TaxTMI 
TaxTMI 
2026 (1) TMI 235
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.... other appeal i.e. ITA No. 1301/Hyd/2024 for A.Y. 2021-22. The assessee company has assailed the impugned order on the following grounds of appeal before us: "1. On the facts and in the circumstances of the case and in law, the final assessment order passed by Ld. Assessing officer ('Ld. AO') pursuant to directions of the Dispute Resolution Panel ('Ld. Panel) under Section 143(3) read with Sections 144C(13) of the Act to the extent prejudicial to the Appellant, is bad in law and is liable to be quashed. 2. On the facts and in the circumstances of the case and in law, the Ld. Panel erred in upholding the action of the Ld. Transfer Pricing Officer ('Ld. TPO')/Ld. AO in proposing an adjustment of INR 19,43,26,338 to the specified domestic transactions ('SDTs') pertaining to inter-unit transfer of milk. 3. On the facts and circumstances of the case, and in law, the Ld. AO / Ld. TPO / Ld. Panel erred in rejecting the economic analysis carried out in TP documentation which was maintained in good faith and with due diligence. 4. On the facts and circumstances of the case, and in law, the Ld. TPO/Ld. AO/Ld. Panel erred in disr....
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....f the case and in law, the Ld. AO/Ld. Panel erred in not restricting the disallowance of the expenditure under section 14A of the Act to the proportionate salary cost incurred for the Key Managerial Personnel ('KMP') being administrative expenses amounting to INR 12,16,740. 12. Without prejudice to the above Ground No. 10 and 11, on the facts and circumstances of the case and in law, the Ld. AO/Ld. Panel erred in not restricting the disallowance under section 14A of the Act to the extent of exempt income earned by the Appellant amounting to INR 39.04.165. 13. On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. Panel erred in disallowing interest expenditure of INR 208,333 under section 37 of the Act disregarding the fact that the differential interest amount (market value of interest income vs interest charged from employee) was already taxed as perquisite in the hands of the Managing Director. 14. On the facts and in the circumstances of the case and in law, the LA. AO/LA. Panel erred in initiating the penalty proceedings under section 270A of the Act by alleging that there is under reporting of income by the Appellant." ....
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....r Section 143(2) of the Act. 5. During the course of the assessment proceedings, the A.O. made a reference u/s 92CA of the Act to the DCIT, T.P .- 1, Hyderabad, for determination of the "Arm's Length Price" (for short, "ALP") of the specified domestic transactions reported by the assessee company for the subject year. 6. The Transfer Pricing Officer (for short "TPO"), vide his order passed under Section 92CA(3) of the Act, dated 31.07.2021 determined the ALP of the gain obtained on account of excess charging of overhead expenses by the Chilling Units of the assessee company by following "Other Method" at Rs. Nil. Accordingly, the TPO suggested an adjustment u/s 92CA(3) of the Act of Rs. 19,43,26,338/- being the deduction claimed by the assessee company u/s 80IB on account of the excess charging of overhead costs by the chilling units. 7. Thereafter, the A.O. vide his draft assessment order passed under Section 143(3) r.w.s 144C of the Act, dated 16.09.2021, inter alia, gave effect to the directions of the TPO. u/s 92CA(3) of the Act and declined its claim for deduction u/s 80IB of the Act of Rs. 19.43 crores (approx.). Apart from that, the A.O. proposed certain other a....
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....authorities and the material available on record, as well as considered the judicial pronouncements that were pressed into service by them to drive home their respective contentions. 12. Shri Aashik Shah, C.A. the learned Authorized Representative (for short, "Id. AR") for the assessee company, at the threshold of hearing of the appeal, submitted that as per instructions he seeks not to press some of the additional grounds, viz. (i). the additional grounds nos. 1 and 2 raised vide application dated 14.07.2023; and (ii). the additional ground of appeal no. 1 raised vide application dated 21.09.2023. Considering the aforesaid concession of the Ld. AR, the aforementioned additional grounds of appeal raised by the appellant company vide its applications dated 14.07.2023 and 21.09.2023 are dismissed as not pressed. 13. Controversy involved in the present appeal lies in a narrow compass, i.e., whether or not the A.O/T.P.O. are right in law and facts of the case in rejecting the assessee's claim for deduction of the profit derived from its chilling units on inter-unit transfer of milk u/s 80IB(11A) of the Act. Apart from that, the declining of the assessee's claim for deduct....
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....ect, i.e., the difference between the weighted average overhead cost (of the third party vendors) and the actual overhead costs (of the "chilling units" i.e. the eligible units of the assessee company), being included by the chilling units in the sale price of the milk transferred to its processing units and thus, considered as gain/loss by the said chilling units on which deduction is claimed u/s 80IB of the Act. 18. The A.O during the course of the draft assessment proceedings had made a reference u/s 92CA(3) of the Act to the TPO for the determination of the ALP of the Specified Domestic Transactions (SDT) of the assessee company, viz. "transfer of chilled milk" by its "Chilling Units" to the "Processing Units". 19. The TPO observed that as per the business model of the assessee company, as stated in the TP documentation i.e TP Study Report (TPSR), the collection units of the assessee company would collect milk from the farmers. Thereafter, the "Chilling Units" would procure raw milk from the collection units and would subject the same to filtration, testing for adulteration, antibiotic residue, acidity, and fat content in the chilling units. It was further observed by him....
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....hanism that was adopted by the chilling units for transferring the chilled milk to the processing units, observed that after claiming certain expenses towards converting the raw milk into chilled milk, i.e., overhead costs incurred by the chilling unit, the assessee company had further added certain artificial cost, i.e., the difference between the overhead costs actually incurred by the chilling units towards converting the raw milk into chilled milk vis-a-vis the weighted average cost of overheads that was charged by the third party chilling units from whom the processing units of the assessee company had during the subject year procured chilled milk. It was, thus, observed by the TPO that the assessee company had computed the profit & loss in respect of each chilling unit based on the difference between the average overhead cost billed by third party chilling units and the actual overhead cost incurred by the chilling units. The TPO, based on the aforesaid pricing mechanism adopted by the chilling units for transferring the chilled milk to the processing units, observed that the profit on account of transfer of chilled milk from the chilling units to the processing units was bas....
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.... them to the processing plants at rates comprising of actual cost of milk and actual overhead cost incurred by the respective units. Elaborating further on his conviction, the TPO observed that the assessee company by artificially increasing the actual overhead cost per liter to the weighted average overhead cost of Rs. 3.53 (per liter) which was charged by the third party vendors, had artificially increased the profits of the chilling units. Rather, the TPO was of the view that the overhead cost actually incurred by the chilling units should have been charged to the processing units for supplying chilled milk to them. Accordingly, the TPO was of the view that the artificial profits were created in the books of the chilling units (eligible units) by overcharging the overhead cost per liter from the processing units, which, thus, had increased the profits of the eligible units and decreased the profits of the non-eligible units. The TPO, held a firm conviction that the taxable profits/income was being shifted from the non-eligible units, i.e., the processing units to the eligible units, i.e., chilling units by inflating the actual overhead cost incurred by the eligible units under t....
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....ure or cost incurred by him/it to the levels of the market price and book artificial exempt income; (iii). that the assessee company by taking recourse to the weighted average overhead cost charged by the third party vendors supplying chilled milk to its processing unit had created artificial/notional profits in the hands of its chilling units; (iv). that as the actual overhead cost per liter incurred by the chilling units was less than the market value of overhead cost, i.e., the weighted average overhead cost of Rs. 3.53/- per liter that was charged by the third party vendors of chilled milk on the processing units of the assessee company, therefore, the chilling units by adopting Rs. 3.53/- per liter (supra) as a benchmark for its overhead costs had created artificial/unearned profits. It was further observed, that if the chilling units would had transferred the chilled milk to the processing units by charging the actual overhead cost (per liter) incurred by them, then they would not have earned any profits. Also, the TPO observed that as the chilling units were not performing much functions which would have resulted to any value addition to the raw milk chille....
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....the third party vendors who had supplied chilled milk to the processing units of the assessee company was taken as the profit earned by the chilling units. The Ld. AR submitted that keeping in view the nature of transaction and degree of comparability, wherein the amount of overhead costs paid by the assessee company to third parties were compared with the overhead costs paid in the inter-unit transfers, the "Other method" was considered as the most appropriate method (MAM) in the TP study report. The Ld. AR submitted that the AO/TPO had grossly erred in law and facts of the case in concluding that the assessee company which is involved in inter-unit transfer of milk from the chilling units to the processing units, had based on the comparison of the overhead costs incurred by the chilling units with the weighted average overhead cost of Rs. 3.53/- per liter that was charged by the third party vendors, artificially increased the profits of its chilling units. Elaborating further on his contention, the Ld. AR submitted that the TPO had wrongly observed that the transaction between a chilling unit and a processing unit of the same entity cannot have any profit element embedded in it a....
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....ection 80IA(8) of the Act [applicable to the assessee company which has claimed deduction u/s 80IB(11A) of the Act] postulates that where any goods held for the purpose of eligible business are transferred to any other business carried on by the assessee company, and if the consideration for such transfer recorded in the books of account does not correspond to the market value of such goods as on the date of transfer, then for the purpose of computing deduction u/s 80IB(11A) of the Act, the relevant profits from the eligible business shall be computed as if the transfer had been made at the market value of such goods as on the date of transfer. 29. Elaborating further on his contention, the Ld. AR submitted that as per Section 80IA(8) of the Act an eligible undertaking can rightly undertake business transactions with the other business units of the same assessee in the form of input/purchases or in the form of output/sales. The Ld. AR submitted that there would have been no need to prescribe and incorporate Section 80IA(8) of the Act in case, an assessee company could not have transacted and sold goods and services manufactured/produced by its eligible undertakings to another un....
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....ling units to the processing units, but he had grossly erred in traversing beyond the scope of his jurisdiction and drawing adverse inferences regarding the assessee company's claim for deduction u/s 80IB(11A) of the Act. The Ld. AR submitted that the examination of the issue, i.e., commercial expediency, genuineness or economic rationale of the transactions as well as the eligibility of the assessee company's claim of deduction u/s 80IB(11A) of the Act fell within the exclusive domain of the jurisdiction vested with the A.O. Carrying his contention further, the Ld. AR submitted that as the TPO vide his "Show Cause Notice", dated 22.07.2021 had accepted the Arm's Length Price adopted by the assessee company to benchmark the transactions of transfer of milk by the chilling units to the processing units, inter alia, based on the weighted average overhead costs adopted by the third party vendors, therefore, he had satisfied the obligation that was cast upon him for verifying whether or not the ALP adopted by the assessee company was accurate and the impugned transactions were at arm's length. Also, the Ld. AR submitted that now when the TPO in the assessee company's own case of the pr....
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....assessee company had failed to comply with the statutory requirement contemplated u/s 80IA(7) of the Act r.w Rule 18BBB of the IT Rules, 1962. 33. The Ld. AR submitted that the method adopted by the assessee company of comparing the difference between the actual overhead costs incurred by its chilling units and the weighted average overhead costs charged by the third party vendors (i.e. market rate) regarding the chilled milk transferred by them to the processing unit i.e. Rs. 3.53/- per liter was the Most Appropriate Method (MAM) for computing the ALP of the inter unit transactions of transfer of chilled milk by the chilling units of the assessee company. The Ld. AR to buttress his claim, submitted that the said method of benchmarking the market value, i.e., the price at which the third party sells the goods to the non-eligible units of the assessee company, had been upheld by the Hon'ble Apex Court in the case of Jindal Steel Power Ltd (supra), and by the ITAT, Chennai in the case of Eveready Spinning Mills Pvt. Ltd. Vs. ADIT, NFAC, Delhi (2023) (9) TMI 324. The Ld. AR further submitted that the TPO vide his Show Cause Notice, dated 22.07.2021, had accepted that the proces....
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....or deduction to the said extent. 37. It was, thus, Ld. AR's alternative claim that even if the observation of the TPO that the arm's length price of the profits earned by the chilling units ought to be considered as nil is to be accepted, the disallowance of the assessee's claim for deduction under Section 80IB(11A) of the Act, on the said basis could only be restricted to the profits earned by the chilling units, i.e. Rs. 17.38 crores. Accordingly, the Ld. AR submitted that, in absence of any basis or reason recorded by the authorities below, there could have been no justification for declining the assessee's claim for deduction of Rs. 2.05 crore (supra) u/s 80IB(11A) of the Act regarding its processing unit situated at "Indragiri". 38. Apropos the disallowance of the assessee's claim for deduction of expenses u/s 14A of the Act, the Ld. AR submitted that as the assessee company during the subject year, against the disallowance made by the A.O. u/s 14A of Rs. 66,96,066/-, had received exempt income of only Rs. 39,05,165/-, therefore the disallowance, if any, could have been restricted only to the extent of such exempt income received during the year. Apar....
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..../-. The Ld. AR assailed the disallowance of the aforesaid interest expenditure for two reasons, viz (i). that as the amount advanced by the assessee company to its Managing Director, i.e., an employee, at a discounted interest rate, was in the nature of a perquisite that was taxable in his hands, therefore, the A.O. was not justified in disallowing any part of the interest on the amount advanced by the assessee company at a discounted rate of interest in the hands of the assessee company; and (ii). that as the assessee company had sufficient interest-free funds available with it, therefore, there was no justification for the A.O. to have inferred that the interest-bearing funds that were borrowed by the assessee company from the banks for specific purposes were utilized for advancing the loan to the Managing Director. Accordingly, the Ld. AR submitted that, considering the availability of sufficient interest-free funds with the assessee company to source the loan advanced to the Managing Director, no disallowance of any part of the interest expenditure was called for in its case. The Ld. AR, to buttress his aforesaid claim, had relied upon the judgment of the Hon'ble High Court of ....
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....B" accompanied by the Profit & Loss Account and Balance Sheet of each eligible undertaking was statutorily required to be furnished, therefore, the A.O. had, for the said reason, rightly held the assessee company as ineligible for claiming the deduction u/s 80IB(11A) of the Act. Apart from that, the Ld. CIT-DR submitted that the claim of the assessee company for deduction under section 80IB(11A) of the Act cannot be placed at par with claim of deduction under section 80IA(8) of the Act, as was the issue involved in the case before the Hon'ble Apex Court in CIT vs. Jindal Steel & Power Ltd., Civil Appeal No.13771 of 2015 & Ors, dated 06/12/2023. 43. Apropos the disallowance made by the A.O. u/s 14A of the Act, the Ld. CIT-DR submitted that, as the assessee company during the subject year had invested in exempt income-yielding investments, therefore, the A.O. had rightly worked out the disallowance u/s 14Ar.w. Rule 8D(2)(iii) of the Income-tax Rules, 1962. The Ld. DR submitted that there was no substance in the Ld. AR's claim that the disallowance u/s 14A was liable to be restricted to the extent of the exempt income received during the year. The Ld. DR, to support her claim, ....
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....d in the business of processing, preservation, and packaging of dairy products as contemplated under Section 80IB(11A) of the Act. We find that the CIT(A), NFAC, Delhi, vide his order dated 25.03.2025, passed in the assessee's own case for A.Y. 2012-13, had observed that the chilling units of the assessee company that were obligated to have cumulatively satisfied the carrying on of the aforementioned three activities, i.e., processing, preserving, and packaging of dairy products for claiming deduction under Section 80IB(11A) of the Act, had fulfilled the same, which, thus rendered it eligible for claiming deduction u/s 80IB(11A) of the Act, observing as under: From a literal reading of the above provisions and to apply the same to the appellant, the appellant must have derived profit from the business of processing, preservation and packaging of 'dairy products'. Let us therefore examine the applicability of the above provision, and the case law relied upon by both the parties, to the facts of case before us. The applicability of the section 80IB(11A) of the act is based upon fulfilment of three criteria- 1. Processing of Milk 2. Preservation ....
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.... that processing of fruits does not mean that the end product also should be in the form of fruit or in the form of slices only. It was held that the expression should not be confined to minimum process that will not change the identity of the fruit. Let us therefore examine the applicability of the said decision to the case of assessee before us. 19. In the case of Mrs. Delna Rustum Boyce (supra), the AAR was considering the case of an assessee, a non-resident, who proposed to set up and promote a unit to produce fruit-based drink mixes/concentrates derived from fruit juices through various processes involving various steps, such as peeling, extraction of fruit oil, fruit pulping, screening, emulsifying, homogenizing, spray drying, addition of preservatives, color and sweetness and packaging and the said assessee had sought direction from the AAR on the question whether the profit of her proposed undertaking would be eligible for deduction u/s 80IB(11A) of the Act. The AAR, after considering various decisions of the Hon'ble Supreme Court on the word "processing" has held as under: '10. Processing and preservation are two distinct expressions used side by ....
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....er of the Tribunal Pune Special Bench in the case of B.G. Chitale (supra) wherein it was held that pasteurisation and standardisation of milk does not amount to production and the assessee is not entitled for deduction u/s. 80I. In view of this, the assessee is not entitled for additional depreciation in terms of provisions of section 32(1)(iia) as the machinery installed at milk chilling/processing centre, sales outlet and plant and machinery installed at milk powder centre are directly relatable to the milk processing which does not amount to manufacture. Therefore, as per the provisions of section 32(1)(iia) the additional depreciation cannot be granted. In our opinion, the reason recorded by the Assessing Officer is a valid basis for re-assessment proceedings by issuing notice u/s. 148 of the Act. In our opinion, additional depreciation is not available to that part of the machinery installed for the purpose of standardisation and pasteurisation of milk. The activities of standardisation and pasteurisation of milk are different from manufacturing of curd, ghee and other products. Standardisation and pasteurisation of milk cannot be equated with manufacturing of curd and ghee or....
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....he milk, they start growing rapidly because milk contains all the nutrients required for their growth and the conditions for their growth are favorable. Due to these changes the quality of milk is adversely affected so much so that sometimes it becomes unfit for consumption as fluid milk. 2.2.13 If the milk has to be transported to longer distances, it must be protected from spoilage by the action of microorganisms. The chilling plants, which inter alia carries out chilling function, as discussed above, is considered as an essential / vital process because it lower temperatures and inhibit the growth of most of microorganisms, thus preventing the milk from getting spoiled and thus increases the life span of milk We can understand the term Preservation acutely through the case decision of 3F Oil Palm Agrotech (P.) Ltd. Vs Assistant Commissioner of Income-tax, Circle-2(2), Hyderabad* [2019] 107 taxmann.com 451 JUNE 14, 2019 24. The meaning and purpose of preservation is, to see that the product does not deteriorate and maintains the required quality and standard. It is not required that all the processes or the steps of preservation, should be complicated. ....
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.... extracted oil in tanks. Therefore, we are satisfied that all the three processes necessary for claiming deduction u/s 80IB(11A) are satisfied by the assessee." The submission of the appellant has carefully been considered alongwith facts of the case evident in the financial statement of the appellant extracted below: Note 12 : Inventories As at 31 March 2012 As at 31 March 2011 (Valued and Certified by the Management) a) Stores and Spares Consumables 18,567,157 13,317,612 b) Raw materials including Packing Material 20,771,344 77,639,150 c) Stock-in-Trade 72,722 d) Work-in-Process 31,586,373 26,621,709 e) Finished Goods 644,942,849 276,683,954 Which ever is less 715,940,445 394,262,425 Note 17 : Cost of Materials Consumed For the year 31 March 2012 For the year 31 March 2011 1. Consumption of Raw Material 5,385,697,242 3,696.897,799 2. Consumption of Stores & Spares 48,634,756 36,892,889 3. Consumption of Packing Material 176,889,258 &nbs....
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....milk to the processing units with a profit or markup. 51. We have given our thoughtful consideration and are unable to persuade ourselves to concur with the aforesaid observation of the A.O/TPO. Our aforesaid view that there is no restriction placed on the transfer of any goods held by the eligible units of the assessee to any other business carried on by the assessee company can safely be gathered on a bare reading of Section 80IA(8) of the Act. Section 80IA(8) of the Act postulates that where any goods held for the purpose of eligible business are transferred to any other business carried on by the assessee, and if the consideration for such transfer, as recorded in the books of account does not correspond to the market value of such goods as on the date of transfer, then, in such a situation, for the purpose of computing deduction under Section 80IB(11A) of the Act, the relevant profit from the eligible business shall be computed as if the transfer had been made at the market value as on the date of transfer. Accordingly, it can safely be concluded that Section 80IA(8) of the Act accepts that the eligible undertakings of an assessee company can rightly undertake business tran....
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....urt based on its aforesaid observations regarding sub-section (8) of Section 80IA of the Act, observed that there would have been no need to prescribe or incorporate sub-section (8) of Section 80IA in case the assessee company, i.e., the eligible unit could not have sold goods or services manufactured/ produced by the eligible undertaking to another unit or business of the same assessee company. Accordingly, the Hon'ble High Court approved the view taken by the Tribunal that the profit derived by the eligible unit of the assessee company was eligible for deduction as a separate undertaking under Section 80IA of the Act. 53. Also, our aforesaid view is supported by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. M/s. Jindal Steel and Power Ltd (Civil Appeal No. 13771 of 2015, dated 06.12.2023). The Hon'ble Apex Court, in its order, had observed that there was no dispute that the captive power plants of the assessee company, i.e., the eligible units were entitled for deduction u/s 80IA of the Act. The Hon'ble Apex Court referring to the provisions of sub- section (8) of Section 80IA of the Act, had observed, that the same contemplates that where an....
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.... certainly be covered by section 80IA(1). It was further observed, that when such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, then, there was no lack of merit in the claim of the respondent/assessee when it claimed deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years under Section 80IA(1) of the Act. Further, a similar view had been taken by the Hon'ble High Court of Madras in the case of CIT, Trichi Vs. Cethar Ltd. (2014) 51 taxmann.com 183 (Madras), wherein, the Hon'ble High Court had observed that the assessee company before them was entitled to claim deduction under Section 80IA in respect of the power income generated by its own windmill that was captive consumed by the assessee. We, thus, in terms of our aforesaid observations and the settled position of law, are unable to persuade ourselves to concur with the view taken by the A.O/TPO that the chilling units, i.e., the eligible units of the assessee company ought to have transferred the milk to the processing units at cost. 54. We shall now deal with t....
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....such eligible business shall be computed as if the transfer, in either case, has been made at the market value of such goods as on the date. Also, we find that as per the "Explanation 2" to Section 80IA(8) of the Act, the term market value means, viz. (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 sub-section (2) of Section 92F, where the goods or services are transferred in specified domestic transactions referred to in Section 92BA of the Act. We are of the firm conviction that now when the chilling units (i.e., eligible units) had carried out the inter-unit transfer of milk to the processing units considering the "market value" of the subject goods, which squarely fits within the meaning of sub-section (8) of Section 80IA of the Act, therefore, it is incomprehensible that on what basis the claim for deduction under Section 80IB(11A) of the Act raised by the chilling units could have been declined. Once again it may be reiterated that it is nobody's case that the weighted average cost of overheads of the third party vendors of chilled milk of Rs. 3.53/- per liter (supra) suffers from any infirmit....
