNS EL RELIED UPON THE FOLLOWING DECISIONS:- 1. RELIANCE INFRASTRUCTURE LTD VS ADDL.CIT (2011) 9 TA XMANN.COM 186 2. PRINCIPAL CIT VS GUJARAT ALKALIES & CHEMICALS LTD (2 017) 88 TAXMANN.COM 722 3. CIT VS SHAH ALLOYS LTD (2017) 84 TAXMANN.COM 256 4. ACIT VS PRAGATI GLASS WORKS (P) LTD ITA NO.1646 OF 2010 5. CIT VS ALEMBIC LTD ITA NO.471 OF 2009 6. ADDL.CIT V. RELIANCE INDUSTRIES LTD ITA NO.4361/MUM /2012 7. CIT RAIPUR VS GODAWARI POWER & ISPAT LTD (2014) 42 TAXMANN.COM (CHATTISGARH) 8. CIT VS KANORIA CHEMICLAS & INDUSTRIES LTD (2013) 35 TAXMANN.COM 566 (CAL) 9. WEST COAST PAPER MILLS LTD VS ADDL.CIT (2014) 52 TA XMANN.COM 268 10. SHRI VELAYUDHASWAMY SPINNING MILLS (P) LTD VS DEPUT Y CIT (2012) 19 TAXMANN.COM 28) 11. SRI MATHA SPINNING MILLS (P) LTD VS DEPUTY CIT (201 3) 31 TAXMANN.COM 13 10 I.T.A. NOS.6073 &6074/MUM/2019 12. EVEREADY SPINNING MILLS (P) LTD VS ASSISTANT CIT (2 012) 17 TAXMANN.COM 254 (CHENNAI) 13. GUJARAT FLOUROHEMICALS LTD VS DY.CIT (2018 97 TAXMAN N.COM 10 14. PRABHU SPINNING MILLS (P) LTD VS DY.CIT (2013) 33 T AXMANN.COM 398 15. ADDL.CIT VS JINDAL STEEL & POWER LTD (2007) 16 SOT 509 (DEL) 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE, STRONG LY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND TPO, SUBM ITTED THAT THE ADDITION MADE SHOULD BE CONFIRMED. 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIG HT OF DECISIONS RELIED UPON AND PERUSED THE MATERIALS ON RECORD. THE DISPUTE LI ES WITHIN A NARROW COMPASS. THE CORE ISSUE WHICH REQUIRES TO BE DECIDED IS, WHA T SHOULD BE THE PRICE FOR TRANSFER OF ELECTRICITY FROM THE ELIGIBLE UNIT TO N ON ELIGIBLE UNITS OF THE ASSESSEE. WHILE THE ASSESSEE HAS ADOPTED THE RATE AT WHICH TH E DISTRIBUTION COMPANY OF THE GOVERNMENT SELLS TO CUSTOMERS, THE DEPARTMENTAL AUT HORITIES RELYING UPON A DECISION OF THE HONBLE CALCUTTA HIGH COURT CITED ( SUPRA), HAVE APPLIED THE RATE AT WHICH THE DISTRIBUTION COMPANY PURCHASES ELECTRICIT Y FROM OTHER ELECTRICITY PRODUCERS. IN OUR VIEW, THE ISSUE IS NO MORE RES INTEGRA BECAUSE OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF REL IANCE INDUSTRIES LTD (SUPRA). THE HONBLE HIGH COURT, WHILE DEALING WITH AN ISSUE OF IDENTICAL NATURE, THOUGH RELATING TO NON TP DISPUTE, HAS HELD AS UNDER:- 4. QUESTION (C) PERTAINS TO THE DISPUTE BETWEEN TH E DEPARTMENT AND THE ASSESSEE REGARDING THE RATE AT WHICH THE ELECTRICITY GENERAT ED 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 ELECTR ICITY 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 WHI CH THE ELECTRICITY IS PURCHASED BY THE DISTRIBUTION COMPANIES FROM THE ELECTRICITY GENERAT ING COMPANIES. 5. THIS CONTROVERSY AROSE IN THE BACKGROUND OF THE FACT THAT THE AVTRWRR 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 PROFIT S ARISING OUT OF SUCH ACTIVITY. 11 I.T.A. NOS.6073 &6074/MUM/2019 OBVIOUSLY, THEREFORE DIE ATTEMPT ON THE PART OF THE ASSESSEE WAS TO CLAIM LARGER PROFIT UNDER THE UNIT WHICH WAS ELIGIBLE FOR SUCH DEDUCTIO N AS AGAINST THIS, ATTEMPT OF THE REVER 8/4/20: 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) AI INDEPENDENT REASONS FOR CONFIRMING THE SAME. IN SUCH ORDER CIT (APPEALS) HAD PLACED RELIANCE ON AN EARLI JUDGMENT OF THE TRI BUNAL IN CASE OF RELIANCE INFRASTRUCTURE LTD. V. ADDL. CIT [2011] 9 LAXMANN.C OM 1J (MUM. - TRIB.). LEARNED COUNSEL FOR THE ASSESSEE HAD PLACED ON RECORD A COPY OF THE JUDGMENT OF THE TRIBUN IN CASE OF RELIANCE INFRASTRUCTURE LIMITED. IN SUCH JUDGMENT A N IDENTICAL ISSUE CAME UP FOR CONSIDERATION. TL TRIBUNAL BY DETAILED JUDGMENT HAD HELD AND OBSERVED AS UNDER: '44. