TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 964
X X X X Extracts X X X X
X X X X Extracts X X X X
....el/2022 for AY 2017-18. 4. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing and trading of Kraft paper and white paper and filed its return of income on 29.11.2017 declaring total income of INR 34,49,64,520/-. The case was selected for scrutiny through CASS and notice u/s 143(2) of the Act was issued on 09.08.2018. The AO observed that assessee has entered into certain specified domestic transaction and therefore, the matter was referred for determination of ALP of the specified transaction undertaken by the assessee in terms of reference made u/s 92CA(1) of the Act. In compliance, the TPO passed the order u/s 92CA(3) of the Act dated 31.01.2021 wherein he proposed two adjustments with reference to the claim of deduction u/s 80IA of the Act by the assessee. First TPO reduced the amount of deduction claimed u/s 80IA of the Act by INR 32,68,31,286/- on the transfer of power from eligible unit to non-eligible unit. Similarly, the deduction u/s 80IA with respect to transfer of steam from eligible unit to non-eligible unit was reduced by INR 51,63,85,174/-. Thereafter, the AO passed draft assessment order u/s 143(3)/144C of the Act on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er charged to industrial customers in Uttar Pradesh by Indian Energy Exchange Ltd. as best external comparable uncontrolled price for the determination of arm's length price in preference to the claim of the appellant that purchase price charged by M/s Madhyanchal Vidyut Vitran Nigam Ltd. ("MVVNL") from industrial users for purchase of power, which is otherwise also in consistence to rates adopted for transfer in previous years duly accepted in assessments u/s 153A of the Act; and in disregard of the decision of Hon'ble Income Tax Appellate Tribunal for AY 2008-09 in ITA No. 1344/Del/2013 and AY 2009-10 in ITA NO. 1920/Del/2013. 3.1. That the justification at the basis that "sale rates of producers cannot equated with the purchase rate of end users since the purchase rate of end user contains many factors which increases the rate" is not only theoretical but overlooks the factual matrix, commercial and market realities and statutory position. 4. That the learned AO/TPO/DRP have also erred both in law and on facts in making an adjustment of Rs. 51,63,85,174/- to the sale price of steam transferred by the eligible units to the non-eligible units by erroneously concluding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e denial of deduction of INR 16,74,685/- claimed by the assessee u/s 80IA (4) of the Act. On transfer of electricity. Ground Nos. 3 to 3.1 are in relation to the adjustment made at INR 32,68,31,286/- by TPO on the price of power charged by eligible unit to non-eligible unit. Ground Nos. 4 to 4.1 are in relation to the adjustment of INR 51,63,85,174/- made by TPO/AO towards the sale price of steam transferred from eligible unit to non-eligible unit. 7. As all above-mentioned grounds are inter-related and inter-connected therefore, these are taken together for consideration. 8. Brief facts leading to these issues are that the assessee is having Two paper manufacturing units which were set up in the year 1996 and 2008-09 and treated as non-eligible unit whereas the assessee is having Two power generation units, the first wherein unit was installed in the year 2006 with the capacity of 2.5 MW of electricity and second unit was installed in the year 2009 with capacity of production of 12 MW electricity and both are treated as eligible units. The assessee while computing the total income had claimed deduction u/s 80IA at INR 16,40,46,786/- on account of transfer of electricity and stea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....63/- per unit being the price of power charged by MVVNL ("Madhyanchal Vidyut Vitran Nigam Ltd") from other industrial users and accordingly, in view of the judgement of Hon'ble Supreme Court in the case of Jindal Steel and Power Ltd. (supra), the price charged by the eligible unit from non-eligible unit on account of transfer of electricity is ALP and thus, required no modification on the same. He also placed reliance on the following judgements passed by Various Hon'ble Supreme Court and High Courts and ITAT:- (i) "PCIT vs Nalwa Steel & Power Ltd. in ITA No.725/Del/2019; (ii) Gujarat Alkalies and Chemicals 395 ITR 247 (Guj.); (iii) CIT vs Godavari Power & Ispat Ltd. 42 Taxmann.com 551 (Chhattisgarh); (iv) ACIT vs ACB India Ltd. in ITA No.5469/Del/2019 dated 31.12.2024; (v) DCIT vs M/s. Balrampur Chini Mills Ltd. in ITA No.1672/Kol/2019 dated 05.05.2021; (vi) ITA Nos. 138, 139, 191 & 192/Kol/2018 dated 28.02.2019 Electrosteel Casting Limited vs. DCIT (pages 98-132 of JPB) vii) ITA-TP No. 123/Hyd/2022 dated 26.10.2022 Sree Rayalaseerna Hi Strength Hypo Limited Kurnool vs. DCIT (pages 298-306 of