TaxTMI 
TaxTMI 
2026 (1) TMI 123
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....ot eligible for claiming deduction u/s 80IA of the Income Tax Act. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the disallowance of deduction u/s 80IA of the Income Tax Act, without considering the fact that every assessment year is different. 3. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. 3. By way of the above stated two grounds of appeal, the only issue raised by the Revenue is in respect of disallowance of deduction u/s. 80IA(4) by the application of sub-section (10) of section 80IA, by which ld. Assessing Officer can determine the reasonable profit when it appears to him that owing to close connection between the assessee carrying on eligible business and any other person, the arrangement so made in the course of business is such that assessee earns more than ordinary profits. 4. Brief facts of the case are that assessee is engaged in the business of generation of electricity. It has set up a power....
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...., depreciation on the assets and operation and maintenance cost which are apportioned among the customers in proportion to the power generation capacity allocated to them. Monthly fixed charges are computed at one-twelfth of the Annual fixed charges. The variable charges comprise of the fuel charges, wherever the assessee sources the fuel from third party suppliers on account of inability of the customer company to supply the fuel. 4.3. For the above, the impugned PPA, dated 08.03.2010 was perused to take note of 'effective date' which shall mean 01.04.2010 and the 'expiry date' which shall mean up to 31.03.2030. 'Schedule 3' of this agreement contains details about annual charges and monthly charges and the same is extracted below for ready reference: 4.4. Assessee has stated that it had collected certain fixed capacity charges based on the capacity allocated towards the buyer which includes collections towards depreciation, maintenance cost and return on equity and variable cost. The mechanism of determining the tariff, which includes the fixed capacity charges is as per general industry practise in the power sector and also as per the tariff regulat....
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.... Total value of machinery or plant used in business 278,94,22,000/- 714,34,36,714/- Total sales during FY 2012- 13 163,92,68,624/- 232,67,03,853/- Profits and gains derived 110,32,46,803/- 92,85,54,152/- Deduction claimed u/s. 80IA 110,30,57,821/- 92,82,85,919/- 4.6. Details of receipts from sale of power in respect of the buyers under the said PPA along with quantum of electricity supplied during the year is tabulated below: Customer Receipts from sale of power (Rs. ) Electricity supplied to the customers (No. of million units) Phase -1 Phase-II & III Total Phase -I Phase- II & 111 Total Essar Steel India (ESTL) Ltd. 140,35,56,000 199,21,44,000 339,57,00,000 171 1201 1372 Essar Projects (1) Ltd. (EPL) 56,62,665 80,37,331 1,36,99,996 0 0 0 Essar Bulk Terminals Ltd. (EBTL) 56,62,665 80,37,331 1,36,99,996 0 6 6 Essar Heavy Engineering Services Ltd. (EHESL) 56,62,665 80,37,331 1,36,99,996 5 5 10 Total 142,05,43,995 201,62,55,994 343,67,99,989 176 1212 1388 5. In the course of assessment proceedings, ld. ....
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....guaranteed quantity, the party has to make the payment of minimum charges to the minimum quantity, which are determined based on fixed cost and profit of the assessee, is nothing but a colourable device. ii) Income received by the assessee from related parties on account of committed/minimum charges is not "derived from" eligible undertaking and therefore, not eligible for deduction u/s.80IA. iii) Deduction u/s.80IA is subject to condition prescribed u/s.80IA(10), according to which if the business is arranged with a closely connected party, so as to produce more than ordinary profit, the profit can be restricted to a reasonable amount by the Assessing Officer. According to the ld. Assessing Officer, income to the extent of Rs. 203,51,11,889/- is not ordinary profit, hence not eligible for deduction u/s.80IA. 5.2. Ld. Assessing Officer, further, observed that deduction available u/s.80IA is in respect of profits and gains derived by undertaking from any eligible business, as specified in section 80IA(4). According to him, deduction is available on the income derived from generation of power and it cannot be extended to the entire income of power generating comp....
