TaxTMI 
TaxTMI 
2025 (7) TMI 1038
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....refore, the matter was referred for determination of Arms' Length Price ("ALP") of the specified domestic transactions of transfer of electricity and steam to its non-eligible units. The TPO in terms of order dated 28.07.2023 has proposed the adjustment of INR 1,82,07,226/- towards the transfer of electricity and adjustment of INR 4,08,17,480/- was with respect to transfer of steam from eligible unit to non-eligible unit thus, an aggregate adjustment of INR 5,90,24,706/- was proposed by the TPO on specified domestic transactions as result of which the deduction u/s 80IA was reduced to this extent. The AO based on the proposal made by the TPO has passed the draft assessment order u/s 144C(1) of the Act dated 26.09.2023 wherein the total income of the assessee as declared at INR 29,71,31,030/- was upwardly taken at INR 5,90,24,706/-. 3. Against such order, the assessee has filed objections before Ld. DRP wherein it is stated that the adjustments proposed are incorrect and further it was brought to the notice of Ld.DRP that TPO has made incorrect calculation in respect of the transfer of steam. However, the claim of the assessee was dismissed by Ld. DRP who has upheld the adjustmen....
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.... ignoring the detailed submissions, explanation and evidence submitted by the assessee in support of his contention. 7. On the facts and circumstances of the case, the learned AO/TPO has erred both on facts and in law in making the computational error while calculating the ALP of the transactions. 8. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the abovesaid additions by making the observations and calculations which are contrary to the actual facts of the assessee. 9. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the abovesaid additions by indulging in surmises without bringing on any evidence against the assessee, only on the basis of presumption and assumption. 10. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the abovesaid additions without providing the benefit of tolerance band specified under second proviso to section 92C(2) of the Act. 11. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in charging interest under....
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....se of CIT vs Jindal Steel and power Ltd. (2023) 12 TMI 417 dated 06.12.2023 and further Jurisdictional High Court in the case of PCIT vs DCM Shri Ram (2025) 1 TMI 1128 dated 21.01.2025 and various other judgments which are tabulated in the written submissions filed by the assessee which is placed on record. 10. In the last, Ld.AR submits that the rate at which the PVVNL charges from consumer i.e. INR 9.30 per unit should be taken and accordingly, the claim of deduction u/s 80IA should be revised and enhanced deduction u/s 80IA be allowed to the assessee. 11. In Ground No.6, the assessee has challenged the transfer price adjustment made in relation to transfer of steam from captive power division to other division of paper unit at INR 3,46,27,145/- and with respect to sale of steam to RPG Industrial Products Ltd. at INR 61,91,325/- thus, making the total adjustment of INR 4,08,17,480/-. 12. In this regard, Ld.AR submits that in the eligible unit of the assessee, the boilers produced high pressure steam which is supplied to turbine to be used for generation of electricity. The high pressure steam is also supplied and sold to its paper unit and its related entity namely RPG. ....
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....er of electrical/steam and adjustment made by the TPO deserves to be upheld. 16. Heard both the parties and perused the material available on record. With regard to the issue of transfer of electricity as taken in Ground of appeal No. 5, there is no dispute with regard to the price taken by the assessee and the TPO i.e. price charged by PVVNL and the sole dispute is with respect to the deduction on account of distribution/transmission loss where the assessee has taken the standard loss @ 17.49% and the TPO has taken actual loss of 20.63%. It is true that the actual loss includes certain factors which are not affected the electricity transmitted by the eligible unit to non-eligible unit such as loss due to theft, loss due to unusual circumstances such as lightning etc., since it is not dealing with the public at large. Further, the loss of electricity Board like PVVNL is affected by certain extraordinary and exceptional circumstances which are not in existence in the close distribution environment i.e. between eligible unit to non-eligible unit of the assessee. Therefore, as against the actual loss, approved/standard loss prevailing in the industry should be taken as the benchmar....
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....ssee would have used the cost plus method, the relevant deduction u/s 80 IA would have been much higher. Thereafter, the learned transfer pricing officer changed its stand and directed the assessee to submit a statement of cost of production of steam manufactured during the period 1/4/2013 231/3/2014. Assessee stated that it is submitted original set of corsets of the cost of production of steam transferred certified by the cost accountant. However letter on the learned transfer pricing officer on examining the process of power generation stated that the power plants are not installed for steam production but for power generation and as steam being byproduct do not have any cost. Therefore he rejected the most appropriate method applied by the assessee he further held that activity regarding production of steam shows that steam is produced as a result of burning of fuel in boiler. This steam is used for generation of electricity. Thus the entire cost of electricity absorbs entire cost of production of steam. Thus the resultant cost of excess team is nil. Therefore he made an adjustment of Rs. 1,035,745,275 on this account. The learned dispute resolution panel also agreed with the v....
