The Calcutta High Court recently held that where taxpayer has transferred power from its Captive Power Plants [CPPs] to non-eligible units and benchmarked transaction using internal CUP method adopting average annual landed cost of electricity paid by its manufacturing units to State Electricity Boards [SEBs], then since CPPs were established for captive use and not for sale to SEB’s, internal Comparable Uncontrolled Price (CUP) would be the most appropriate method in determining the ALP.
Reference was made to the decision of the Coordinate Bench in the case of Principal Commissioner of Income Tax Vs. Star Paper Mills Ltd., [2025] 172 taxmann.com 391, as well as the decision in Principal Commissioner of Income Tax, Central-I vs. Rungta Mines Ltd., [2025] 176 taxmann.com 410 [Cal].
The Division Bench comprising the Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) was considering an issue as to the application of the internal CUP applied by the respondent to benchmark the transaction of sale of power to its Associated Enterprise (AE), and reference of the transfer of such goods or services as a specified domestic transaction under Section 92BA, and determination of its arm’s length price (ALP) under Section 92F of the Income Tax Act.
As far as the findings of the ITAT that where a corporate guarantee to benchmark was issued by and on behalf of the AE, then the arm’s length guarantee fee would be 0.5%, the Bench was surprised to note as to why the Revenue Department is on appeal as against the said finding, more particularly when it was the Revenue’s case itself before the ITAT that the arm’s length guarantee fee should be 0.5%. Accordingly, the Bench dismissed the appeal in favour of the Taxpayer.
Appearances:
Advocates Tilak Mitra and Prithu Dudhorea, for the Appellant/ Revenue
Senior Advocate J. P. Khaitan, along with Advocates Pratyush Jhunjhunwalla, Akshara Shukla, and Aritra Nag, for the Respondent/ Taxpayer
