The Pr. Commissioner of income Tax-2, Hyderabad v. Mis Bharathi Cement Corporation Private Limited

Counsel for the Respondent: SRI RAJESH MADDY The Court made the following: ORDER /"';'t THE HONOURAB LE SRI J USTICE P.SAM ! osHY AND THE I.IONOURA BLE SRI JUSTI CE SUDDA CHT .APATH I RAO INCOME TAX TRIBU NAL APPE AL No.119 ,fi 2023 JUDGM ENT: (per the |lou'bie 51 lLtshce !r.Satn KashY) Heard Ms. l.sunitha, Iearned Senior Standing ti lunsel for Income Tax Department appearing on behalf of the appella ^ : r' Revenue; and 14r. Rajesh Maddy, iearned counse! fcr the respondent / assessee'

2. The instant is an appeal under Section 260A of t!- e income Tax Act, 1951 (ior short'the Act') preferred by the Revenue c|l rllenging the order dated 17.02.2023, in ITA.No.159/Hyd/2022, passed Ly the income Tax Appellate Tribunai, Hyderabad'B'Bench, Hyderabad ('r r short the'ITAT') fcr the assessment year 20L7-78.

3. Vide the impugned order; the ITAT for the asser: sment year 2017- 18, allowed the aopeal of the respondent /assessee 1r-anting deduction under Section B0IA(4) of the Act on the value of elrrr tricity suppiied by the Captive Power Plant (for short 'CPP') to its mar ufacturing unit by adopting the average rate of electricity supplied to tf 3 assessee by the Andhra Pradesh Southern Power Distribution Corpc'l ation Limited (for short'APSPDCL') at Rs.6.29 per unit

4. The appeal has been preferred by the Revenue primarily on the ground that the ITAT had directed the Revenue to adopt arm's length rate of Rs.6.29 per unit with respect to supply of power from the assessee's CPP to the cement unit by benchmarking with composite rate charged by APSPDCL without appreciating the fact that APSPDCL is a distribution company and the rate charged by APSPDCL includes various charges and duties which are not applicable to the assessee's CPP which is a power generation unit.

5. The brief facts of the case are that the assessee is a cement manufacturing establishment. The assessee filed its return of income for the assessment year 20t7-lB electronically on 30.11.2017. The return so filed was taken up for scrutiny under CASS and subsequently a notice under Section 143(2) of the Act was issued. Following the same, notice under Section 7a2(l) of the Act was also issued to complete the proceedings. After the assessee had submitted its reply, the case stood referred to the Transfer Pricing Officer with approval of the competent authorities. After considering the submissions of the assessee, the Transfer Pricing Officer had passed an order under Section 144C read with Section 92CA(3) of the Act proposing transfer pricing adjustment at Rs.32,21,65,I08/- to the special domestic transactions and a draft assessment order was forurarded to the assessee. The assessee filed its objections before the Dispute Resolution Panel (for +drt 'DRP') and the .].e€F+r1+...-1gv // ,l ---. DRP later on, on 2A.O1.2022, granted some relie' to the assessee inasmuch as the total income got reduced from Rs.212,69,38,238/- to Rs.268,67,58,223,t-

6. It is this order passed by the DRP which was sut,-:cted to challenge before the ITAT rrrhere the impugned order has been r rssed allowing the appeal preferred by the assessee

7. The sole dispute before the ITAT was to d = :ide whether the statutory authorit es were justified in disallowing the z ssessee's claim of Rs.6.29 per unit that which was charged by the Southr: n Power Company as comparable instance instead of base rate of Rr 5,25 per unit as assessed by the Assessing Officer as also by the DRP

8. The contention of the assessee was that since [he APSPDSL was charging Rs.6.29 per unit for the electricity suppiir: i to its industrial consumers, therefore, the assessee should also be p€r nitt€rd to take the rate of Rs.6.29 per unit so far as electricity generate( frorn its CPP and that which is used in the cement plant of the assessee,

