TaxTMI 
TaxTMI 
2025 (3) TMI 1415
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...., 2018. In response to the same, the Assessee received a notice under section 143(2) of the Act. The Assessee, during the course of the assessment proceedings, submitted the relevant information/ documents as called upon by the Ld. AO from time-to-time. The Assessee is acompany incorporated under Companies Act, 1956, it is engaged in the business of manufacturing of paper and paper products. The Assessee is a leading wood and agro based paper manufacturer in India. The Assessee manufactures paper using wood chips, veneer waste, wheat straw, sarkanda etc. Over the years the Assessee has manifested itself as quality producer of writing/ printing paper. The Assessee has a wide product mix with well accepted quality in the market based on non- conventional raw materials. The product profile includes Super Snow White, Snow White, Map litho, Colored Paper, Ledger Paper, Cartridge Paper, Duplicating Paper, Bond Paper with and without watermarks from GSM range 42 to 200 3SM. These products are extensively used in the printing of text books, note books, directories, envelops, diaries, calendars, computer stationery, copy manufacture annual reports and high-class printing segment fo....
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....ed in confirming action of TPO in calculating ^SERC rate of power by reducing transmission losses at 1.24 per unit. That the DRP was misled by observations cum calculations of TPO in working out salerate of power 5. That the AO on the directions of DRP had erre i infact in confirming the cost-plus method adopted by the TPO for value of steam at Rs. 35,68,26,820/- by applying 63.79% of total cost incurred. That the DRP has erred in rejecting the value o' power considered by the assessee on the basis TNM method at Rs 47,97,24,111/-and confirming addition of Rs 12,28,97,957/ -. 6. The AO on the directions of DRP had erred both in fact and law in confirming action of TPO regarding loss to be reduced from steam transferred to the paper manufacturing unit. That DRP has failed to appreciate the fact that loss in respect of friction/ radiation/ convection takes place before steam is transferred to paper unit and as such, has no effect on steam transferred to paper unit. 6.1 That there are two stages at which the steam is transferred from turbine to paper unit and losses in terms energy at these stages is approximately 2.5%, which is part of 20.5% alr....
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.... assessee. 10.1 This addition of Rs 12,50,000 has been made without examining the facts that the assessee has written off the said amount and considered the same as income in subsequent Years. 11. That the penalty proceedings u/s 270A of the Income Tax Act, 1961 has been wrongly initiated. 11.1 That the Assessee craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed of. 4. During the proceedings before us, the ld. Counsel for the Assessee has filed a detailed written submissions which is being considered and decided as under :- 5. Ground No. l is general in nature. 5.1 Grounds No. 2-4 relate to the addition of Rs. 17,48,29,351 made by the Assessing Officer (AO) concerning the variation in the arm's length price of power, where the AO, following the directions of the Dispute Resolution Panel (DRP), reduced the sales value of power to Rs. 23,72,90,275 from the assessee's reported value of Rs. 41,21,19^626. Ground No. 8 addresses the change in the transfer pricing method from the Transaction Net Margin Method (TNMM) to the External Comparable Uncontrolled Price (CUP) method, which could affect the d....
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....t under Section 80IA of the Income Tax Act, 1961) to its non-eligible paper manufacturing unit. c) The assessee generates high-pressure steam using boilers fueled by biomass, specifically rice straw and rice husk, at its facility located in Village Rupana, District Muktsar, Punjab. The high-pressure steam is transferred to turbine generators. The power generated from the turbines, along with medium-pressure steam and low-pressure steam, is transferred to and utilized in the main manufacturing unit, namely, the paper manufacturing unit. d) The assessee has adopted the Transactional Net Margin Method (TNMM) for determining the arm's length price (ALP) for the transfer of power, in accordance with the provisions of Section 92C(1) of the Income Tax Act, 1961, read with Rule 10B of the Income Tax Rules, 1962. The assessee computed the sale value of power at 741,21,19,626, based on a rate of 76.73 per KWH for the total consumption of 6,12,36,200 units (i.e., 76.73 x 6,12,36,200 units). e) The rate of 76.73 per KWH adopted by the assessee for the transfer of power is lower than the comparable rate for generating electricity from biomass fuel, as available in....
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.... TPO, asserting that no such adjustment was required in the prices. Furthermore, it was explained that the relevant losses should be added in order to calculate the correct rate. As a result, the AR clarified that the correct rate, after removing the infirmities, should be Rs. 7.41 per KWH, rather than the Rs. 4.74 per KWH rate referred to by the TPO in the show-cause notice (SCN). j) The Authorized Representative (AR) submitted that the Dispute Resolution Panel (DRP) erred in rejecting the Transactional Net Margin Method (TNMM) and instead applied the external Comparable Uncontrolled Price (CUP) method to arrive at the average rate and compute the difference of Rs. 1,74,82,93,51. The AR also provided a comparison between the method adopted by the DRP and the method applied by the assessee, as detailed below: Particulars Units of electricity produced Rate per unit conside r-ed by the assessee Rate per unit considered by DRP Difference (per unit) Difference (Rs.) Sale of power 61236200 6.73 3.875 2.855 17,48,29,351 Method TNMM External CUP 7 The Authorized Representative (AR) submitted that the TNMM method ....
