Transfer Pricing adjustment deleted; REC proceeds treated as capital and exempt-income disallowance reversed, with remand for verification.
The tribunal deleted the transfer pricing adjustment for intra-company steam transfer after finding the DRP direction binding and no departmental appeal, restoring relief to the assessee. The claim to redetermine arm's length price of steam and increase the industrial deduction was remitted to the assessing officer for verification and fresh speaking orders with opportunity of hearing. Receipts from sale of renewable energy certificates were characterised as capital receipts and excluded from book profit for corporate tax computation. The suo-moto disallowance for exempt income was deleted where no exempt income arose. Computational discrepancies and rectification claims were remitted for AO verification.
Issues: (i) Whether the transfer pricing adjustment of Rs.1,07,01,24,795/- made in respect of transfer of steam from eligible power unit to non-eligible unit is sustainable; (ii) Whether the assessee is entitled to redetermination of ALP of steam and consequential enhancement of deduction under section 80-IA; (iii) Whether receipts from sale of Renewable Energy Certificates (RECs) are capital receipts and whether such receipts are excluded from book profit under section 115JB; (iv) Whether the suo-moto disallowance under section 14A (and rule 8D) should be reversed where no exempt income was earned; (v) Whether computational errors and related rectification claims should be remitted for verification by the assessing officer.
Issue (i): Whether the transfer pricing adjustment of Rs.1,07,01,24,795/- in respect of transfer of steam is sustainable.
Analysis: The issue was considered against earlier coordinated Tribunal orders in the assessee's own cases and DRP directions which required verification whether the CIT(A) order for AY 2015-16 had been challenged. The record, including an affidavit of the assessing officer and prior Tribunal decisions, shows no departmental appeal against the CIT(A) order for AY 2015-16. The DRP direction was binding under the dispute resolution scheme; the adjustment was retained contrary to that binding direction.
Conclusion: The transfer pricing adjustment is deleted in favour of the assessee.
Issue (ii): Whether the ALP of steam should be redetermined and consequential enhancement of deduction under section 80-IA permitted.
Analysis: The claim for enhancement was not examined by TPO/AO despite DRP directions to pass a speaking order. Coordinate Tribunal orders in the assessee's own cases remitted identical claims to the assessing officer for verification and directed opportunity of hearing. Relevant jurisprudence distinguishing fresh claims and corrections to claims was considered.
Conclusion: The matter is restored to the assessing officer for verification and decision in accordance with law; the grounds are allowed for statistical purposes (remand in favour of the assessee for further adjudication).
Issue (iii): Whether REC receipts are capital receipts and excluded from book profit under section 115JB.
Analysis: Authorities and coordinate-bench decisions treating REC receipts as capital in nature were applied. Statutory distinction between carbon credits (specifically defined in section 115BBG) and RECs was observed; taxing provisions construed strictly. The question whether such receipts form part of book profit under section 115JB was examined in light of precedent holding capital receipts excluded from book profit computation.
Conclusion: REC receipts are held to be capital receipts not taxable as revenue and excluded from book profit under section 115JB; decision in favour of the assessee.
Issue (iv): Whether the suo-moto disallowance under section 14A (and rule 8D) should be reversed where no exempt income was earned.
Analysis: The factual position is that no exempt income arose in the year and earlier appellate decisions in the assessee's own cases deleted similar disallowances; the assessing officer admitted no departmental appeal against the earlier favourable CIT(A) order; DRP directions required deletion if no appeal existed.
Conclusion: The suo-moto disallowance under section 14A is deleted and the corresponding addition to book profit under section 115JB is deleted; decision in favour of the assessee.
Issue (v): Whether various computational mistakes apparent from record should be remedied.
Analysis: Certain computational discrepancies were identified and a rectification application under section 154 is pending; one item (DDT) was rectified and not pressed. The remaining computation issues require factual verification by the assessing officer.
Conclusion: The matters are remitted to the assessing officer for verification and rectification after providing opportunity of hearing; remand ordered in favour of the assessee for factual determination.
Final Conclusion: The appeal is allowed in part by deleting the transfer pricing adjustment and the section 14A disallowance, holding REC receipts to be capital and excluded from book profit, and remitting specified claims (enhanced section 80-IA deduction and computational rectifications) to the assessing officer for verification and decision with opportunity of hearing; overall the decision provides substantive relief to the assessee.