INCOME TAX ACT, 1961

Section 92CA(3)

Transfer pricing - Determination of ALP - Transfer of electricity by captive power plant to another unit -

Assessee company was engaged in the business of producing processed fabrics for clothing; mainly carries out job work activities like colouring, sewing, printing and bleaching, etc. It had a processing house and 2.3 Mw Captive Power Plant (CPP) wherefrom the electricity and the steam generated were exclusively supplied to the processing house. The said CPP was a separate unit and eligible and the processing house was another unit which was not eligible for any deduction. The CPP charges @7.49 per unit for supply of power to the processing house on the basis of rate charged by M/s. Torrent Power Ltd. from processing house. Therefore, this rate was adopted as market value by assessee consistently over a period of time [with the charges of rate of Torrent Power]. TPO referred the case for determination for Arm's Length Price (ALP) to TPO who in turn by and under the order under section 92CA(3) held that the rate adopted by assessee was excessive in as much as the rate charged by Torrent Power was inclusive of transmission cost whereas CPP bore only the generation cost as the power is generated for captive consumption. On that basis, TPO restricted sale price charged to CPP to processing house to Rs. 3.08/Kwh and resultantly downward adjustment of Rs. 4,78,78,842 in the hands of the CPP was made. According to TPO, Torrent Power Ltd. was not an eligible entity for comparing the price and, therefore, TPO adopted the cost of generation electricity by the Gujarat State Electricity Corporation Ltd. (GSECL). Held: As per section 80-IA (4) the market value in relation to any goods or services are to be taken as the price that such goods or services would ordinarily fetch in the open market or the Arm's Length Price as defined under section 92F. Further adopting the market rate for sale by CPP to the processing house was already accepted by AO in the earlier assessment year. Therefore, in case of Captie Power Plant (CPP) eligible for deduction under section 80-IA, the market rate at which receiving unit is procuring the electricity can be adopted as sale price by the CPP, which was just and proper so as to warrant interference.

Followed:Gujarat Fluorochemicals Ltd. v. Dy. CIT (2018) 97 Taxmann.com 10 (Ahd-Trib.) : 2018 TaxPub(DT) 5168 (Ahd-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

SUBSCRIBE FOR FULL CONTENT