Relief to Tata Steel: ITAT deletes Transfer Pricing Adjustment w.r.t. Power availed through Indian Energy Exchange [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench has deleted the Transfer Pricing (TP) Adjustment in favour of Tata Steel Ltd.

This decision was based on the observation that the rates obtained through the Indian Energy Exchange cannot be applied since they pertain to DISCOMs (power distribution companies) rather than end consumers.

In the specified domestic transaction (SDT) involving the transfer of power from eligible undertakings to non-eligible manufacturing undertakings under Section 80IA for the Assessment Year 2019–20, the bench, consisting of Amit Shukla (Judicial Member) and Padmavathy S (Accountant Member), eliminated the TP-adjustment.

The appellant, a company engaged in manufacturing iron and steel, bearings, ferroalloys, as well as power and water sales, had claimed a deduction under Section 80IA for its three captive power plants. The dispute arose over the determination of the Arm's Length Price (ALP) for transactions covered under Section 80IA(8).

The Tax Planning Officer (TPO) contended that the same principles applied for determining ALP under Section 92F read with Rule 10B(2) should be used for transactions covered by Section 80IA(8). Consequently, the TPO made adjustments, including reducing employee costs, denying the provision for doubtful debts, and excluding transmission costs, in determining the ALP.

The department, in agreement with the Assessing Officer (AO) and TPO, asserted that DISCOMs could not be directly compared to captive power units. Therefore, adjustments were made to the purchase price of electricity to account for certain DISCOM costs, which were considered part of the ALP.

The tribunal, drawing on the precedent set by the coordinate bench in the Tata Chemicals Ltd case, emphasized that transactions under Section 80IA(8) are not necessarily governed by ALP principles.

The tribunal bench of Accountant Member Padmavathy S and Judicial Member Amit Shukla observed that, “

It was ruled that if the transfer of goods and services aligns with open market prices, the eligible business's profit based on this price is eligible for deduction. However, if the taxpayer cannot establish the open market price, the ALP principle must be used to determine the price of goods and services.

To Read the full text of the Order CLICK HERE

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