JPB) viii) 52 taxmann.com 268 (Mum - ITAT) West Coast paper Mills Ltd vs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd coal is being used to generate heat so that steam is produced for the captive power plant; 62 Steam is generated at boilers using various fuels, coal and fuels are fired at water tube high efficient atmospheric fluidized bed combustion boilers; AFBC boilers are capable to take variable grade of fuels and to heat water in boiler; Unit-I i) As a result of the above procedure, high pressure steam is generated in Unit-I with a pressure of 46 ata and temperature 425 deg centigrade. The steam will have heat value of 779 kcal/kg as per steam table and the steam generated from boiler will be sent to turbine for further process of power generation and process steam application. The high pressure steam will be used to rotate turbo-generator for power generation, the temperature in high pressure steam will be converted to mechanical and electrical energy and power generated from turbo generator is used in paper manufacturing process; ii) The steam enters turbine at a pressure of 46ata, temp 425 degree and heat value of 779 kcal/kg and after rotation of turbine, some amount will be drawn from the turbine as required by process at a intermediate pressure of 5.5 ata and temperature of 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....process; vii) As a further process in turbine more amount of steam shall be drawn as per process requirement (low pressure steam) from the turbine at a pressure of 5 ata and temperature of 18.79 deg with a heat value of 675 kcal/kg, the above steam will be called as Extraction-2 (Low pressure steam) and used for various process and water heating at a deaerator. The heat value from 815 kcal/kg to 675 kcal/kg (for withdrawn amount of steam) was utilized by turbine for power generation and remaining heat is utilized by process. viii) The balance steam will be processed through turbine and at end of turbine the steam at a presume of 0.5kg/cm2 and temp of 45 to 65 deg and a heat of 615 kcal/kg will be condensed in condenser as further use of steam in turbine is not possible as steam pressure is low. The heat value from 815 kcal/kg to 615 kcal/kg for balance steam was utilized by turbine for power generation. The non-useable steam was allowed to condense in condenser under high vaccum and condensed water will be pumped to boiler for making steam; 63 In view of above mentioned explanation at point no. 9.1 & 9.2, it is imperative to state that steam produced from the boiler is not a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enerated electricity from two power plants and the electricity produced is only meant for captive consumption and not otherwise. The appellant did not sell any electricity to the outsiders. The generation of electricity and its supply are controlled by the Electricity Act, 2003 and the Electricity (Supply) Act, 1948. As per the Act, no person without a license can trade in the electricity. The generation companies are different from the distribution companies. The generation companies, as per the statutory mandate, are bound to sell electricity to the distribution companies and the price thereof is determined as per the formula given in the Electricity Act and the contracts as executed between the generation companies and distribution companies. In the open market, none of the generation companies can supply electricity. So, the end consumers always remain served by the electricity supplied by the distribution companies. The eligible units of the appellant are also involved in supply of electricity to the non-eligible units for consumption. The non-eligible units are the end user of the supplies made by the eligible units. 19. Now the question comes at what rate it should be charg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Ltd. (supra) after considering these facts did not accept the TPO's order. The coordinate bench in paragraph 14 of its order has made following observations: "14. Evaluating this in light of the meaning of arm's length price i.e. a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions, it is evident that the transaction of purchase of electricity by State Electricity Boards from independent power producers is a regulated activity, being subject to approval of SERC, and therefore is not a transaction undertaken in uncontrolled conditions. Thus, the transaction between power producers and state electricity board is not fit to be considered comparable to the tested transaction of sale of electricity by eligible unit to non-eligible unit. Thus, the average rate of Rs 4.57 per unit, being the price for transfer of electricity by power producers to third party customers cannot be treated as arm's length price as it is a price under controlled conditions." 22. In the appellant's own case for Assessment Year 2008-09, the coordinate bench of Tribunal vide ITA No. 1344/Del/2013 accep....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in advance for supply of fifteen minutes slots. Illustratively, it is stated that if a party requires power supply for a period of four hours, it would be required to submit sixteen bids for fifteen minutes slots. Further, the bidder cannot resile from the bids furnished by it in advance. 48. In view of the above, it is contended that power traded on IEX cannot be compared with the power supplied by a SEB. 49. It is not disputed that IEX is a platform, which is used by power producing units to sell surplus power for short term requirements. IEX is not a platform for sourcing continuous power for power consuming units. It is also pointed out that there is a high level of volatility in the IEX rates as it depends on immediate availability of surplus electricity. 50. It is also contended by the Assessee that the rates quoted on IEX are in respect of power supplied and not the power that is consumed and therefore, there is a material difference between the power that is purchased from IEX and the power which is supplied by the SEBs or power distribution companies. The said submission is also not controverted. The Assessee claims that it had on occasions purchased power from IEX.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icity by captive units, and the transaction of supply of electricity by distribution companies/corporations. The power distribution companies enjoy a near monopoly status. The tariff charged by such companies are regulated tariffs. However, we accept that there is a sufficient degree of similarity between the said transaction for reasonably determining the ALP by using the CUP method. 57. We also consider it apposite to refer to the recent decision of the Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Limited. The principal issue involved in the said decision was the determination of market value of goods and services. In terms of Clause (i) of Explanation to Sub-section (8) of Section 80IA of the Act, the market value in relation to goods and services would mean the price that such goods or services would ordinarily fetch in the open market. In the aforesaid context, the Supreme Court had considered the question of what would constitute an open market in the context of determining the market value of electricity supplied by captive power units of the assessee in that case. In that case, the assessee had entered into an agreement with the SEB of State of Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 80IA of the Act. 60. In view of the above, the questions of law are answered in favour of the Assessee and against the Revenue." 24. The Co-ordinate Bench of ITAT, Kolkata in the case of DCIT Vs. Philips Cabon Black Ltd. under identical circumstances has dismissed the appeal of the revenue by making following observations: "9. In this regard we have gone through a later judgment of the Hon'ble Calcutta High Court in the case of CIT v. Star Paper Mills Ltd. [2025] 172 taxmann.com 391 filed by the assessee [Page 1-19 of the Judicial PB]. In the decided case the assessee who was engaged in manufacture of paper had set up a captive power plant to supply power to its paper manufacturing units. The assessee had benchmarked the transfer of power from its power unit to its manufacturing unit at the price at which the paper manufacturing unit was procuring power from the State Electricity Board. In this decided case also, the TPO had benchmarked the transfer of power at which the power generating stations was supplying power to the State Electricity Board by following the earlier decision of Hon'ble Calcutta High Court in the case of ITC Ltd (supra). On appeal, the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Since the steam is one of the forms of power and thus can be considered as joint product and not as by-product. Similar issue was came for consideration before the Co-ordinate Bench of the ITAT Delhi bench in the case of DCM Sriram Ltd. in ITA No. 7362/Del/2018 in AY 2014-15 wherein a detailed discussion is made on this issue and thereafter, the Hon'ble Co-ordinate Bench of the Tribunal was of the view that the steam is a valuable source of power and has cost of production. The relevant observations as contained in para 37 to 47 of the order of the Tribunal are under- 37. We have carefully considered the rival contention and perused the orders of the lower authority as well as perused the judicial precedents relied upon by both the sides. The facts shows that assessee has transferred low-pressure steam from eligible business to other business amounting to Rs. 1,028,618,630/-. The rate at which the low-pressure steam is supplied from eligible unit to non eligible unit is at cost. The assessee adopted "other method" as the most appropriate method. The learned transfer pricing officer objected to the same