TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1934
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....t's own case for AY 2006-07 and restricted the disallowance u/s 14A of the Act to the extent of Rs. 69,50,000/- being 0.5% of average value of non-strategic investments held by the Appellant. b) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the AO in reducing deduction u/s 80IA of the Act by Rs. 5,98,92,130/- by increasing the input cost by including the component of excise duty/service tax claimed as CENVAT credit by the Appellant. c) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the AO treating the expenses of Rs. 1,88,59,786/- incurred towards corporate advertisement as capital expenditure. d) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the AO in disallowing lease equalization charges of Rs. 1,47,06,437/- e) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the AO in disallowing Interest on electricity tax of Rs. 2,65,40,325/- u/s 43B of the Act. f) ....
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....ays that the Ld. AO be directed to exclude incentive under the Focus Market Scheme Focus Product Scheme and Market Linked Focus Product Scheme being capital receipt, from Profit as shown in the statement of profit and loss, while computing Book profit u/s 115JB of the IT Act. Additional Ground No. 4. 4.1 On the facts and the circumstances of the case and in law, the Appellant prays that the Ld. AO be directed to treat the fertilizer subsidy under the "Policy for Stage-III of New Pricing Scheme for urea manufacturing units as capital receipt not chargeable to tax. 4.2. On the facts and in the circumstances of the case and in law, the Appellant prays that the Id. AO be directed to exclude fertilizer subsidy, being a capital receipt, from Profit as shown in the statement of profit and loss, while computing Book profit u/s 115JB of the ITA. Additional Ground No. 5 5. On the facts and the circumstances of the case and in law, the Appellant prays that the Ld. AO be directed to treat the freight subsidy under the 'Policy for uniform freight subsidy on all fertilizers under the fertilizer subsidy regime as capital receipt not chargeable to t....
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....e Income Tax Act, 1961, stating that the disallowance is deleted from computation of normal income without appreciating that the same is contested in further appeal. 8. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the net resultant enhancement of Rs. 22,72,66,123/-being net CENVAT credit in the Closing Stock. 9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the net resultant enhancement of Rs. 22,72,66,123/-being net CENVAT credit following the decision of the CIT(A) in the earlier years without appreciating that the same were not accepted and further appeal in filed in the Hon'ble ITAT for Assessment Years 2010-11 and 2011-12. 10. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting Rs. 10,46,01,913/- u/s 43B(f) of the Income Tax Act, 1961, on account of provision of leave salary. 11. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 10,46,01,913/- u/s 43B(f) of the Income Tax Act, 1961, on account of provision of leave salary following the decisions of the Ld. C....
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....e and in law the Ld. CIT(A) erred in deleting the disallowance of ESOP expenses of Rs. 29,56,045/- relying upon the decision of the CIT(A) and ITAT in the Assessee's own case in earlier years without appreciating that the decision of the Ld. CIT(A) has not been accepted for A.Y. 2011-12 and further appeal has been filed. 20. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 3,95,52,948/ claimed as revenue expenditure incurred on catalyst which was treated as capital in nature by the Assessing Officer. 21. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 3,95,52,948/- observing that the catalyst is only a part of the plant which is replaced to restore the efficiency of the plant, without appreciating that the department has not accepted the decision of the Hon'ble ITAT on this issue for A.Y. -2008-09 and further appeal u/s 260A is filed before the Hon'ble Bombay High Court. 22. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 18,80,123/-claimed as depreciation....
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....s of the Act. Aggrieved with the order, the assessee preferred an appeal before CIT(A) who vide order dated 21.12.2017 partly allowed the appeal. Both the assessee and revenue are in appeal against the said order. ITA No. 563/Mum/2018 for AY 2013-14 (Assessee's Appeal) 6. Ground No. 1 relates to partial confirmation of disallowance u/s 14A r.w. Rule 8D(2)(iii) by the Ld. CIT(A). On the other hand, the grounds No. 1 and 2 of revenue's appeal also pertain to restricting the additional disallowance of Rs. 27,51,33,108/- toRs. 8,96,08,108/- by the Ld.CIT(A). 7. The brief facts are as under: (a) the assessee had earned dividend income amounting to Rs. 151,05,75,453/- during the year under consideration. At the time of filling the return, suo-moto disallowance to the extent of Rs. 1,11,91,892/- was made by the assessee based on the Chartered Accountant's report. (b) This disallowance related to expenses, other than interest on borrowings, which were recorded as expenses incurred in relation to such investments. Since the AO was not satisfied with the correctness of suo-moto disallowance made by the assessee, provisions of section 14A r.w. Rule 8D were invoke....
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....d additional ground No. 1 of the appeal by the assessee are partly allowed for statistical purpose." 8. Respectfully following the above decision we remit the issue of disallowance towards indirect expenses back to the AO with similar directions." Respectfully following the decision of the co-ordinate bench for earlier year, we direct the AO to recompute the disallowance on similar lines. 11. Related to the above, grounds No. 3 and 4 of the revenue appeal are with regard to addition of the amount of disallowance u/s 14A to the book profit u/s 115JB of the Act. The AO while computing the book profit u/s 115JB made an addition of Rs. 27,51,33,108/-, the amount disallowed u/s 14A r.w. Rule 8D(2)(iii) of the Act following the decision of the Hon'ble Special Bench of Delhi Tribunal in the case of ACIT v/s Vireet Investments (P.) Ltd. (82 taxmann.com 415) (Del. Trib.) (SB). This issue is also covered by the decision of the co-ordinate bench in assessee's own case in ITA No. 1065/Mum/2023 A.Y. 2011-12 (supra) wherein, it has been held as under: "9. With regard to disallowance under section 14A being added to the book profits under section 115JB of the Act, the Ld. ....