9. The contention of the Revenue was that the r,a.e charged by the APSPDSL cannot be permitted to be charged by the assessee for the simple reason that the rate at which the APSPDSL prrr''ides for electricity includes various charges towards ToD rate, electrici y duty, customer charges etc., all of which would not be attracted r rhen it is directly generated by the assessee as also directly consumed by the assessee itself 1O, However, what is apparently reflected from the order of the ITAT is the fact that, the issue which was decided by the ITAT was not which was a new issue since the said issue had already been deliberated and decided by the Bench of the very same ITAT in the case of Sree Rayalseema Hi Strength Hypo Limited, Kurnool vs. DCIT 1, wherein in paragraph Nos.14, 15 and 16 it was held as under: "14. Coming to the case law relied on by the assessee/ in the cases of Star paper mills Ltd (supra), Vishal fabrics Ltd (supra), Reliance Industries Limited (supra), Godavari Power and Ispat Ltd (supra), Gujarat Alkalis and Chemicals Ltd (supra) and Kanoria Chemicals and Industries Ltd (supra) are concerned with the supply of power generated by the captive power plants. In all these cases, and more particularly in the Nector Lifesciences Ltd (supra), Star paper Mills Ltd (supra), West Coast paper Mills Ltd (supra), Godavari Power (supra), Gujrat Alkalis (supra) and Kancdia Chemicals it is specifically held that when an assessee sets up a captive power generation plant and provided electricity to its AEs and claimed deduction under section 80-IA of the Act, in respect of the profits arising out of such activity, the valuation of the electricity provided to the AEs should be at rate at which the State Electricity Board charges for supply of electricity to the industrial consumers. 15. On the face of the admitted fact that the Ld. TPO himself conceded that the rate at which the assessee supplied the power to the APSPDCL during the financial year 2015-16 at Rs. 5.45 cannot be an uncontrolled transaction, the Ld. TPO cannot ignore the transaction as submitted by fhe assessee between TGV Projects, Gauri Gopal Hospital and SRHHL with the APSPDCL at Rs. 8.98, Rs. 8.82 and Rs. 10.71 per unit cannot be ignoreci. At the same time the consistent view taken by the higher judicial fora and also the Tribunal in the cases referred to by the assessee is to the effect that when the assessee had set up a captive power generating unit and provided electricity to its AEs and claimed deduction under section 8O-IA of the Act in respect of profits arising out ' t a. No.tzzlaydlzozz of such activitt/, for the purpose of such deduction th,) power supplied by the assessee to its AEs shoL,l considering the rate of power charged by the State El:- supply of electricity to industrial consumers. 16. We, therefcre, respectfully following the decisions ) Htgh Courts in the case of Reliance Industries Umited ( Power and Ispat Ltd (supra), Gujrat Alkalis and Cherl and Kanoria Chemicals and Industries Ltd (supra) are ( opinion that fhe assessee is justified in adopting electricity supply bites captive power generation plani 8.74 and the Revenue is not justified in excluding , charges from out of it. With this view of the matt. grounds ot appeal on this aspect." market value of I be computed :tricity Board for ' various Hon'ble ;upra), Godavari cals Ltd (su pra ) f the considered he ALP of the o its AEs at Rs. ertain heads of -, we allow the

11. Further, it is also found that while deciding the case of Sree Rayalseema Hi Strength Hypo Limited, Kurnooi (supra) a decision relied upon by the 1TAT was that of the Bombay High (.ourt in the case of Reliance Industries Ltd. vs. CIT2. In the said cas( also, the Bombay High Court in paragraph Nos.7 and 8 has held as under "7. Counsel for the assessee pointed out that the l Tribunal in case of Reliance Infrastructure Ltd. (supr a appeal by the revenue before the High Court in Inct No.21BO af 2011, such appeal was dismissed rr observations: tdgment of the was carried in me fax Appeal aking following "6. As far as questian (d), namely, the claim relatir ! price from Tata Power Company is concerned anc' the deduction under Section BOIA, the ITAT in L onwards has noted the factual findings and also r= arder of the Maharashtra Electricity Regulatory n short "MERC"). Paragraph 36 set outs as to how th= The claim has been considered in the light of Secl particularly proviso and explanation thereto. t eventually held that till the Assessment Year 2t_'( Revenue considered the rate at which the power vn by the Assessee from Tata Power Company as,t There is nothing brought on record as to how the rat by the MERC is the true market value. The As to purchase that was for tragraph 21 'erred to the tthority (for claint arose. )n B0IA and he Tribunal 5-2005, the s purchased arket value. I determined ;essee gave ']102 Taxmann.com 372 explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80lA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004 For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantia I question of law." B. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved." L2. The Chhattisgarh High Court also in the case of CIT vs. Godawari Power & Ispat Ltd.3, in somewhat similar set of facts, held at paragraph Nos.31 and 32 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 ts 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- " The aforesaid view has also been reiterated by the Gujarat High Court in the case of Pr. CIT vs. Guiarat Alkalies & Chemicals Ltd.a and also in the case of Asstt. CIT vs. Pragati Glass Works (P.) Ltd.s. '120141 42 taxmunn.com 551/223 Taxmann 234 o lzotl) zgs ITR 247188 taxmann.com 722