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....Rs. 3.875 per unit, instead of the Rs. 6.73 per unit considered by the assessee. 9.2 During the hearing, it was submitted by the AR that the TPO in Assessment Year 2017-18 and 2018-19 has accepted the price of electricity based upon rate of PSPCL and without making any adjustments. The summary of the rate of electricity accepted by the TPO in earlier years. 9.3 The AR also submitted that the DRP failed to appreciate that other charges levied by the Indian Energy Exchange are over and above the basis rate, which are reflected separately in daily obligation statement. The following charges are additionally charged over and above the basic rate: *. NLDC Application Fee- Application fee charged by National Load Dispatch Centre *. Transmission charges by Central Transmission utility ('CTU') *. NLDC scheduling and operating charges-Scheduling charges levied by National Load Dispatch Centre *. Transmission charges levied by State Transmission utility ('STU') *. Scheduling and operating charges levied by State Load Dispatch center (SLDC) 9.4 In addition to the above amounts, the customer is also liable to pay to Punjab s....
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.... eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [Explanation. - For the purposes of this sub-section, "market value", in relation to any goods or services, means- i. the price that such goods or services would ordinarily fetch in the open market; or ii the arm's length price as defined in clause (ii) of Section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. 6.6 The Authorized Representative (AR) has also brought on record various case laws to support the assessee's arguments,....
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.... which power was supplied to a supplier could not be the market rateof electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act. c) Similarly, the Hon'ble Chhattisgarh High Court in the case Commissioner of Income-tax, Raipur vs. Godawari Power & lspat Ltd. [2014] reported in 42 taxmann.com 551 has held that for deduction under Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment years 2004-05 to 2006-07 - Assessee, a manufacturer of iron and steel, had established a Captive Power Plant in State of Chhattisgarh to supply electricity to its steel division - It had sold power to steel division at same rate, which was charged by Chhattisgarh State Electricity Board [Board] for supply of electricity to industrial consumers - Assessee claimed deduction under section 80-IA -Assessing Officer computed market value of power supplied by assessee to steel division by taking into account rate c....
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....541 - GUJARAT HIGH COURT vi. CIT Vs. Gujarat Alkalies and Chemicalsreported in[2017] 395 ITR 247HIGH COURT OFGUJARAT vii. Tamilnadu Petro Products Ltd. vs. ACIT [2011] 13 taxmann.com 139 (Madras)[2011]202 Taxman 31 (Madras) viii) PR. COMMISSIONER OF lNCOME TAX -6 VERSUS NALWA STEEL & POWE reported in 2024 (3) TMI 952 10. After going through the findings given by the Assessing Officer on this issue and the submissions filed by the Department, as well as after hearing the arguments of the Authorized Representative (AR) of the Assessee and the Department Representative (DR), we are of the considered view that the method adopted by the Assessee for determining the arm's length price was correct, and the adjustments made by the Assessing Officer were not in line with the applicable provisions of the Income Tax Act. Therefore, in this situation, and in our opinion, the addition made by the Assessing Officer on this account cannot be sustained. Accordingly, the Assessee's appeal on this issue is allowed. 11. Ground No. 6-7 relates to the addition of Rs. 12,28,97,957.00 made by the Assessing Officer (AO) concerning the variation in the arm's len....
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....43,14,81,330 2. Less: Loss due to friction/Radiation/Convection (20.50%) -84,53,673 i 3. Net energy available for MP, LP and electricity generation 34,30 27,657 4. Medium Pressure & Low- Pressure steam produced 27,52,57,845 5. 1 kg of condenser steam 69,28 300 6. Total energy consumed in generation of electricity 6,08,40,912 The Authorized Representative (AR) further drew the attention of the bench to the working made by the Assessing Officer (AO), highlighting how the AO had again reduced the loss at 20.50% from the medium-pressure (MP) and low-pressure (LP) steam produced. 15. It was submitted by the Authorized Representative (AR) that the calculation made by the TPO is flawed, as the loss has been deducted twice. The AR brought to our attention the calculation made by the TPO and submitted by the assessee, as per the Chartered Engineer's Certificate, which is produced as follows: Revised Calculation as per TPO (Table B) -Page 121 of PB Particulars Mkal (As per TPO) Remarks Medium and Low- pressure steam produced 27,52,57,845 The AR submitted that the high- pressure (HP) steam is transferred to the turbine, ....