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.... the manufacturing units ("MU"), the assessee had debited expenses directly attributable to the CPP, net of CENVAT credit availed, wherever applicable, on the expenditure incurred. b. Such CENVAT credit is available to the MU under the excise/service tax provisions and is adjusted against excise duty/service tax liability on goods produced by the relevant MU. Therefore, the debit in respect of the excise duty/service tax element and the credit in respect of excise duty on manufactured goods are both recorded in the books of MU. c. The Ld.AO allocated Cenvat credit while computing profits eligible for deduction u/s 80IA on the contention that all direct expenses incurred for CPP should be deducted in computing deduction u/s 80IA. d. Following the order of CIT(A) of A.Y. 2012-13, the disallowance in the captioned assessment year made by the AO has been upheld by the Ld. CIT(A) vide order dated 21.12.2017. e. The assessee has submitted before us that the issue is covered by assessee's own case in A.Y. 2011-12 in ITA No. 1065/Mum/2017 and ITA No. 1248/Mum/2017 (Mumbai Tribunal) wherein it has been held as under : 13. We have heard the partie....
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....er was of the view that Section 80A (IA) provides for exemption in respect of profit derived by an eligible undertaking" for the specified purposes, but the critical words are "derived from" and, therefore, "it is only the expenditure, which had a direct and proximate (immediate) nexus with the earning of profit from eligible undertaking that could be taken into consideration for determining such profits". It was also noted that the eligible unit is to be viewed as an independent unit on the standalone basis, as Section 80IA(5) requires such an eligible unit to be treated "as if such eligible business were the only source of income of the assessee during the previous year relevant to the assessment year". Accordingly, the Assessing Officer reduced the eligible deductions under section 80IA, by the amount of CENVAT credits attributable to eligible units, as the expenses were not booked through the profit and loss account, and, to that extent, the profits stood distorted/ inflated. These allocations were done on the basis of turnover "in the absence of any item wise details". Aggrieved, inter- alia, by these adjustments on account of CENVAT credit, assessee carried the matter in appe....
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.... credits availed by the other units. Viewed thus, not accounting for the CENVAT credit does not, in our considered view, vitiate the profits of the eligible undertaking, as long as all such credits are fully availed by the other units as is the undisputed position anyway. What the assessee has done is that the expenses are debited net of the CENVAT credit availed. To this extent, we see no infirmity in the stand of the assessee. 103. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and direct the Assessing Officer to delete the impugned adjustment on account of CENVAT in the profits of the eligible units. The assessee gets the relief accordingly. 3.12. Even on merits, the addition made by the ld. AO deserves to be deleted in view of the aforesaid decision of this Tribunal. 3.13. In view of the aforesaid observations and respectfully following the various judicial precedents, the reopening made by the ld. AO for A.Y. 2008-09 is bad in law and is hereby quashed. Accordingly, the appeal of the assessee is allowed. On merits, the issue is already covered in favour of the assessee by relying th....
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....ed the orders of authorities below. The expenditure incurred by assessee towards corporate advertisement was disallowed holding it to be capital in nature. We find that similar disallowance of advertisement expenditure was made in assessment year 2009-10. The Coordinate Bench of the Tribunal, following the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Asian Paints (India) Ltd., reported as 243 Taxman 348 (Bom) held the expenditure as revenue in nature. The Id. Departmental Representative has not been able to controvert the findings of then Co-ordinate Bench of the Tribunal in assessee's own case on the same issue. Following the same reasoning, we hold corporate advertisement expenditure as revenue expenditure. Thus, ground No. 4 of the appeal of the assessee is allowed. 18. We also noticed that a similar view has been held by the coordinate Bench in assessee's own case for AY 2009-10 also, the facts of the year under consideration being identical respectfully following the above decision of the co- ordinate bench, we allow the grounds raised by the assessee and delete the addition made in this regard." Respectfully following t....
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.... We also notice that a similar view is held by the coordinate bench of the Tribunal in the case of M/s. HDFC Securities Limited vs DCIT (ITA No. 3137 & 3502/Mum/2014 dated 19.02.2016). The relevant observations of the Tribunal are extracted below - 6. Effective ground of appeal, raised by the AO is about deleting the addition of Rs. 1.08 Crores. During the assessment proceedings, the AO found that the assessee had claimed the abovementioned amount under the head Rent being AS-19 Provisions. He called for justification for allowing the same. After considering the reply of the assessee, the AO held that the disputed amount was nothing but prepaid expenses which ought to have been claimed in the relevant financial year to which it belonged, that the amount was a balance-sheet item and not a P&L A/c. item. Finally, he treated the amount in question as prepaid expense and made a disallowance of Rs. 1.08.45.878/- 7. Before the FAA, the assessee made elaborate arguments and produced additional evidences. He called for remand report from the AO. After considering the Report and rejoinder to the report of the AO, the FAA held that lease expenses were nothing but expenses t....
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....he assessee and claim of lease equalisation charges is hereby allowed. 17. Ground No. 5 : Disallowance of interest on Electricity Tax u/s 43B amounting to Rs. 2,65,40,325/- Relevant facts are as under: a) The assessee had made a provision on account of interest on electricity duty in its books of account. In the return of income, the same was not disallowed u/s 43B on the ground that the said section cannot be extended to include "interest on tax". b) The AO has disallowed the interest observing that the Hon'ble Rajasthan High Court in the case of Mewar Motors v. CIT (2003) 260 ITR 218 has held in context of sales tax liability, that interest on sales tax is covered within the ambit of section 43B. Hence, on the same logic, interest on electricity tax is a part and parcel of electricity tax and is therefore, covered u/s 43B of the Act. Since, the interest on electricity tax did not crystallize during the year, the same shall be allowed as and when the liability is crystallized and is paid. c) Following the decision of his predecessor in A.Y. 2012-13, the disallowance in the captioned assessment year made by the AO has been upheld by the CIT(A) in th....
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....und is linked with grounds No. 26 and 27 of the revenue"s grounds of appeal, hence these are being discussed together. Ground No. 26:(Revenue's Appeal) Restriction of transfer pricing adjustment made on corporate guarantee given to AE - 0.5% as against 2% as held by AO/TPO: The brief facts of the issue are as under: i. During the year under consideration, the assessee gave explicit financial guarantees to lender banks to enable overseas subsidiaries viz. Aditya Birla Minacs Worldwide Inc. ("ABMWI") and Minacs Group (USA) Inc ("MGI") to borrow funds from them for working capital and term loans. For the aforesaid guarantee transaction, no guarantee commission was charged by the assessee to its AEs. ii. It was the stand of assessee that without prejudice to the assessee's contentions that corporate guarantee is not an international transaction and the same is in the nature of shareholder's activity, if corporate guarantee is to be treated as an international transaction, then the rate should be applied based on Internal CUP viz. the weighted average rate of 0.30% which is the rate of guarantee commission paid to unrelated third parties by the assessee. ....
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....s determined as per US Corporate Bonds as adopted in TP order for AY 2012-13 at 1.74%. iii. On identical facts, the Ld. CIT(A) in AY 2012.13 had applied the same rate as in guarantee fee. Considering that facts for the year under consideration are similar, the performance fee was fixed at the same rate as for guarantee commission i.e. at 0.5% by the Ld. CIT(A). iv. The Ld. AR submitted that this issue is covered by assessee's own case in AY 2011-12 in ITA No. 1065/Mum/2017 and ITA No. 1248/Mum/2017 (Mum. Trib.) wherein it has been held as under: "74. Ground No. 15 & 16 of the revenue pertain to CIT(A) restricting the ALP of guarantee fees in respect of corporate guarantee and performance given to AE to 0.5% as against 2.42% and 1.74% as held by AO/TPO. We have while considering Ground No. 8 have already upheld decision of the CIT(A) by placing reliance on the decision of the jurisdictional High Court in the case of Everest Kanto Cylinder Ltd. (supra). Therefore, these grounds of the revenue are dismissed. 21. The Co-ordinate Bench in assessee's own case for AY 2011-12 has considered the similar issue and upheld the guarantee commission @0.5% by relying....
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....ices u/s 133(6). This rate as calculated by the TPO is Rs. 2.52 per unit. iv. It was held by the TPO that the various decisions relied upon by the assessee for considering the GSEB rate as the ALP rate have not dealt with Chapter X of the Act and hence cannot be applied. Reliance has been placed by the TPO on the decision of Hon. Calcutta High Court in the case of CIT v/s ITC Ltd. (64 taxmnn.com 214) wherein it has been held that the rate of sale is to be benchmarked using similar comparable instead of the rates of purchase. v. Therefore, the ALP rate was considered by the Ld. TPO as Rs. 2.52 per unit instead of Rs. 6.62 per unit. vi. In appeal, Ld. CIT(A) observed that the price charged by GSEB i.e. distribution company in itself embeds the price of various distribution related functions performed by it and the associated risks. Therefore, the GSEB cannot be used as a comparable for the CPP unit. Accordingly, the Ld. CIT(A) upheld the ALP determined and the adjustment made by the TPO. vii. Before us, the Ld. AR has submitted that the issue under consideration now stands covered by the decision of Hon'ble Supreme Court in the case of CIT v/s Jind....
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....is to be taken as the tested party. The TPO had correctly held that FAR of the power generating company cannot be compared with FAR of a power distribution company to determine ALP of the transaction. Therefore, the TPO correctly determined the market value of electricity @ 2.52 per unit based on the rate at which independent third party power generators supplied electricity to GUVNL. 1.4 Assessee has primarily relied upon the decision of Hon'ble Supreme Court in the case of CIT vs Jindal Steel & Power Ltd. (2023] 157 taxmann.com 207 (SC) and submitted that its cases is covered by the Jindal Steel (supra) decision. However, the decision of Hon'ble SC pertains to the period prior to the introduction of clause (ii) of Explanation to Section 80-(IA)(8) of the Act. Hence, the case of assessee cannot be said to be covered by the decision of Jindal Steel (supra). Assessee's case is squarely covered by the decision of Hon'ble Kolkata High Court in the case of CIT vs ITC Ltd. (2015) 64 taxmann.com 214 (Calcutta) 1.5 Without prejudice to the above, the Hon'ble SC in the case of Jindal Steel (supra) interpreted the expression "market value" after interpr....
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....the test of provisions of Chapter X of the Act after the amendments brought via Finance Act, 2012. The adoption of market value by assessee to determine profit of its eligible unit u/s 80(1A)(8) of the Act is to be read with provisions of Chapter-X of the Act. The provisions of SDIT were brought into TP regulations after the Hon'ble Supreme Court in the case of CIT vs M/s Glaxo Smithkline Asia (P) Ltd. observed that the profit shifting may take place towards the lower side of tax arbitrage. 2.1 To deal with situations such as the present one, where assessee try to adopt such price as market value which will shift its profits towards lower side of taxes, provisions of SDT were introduced in TP regulations. So, even if it is considered that the transaction can be benchmarked both as per clause (i) as well as clause (ii) of Explanation, then it must be seen that whether assessee is shifting its profits to lower tax arbitrage by adopting one of the favourable clauses. in this case, by adopting clause (i) of Explanation, assessee is shifting profits towards eligible units which have lower tax liabilities as compared to non eligible units. Hence, the market value adopted by ....
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..... In this regard its pertinent to refer to the Explanatory Memorandum to the Finance Bill of 2012, vide which the amendment was made. The relevant portion is reproduced below: Transfer Pricing Regulations to apply to certain domestic transactions Section 40A of the Act empowers the Assessing Officer to disallow unreasonable expenditure incurred between related parties. Further, under Chapter VI-A and section 10AA, the Assessing Officer is empowered to re-compute the income (based on fair market value) of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity. However, no specific method to determine reasonableness of expenditure or fair market value to re-compute the income in such related transactions is provided under these sections. The Supreme Court in the case of CIT Vs. Glaxo SmithKline Asia (P) Ltd., in its order has, after examining the complications which arise in cases where fair market value is to be assigned to transactions between domestic related parties, suggested that Ministry of Finance should consider appropriate provisions in law to make transfer....
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....after detailed examination of FAR. There can be no dispute on the fact that FAR of a distributor of electricity is different from the FAR of generating entity. The cost per unit charged by the distributing entity from the final customer includes remuneration as well as losses incurred by the transmission as well as distribution entities which are not present in the case of CPP. Applying this rate (charged by the GSEB) to the supply of electricity from CPP to the MU would be unfair, since the very purpose of setting up captive power plants is to have dedicated, uninterrupted and cheap access to power for the manufacturing unit. Accordingly, reasonably accurate adjustments are required to be made to the GSEB rate to account for these factors. xii. We, accordingly, deem it proper to restore the matter back to the AO for determination the ALP as per the amended provisions and in the light of above discussion. 24. Ground No. 8 : Reduction in deduction u/s 80 IA of the Act - supply of steam by eligible undertaking to non-eligible unit(s). The brief facts of the issue are as under: i. The assessee has 3 CPP units from which steam has been supplied viz. CPP at Gummi....
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....Hindalco. In fact, the quality of steam supplied from Renukoot to Hindalco itself is different at different points of time and therefore, its pricing is also different. Attention is drawn to submissions dated October 20, 2016, wherein the invoice-wise list of steam supplied by Renukoot unit to Hindalco is given. The price for low pressure steam ranges from Rs. 133 PMT to Rs. 208 PMT whereas the price for super-heated steam is Rs. 750 PMT. Therefore, as the very quality of steam supplied at the aforesaid units is different, CUP cannot be considered to be the most appropriate method, Further, when from the same location (being Renukoot) itself, the steam is supplied at different rates at different points in time, applying the average thereof to determine the price of steam supplied at different locations (being Veraval and Gummidipoondi) is misplaced. * Furthermore, when there is a difference in the price at which power is supplied by various power generation parties from the same state to Gujarat Vikas Nigam Limited [refer the table given in TPO's order - para 29 at page 28] due to inter alia, differences in the machineries and the associated fixed as well as v....
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....spectfully following the decision of the Special Bench as well as Co-ordinate bench (Mumbai) for AY 2011-12, this ground of the assessee is dismissed. 28.1 Additional Ground No. 3 : Treatment of incentives under Focus Market Scheme, Focus Product Scheme and Market Linked Product Scheme as a capital receipt and therefore not charging it to tax. i. The legal issue involved in this ground is whether the incentive received under the Focus Market Scheme ("FMS"), Focus Product Scheme ("FPS") and Market Linked Focus Product Scheme ("MLFPS"). a. Can be regarded as a capital receipt or not under normal provisions of the Act; and b. Can be excluded in computing book profits u/s 115JB of the Act. ii. The Ld. AR submitted as under: The Hon'ble High Court of Rajasthan, in the case of PCIT v. Nitin Spinners Ltd. (116 taxmann.com 26) decided the issue of subsidy under the Focus Market Scheme for the first time. The said decision is dated September 19, 2019. To the best of the knowledge of the Assessee, there was no prior decision of any High Court on incentives under the Focus Market Scheme. The SLP filed by the Department before the Hon'ble....
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....ed before us based on certain judicial pronouncements which happened subsequent to the appellate proceedings. At the same time we see merit in the argument of the Id DR that the treatment of subsidies and incentives are not uniform across all Schemes and that the various clauses, terms and conditions of the specific scheme need to be examined before applying the decisions of the Hon'ble High Courts and Tribunals to assessee's case. Since the AO has not scrutinized these issues and since the issues require factual verification, we are remitting the issues of treatment of incentives under Market Linked Focus Product Scheme, fertilizer subsidy and sales tax subsidy as capital receipt back to the AO for a denovo examination. The AO is directed to call for necessary details and keep in mind the judicial pronouncements rendered in this regard to decide in accordance with law. Needless to say that the assessee be given an opportunity of being heard" iv. Respectfully following the decision of the co-ordinate bench for AY 2011-12, the additional ground of appeal is admitted and same is restored to the AO for denovo examination and afresh decision after giving the assessee d....
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....round of appeal is admitted and same is restored to the AO for denovo examination and fresh decision. 30. Additional Ground No. 5 : Treating freight subsidy as a capital receipt and therefore not charging it to tax under normal provisions of the Act and excluding it while computing book profits u/s 115JB of the Act. i. The additional ground relates to the legal question as to whether the freight subsidy received: a. Can be regarded as a capital receipt or not under normal provisions of the Act; and b. Can be excluded in computing book profits u/s 115JB of the Act. ii. It has been submitted by the Ld. AR that the claim of freight subsidy received should not treated as a capital receipt was not available to the Assessee at the time when the return of income was filed in the year 2013. The Hon'ble Gauhati High Court, in the case of Shiv Shakti Flour Mills (P.) Ltd. v. CIT [2017] (390 ITR 346) (Gau.) decided the issue of freight subsidy being a capital receipt for the first time. The said decision is dated November 29, 2016. To the best of the knowledge of the Assessee, there was no prior decision of any Hon'ble High Court on freight subsi....
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.... the co-ordinate bench for AY 2011-12, the additional ground of appeal is admitted and same is restored to the AO for denovo examination and fresh decision. ITA No. 1885/Mum/2018 AY 2013-14 [Revenue's Appeal] : - 32. Ground No. 1 to 4 : Disallowance u/s 14A by restricting the disallowance. i. These have been clubbed and decided along with ground No. 1 of assessee's ground of appeal vide Paras 6 to 12 hereinbefore. 33. Ground No. 5 & 6 : Deletion of disallowance made u/s 40(a)(ia) of the Act- Expenses on year-end provisions. i. Brief facts are that the year-end provisions amounting to Rs. 1,66,69,505/- were made, since the parties were not identified in some cases and the bills had not been raised by the parties. The assessee claimed that it was not the "person responsible for paying sums" to the parties and consequently, no liability arose on the assessee to deduct tax at source on such amounts. ii. The AO held that since TDS has not been deducted on the yearend provisions, disallowance is required to be made u/s. 40(a)(ia) of the Act. iii. The AO further observed that the provision for expenses was made on an estimated basis pending rec....
