Rates for power made available through Indian Energy Exchange are not applicable to consumers; rather, they are rates to DISCOM: ITAT deletes TP Adjustment against Tata Steel [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai bench, held that rates for power made available through the Indian Energy Exchange are not applicable to consumers; instead, they are rates for DISCOM. Consequently, the bench deleted the Transfer Pricing (TP) adjustment made against Tata Steel.

Tata Steel Ltd., the assessee/appellant, is engaged in manufacturing iron and steel, bearings, ferro alloys, and the sale of power and water. Regarding the transfer pricing adjustment of Specified Domestic Transactions under section 80(A)(8), the assessee has three captive power plants with a claimed deduction under section 80IA of the Income Tax Act.

The assessments determined the market value of electricity based on the amount paid by non-eligible units to third-party power distribution firms (DISCOMS). The Transfer Pricing Officer (TPO) argued that the same guidelines as in Section 92F r.w.r. 10B(2) must be followed for assessing ALP for transactions covered by Section 80IA(8) of the Income Tax Act.

When challenged before the Dispute Resolution Forum (DRP), it agreed with the AO/TPO that DISCOM cannot be compared to captive power units, and thus, the purchase price of electricity should be adjusted by certain DISCOM costs considered as ALP.

During the proceedings, Nishant Thakkar, the assessee representative, argued that Section 80IA(8) of the Income Tax Act specifies two methods for calculating “market value.” The appellant’s non-eligible manufacturing facilities have purchased electricity from third-party DISCOMs at specific rates.

The tribunal, citing the Tata Chemicals Ltd. case, decided that ALP principles are not required to govern transactions under Section 80IA(8) of the Income Tax Act. If the cost of transferring goods and services is comparable to the open market price, the profit of the qualified business is deductible. The ALP principle comes into play if the assessee cannot determine the open market price.

After reviewing the facts and records, the two-member bench of Ms. Padmavathy S (Accountant Member) and Amit Shukla (Judicial Member) deleted the transfer pricing adjustment, stating that rates for power made available through the Indian Energy Exchange are not applicable to consumers but are rates for DISCOM. Consequently, the bench allowed the appeal of the assessee.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates