ITAT Delhi Allows Paper Company's Appeal In Captive Power Transfer Pricing Dispute

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed an appeal filed by K.R. Pulp & Papers Ltd. against transfer pricing adjustments that had denied the company a tax deduction on profits earned from transferring electricity and steam from its captive power plant to its manufacturing unit.

The tribunal held that electricity generated by the company's eligible captive power unit and supplied to its non-eligible manufacturing unit should be valued at the tariff charged by the State electricity distribution company to industrial consumers.

It also held that steam transferred from the eligible unit should be valued at its cost of production and not at nil.

A Bench of Judicial Member Raj Kumar Chauhan and Accountant Member Manish Agarwal passed the order.

K.R. Pulp & Papers Ltd., which manufactures kraft paper and writing and printing paper, challenged the assessment order passed after directions issued by the Dispute Resolution Panel.

The Transfer Pricing Officer (TPO) had made adjustments to the value of electricity and steam transferred from the company's eligible power generation unit to its non-eligible manufacturing unit. As a result, the Assessing Officer denied the company's claim for a deduction of ₹29.39 crore under Section 80-IA.

Before the Tribunal, the assessee submitted that the issues were already covered by orders passed in its own case for the assessment years 2017-18 and 2020-21. Those decisions had relied on the Supreme Court's ruling in CIT v. Jindal Steel & Power Ltd. and the Delhi High Court's judgment in Pr. CIT v. DCM Shriram Ltd.

The Revenue opposed the appeal. It argued that the assessee's benchmarking methodology was flawed and relied on the Hyderabad Bench's decision in Sanghi Industries Ltd. to contend that the tariff charged by the State electricity utility could not be treated as an appropriate comparable for determining the arm's length price.

The Tribunal rejected the Revenue's contentions. It held that the issues had already been decided in the assessee's favour in earlier assessment years and that there was no reason to depart from those decisions.

It held that the rate charged by the State electricity distribution company to industrial consumers represents the appropriate market value for electricity transferred by the eligible unit. The Tribunal also upheld the valuation of steam at its cost of production, instead of adopting a nil value.

Accordingly, the tribunal deleted the transfer pricing adjustments, held that the assessee was entitled to a deduction under Section 80-IA, and allowed the appeal.

For Appellant: Advocate Lalit Mohan, Advocate and Shri Ankit Kumar, 

For Respondent: Dharam Veer Singh, CIT-DR