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....g book profits u/s 115JB of the Act - Expenses on year provisions. i. Ld. AR has submitted before us that if the disallowance u/s 40(a)(ia) is itself deleted, the question of addition of the said disallowance while computing book profits u/s 115JB of the Act would not arise. ii. Accordingly, the Ld. CIT(A)"s decision of deleting the addition u/s 115JB is upheld. 36. Ground No. 8-9 : Deletion of adjustment of CENVAT on valuation of stock. i. Brief facts are that the assessee has not included the Cenvat credit in valuation of closing stock of raw materials since the same is not debited to the purchases but maintained in a separate account. ii. The AO observed that similar disallowance/addition was made to the closing stock of AY 2011-12. Based thereon, addition has been made in the captioned assessment year. iii. The facts of this issue are identical as compared to earlier years. Ld. CIT(A), following his decision in AY 2012-13 and also the fact that the first appellate authority had deleted the addition on this issue from AY 2005-06 to AY 2011-12 based on the decision of the Hon'ble Supreme Court in the case of CIT v/s Indo-Nippon Chem....
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....the identical facts and following the Tribunal decision in assessee's own case for AY 2002-03 to AY 2008-09, the disallowance was deleted. vi. After hearing both the parties, we have noted that this issue is covered by assessee's own case in AY 2011-12 in ITA No. 1065/Mum/2017 and ITA No. 1248/Mum/2017 (Mum. Trib.) wherein it has been held as under: "58. Ground No. 7 is with regard to the deletion of disallowance made by the AO towards provision made for leave salary/compensated absence. We noticed that the issue is covered by the decision of the co-ordinate bench in assessee's own case for AY 2010-11 where it is held that "30. We observed that that the Co-ordinate Bench of the Tribunal while deciding the appeal of the assessee for assessment year 2008-09 decided the issue on merits in turn by placing reliance on Tribunal order for A.Y. 2008- 09. The Tribunal allowed relief to the assessee by following the decision of the Hon'ble Apex Court in the case of Bharat Earth Movers CIT reported as 245 ITR 428(SC). Dehors the issue of constitutional validity of clause(f) to section 43B of the Act, the Co-ordinate Bench after considering the issue on merit....
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....d decided as under: "5 We have heard rival submissions. We find that this issue is already covered in favour of the assessee by the orders of this Tribunal from A.Yrs 2003-04 to 2008-09. We also find that for A.Y. 2006-07, the revenue had carried this matter to the Hon'ble Jurisdictional High Court and the Hon'ble Jurisdictional High Court in Income Tax Appeal No. 433/2015 dated 15/01/2018 had held that the question raised by the revenue does not give rise to any substantial question of law and accordingly, did not entertain the same. This goes to prove that the order passed by this Tribunal on the impugned issue had attained finality. Respectfully following the same, the ground No. 4 raised by the assessee is allowed." Respectfully following the decision of the co-ordinate bench for earlier years, ground No. 12 & 13 are hereby rejected. 39. Ground No. 14 &15 : Allowance of payment of employees' children school fees as expenditure u/s 37 of the Act. i. Facts related to this issue are that the assessee has incurred expenditure amounting to Rs. 14,47,322/- on Indian Rayon School at Veraval where children of Assessee's employees are s....
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....nditure was allowable as revenue expenditure under section 37(1). CIT(A) however following the decision in Assessment year 1994-95 confirmed the disallowance. Aggrieved by the said decision the assessee is in appeal 2.9.1 We have heard both the parties in the matter. We find that the same issue had been considered by the Tribunal in assessee's own case in assessment year 1991 95 in ITA No. 2320/M/2007 In that year also disallowance had been made under section 40A(9) in respect of payments made to Indrayan School. The tribunal however following the decision in A.Y. 199291 and 1993-94 allowed the claim. Facts this year are identical. Therefore following the decision of the tribunal supra we set aside the order of CIT(A) and allow the claim of the assessee" 19 Therefore, respectfully following the order of the Tribunal in assessee's own case for Assessment Year 1995-96, we allow the claim of the assessee for the year under consideration also". 37. Since the issue is identical, we, therefore, respectfully following the decisions of the coordinate Benches in assessee's own case, sustain the order of the CIT(A). 38. Grounds No. 1 & 2 are re....
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....39;ble Jurisdictional High Court in the case of PCIT vs. Godrej Industries (supra) allowed the claim of the assessee. 9.1 The ld. Departmental Representative has not been able to controvert the findings of Co-ordinate Bench of the Tribunal on this issue in assessee's own case. We find no reason to take a different view, hence, following the decision of the Tribunal in assessee's own case in the immediately preceding assessment year, ground No. 3 of the appeal is allowed. iv. Respectfully following the decision of the co-ordinate bench, ground No. 16 & 17 are hereby rejected. 41. Ground No. 18-19 : Allowance of ESOP Expenses: i. Brief facts of the issue are that the assessee has claimed ESOP expenses and debited to the P&L account amounting to Rs. 29,56,045/-. The said amount has been recognized as an expense as per the relevant SEBI Guidelines being the difference between the market price and the price at which the option is exercised by the employees. ii. The AO noted that the notional loss as per SEBI guidelines is not allowable u/s 37. Hence, the deduction of Rs. 29,56,045/- claimed on account of ESOP was disallowed. iii. T....