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....y overhead. For example: Cost of power generation will include cost of fuel such as furnace oil, coal, salaries and wages, consumable stores, repair and maintenance, deprecation and factory overhead. Unit cost is arrived at on the basis of the net aggregate consumption in different departments after adjusting transmission losses. In case of cogeneration (power and steam) where waste heat from TG (Turbine Generation) is recovered in waste heat recovery unit and used for production of steam, due credit should be given to the Power plant and corresponding charge to SGP(Steam Generation Plant). Charging of power to the consuming cost object is generally done at the weighted average of the cost of power purchased, generated and distribution cost at the consuming point. Steam: A separate statement of cost of steam is prepared indicating the quantity of steam generated, cost of fuel, soft water, power, employee cost for operating staff, sundry supplies, chemical additives, deprecation and other works overhead. Unit cost of steam is arrived at on the basis of units consumed in different departments after adjusting distribution loss. Steam may be of high pressure, low pressure and medium pr....
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....n should be recorded for each utility to measure the unit cost of a utility. An illustration of steam cost is at Annexure 2. 39. In the annexure - 2 it is given and examples of the total steam cost to be determined in the manner when it is transferred to other units as Under:- "Examples of Steam cost - Transfer to Other units Steam cost per tonne works out to Rs 471.09 as illustrated under Annexure 2. If steam is transferred to other unit, distribution cost will be in addition to the above cost as illustrated below 1 Steam generation cost as 5.3.1 above Rs 471.09 Per MT 2 Distribution cost : Operation & Maintenance cost of distribution line Depreciation Other Total Distribution cost Per MT Rs 1.00 Rs 0.75 Rs 0.75 Rs 2.50 3. Inter Unit transfer cost Rs. 473.59 Cost of a utility determined as per para 5.3.2 plus share of administrative overhead to be charged." 40. Therefore, from the above analysis it is apparent that the learned revenue authorities have incorrectly held that there is no cost of production of steam. 41. Even otherwise steam is a commercially viable product and it is a form of power and therefore it cannot be said to be produced at ....
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....d by the assessee for its manufacturing activity. 15. In this regard, the CIT (A) recorded the following findings: "2. The appellant has also claimed deduction under section 80 IA on account of sale of steam to the chemical plant. "The steam was generated by the power plant in the boiler and part of it was also utilised for the chemical process of the non-eligible unit. The AO has held that the appellant was not entitled to the deduction on account of sale of steam to the power plant. It has been held by her that steam does not fall within the meaning of "power". In this reference she has made reliance on the judgment of honourable ITAT Ahmadabad in the case of N R Agrawal Industries Ltd v. DCIT dated 26/07/2013. The appellant on the other hand has submitted that the value of steam should be considered for arriving the profit as the scheme is being gererated for generation of electricity and after utilising the same for electricity generation the balance steam is used for the chemical process. Therefore, it is a byproduct and therefore, the deduction was admissible. On a careful consideration of the facts related to the issue, it is noted that that appell....
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....bine where part of the heat energy of the steam is utilized in generating the electricity and the balance energy available in the steam coming out from the turbine is utilised in the chemical process. The appellant is incurring expenses such as coal consumption, boiler running, depreciation of boiler and other machinery and the building in which the whole generation plant is housed. The expenditure for the steam, which is utilised in generation of power, and the balance steam which is utilised by the chemical plant can be determined by distributing the same in proportion to the heat value (Enthalpy) of the inlet steam and the outlet steam of the turbine. As per the details available on record the heat value of the inlet steam at 65.5 KG/cm2 is 793 kcal per KG whereas the heat value of the output steam at 3.5 KG/cm2 is 653.7 kcal per KG. The quantity of input and output steam remains the same and only the calorific value of the heat value goes down as part of the energy is utilised for generation of power. Accordingly, the expenses can be apportioned in the ratio of enthalpy of the inlet and output steam. The same is worked out as under:- Total enthalpy of the steam coming out of....
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.... [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 this Court in the case of CIT v. Atul Ltd. [2016] 74 taxmann.com 255. In Atul Ltd. (supra), the assessee had established a new power plant by expending a sum of Rs. 14.62 Crore and claimed deduction under section 80IA. The Assessing Officer upon examination of such claim, arrived at the conclusion that the production of power would require boiler and also a turbine since the boiler would manufacture steam which would be a raw material for the production of power with the aid of turbine and such a plant would be a new industrial undertaking capable of generating electricity. The case of the assessee was that in the existing power plant the assessee had excess steam production capacity which was to be utilised by the turbine installed in the new plant. The Assessing Officer ultimately rejected the case of the assessee on the ground that the turbine should be treated as an independent power generating unit and thereby disallowed the claim of deduction under section 80IA of the Act. 17. The assessee carried the matter in appeal. The CIT (A....
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....reme 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 value of steam used for captive consumption by the assessee was entitled to be deducted under section 80-IA of the Act. 46. Therefore it is apparent that i. steam is a valuable sources of power ii. it has cost of production, iii. There are methods and Costing Standards for determining the cost of production of steam. iv. Assessee has transferred the steam from eligible units to noneligible units at cost only. v. Such cost is certified by the Cost Accountant, Chartered Accountant, and Chartered Engineers. vi. It cannot have Nil cost 47. In view of above facts, we are of the view that ld Revenue authorities erred in holding that the steam does not have any cost and therefore steam transferred by assessee's eligible units to non eligible units at cost, which is determined by Cost accountants and Other professional, has the Arms length price of Rs Nil instead of cost of Rs 103745275/- . Therefore we allow ground number 3 of the app....