THE HONOURABLE SRI JUSTI CE P.SAM KOSHY AND THE HONOURABLE SRI JUSTI CE SUDDALA CHALAPATHI RAO I NCOME TAX TRI BUNAL APPEAL No.119 of 2023

JUDGMENT:

(per the Hon’ble Sri Justice P.Sam Koshy)

Heard Ms. J.Sunitha, learned Senior Standing Counsel for Income Tax Department appearing on behalf of the appellant / Revenue; and Mr. Rajesh Maddy, learned counsel for the respondent / assessee.

2. The instant is an appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) preferred by the Revenue challenging the order dated 17.02.2023, in ITA.No.159/Hyd/2022, passed by the Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad (for short the ‘ITAT’)

for the assessment year 2017-18.

3. Vide the impugned order; the ITAT for the assessment year 2017- 18, allowed the appeal of the respondent /assessee granting deduction under Section 80IA(4) of the Act on the value of electricity supplied by the Captive Power Plant (for short ‘CPP’) to its manufacturing unit by adopting the average rate of electricity supplied to the assessee by the Andhra Pradesh Southern Power Distribution Corporation 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 2017-18 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 142(1) 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.32,21,65,108/- to the special domestic transactions and a draft assessment order was forwarded to the assessee. The assessee filed its objections before the Dispute Resolution Panel (for short ‘DRP’) and the DRP later on, on 28.01.2022, granted some relief to the assessee inasmuch as the total income got reduced from Rs.282,69,38,238/- to Rs.268,67,58,223/-.

6. It is this order passed by the DRP which was subjected to challenge before the ITAT where the impugned order has been passed allowing the appeal preferred by the assessee.

7. The sole dispute before the ITAT was to decide whether the statutory authorities were justified in disallowing the assessee’s claim of Rs.6.29 per unit that which was charged by the Southern Power Company as comparable instance instead of base rate of Rs.5.25 per unit as assessed by the Assessing Officer as also by the DRP.

8. The contention of the assessee was that since the APSPDSL was charging Rs.6.29 per unit for the electricity supplied to its industrial consumers, therefore, the assessee should also be permitted to take the rate of Rs.6.29 per unit so far as electricity generated from its CPP and that which is used in the cement plant of the assessee.

9. The contention of the Revenue was that the rate charged by the APSPDSL cannot be permitted to be charged by the assessee for the simple reason that the rate at which the APSPDSL provides for electricity includes various charges towards ToD rate, electricity duty, customer charges etc., all of which would not be attracted when it is directly generated by the