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....ce the catalyst was in the nature of consumables, the expenditure incurred thereon was claimed as business expense. ii. The Ld. AO disallowed the expense and allowed normal depreciation at the rate of 15% on the same. The Id. AO further disallowed the assessee's claim of additional depreciation u/s 32(1)(iia) on the ground that it has "merely replaced certain serviceable parts which cannot be said to be a new plant and machinery for purposes of section 32(2)(iia)" iii. The Ld. CIT(A) held that the catalyst is only a part of the plant and is replaced for restoring the efficiency of the plant. Since the Ld. AO also accepts that these are only replacement of serviceable parts, the same is to be allowed as a revenue expenditure and hence, disallowance by the Ld. AO was deleted. iv. Before us, the Ld. AR submitted that this issue is also covered by assessee's own case in AY 2011-12 in ITA No. 1065/Mum/2017 and ITA No. 1248/Mum/2017 (Mum.Trib.) wherein it has been held as under: "66. While contending the issue of CIT(A) deleting the addition made towards expenditure on account of catalyst deployed in plant through Ground No. 11, the Id DR fairly co....
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....he purpose of taxation, it was being claimed as expense. Capitalisation was done on the basis of binding directives of ICAI Many of the spares were procured as back as 1986 but capitalized now because of the change in the accounting standards. The assessee relying on the decision of the Hon'ble Supreme Court in the case of Kedarmath Jute Mfg. Co. Ltd., v. Commissioner of Income-tax (1971) 82 ITR 363, contended that entries in the books of account cannot be decisive or conclusive, for determining the taxability of income. The assessee contended in the light of the decision of the jurisdictional High Court in the case of Anil Bulk Carriers P. Ltd. v. Commissioner of Income tax(2005) 276 ITR 625 and in the case of Commissioner of Income tax v. Swarup Vegetable Products India Ltd.. (2005) 277 ITR 60, on the subject to depreciation in the value due to passage of time is to be recognized. 21. Coming to the objection of the revenue that spares and catalysts were carried forward from year to year and by the year 2002-03, it had lost its commercial value and therefore, the claim was without merit. The learned AR's submission that the capitalization was done by the assessee ....
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....reason for this claim now made is the amalgamation of IGFL with Aditya Birla Muva Ltd., and the loss is passed on to the amalgamated company. We are unable to subscribe to the view canvassed by the revenue that whether the collaboration took place in this year or not, the fact that the accounting standard was changed by the ICAl during the year is not disputed. 23. We find that on a similar issue which was agitated before the Cuttack bench of the Tribunal in the case of National Aluminium Co. Ltd., (supra) the Tribunal held that the valuation taken of obsolescence loss at 20% of the historical cost cannot be said to be without any basis not it is improper. Consequentially, the claim of the assessee after three years, the Tribunal held, is to be allowed. The same decision on principle is applicable in the instant case of the assessee as well. The assessee capitalized these items on account of the change in the accounting standard prescribed by the ICAI. The objection by the revenue that the assessee should have claimed it in the earlier years, or the basis for claiming this during the year under consideration is because the assessee started making profit for the first time ....
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.... international markets. The benefit of TUFS is only conferred to the eligible industry which invests in certain specified assets using funds borrowed from certain banks/financial institutions and out of interest paid on such borrowed funds, 5% is refunded by the Government. ii. It was held by the AO that the subsidy reduced the interest cost and thus, there is reduction in the production cost of the assessee. Consequently, there is an increase in profits and, therefore, the subsidy is a taxable revenue receipt. iii. In appeal, the Ld. CIT(A) following the decision of his predecessor in AY 2012-13 has deleted the disallowance made by the AO. iv. Before us, Ld. AR has submitted that this issue is covered by assessee's own case in AY 2011-12 in ITA No. 1065/Mum/2017 and ITA No. 1248/Mum/2017 (Mum. Trib.) v. We have perused the order of AY 2011-12 of the Co-ordinate bench on this issue wherein it has been held as under: "72. Revenue is contending the direction of the CIT(A) to treat interest subsidy from TUF as capital in nature through Ground No. 14. Both the parties conceded that the issue is covered by the decision of the coordinate bench....
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....ted. Assessee Company had a co-generation power plant called as "Rayon CPP-2" which was set up to supply electricity to its manufacturing plant involved in the manufacturing of Viscose Filament Yarn, Caustic Soda and other chemicals. The said captive power plant has generated and supplied power to other manufacturing units of Rayon plant for the captive consumption and have not supplied to any third parties. It is also a matter of fact that Rayon plant of the assessee company had also purchased electricity from Gujarat Urja Vidut Nigam Limited (GUVNL) which is a nodal agency of Gujarat State Government for distribution of power in Gujarat, (herein referred to as GSEB). The assessee company had computed the transfer pricing rate adopting the same methodology as done in the earlier year, i.e. fixed cost, variable cost and applicable electricity duty as charged by the GSEB to the assessee company. The assessee in Form 10CCB alongwith audited financial statements of the power plants had given the details of electricity transferred by the Captive Power Plant (Rayon CPP-2) to other manufacturing units and details of electricity purchased from GSEB during the financial year alongwith othe....
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....rt in the case of CIT vs. Glaxo Smithkline Asia (P) Ltd reported in 195 Taxman 35 wherein due to the observation made by the Hon'ble Supreme Court, the SDT provision was brought to extend the application of transfer pricing provision to domestic transactions. Thus, tested party in the case of SDT has to be the person performing the economic activity which is entitled for exemption, i.e., power generating company and not the units which are power consuming. Accordingly he treated Captive Power Unit as tested party to benchmark the ALP under CUP Methodology. Thereafter, ld. TPO issued notice u/s. 133(6) to seek the information from Gujarat State Electricity Board to furnish the rates at which it has brought the power from power generating companies and found that the rate of purchasing power for generating companies was Rs. 3.92 per unit with Dakshin Gujarat VIJ Company Limited (DGVCL) and 0.96 per unit with TANGEDCO. Before the ld. TPO, assessee had relied upon various judgments including that of Addl. CIT vs. Jindal Steel & Power Ltd. (2007) 16 SOT 509 (Delhi ITAT) and further stated that when internal and external CUP are available, then preference has to be given to internal CUP.....