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....@ Rs. 3.72/- per unit after comparing it with the rate of power available in the open market, i.e., the rate that was charged by the State Electricity Board while supplying electricity to the industrial consumers, i.e., at Rs. 3.72/- per unit at the relevant point of time. For the sake of clarity, we deem it apposite to cull out the observations of the Hon'ble Apex Court, as under: "18. There is also no dispute that the assessee or rather, the captive power plants of the assessee are entitled to deduction under Section 80IA of the Act. For the purpose of computing the profits and gains of the eligible business, which is necessary for quantifying the deduction under Section 80IA, the assessee had recorded in its books of accounts that it had supplied power to its industrial units at the rate of Rs. 3.72 per unit which rate is disputed by the revenue as not being the market value of electricity. 19. While the assessing officer accepted the claim of the assessee for deduction under Section 80IA, he, however, did not accept the profits and gains of the eligible business computed by the assessee on the ground that those were inflated by showing supply of power to its o....
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....ng back to sub-section (8) of Section 80IA, it is seen that if the assessing officer disputes the consideration for supply of any goods by the assessee as recorded in the accounts of the eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under Section 80IA, the profits and gains of such eligible business shall be computed by adopting arm's length pricing. In other words, if the assessing officer rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price that such goods would ordinarily fetch on sale in the open market. Thus, as per this definition, the market value of any goods would mean the price that such goods would ordinarily fetch on sale in the open market. 23. This brings to the fore as to what do we mean by the expression "open market" which is not a defined expression. 24. Black's Law Dictionary, 10th Edition, defines the expr....
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.... the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition. 27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State El....
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....chase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of Section 80IA(8). On the contrary, the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under Section 80 IA of the Act. 30. Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deducti....
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....serving that the assessee had failed to submit the audited financial statements and also copies of "Form 10CCBs" of each of the chilling units (eligible units). 57. Before proceeding further, we deem it fit to cull out the Rule 18BBB of the IT Rules, 1962, which contemplates the furnishing of the audit report in Form 10CCB as under: "Form of audit report for claiming deduction under section 80I or 80IA or 80IB or section 80IC. 18BBB. (1) The report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80IA or sub- section (7) of section 80I, except in the cases of multiplex theatres as defined in sub-section (7A) of section 80IB or convention centres as defined in sub-section (7B) of section 80IB or hospitals in rural areas as defined in sub-section (11B) of section 80IB, shall be in Form No. 10CCB. (2) A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80I or 80IA or 80IB or 80IC and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise we....
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....antifying profits. 59. We shall, in the backdrop of the aforesaid statutory requirement verify as to whether the needful was done by the assessee company in the case before us. On perusal of the record to which our attention was drawn by the Ld. AR, we find that the assessee company vide its reply dated 14-07-2021, pursuant to the query letter raised by the AO dated 08-07-2021, had furnished "Form 10CCB" certificates issued by an independent Chartered Accountant for its eligible units, marked as (Annexure 1), (Pages 260-269 and Pages 270-365 of APB). Apart from that, we find that, as per the aforesaid reply dated 14-07-2021 (supra), the assessee company had enclosed the financial statements of eligible units, viz., (i). profit and loss accounts of the eligible units (Annexure 2); and (ii). balance sheets of the eligible units (Annexure 3). 60. As the claim of the assessee company, viz. (i). that it had as per Rule 18BBB got its accounts audited as required u/s 80IB(11A) of the Act r.w. Section 80IA(7) and furnished the audit reports of all its eligible units in "Form 10CCBs" could not safely be gathered from the record, therefore, on a perusal of our "order ....
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.... the Act, were duly filed online by Mr. PSRVV Surya Rao, Chartered Accountant [Membership No. 202367], Partner at A. Ramachandra Rao & Co. [FRN no. 002857S]; (iii). that the signed copies of all the "Form 10CCBs" (alongwith the screenshots of the acknowledgments downloaded from the Income-tax e-filing portal) are being enclosed as "Annexure A"; and (iii). that balance sheets, profit & loss statements and the computations evidencing the deductions claimed for each of the eligible units were also certified by Mr. PSRVV Surya Rao Chartered Accountant [Membership No. 202367], Partner at A. Ramachandra Rao & Co. [FRN no. 002857S], as true and fair, and copies whereof were being annexed hereto marked as Annexure B, C and D. 63. On the other hand, the Ld. CIT-DR has placed on record a report dated 08.09.2025 of the Dy. CIT-8(1), Hyderabad, wherein it is stated by the latter that the "Form 10CCBs" of only 20 "Chilling centers" for the subject year, i.e. A.Y 2018-19 (copies filed alongwith the report) have been downloaded from ITBA/CPC, but neither of them is either found to be digitally signed nor the acknowledgement numbers are printed on the same. 64. We have given thoughtful consi....