13. Recently again the same issue came up for con; deration before the Hon'ble Supreme Court in the case of Commissioner )f Income-tax vs. Jindal Steel & Power Ltd.6, wherein in paragraph I os.27 to 31, under similar set of facts rt was held as under: "27. Another v,,ay of lookrng at the issue is, if the indL,trial units of the assessee did noL have the option of obtaning powet .om the captive pcwer plaint\ of the assessee, then in that case it ,^,-.. rld ltave had to purchase elec rcity from the State Electricity Board. Ir, ;uch a scenario, the industrial units of the as-sessee would have had t.t ourchase powet frant the Stat€: Electricity Board at the same rate al ^lhtci the Stale Elcctrrcity Board supplied to the industrial consumer::, ,-., R:;. 3.72 per uniL.

28. Thus, market value of the power supplied by th,) tndustrial untts should be computed by considering thc t State Electri.i!y, Board supplied power to the consunt market and ttr:t comparing it with the rate of powt:t supplier i.e., sold by the assessee to the State Electn( t was not the rate at which an industrial consumer coul(' power in the op€n market. It is clear that the rate at supplied to .) supplrcr could not be the market r, L purchased by a consumer in the open market. On the r r at whtch the State Electricity Board supplied power t consumers has lo be taken as the market value for contl under section 80-lA of the Act. ^ assd.tsee to /ts tte at vlhich thc 'rs in the open ,y hen sold to a y Board as this lave purchased \ich power was ) ol electricitt, ltrar'r', the rate I the industrial 'tting deduction

29. Section 13A of the 1948 Act lays down the terms a.t 1 conditions for determining titc tanff for supply of electricity. The said l rovision makes it clear that tari[f is determined on the basis of various I), rameters. That apart/ it is only upon granting of specific consent thaL ' private entity coLtld set up a power generating unit. However, sLtch a L nit would have restrictions not only on the use of the power gen ) .ated but atso regarding det"rmtnation of tariff at which the power , enerating unit could supply surplus power to the concerned State El ct oty Board. Thus, determination of tariff of the surplus electricity b:.-ween a power generating contpany and the State Electricity Board canr,, t be said to be an exercise belween a buyer and seller under a competiLt e environment or a transactton carried out in the ordinary courst' of trade and Tax Appeal No 1645 of 20i1, Cecided on 30 01.2012 " [2023] 157 raxmann..om 2 )/ (SC) Page I of 9 commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcinq buying but also to set the buying tariff in terms of the extant statutory guidetines. Therefore, the price determined in such a scenario cannot be equated with a situatrcn where the price is determined in the normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood ir'l the common power parlance. The price at whtch the surpius power supplied by the assessee to the State Electricity Board was determined entirely by the State Eteetncity Board in terms of the statutory regulations and the contract. Such a prrce cannot be equated with the market value as is understood for the purpose of Section B0IA (8) On the contrarY, the rate at which State Electricity Board supplied electricitY to the industrial consumers would have to be taken as the market value for computing deduction under section B0-IA of the Act.

30. Thus on a careful consideration, we are of the tiew that the rnarket value of the power supplied by the State Electricity tsoard to the industriat consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State ElectricitY Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under section 80-IA of the Act.

31. That being.the position, we hold that the Tribunal had rightly computed the m)rket value of electricitY supplred bY the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electriciry Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue." L4. In the teeth of the aforesaid ludicial precedents from the Hon'ble supreme court and from the various High courts across the country and also the view taken by ITAT itself on an earlier occasion under a similar factual backdrop, we do not find any strong case made out by the Revenue to hold that the findings arrived at by the ITAT to be either ,rry erroneous or contrary to law. Neither is there any nl iterial to show the findings of the ITAT to be a perverse finding oF fact. lf vie\^i of the same, we do not find any merit in the instant appeal and the ;ame is accordingly d ism issed .

15. As a sequi:1, miscellaneous petitions pending f any, shall stand closed. However, there shall be no order as to costs ,TRUE COPY// To, f SD/- A.V.S.PRASAD I)EPUTY REGISTRAR - -'/ SECTION OFFICER l I I I I )

1. The Income Tax Appellate Tribunal, Hyderabdd Bencl- A', Hyderabad 2.oneCCtoSM-r.,JSUNITHA(SRSCFoRINCOMTIt()AdvocateIoPUC] 3. One CC to SRl. RAJESH IVIADDY Advocate [OPUC]

4. Two CD CoPies 40, IPK/PSI ) 0B i:r.; ffi \-- :, '. . t , -..J HIGH COURT DATED t31107 /2A25 ORDER lTTA.No.119 of 2023 ITTA IS DISMISSED (, 1 XA \\ d