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE C ASE, 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 REVE NUE.' 7. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE JU DGMENT 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 AP PEAL WAS DISMISSED MAKING FOLLOWING OBSERVATIONS: '6. AS FAR AS QUESTION (D), NAMELY, THE CLAIM RELAT ING TO PURCHASE PRICE FROM TATA POWER COMPANY IS CONCERNED AND THAT WAS FOR THE DEDUCTION UNDER SECT ION 80IA, THE ITAT IN PARAGRAPH 21 ONWARDS HAS NOTED THE FACTUAL FINDINGS AND ALSO REFERRED TO THE ORDER OF THE MAHARASHTRA ELECTRICITY REGULATORY AUT HORITY (FOR SHORT 'MERC'). PARAGRAPH 36 SET OUTS AS TO HOW THE CLAIM AROSE. TH E CLAIM HAS BEEN CONSIDERED IN THE LIGHT OF SECTION 80IA AND PARTICULARLY PROVI SO AND EXPLANATION THERETO. THE TRIBUNAL EVENTUALLY HELD THAT TILL THE ASSESSMENT Y EAR 2005-2006, THE REVENUE CONSIDERED THE RATE AT WHICH THE POWER WAS PURCHASE D BY THE ASSESSEE FROM TATA POWER COMPANY AS MARKET VALUE. THERE IS NOTHIN G BROUGHT ON RECORD AS TO HOW THE RATE DETERMINED BY THE MERC IS THE TRUE MAR KET VALUE. THE ASSESSEE GAVE EXPLANATION THAT THE RATES DETERMINED BY THE M ERC DO NOT REFLECT THE CORRECT MARKET RATE. THE FINDING IS THAT THE MODE O F COMPUTATION AND DEDUCTION UNDER SECTION 80IA REQUIRES NO DEVIATION FROM THE P AST. THE FINDINGS OF FACT AND TO BE FOUND IN PARAGRAPHS 42 TO 50 ALSO REFLECT THA T THE VERY ISSUE CAME UP FOR CONSIDERATION FOR THE ASSESSMENT YEAR 2003-2004. FO R THE REASONS ASSIGNED BY THE ITAT AND FINDING THAT THE ATTEMPT IS TO SEEK RE APPRECIATION AND REAPPRAISAL OF THE FACTUAL DATA THAT WE COME TO A CONCLUSION TH AT EVEN QUESTION (D) AS FRAMED IS NOT A SUBSTANTIAL QUESTION OF LAW.' 8. THUS, THE ISSUE AT HAND HAD BEEN EXAMINED BY THI S COURT ON EARLIER OCCASION AND THE VIEW OF THE TRIBUNAL UNDER SIMILAR CIRCUMSTANCES WA S 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. [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 CONSUME R IN THE OPEN MARKET AND IT SHOULD NOT BE COMPARED WITH THE RATE OF POWER WHEN IT IS SOLD TO A SUPPLIER AS 12 I.T.A. NOS.6073 &6074/MUM/2019 THIS IS NOT THE RATE FOR WHICH A CONSUMER OR THE ST EEL-DIVISION COULD HAVE PURCHASED POWER IN THE OPEN MARKET. THE RATE OF POW ER 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 SUPPLI ER: 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 AL KALIES & CHEMICALS LTD. [2017] 395 ITR 247/88 TAXMANN.COM 722 ALSO HAD OCCASION TO EXAMINE SUCH AN ISSUE. IT REF ERRED TO EARLIER ORDER IN CASE OFASSTT. CIT V. PRAGATI GLASS WORKS (P.) LTD. [TAX APPEAL NO. 1646 OF 2010, DATED 30-1-2012] IN WHICH FOLLOWING OBSERVATI ONS WERE MADE: '7. TO OUR MIND, TRIBUNAL HAS COMMITTED NO ERROR. A SSESSING OFFICER AND CIT (APPEALS) WHILE ADOPTING J RS. 4.51 PER UNIT AS THE VALUE OF ELECTRICITY GENERATED BY ELIGIBLE UNIT OF ASSESSEE AND SUPPLIED THROUGH I TS I NON ELIGIBLE UNIT ONLY WORKED OUT COST OF SUCH ELECTRICITY GENERATION. IN FACT CIT (APPEALS) IN TERMS 1 RECORDED THAT RS. 4.51 WAS COMPUTED AS THE REASONAB LE VALUE OF THE ELECTRICITY GENERATED BY ELIGIBLE UNIT OF ASSESSEE. THIS AMOUN T 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 GENERATI ON. THUS THE SUM OF RS. 4.51 PER UNIT ONLY REPRESENTED THE COST OF ELECTRICITY G ENERATION TO THE ASSESSEE. IN SECTION 80IA(8) OF THE ACT WHAT IS REQUIRED TO BE A SCERTAINED 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 SA ME ASSESSEE AND THE CONSIDERATION RECORDED IN THE ACCOUNTS OF THE ELIGI BLE BUSINESS DOES NOT