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....20 eligible units of the assessee company that have been downloaded from the ITBA/CPC, are not found to be digitally signed, it would be relevant to pint out that during the year under consideration, i.e., A.Y 2018-19 the portal required the CA to upload "Form 10CCB" using DSC and the assessee would thereafter accept it via portal. However, the downloaded PDF from CPC/IT portal was system generated and did not embed a visible signature of the CA. The DSC authentication existed in the backend system, ensuring that the CA had actually signed and submitted the form, but it was not displayed on the downloaded PDF. So, the downloaded PDF during the subject year did not show the CA's DSC or a physical signature. We may herein observe that the said position, i.e., the portal would show the backend validation only and the downloaded copy would not show signature continued till A.Y. 2019-20, and it was only from the A.Y. 2021-22 that the portal was upgraded and the downloaded PDF started showing the CA's digital signature details for transparency. We, thus, find the reason that as to why the DSC/physical signature of the CA is not visible in the copies of the downloaded "Form 10CCBs" filed ....
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....e tabulated form, thus, it had complied with the obligation that was cast upon it for claiming deduction u/s 80IB(11A) r.w Rule 18BBB of the Income Tax Rules, 1962. 67. As we have in terms of our aforesaid deliberations found the claim of the assessee company for deduction u/s 80IB(11A) of the Act in order, though subject to the verification by the A.O. that the "Forms 10CCB" of all the 24 units were furnished by the assessee company, therefore, we refrain from dealing with its alternative claim for deduction w.r.t its plant at "Indragi", which, thus, is left open. 68. Apropos the observation of the DRP that as Section 80IB(11A) of the Act contemplates deduction of the profits and gains "derived from" the eligible unit, but the assessee's method of allocating profits based on third party costs cannot be considered as profits derived from its eligible units, we are unable to concur with the same. As the profits of the "eligible units" of the assessee company, i.e., the chilling centers form the first degree source of their eligible income, therefore, we are unable to comprehend that as to how the same does not fall within the meaning of "derived from" the said respective eligi....
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.... have exceeded the amount of the exempt income so earned. Our aforesaid view can safely be gathered from the judgments of the Hon'ble High Court of Delhi in the case of, viz. (i). Pr. CIT Vs. McDonalds India Pvt. Ltd., ITA No. 725/2018, dated 22.10.2018; (ii). Cheminvest Vs. CIT (2015) 378 ITR 33 ((Delhi); (iii). CIT Vs. Holicim India (P) Ltd. (2015) 57 taxmann.com 28 (Delhi); (iv). Joint Investments Pvt. Ltd. Vs. CIT (2015) 372 ITR 694 (Delhi); (v). CIT Vs. Takisha Engg. India Ltd. (2015) 370 ITR 338 (Delhi); and (vi). Pr. CIT Vs. Caraf Builders & Constructions (P) Ltd. (2019) 101 taxmann.com 167 (Delhi). The "SLP" filed by the revenue has thereafter been dismissed in Pr. CIT Vs, Caraf Builders & Constructions (P) Ltd. (2019) 112 taxmann.com 322 (SC). Also, the aforesaid view is supported by the judgment of the Hon'ble Supreme Court in Maxopp Investments Ltd. Vs. CIT (2018) 402 ITR 640 (SC). Further, a similar view has been taken by the Hon'ble High Court of Madras in the case of Pr. CIT Vs. Envestor Ventures Ltd. (2021 123 taxmann.com 378 (Madras) and CIT Vs. Tidel Park Limited, Tax Case No. 732 & 733 of 2018, dated 07.07.2020. Also, we find that the Hon'ble High Court of Karnata....
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....lable, both interestfree, and overdraft/loans were also taken, then a presumption would arise that the investments made by the assessee company would be out of interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. We thus, in terms of our aforesaid deliberations, direct the A.O. to vacate the disallowance of Rs. 2,08,333/- (supra) that had been sustained by the DRP. The Ground of appeal no. 13 is allowed. 76. We shall now deal with the claim of the assessee company that the A.O. had erred in disallowing the assessee's claim for deduction u/s. 80JJAA of Rs. 48,32,390/-. 77. On a perusal of the assessment order, we find that the assessee company had in its return of income for A.Y. 2018-19 raised the claim for deduction u/s. 80JJAA of Rs. 71,42,874/-. However, the A.O. observed that the assessee company, as per "Form 10DA", had during the subject year made payments to its additional employees of Rs. 77,01,612/-. The A.O. observed that the assessee company was entitled for the deduction u/s. 80JJAA @ 30% of the emoluments paid or payable to its additional employees, and thus, worked out the same at Rs....
