In a major relief to M/s. Tata Chemicals Ltd, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), ruled that on failure of comparable as chosen by the Dispute Resolution Panel (DRP), then same loses comparability for determining the arms length price (ALP).
The appeal has been filed by the assessee against final assessment order dated 28/01/2022 passed under Section 143 (3) r.w.s. 144C (13) for the A.Y. 2017-18, in pursuance of direction given by the DRP vide order dated 28/12/2021.
The Transfer Pricing Officer (TPO) held that comparison to sale price charged by eligible unit of the assessee with that of GEB is erroneous considering the functions performed, assets employed and the risks assumed by the GEB which is totally different from eligible unit. In the case of GEB huge distribution costs are involved whereas in assessee’s case no such substantial costs are involved as it is only an inter unit transfer of power.
The TPO also held that where the claim of deduction under Section 80IA is made, the ALP for the purpose of specified domestic transactions is the price which would be applicable in the transactions between two persons other than the associated enterprises in uncontrolled conditions. The comparability of the specified domestic transaction has to be established in terms of the parameters contained in Rule 10B (2).
What is culled out is that, these power generating entities were manufacturing and supplying 100% to the GEB and the price is influenced by GEB, although fixed by GERC, but if there is only one party to whom sale is made and the prices and other conditions are purely influenced by that entity, then it becomes a tainted transaction.
The reason being, Section 92A dealing with the meaning of the associated enterprises stipulates that two enterprises shall be deemed to be associated enterprises if any time during the previous year, the goods or articles manufactured or processed of one enterprise are sold to other enterprise which is specified by the other enterprises and the prices and the conditions are influenced by the other enterprise.
A Two-Member Bench comprising Padmavathy S, Accountant Member and Amit Shukla, Judicial Member observed that “Thus, once only comparable as chosen by the ld. DRP fails, then same loses the comparability for determining the ALP. In view of aforesaid discussion, we hold that the price on which eligible unit is selling the power, i.e., at Rs.6.90 per unit which is the price available in the open market and also the same manufacturing unit is purchasing it from GEB at the same price, then it can be said to be the market value of the price. Accordingly, addition / disallowance of deduction made by the CIT (A) is deleted.”
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