and initially stated that assessee should have adopted the cost plus method fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... A separate cost statement is to be prepared for each utility." In paragraph number 5.3.2 it has provided as Under:- "5.3.2 In case of Utilities generated for the purpose of inter unit transfers, the distribution cost incurred for such transfers shall be added to the cost of utilities determined as per paragraph 5.3.1. If utilities generated are transferred to inter units of an entity, the cost of distribution of such utilities will be included in the cost of utility as determined under para 5.3.1. It will comprise cost of generating utility and cost of distribution facility. Distribution may be through a pipe line/transmission line. The cost of maintenance of pipe line/ Transmission line for transfer of utility will be added to the cost of utility. In paragraph number 5.3.1 it is provided however cost of utilities are to be determined. 5.3.1 Cost of self generated utilities for own consumption shall comprise direct material cost, direct employee cost, direct expenses and factory overheads. The cost of generating a utility may comprise water, fuel, power, direct expenses ( such as boiler inspection fee) consumable stores, direct employee cost, repair and maintenance, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cost is to be determined by the following method: a) repeated distribution method; b) matrix algebra through computer application (a) When Repeated Distribution Method is adopted, the utility costs are repeatedly allocated in the specified percentage until the figures become too small to be significant. Steps to be followed under this method are: I. The proportion at which the cost of a utility is to be distributed to production cost centres and other utilities centre is determined based on usage. II. Cost of first utility is to be apportioned to production cost centres and other utilities in the proportion as determined in step (a) above. III. Similarly cost of other utilities is to be apportioned. IV. This process as stated above is to be continued till the figures remaining undistributed in the utility are too small to be significant. The small amount left with utilities may be distributed to the production cost centres. b) Matrix algebra through computer application: Spread sheet software such as Excel provides facility for inter-division cost ascertainment and reapportionment of inter utility. This application may be used for determining inter-utility transfer cost. Quantitat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... price of steam at cost. This order has been accepted by the revenue and no further appeal has been filed. Therefore this issue becomes final with respect to the determination of ALP of transfer of steam at cost by the eligible unit to non eligible unit. 44. Further Honourable Gujarat High court in Principal Commissioner of Income Tax v. Jay Chemical Industries Ltd 2020] 120 taxmann.com 315 (Gujarat)/[2020] 275 Taxman 78 (Gujarat)/[2020] 422 ITR 449 (Gujarat) has held that:- "13. It appears that during the year under consideration, the assessee had claimed deduction of Rs. 32,51,080/- under section 80IA(4) of the Act. This claim was on account of the operation of the Captive Power Plant. The assessee showed income from sale of Power to the tune of Rs. 1,23,10,500/- and the sale of vapour of Rs. 6,59,77,170/-. The Assessing Officer took the view that "Vapour" would not fall within the meaning of "Power". The case of the assessee is that "steam" is also a form of "power". 14. The case of the Revenue is that "steam" is only an intermediate raw material for the manufacturing process. In other words, the production of "steam" is only a byproduct, which is used by the assessee for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r while introducing the provisions for deduction in the budget. The use of word 'power' is intended for 'electricity' as the other relevant sections clearly mentioned the word 'electricity'. The honourable Bench of ITAT Ahmadabad while deciding the issue in N.R.Agrawal Industries Private Limited has discussed these aspects in detail and accordingly relying on the judgment it is held that the appellant is not entitled for deduction under section 80 I-A on sale of such steam to its chemical plant. Accordingly, the decision of the AO in this regard is upheld. 