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....edium-pressure (MP) and low-pressure (LP) steam transferred to the paper unit is metered, and that the raw material (high-pressure steam or energy) is used to generate the final products, namely electricity, MP steam, and LP steam. The AR contended that, even if the version of the Assessing Officer (AO) was correct, the total cost ratio should be 82.24%, as opposed to the 63.79% applied by the TPO. 19. The Authorized Representative (AR) further explained that the cost allocated towards steam amounts to Rs. 46,01,43,819 (calculated as Rs. 55,93,77,363 x 82.26%), as compared to the assessee's reported value of Rs. 47,97,24,777, resulting in a difference of Rs. 1,95,80,958. The assessee had adopted the Transactional Net Margin Method (TNMM), while the Dispute Resolution Panel (DRP) considered the Cost-Pius Method (CPM) as the most appropriate method (MAM), solely pointing out that steam is not transferred. The AR contended that the steam captively consumed was marketable and drew attention to the TPO's order in the case of "Khanna Paper Mills," where the TPO accepted that the arm's length price (ALP) of steam must be calculated after adding margins. Additionally, it was....
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....by the assessee. Therefore, the AR argued that the assessee had correctly adopted the rate of Rs. 1217 per ton. Moreover, the assessee drew attention to the fact that the Cost-plus Method had also been accepted in the case of the assessee for AY 2017-18. 23. The AR further relied upon case of "Nectar Lifesciences Limited" in which the value of steam has been taken as 2160 per (MT). The said rate has been considered by the coordinate bench of Chandigarh ITAT and Delhi ITAT vide ITA No. 1497/CHD/2019 and ITA No. 567/DEL/2019respectively. 24. The word "Power" has not been defined under the Income Tax Act. The word "Power" should be understood in common parlance as "Energy". "Energy" can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the AR contended that the "steam" produced by the assessee can be termed as power and the rate calculated by considering the steam used in electricity is very much appropriate. 25. It was further explained that steam is a commercially viable product and it is a form of power and therefore it cannot be said that there is NIL profit as it is captively consumed. It was pointed out that the assessee had submitted....
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....taken into account electricity tax levied by State Government while working out market price of electricity for purpose of section 80-IA(8), secondly, certain amount of indirect expenses was to be allocated to CP.P. unit for calculating eligible profit under section 80-IA and, thirdly, income from sale of sludge and sale of steam was not eligible for deduction under / section 80-IA - Whether price charged by assessee while transferring manufactured electricity from C.P.P. unit to its other unit including electricity tax levied by State Electricity Board was price ordinarily prevailing in open market, and, therefore, Commissioner (Appeals) was not justified in disallowing assessee's claim on said ground - Held, yes - Whether as regards second ground, incomes and expenditures which were not directly relatable to industrial unit had to be ignored and, therefore, Commissioner (Appeals) was not justified in allocating indirect expenses not directly relatable to industrial unit of assessee for purpose of computation of its income for deduction under section 80-IA - Held, yes - Whether as regards third ground, sale of sludge did not amount to income derived from industrial undertaking....
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....TD. vs. DEPUTY COMMISSIONER OF INCOME reported in (2018) 62 ITRTRIB 381 (Mumbai) (v) WEST COAST PAPER MILLS LTD. vs. Addl. CIT reported in (2014) 33 ITR_TRIB 560 (Mumbai) . 28. After going through the findings given by the Assessing Officer on this issue and the submissions filed by the AR. as well as after hearing the arguments of the Counsel of the Assessee and the DR. we are of the considered view that the Assessing Officer's approach to the adjustments regarding the transfer of steam and the arm's length pricing is not consistent with the facts and circumstances of the case. Moreover. A.O. erred in reducing the loss @ 20.50% which have already been considered by Assessee. Therefore, in this situation, and in our opinion, the addition made by the Assessing Officer on this account cannot be sustained. Accordingly, the Assessee's appeal on this issue is allowed. 29.1 The AR contended that the DRP overlooked the fact that the assessee claimed a deduction under section 80G for CSR contributions amounting to Rs. 2,47,500, not Rs. 3,47,500 as stated. The remaining donation was made in the normal course to [name of the recipient], which is eligible for the 80....
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....egarding deemed income of Rs. 12,50,000/- u/s 41(1). 31. During the proceedings before us, the Id. Counsel for the Assessee has filed written submissions on this issue, which is as under:- a) That the assessee has shown amount payable to M/S Valmet Technologies and Services Pvt ltd amounting to Rs. 12,50,000 during the A.Y 2020-21. The information was made available on the insight portal that the seller has claimed debts in his books of accounts and the assessee has not shown corresponding deemed income in the profit and loss account u/s 41(1). The AR submitted that the assessee has nowhere stated that the amount was not payable, and all the documentary evidence were submitted before the AO that the liability was active. As such, it was argued that "he AO erred in applying the provisions of Section 41(1) of the Income Tax Act, 1961 b) The AR further explained that the judgement of CIT-III vs Shri. Vardhman Overseas Ltd. at para no 9.3 relevant page no 53 of PB relied upon by the DRP is in favour of the assessee as the amount was payable as per books of accounts of the assessee. c) It clearly indicates that the liability of the assessee had not become e....