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....ount or through such other electronic mode as may be prescribed: Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost; (ii) "additional employee" means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include- (a) an employee whose total emoluments are more than twenty- five thousand rupees per month; or (b) an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme notified in accordance with the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or (c) an employee employed for a period of less than two hundred and forty days during the previous year; or (d) an employee who does not participate in the recognised provident fund: Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather....
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....he additional wages of Rs. 1,18,90,200/- paid by the assessee company in A.Y. 2017-18: Rs. 35,67,060/-; and (ii). 30% of the additional wages of Rs. 77,01,612/- paid by the assessee company during the year under consideration: Rs. 23, 10,484/-. We find that it is the claim of the assessee company that though it had in "Form 10DA" for the subject year, i.e., A.Y. 2018-19 at Sl.No.6 mentioned its claim for deduction u/s. 80JJAA of the Act at Rs. 23, 10,484/-, but had inadvertently mentioned the same in its return of income at Rs. 35,75,814/-. Accordingly, it is the claim of the assessee company before us that its independent claim for deduction u/s. 80JJAA for the subject year, i.e., A.Y. 2018-19 be taken as in Form 10DA at Rs. 23, 10,484/- instead of the claim of Rs. 35,75,814/- raised in the return of income. Apart from that, the Ld. AR submitted that 30% of the claim of the assessee company for deduction of the additional employee cost that it had incurred in A. Y. 2017-18, amounting to Rs. 35,67,060/- (supra) (this being the second year) be also allowed. Accordingly, it was the Ld. AR's claim that the claim of the assessee company for deduction u/s 80JJAA be quantified at Rs.....
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.... i.e., entitlement of the assessee company for claiming deduction u/s. 80IB(11A) of the Act during the subject year, remains the same as was there in its aforementioned appeal in IT(TP)A No.466/Hyd/2022 for A. Y 2018-19. 87. As the issue involved in the present appeal had been deliberated by us at length while dealing with the aforementioned appeal of the assessee company for A.Y 2018-19 in IT(TP)A No. 466/Hyd/2022, therefore, though our order therein passed shall apply mutatis mutandis for disposing of the captioned appeal for A. Y 2021-2022, but for the sake of clarity, we deem it apposite to hereinafter deal with the muti facet aspects pertaining to the said common issue in the backdrop of the specific facts involved in the case of the assessee company for the present year, i.e., AY 2021-22. 88. We, in terms of our observations recorded while disposing of the assessee's appeal for AY 2018-19 in ITA TP 466/Hyd/2022, are of a firm conviction that as the chilling units, i.e., eligible units of the assessee company had carried out inter-unit transfer of milk to the processing units as per the prevailing market value, a fact which has not been dislodged by the department ei....
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.... "affidavit", viz. (i). that the assessee company had filed its return of income for A. Y 2021-22 on 23.02.2022, declaring a total taxable income of Rs. 133.12 crores and had claimed deduction u/s 80IB(11A) of Rs. 38.77 crores, pertaining to the profits of its 31 eligible units which included both "chilling centres" and "processing plants"; (ii). that the "Form 10CCBs" filed as per Rule 18BBB of the Income tax Rules, 1962, for each of the 31 eligible units claiming deduction under Section 80IB(11A) of the Act, were duly filed online by Mr. G. Jayanth Srinivas, Chartered Accountant [Membership No. 251026], Partner at G. Jayanth & Associates [FRN no. 021457S]; (iii). that the signed copies of all the "Form 10CCBs" downloaded from the Income-tax e-filing portal (along with the acknowledgement numbers) were being enclosed as "Annexure A"; and (iii). that balance sheets, profit & loss statements and the computations evidencing the deductions claimed for each of the eligible units were also certified by Mr. G. Jayanth Srinivas, Chartered Accountant [Membership No. 251026], Partner at G. Jayanth & Associates [FRN no. 021457S], as true and fair, and copies whereof were being annexed hereto....
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....nal Assessing Officer (JAO), who is directed to verify the aforesaid factual position regarding filing of "Form 10CCBs" by the assessee company. In case the claim of the assessee company is found in order, then the adverse inferences drawn in the hands of the assessee company regarding its claim for deduction u/s 80IB(11A) of the Act, on the said count, shall stand vacated. 94. As we have in terms of our aforesaid deliberations found the claim of the assessee company for deduction u/s 80IB(11A) of the Act in order, though subject to the verification by the A.O. that the "Forms 10CCB" of all the 31 units were furnished by the assessee company, therefore, we refrain from adverting to and adjudicating the alternative contention of the assessee company regarding its units at Indragiri and Gundrampally, which, thus are left open. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. 95. As nothing has been averred in the context of Grounds of appeal Nos. 1 & 4, therefore, the same are dismissed as not pressed. 96. Resultantly, the appeal filed by the assessee company is partly allowed in terms of our aforesaid observations. 97. To sum up, both the app....