3. For the purpose of calculation the quantum of deduction and allocation of expenditure incurred for production of steam the appellant had given certain information-related to the heat value of steam (Enthalpy). The details given by the appellant were also forwarded to the AO and she has also given her comments on the same. In order to arrive at a logical conclusion it would be useful to understand the process involved. The appellant has installed a boiler which generates high-pressure steam at a very high temperature. The steam is first fed in the turbine where part of the heat energy of the steam is u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of head office as well as interest expenditures are not available before me, the AO is directed to work out the proportionate allocation of the interest expenditure should also be done and added to the cost of generation of steam. Since the details related to the expenses of head office as well as interest expenditure are not available before me, the AO is directed to work out the proportionate allocation of these expenses by obtaining suitable details from the AO. The details of following expenses are readily available from record:- Expenses for generation of steam 9321977 Depreciation on turbine 1289189 Electricity duty 787872 The AO is also directed to verity the above figures. Accordingly the AO is directed to rework the deduction under section 80I-A claimed by the appellant as indicated in the preceding discussion." 16. The Tribunal, concurred with the aforesaid findings recorded by the CIT (A), by taking support of the decision of a Coordinate Bench of the ITAT, Mumbai, in the case of West Cost Paper Mills (P.) Ltd. v. CIT, [2014] 52 taxmann.com 268. As regards section 80IA of the Act, strong reliance has been placed on behalf of the Revenue on the decision of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urbine for power generation could be said to setting up of a new industrial unit and therefore, the assessee would not be entitled for deduction of sum under section 80IA of the Act. 20. In our view, the facts in the case of Atul Ltd. (supra) are quite different and the ratio, as propounded in the same, will have no applicability to the case on hand, more particularly, the question No. 3 with which we are dealing with. 21. It is difficult for us to take the view as suggested by the learned standing counsel appearing for the Revenue that "steam" would not amount to power. The word "Power" used in Section 80IA(4) has not been defined under the Income-tax Act. 22. 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 "steam" produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act." 45. Further Hon'ble Supreme Court in CIT v. Tanfac Industries Ltd., SLP (C) No. 18537 of 2009 [319 ITR 8 (st)] wherein while applying section 80-IA of the IT Act, the Hon'ble Supreme Court took a view that the val....
X X X X Extracts X X X X
X X X X Extracts X X X X
....supra) and further relying upon the judgement of Hon'ble High court in the case of CIT vs Cushman & Wakefield 367 ITR 730 (Del.), transfer of steam from eligible unit valued at cost of production for the purpose of claiming deduction u/s 80IA is hereby held as reasonable and the adjustment of Rs.51,63,85,174/- made by AO/TPO by taking the cost of production of steam at NIL is deleted. Accordingly, Ground No. 4 to 4.1 taken by the assessee are allowed. 29. Ground No.5 raised by the assessee with regard to adhoc disallowance @ 10% of INR 18,65,470/- made out of legal, professional and consultancy charges paid. 30. The AO made the disallowance by observing that the assessee has failed to submit details/documents with respect to the expenses claimed. Though the Ld. DRP gave directions that if the TDS is deducted and deposited, no disallowance is to be made however, in the final assessment order, the AO has not followed these directions of Ld. DRP and by alleging that the assessee has not filed the justification of steep rise in the expenses and made the disallowance. 31. Before us, Ld. AR submits that the expenses were disallowed on assumption on presumption basis and adhoc disa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DRP directs the AO to allow the expenses if tax has been deducted source and payment made to the Government account. Ground of appeal is accordingly disposed off." 35. From the perusal of the directions given by Ld.DRP and the final assessment order of AO, we find that AO has not followed the directions given by Ld.DRP in the final assessment order and therefore, we set aside the order of AO and remand back this issue to the file of AO to follow the directions as made by Ld.DRP by making verification of facts whether TDS was deducted and deposited on such payments claimed towards legal, professional and consultancy expenses and if found so, no disallowance is to be made. With these directions, this Ground of appeal is partly allowed for statistical purposes. 36. Ground Nos. 6 to 6.1 is in respect to the addition of INR 1,21,74,168/- made on account of difference between custom duty as per export-import data and is reflected in the return of income. 37. Before us, Ld.AR of the assessee submits that the assessee has paid custom duty of INR 1,21,74,168/- on imports & high sea sales and after reducing the input credit on imports and high sea purchases the balance amount of INR 25,24....