Tribunal grants relief on interest & power price, remits gratuity scheme issue for further review. Arm's length price set.

The Tribunal partly allowed the appeal, providing relief on the issues of notional interest and the purchase price of power. However, the issue of the contribution towards an unapproved gratuity scheme was remitted back to the Assessing Officer for further examination. The Tribunal directed the adoption of Rs. 6.03 per unit as the arm's length price for electricity generated by the captive power plant.

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Issues Involved:
1. Addition of Rs. 7,17,500/- as notional interest on an advance given to a sister concern.
2. Addition of Rs. 23,72,714/- being the contribution towards an unapproved gratuity scheme.
3. Deduction claimed under Section 80-IA of the Income-tax Act, 1961.
4. Determination of the purchase price of power from a subsidiary company.

Detailed Analysis:

1. Addition of Rs. 7,17,500/- as Notional Interest on Advance Given to Sister Concern:
The first issue concerns the addition of Rs. 7,17,500/- as notional interest on an advance of Rs. 1,43,50,000/- given to the sister concern, M/s Jhanvi Motors Pvt. Ltd. The assessee argued that this was a strategic investment for the working capital needs of the sister concern, which should be considered as using the funds for the business purpose of the assessee. The Assessing Officer disallowed the notional interest on the grounds that the borrowed funds were not used for the assessee's business. However, the Tribunal referred to the Apex Court's decision in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1, which held that using borrowed funds for the business of a sister concern can be considered as using the funds for the business purpose of the assessee. The Tribunal concluded that the disallowance of Rs. 7,17,500/- was not justified and deleted the addition.

2. Addition of Rs. 23,72,714/- Being Contribution Towards an Unapproved Gratuity Scheme:
The second issue involves the addition of Rs. 23,72,714/- contributed to an unapproved gratuity fund. The assessee contended that the amount should be allowed under Section 37 of the Income-tax Act, 1961, as it had irrecoverably gone out of the assessee's hands. The Department argued that since the fund was unapproved, the disallowance was justified. The Tribunal noted the lack of clarity on whether the fund was created by the assessee or contributed to an LIC gratuity fund. The Tribunal remitted the issue back to the Assessing Officer to examine the nature of the fund and decide accordingly.

3. Deduction Claimed Under Section 80-IA of the Income-tax Act, 1961:
The third issue pertains to the deduction claimed under Section 80-IA for electricity generated by the assessee's windmill and used for its manufacturing activities. The Transfer Pricing Officer (TPO) valued the electricity at Rs. 3.44 per unit, leading to a downward adjustment of Rs. 20,38,45,020/-. The assessee argued that the market value should be Rs. 6.03 per unit, the rate at which Tamil Nadu Electricity Board sells power. The Tribunal referred to the Mumbai Bench decision in Addl. CIT v. M/s Reliance Industries Limited, which held that the price at which the State Electricity Board sells electricity should be considered the market value. The Tribunal directed the Assessing Officer to adopt the arm's length price of electricity at Rs. 6.03 per unit.

4. Determination of Purchase Price of Power from Subsidiary Company:
The fourth issue involves the determination of the purchase price of power from the subsidiary company, KPR Sugar Mills Ltd. The assessee paid Rs. 7/- per unit based on the Indian Energy Exchange price, but the Assessing Officer fixed the price at Rs. 3.69 per unit. The Tribunal noted that the power purchase from the subsidiary was not disputed and that the purchase price should be estimated at the market rate. The Tribunal concluded that the appropriate rate should be Rs. 6.03 per unit, the rate at which Tamil Nadu Electricity Board sells power, and directed the Assessing Officer to fix the purchase price accordingly.

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief on the issues of notional interest and the purchase price of power but remitting the issue of the gratuity fund back to the Assessing Officer for further examination. The Tribunal also directed the adoption of Rs. 6.03 per unit as the arm's length price for electricity generated by the captive power plant.

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