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....der the grid rate for benchmarking the captive supply of power at Veraval." 6. The ld. TPO rejected the aforesaid contention relying upon the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. ITC Ltd. reported in 236 taxman.com 614 and reproduced the relevant paragraphs of the said judgment and held that the Hon'ble High Court has held that the rate at which electricity was purchased from Andhra Pradesh State Electricity Board by the paper unit of the assessee by no means is the market rate at which the power plant of the assessee could have sold its production in the open market. He also observed that the Hon'ble Calcutta High Court has considered the amended Explanation to Section 80IA(8) while rendering the above decision i.e. when the provision of SDT was brought. Accordingly, he made the adjustment in the following manner:- "In view of the facts of the case and also considering the decision of the Hon'ble Kolkata High Court and the Safe Harbour Rules specified above, rate charged by similar generating companies for supply of power to the distribution company is considered as the market value of the power sold by it to its AE. In this regard, th....
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....0(IA) linking the "market value to arm's length price for specified domestic transactions then, it is mandatory that, after 01/04/2013 the fair market value or the market value has to be determined under Chapter X of the Act, i.e., under the transfer pricing provisions only. Prior to the amendment, the market value would be that goods and services would ordinarily fetch in the open markets which was provided under clause (i); but now, post amendment after 01/04/2013 it has to be under clause (ii); and therefore the judgment of the Hon'ble Supreme Court in Jindal Steel and Power Ltd. would not apply after the introduction of SDT w.e.f. 01/04/2013. Ld. AM has also referred to the Explanatory Memorandum to the Finance Bill of 2012 to hold that now if there is any SDT then ALP has to be determined as per the provision of 92BA/ 92 CA and held that assessee's contention that rate of Rs. 6.62 per unit which is the price at which power is supplied by GSEB cannot be considered as "market price". It has been further held that the FAR of a distributor of electricity is different from the FAR of generating unit and therefore, the cost per unit charged by the distributing entity from the final ....
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....lanation- For the purposes of this sub-section, "market value", in relation to any goods or services, means- (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. 12. Ergo, the aforesaid provision provides that goods and services provided by the eligible business which is being transferred to other business carried on by the assessee has to correspond to the market value of such goods as on the date of the transfer. The Explanation provides the scope and the meaning of the "market value" in relation to any goods and services and has provided two manners to determine; * Firstly, the price that such goods or services would ordinarily fetch in the open market; and then the phrase "or" has been used; * Secondly, the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to section 92BA. The first clause gives the option of determini....
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....uld ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F(ii), where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. The word "or" dividing two clauses under the Explanation to Section 80IA clearly indicates the intention of the legislature is to give an option to the person entitled to claim deduction u/s. 80IA(8) to chose either which is more beneficial or if one of the mechanism fails then market value can be determined under the second option. For instance, if there are certain unique services which have been transferred or any unique goods or goods produced with patented IPR or intangibles where the market rate which can ordinarily fetch in the open market is not available, or where market value is not available in the open market, then market value has to be determined in terms of Sub-Clause (ii). If such option is not available then AO cannot ascertain the market value of goods and services. However, if market value is available on such goods and services which are available in the open market, then same can be adopted for the purpose of Section 80IA(8). 15. ....
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....undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Explanation. - For the purposes of this sub-section, the expression "market value",- (i) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (ii) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any.] (iii) in relation to any goods or services sold, supplied or acquired means the arm's length price as def....
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....on and the opinion is accepted, then under all the transactions which are covered u/s. 80IA(8) would compulsorily be determined as per transfer pricing provision as all the transactions falling u/s. 80IA(8) will be specified domestic transactions only. If that is the only opinion which is to be upheld, then, ostensibly the entire exercise of ld. TPO is justified, that is, the whole process of determining, who is the tested party, what should be the FAR analysis of the tested party vis-à-vis the comparables under uncontrolled transactions and whether particularly in this case the price charged by the distribution entity can be said to be arm's length price or the comparable has to be from the entities which are generating power, which here in this case one comparable has been chosen i.e. M/s. Torrent Power Ltd. (TPL). In our opinion it will be too myopic view to give an interpretation that all the transaction covered u/s. 80IA(8) has to be compulsorily determined under transfer pricing provision, cannot be accepted. Because, the statute has clearly provided two options or two manner in which market value of the goods and services can be determined. The phrase "or" does not gi....
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....nit for the sale of electricity to another unit can be benchmarked with the price on which GEB is supplying to the customers. From the records, it is seen that the manufacturing unit of the assessee also buys electricity from GEB at the same price of Rs. 6.90/- per unit and the same price is being paid to the eligible unit also. The case of the department is that since assessee is generating electricity and supplying it to the manufacturing unit, therefore, functionally it is similar to entities which are generating electricity and not which are into distribution of electricity. What is required to be seen u/s. 80IA (8) is that, where any goods or services provided by the eligible business or transfer to any other business carried on by the assessee, the same should correspond to market value of such goods and services. The market value has to be seen qua the price in which such goods or services would ordinarily be fetched in the open market, i.e., whether in the open market the price of such goods and services are available or not? Here assessee is a captive service provider for generating electricity and to supply and distribute to the manufacturing unit which otherwise would ha....
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....'ble Supreme Court reads as under:- 6. In order to reduce litigation, we are of the view that certain provisions of the Act, like section 40A(2) and section 80-IA(10), need to be amended empowering the Assessing Officer to make adjustments to the income declared by the assessee having regard to the fair market value of the transactions between the related parties. The Assessing Officer may thereafter apply any of the generally accepted methods of determination of arm's length price, Including the methods provided under Transfer Pricing Regulations. However, in a number of matters, we find that, many a times, the Assessing Officer is constrained by non-maintenance of relevant documents by the taxpayers as, currently, there is no specific requirement for maintenance of documents or getting specific transfer pricing audit done by the taxpayers in respect of domestic transactions between the related parties The suggestions which need consideration are whether the law should be amended to make it compulsory for the taxpayer to maintain books of account and other documents on the lines prescribed under rule 10D of the Income-tax Rules in respect of such domestic transactions....