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....allowability of deduction u/s.80IA(4). According to it, provisions of section 80IA(10) are clearly attracted and therefore disallowance made is justified. 8. Per contra, before us, ld. Counsel for the assessee assertively submitted that the issue raised by the Revenue in the present appeal is squarely covered by the decision of Coordinate Bench in assessee's own case for the preceding years (supra). The only difference in the present year as compared to the preceding years is applicability of provisions of section 92BA whereby Specified Domestic Transactions (SDT) having subjected to transfer pricing Regulations and the claim of deduction made by the assessee u/s.80IA falls withing the meaning of SDT subjected to transfer pricing regulation. Apart from this, there is no change in the material facts in the present case. Ld. Counsel submitted that section 92BA along with other corresponding relevant provisions were introduced by the Finance Act, 2012 w.e.f. 01.04.2013 whereby under the clause (iii) any transfer of goods or services referred to in sub- section (8) of section 80IA and by clause (iv) whereby any business transacted between the assessee and other person as referre....
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....rrent jurisdiction of the case lies with the DCIT-6(1)(2), Mumbai. 2. The notices u/s. 92CA(2) of the Act were issued to the assessee on 16.06.2016 and 22.09.2016 requiring the assessee to furnish all the necessary details and documents in support of ALP. In response to the notices, Shri. Sumeet Agrawal CA authorized representatives of the assessee company attended from time to time and made submission on behalf of the assessee. 3. M/s. Bhander Power Limited is generating and supply of power. BPOL has entered into an agreement with Essar Bulk Terminal Limited ('EBTL'); Essar Projects India Limited ('EPIL'); Essar Heavy Engineering Services - a division of Essar Projects (India) Limited ('EHES') and ESIL for supply of power. BPOL is a captive power plant and has set up a facility specifically to provide power to its AEs based on their requirement. 4. Considering the facts and circumstances of the case, the assessee's submissions and documents furnished, the value of specific domestic transactions with AEs are considered at ALP. 5. It is hereby clarified that this order is only for this A.Y. 2013-14, and not for any subs....
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.... is extremely important to understand the nuances of power business and its regulatory framework which is elaborated as follows based on submissions made before us by the assessee: i. Considering the perennial shortage of power in India, regular liberalization process is initiated by the government, the participation of private players in generation and distribution of power is allowed under the stringent regulations of central and state body administering a power business ii. We wish to bring to your kind attention that BPOL has entered into long term PPAs with its customers for generation of power. As any prudent business would, and in line with the commercial practice, followed by the industry, power companies attempt to engage with customers over a long term, committing to them that the extent of power as determined necessary by the purchaser will be generated for them and the requisite capacity of the power plant will be earmarked for them for the purpose. iii. From the perspective of the customers, they make an estimate of their power requirements, and seek to ensure a committed supply of the requisite power over a period of time. In doing so, they ....
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....ual fixed cost: The annual fixed cost (AFC) of a generating stationer a transmission system shall consist of the following components- * Return on equity; * Interest on loan capital; * Depreciation; * Interest on working' capital; * Operation and maintenance expenses ;- " Further, as per clause 21 of the aforementioned Notification, which deals with Computation and Payment of Capacity Charge and Energy for Thermal Generating Stations "The total capacity charge payable for a generating station shall be shared by its beneficiaries as per their respective percentage share/ allocation in the capacity of the generating station." From the aforesaid sit will be clear that appellant entered into arrangements for power supply in the form of Power Purchase Agreements (PPAs'), whereby the appellant collected certain fixed capacity charges, based on the capacity requirement of buyer and variable costs. The mechanism of determining the tariff which includes fixed capacity charges is as per general industry practice in the power sector and also as per tariff regulation issued by the regulatory authority viz. Central Electrici....
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....ct. Thus, what is required is that profits and gains should be derived from the business of the undertaking, i.e., profits and gains derived from the business of generation and distribution of power. Use of phrase "any business of" signifies that benefit of deduction is to be given not only to the profits and gains derived from the industrial undertaking but also to give benefit of deduction in respect of income having a close and direct nexus with the profits and gains of the industrial undertaking. Thus, any income generated out of an act which is required to be undertaken essentially for carrying out the business of industrial undertaking is to be considered for computing the deduction u/s.80IA. In the present case, it is the business of generation and supply of electricity by the industrial undertaking. 9.4. In the case of the assessee, it is indisputably set up for the generation of power. Further, it has been generating power over the years as its sole business; it is not engaged in any other business. As such, its entire income is divided from the eligible business of power generation. Based on these facts, there can be no dispute that its entire income is eligible for de....
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.... "17. An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Company Limited v Commissioner of Income Tax, Gujarat II, this Court held that since an expression of wider import had been used, namely "attributable to" instead of "derived from", the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "attributable to". Since we are directly concerned with the expression "derived from", this judgment is relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well. 18. The judgment in Sterling Foods lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a dir....
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....Limited v Commissioner of Income Tax is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its r....
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.... followed by the assessee is in line with the general industry practice and is in conformity with the CERC regulations. The variable charge under the PPA arise only when the customer is unable to supply the fuel required for generation of electricity to the assessee. This variable charge is levied by the assessee in such a case for recovery of cost of fuel incurred by the assessee on behalf of the customer. From the PPA, it is noted that it does not merely provide for supply of power but also provide for assured supply of power to the extent of power generation capacity allocated to each of the customer. In the given set of facts, we find that entire receipts of the assessee towards annual fixed charges emanating from the PPA are derived from the business of the generation and supply of electricity eligible for deduction u/s.80IA. 9.9. The issue raised before us is no longer res integra, as strongly asserted by the ld. Counsel that Co-ordinate Bench in assessee's own case for Assessment Years 2010-11 to 2012-13 had dealt with the identical issue arising out of the same PPA with no change in the terms and conditions to allow deduction u/s.80IA. Co-ordinate Bench had followed ....
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....ntly. 15. On the issue of high net profit rate in phase 1 and low net profit in other two phases 11 and 111, the ld CIT(A) has given a categorical finding that in phase-1, the fuel cost is borne by M/S Essar Steel Ltd. and if the adjustments are made to that effect, the profit would be comparable to other units and thus there is no force in the findings of the AO to this effect. It is also true that assessee has entered into PPAs with various related parties as stated hereinabove out of commercial expediency and commercial considerations to ensure sale of power generated and received revenue in respect of fixed charges but that is done out of business considerations only. So far as the allegations and observations of the AO on the issue of financial arrangement between the group companies are concerned, the ld AR has proved that no evasion of tax has taken place as M/S Essar Steel Ltd from whom substantial revenue has been received is a loss making entity as is apparent from the following data: 1. 2010-11 -29.62 -2,990.09 2. 2011-12 -986.77 -3,976.86 3. 2012-13 2,845.60 -6,822.45 4. 2013-14 6,321.22 -13,143.67 The ld....
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....ng the choice available to it of claiming the deduction in respect of 10 years out of the 15 years available under the provisions of section 80IA. Hence contention of Revenue that decisions of preceding years are not applicable, loses its force. 12. On the contention of the Revenue that assessee has resorted to tax advantage strategy for claiming deduction u/s.80IA, we take note of the details of loss to Essar Steel Ltd. since Assessment Year 2010-11, which has got huge brought forward loss and depreciation. The details are tabulated below: Sr. No. Assessment Year Returned Income / (Loss) (in Rs. Crores) Brought Forward (Loss /Depreciation) (in Rs. Crores) 1 2010-11 (29.62) (2,990.09) 2 2011-12 (986.77) (3,976.86) 3 2012-13 (2,845.60) (6,822.45) 4 2013-14 (6,321.22) (13,143.67) 5 2014-15 (6,098.46) (19,242.13) 6 2015-16 (5,367.95) (24,610.08) 7 2016-17 (6,661.87) (31,271.95) 8 2017-18 (2,238.54) (33,510.49) 9 2018-19 (2,222.83) (35,733.32) 12.1. Thus, in view of the above tabulated huge brought forward loss and depreciation, it is noted that there is no adva....
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....t Year 2013-14. A proviso was added w.e.f. Assessment Year 2013-14 to sub-section (10) to section 80IA, so as to determine this excess profit having regards to ALP as defined in section 92F(ii). In this regard, the most clinching and undisputed fact has been reiterated several times in this order relating to the order passed by ld. TPO u/s.92CA(3), dated 28.10.2016, whereby SDT undertaken by the assessee for claiming deduction u/s.80IA has been found to be at ALP. Accordingly, ld. Assessing Officer resorting to provisions of section 80IA(10) to dislodge the claim u/s.80IA(4) made by the assessee is hit by the provisions to the sub-section and has no legs to stand. Grounds raised by the Revenue by referring to section 80IA(10) are dismissed. 14. Considering the above stated factual position, detailed deliberation on the provisions of the law, judicial precedents in the assessee's own case as well as others and also exhaustive fact based findings arrived at by ld. CIT(A) covering every aspect of the issue including judicial precedents relied upon by the ld. Assessing Officer, we do not find any reason to interfere with the findings so arrived at by ld. CIT(A) on the issue rela....