CORRESPOND TO MARKET VALUE OF SUCH GOODS. TERM 'MAR KET VALUE' IS FURTHER EXPLAINED IN EXPLANATION TO SAID SUB-SECTION TO MEA N IN RELATION TO ANY GOODS OR SERVICES, PRICE THAT SUCH GOODS OR SERVICES WILL OR DINARILY FETCH IN THE OPEN MARKET. TO OUR MIND SUM OF RS. 4.51 PER UNIT OF ELE CTRICITY ONLY REPRESENTED COST OF ELECTRICITY GENERATION TO THE ASSESSEE AND NOT T HE 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. I T CAN BE EASILY SEEN THAT IF THE ASSESSEE WERE TO SUPPLY SUCH ELECTRICITY OR WAS ALL OWED 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 1 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 ASCERTAI N THE MARKET VALUE OF ELECTRICITY GENERATED BY THE ELIGIBLE UNIT AND SUPP LIED TO NON ELIGIBLE BUSINESS OF THE ASSESSEE, NO ERROR WAS COMMITTED BY THE TRIBUNA L. NO QUESTION OF LAW THEREFORE, ARISES. TAX APPEAL IS DISMISSED.' 11. JUDGMENT OF CALCUTTA HIGH COURT IN CASE OF CIT V. I TC LTD [2016] 236 TAXMAN 612/[20J5] 64 TAXMANN.COM 214 WAS ALSO BROUGHT TO OUR NOTICE IN WHICH THE SAID H IGH COURT HAS TAKEN A DIFFERENT STAND. HOWEVER, SINCE T HE 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. 13 I.T.A. NOS.6073 &6074/MUM/2019 15. NOTABLY, WHILE DECIDING THE ISSUE THE HONBLE JU RISDICTIONAL HIGH COURT TOOK NOTE OF THE DECISION OF THE HONBLE CALCUTTA HIGH C OURT IN CASE OF CIT VS ITC LTD (SUPRA). HOWEVER, NOTICING THAT THE ISSUE HAS ALREA DY BEEN EXAMINED BY THE HONBLE JURISDICTIONAL HIGH COURT HELD IN THE AFORES AID MANNER. THE VIEW AS EXPRESSED BY THE HONBLE JURISDICTIONAL HIGH COURT H AS ALSO BEEN REITERATED/EXPRESSED IN A PLETHORA OF DECISIONS CIT ED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE. AT THIS POINT, WE MUST OB SERVE, THE LEARNED COMMISSIONER (APPEALS) AS WELL AS THE LEARNED DEPAR TMENTAL REPRESENTATIVE HAVE ATTEMPTED TO DISTINGUISH THE DECISIONS CITED BY LEA RNED COUNSEL FOR THE ASSESSEE BY ARGUING THAT THOSE DECISIONS HAVE NOT BEEN RENDE RED IN THE CONTEXT OF TRANSFER PRICING PROVISIONS. WE FIND THE AFORESAID ARGUMENT OF THE REVENUE UNACCEPTABLE. THIS IS SO BECAUSE, BOTH, THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) HAVE DECIDED THE ISSUE AGAINST THE ASSESS EE FOLLOWING A DECISION OF THE HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS ITC L TD (SUPRA) WHICH WAS ALSO RENDERED IN THE CONTEXT OF NON TP PROVISIONS. THERE FORE, WHAT WE HAVE TO BEAR IN MIND IS THE PRINCIPLE LAID DOWN IN THE DECISIONS. T HUS, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (S UPRA) AND OTHER DECISIONS CITED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE HOLD THAT THE TP ADJUSTMENT MADE IN RESPECT OF THE SPECIFIED DOMESTIC TRANSACTI ON RELATING TO TRANSFER OF ELECTRICITY IS UNSUSTAINABLE. ACCORDINGLY, WE DELET E THE ADDITION. THESE GROUNDS ARE ALLOWED. 16. GROUND 4 BEING A GENERAL GROUND, IS NOT REQUIRE D TO BE ADJUDICATED UPON. 17. RESULTANTLY, APPEAL IS ALLOWED. 14 I.T.A. NOS.6073 &6074/MUM/2019 ITA 6074/MUM/2019 ASSESSMENT YEAR 2014-15 18. THE ISSUE RAISED IN GROUNDS 1 AND 2 IS IDENTICA L TO THE ISSUE RAISED IN GROUNDS 2 AND 3 OF ITA NO.6073/MUM/2019. FOLLOWING OUR DETAILED DISCUSSION AND DECISION THEREIN, WE DELETE THE ADDITION. THESE GROUNDS ARE ALLOWED. 19. GROUND 3 BEING A GENERAL GROUND, IS DISMISSED. 20. APPEAL IS ALLOWED. 21. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED ON 14/09/2021 SD/- SD/- (S. RIFAUR RAHMAN) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 14/09/2021 PAVANAN COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 15 I.T.A. NOS.6073 &6074/MUM/2019