Section 80IA Income Tax Act | Internal CUP Method Is Most Appropriate For ALP Determination In Captive Power Transactions: Calcutta High Court

The Calcutta High Court held that Internal CUP (Comparable Uncontrolled Price) method is most appropriate for ALP (Arm's Length Price) determination in captive power transactions. Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) was addressing issue of whether the Internal Comparable Uncontrolled Price (CUP) method adopted by the assessee was right in determining the Arm's Length Price (ALP) for power supplied by the assessee's Captive Power Plants (CPPs) to non-eligible units for transfer pricing adjustments. Section 80IA of the Income Tax Act, 1961 provides tax incentives for businesses operating in certain sectors such as infrastructure, power, and telecommunications. The assessee/respondent is engaged in iron ore and manganese ore mining and also produce sponge iron, billets and power via Captive Power Plants (CPP). The Transfer Pricing Officer (TPO) observed that the transfer of power between eligible and non-eligible units cannot be made at the rate computed on the basis of landed cost of SEBs which were distribution entities and not power generating companies. Therefore, the TPO was of the view that the appropriate Comparable Uncontrolled Price (CUP) for bench marking the said transaction is the average rate at which the distribution companies in the state procured power from the generating companies. The TPO held that the benefit under Section 80IA of the Act can accordingly be claimed only on the basis of the rates charged for sale of power by the generating companies to the distribution companies. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), Kolkata [CIT(A)] which was allowed. The CIT(A) held that undisputedly the CUP method was of the most appropriate method in the assessee's case to determine ALP and it was correct and more appropriate to use the Internal CUP method rather than External CUP for the reason that former was more robust and reliable method for determining the Arm's Length Price (ALP) as well as for the fact that reliable internal data was readily available in the assessee case. The revenue had challenged the order passed by the CIT(A) before the Income Tax Appellate Tribunal which was dismissed. The appeal has been filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal. The assessee submitted that the assessing officer/TPO erred in considering the purchase price of power by the respective SEBs to be the market rate as per Section 80IA (8), whereas judicial precedence indicate that the market rate would be the selling price of the respective state SEBs. “The Arm's Length Price cannot be determined by taking the average market rates of power supply units to distribution companies as the assessee is not in the business of selling power to distribution companies. Therefore, the Arm's Length Price has to be determined bearing in mind the reason behind establishment of the CPPs namely to ensure uninterrupted power and to save on cost of electricity which otherwise has to be paid to the State Electricity Board,” stated the bench. The bench referred to the case of CIT v. Jindal Steel and Power Limited [(2024) 460 ITR 162 (SC)] where the assessing officer held that the market value of the electricity should be computed based on the rate fixed by the State Electricity Board for the electricity which is purchased by the assessee. The Dispute Resolution Panel (DRP) affirmed the view taken by the assessing officer and the matter was challenged before the tribunal. In above case, the tribunal followed the decision in the assessee's own case for an earlier assessment year which order had become final as the department did not prefer any appeal under Section 260A of the Act. The bench after referring to the case of CIT v. Jindal Steel and Power Limited dismissed the petition. Case Title: Principal Commissioner of Income Tax Central-1, Kolkata v. Rungta Mines Limited Case Number: ITAT/215/2024 Counsel for Appellant/Revenue: Prithu Dudhoria Counsel for Respondent/Assessee: Subhas Agarwal, Rajarshi Chatterjee, S. Sahani and Amit Shaw Click Here To Read/Download The Order

Section 80IA Income Tax Act | Internal CUP Method Is Most Appropriate For ALP Determination In Captive Power Transactions: Calcutta High Court

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