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.... the Revenue and its reliance of Clause (ii) to Explanation to Section 80IA stands jettisoned by the findings of the Hon'ble Court's decision in the Jindal Steel & Power Ltd. While holding that the price at which electricity sold to SEBs should be taken as market value, the Hon'ble Supreme Court has defined the phrase "open market" in the following manner:- 23. This brings to the fore as to what do we mean by the expression "open market" which is expression not defined. 24. Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80-1A would mean the price of such goods determined in an environment of ....
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....to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Beard 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." 25. Having observed so, thereafter the Hon'ble Court further opined and held that 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 Electricity Board and in such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers and accordingly, the Hon'ble Supreme Court held as under:....
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....tions 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 deduction under section 80-IA of the Act 26. Thus, the Hon'ble Supreme Court has clearly held that power supplied by the SEBs to the industrial consumers should be construed to be the market value of electricity and the market value of the power supplied by the SEB to the industrial con....
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....ejudice even under the transfer pricing provision, the market value has to be determined as per the arm's length price by adopting appropriate method. The assessee has adopted CUP for comparing the price at which electricity is available in the open market. Under the CUP method, what is relevant is the price charged or paid for the goods or services provided in comparable uncontrolled transaction. Thus, the benchmarking of the comparable uncontrolled transaction has to be found for establishing the comparability under the CUP method. If there is direct CUP, i.e., the price on which electricity is sold in the open market in an uncontrolled transaction, then same is to be taken as the market price or arm's length price. What TPO has done he has taken Captive Power Unit as tested party and then called for the average rate of supply of power on which power manufacturing companies were supplying the power to SEBs to arrive at the ALP or market price, because CPU is also manufacturing power. First of all, under the CUP method it is not necessary to see who the "tested party" is or identify the tested party. What is to be seen is that the person buying the goods or services from related a....
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....o enterprises shall be deemed to be associated enterprises if, at any time during the previous year,- ------------------------------------ (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or 31. Thus, if the prices and other conditions are influenced by such other enterprise, here in this case SEBs influencing prices upon the power manufacturing entities, then under terms of Section 92(2)(i) the manufacturing companies and the SEB fall in the category of AE and in that scenario it is a related party transaction and tainted transaction and accordingly, price of which electricity is given by the manufacturing unit to State Electricity Board cannot be benchmarked under the CUP as done by the ld. TPO. If methodology adopted by the TPO is accepted that only power manufacturing entities are to be taken as comparable then it does fall under category of uncontrolled transaction to carry out comparability analysis, because they cannot sell to outside parties and are com....
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.... compulsorily determined in accordance with the arm's length principle under Specified Domestic Transaction (SDT) referred to Section 92BA, Le, under Clause (ii) and market value, henceforth cannot be determined under Clause (1). iii. Whether, after the insertion of Clause (ii) to Explanation in Section 80IA(8) ... 01/04/2013, the principles and ratio of the Judgment of the Hon'ble Supreme Court in the case of CIT vs. Jindal Steel and Power Ltd., reported in 468 ITR 162 is no longer applicable as it pertained to 'market value' as defined in earlier clause corresponding to clause (il and accordingly, the market value has to be determined in terms of arm's length principle provided from Section 92 to 92F iv. Whether, even under the SDT while determining the arm's length price, can the price at which State Electricity Board (SEBs) or Power Distribution Companies purchases the power from power manufacturing entities should be taken as Comparable Uncontrolled Price (CUP) to benchmark the ALP of the purchase price of power from eligible captive power unit or are these entities not deemed AE u/s. 92B(2)(i) as prices and other conditions are influe....
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....ower to the Rayon Plant fell within the ambit of SDT in terms with section 92BA of the Act, the assessee undertook transfer pricing analysis to benchmark the transaction. In this context, the assessee noted that the Rayon Plant had also purchased electricity from Gujarat Urja Vidut Nigam Limited (GUVNL), which is the nodal agency of Gujarat State Government for distribution of power in Gujarat. Adopting the cost of Rs. 6.62 per unit at which GUVNL had supplied power to the Rayon Plant, as Comparable Uncontrolled Price (CUP) in terms with Rule 10B(1)(a) and applying such CUP to the SDT of supply of electricity by CPP to the Rayon Plant, the assessee worked out the ALP of the transaction and the CPP being the eligible unit u/s. 80IA of the Act, claimed such income arising from supply of power amounting to Rs. 92,61,75,506/- as deduction u/s. 80IA of the Act. 5. The return of income filed by the assessee for the impugned assessment year was picked up for scrutiny and in course of assessment proceeding, the A.O. being of the view that the ALP of the SDT requires to be examined by the Transfer Pricing Officer (TPO) made a reference u/s. 92CA of the Act. 6. While examining the issu....
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....e Act, without any reduction in the quantum. 9. Before me, Shri Saurabh Soparkar, learned counsel appearing for the assessee submitted that the CPP has generated and supplied power only to assessee's manufacturing unit Rayon Plant (related party) for captive consumption. He submitted, no sale of power has been made by the CPP to any third party. He submitted, in the year under consideration, to meet its requirements, Rayon Plant had also purchased power from GUVNL at an average rate of Rs. 6.62 per unit. He submitted, sale/supply of power by the CPP to the Rayon Plant being a SDT within the meaning of Section 92BA of the Act, a transfer pricing analysis was undertaken to ascertain the ALP of the transaction. He submitted, the Rayon Plant, being the manufacturing unit, was considered as the tested party and the rate at which the Rayon plant purchased electricity from GUVNL was treated as internal CUP available for benchmarking the transaction of sales/supply of electricity by CPP to Rayon Plant at average rate of Rs. 6.62 per unit. He submitted, the TPO rejected the transfer pricing analysis by the assessee on the ground that the CPP does not perform distribution functions as com....
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....rinciples. He submitted, Section 62 of the Electricity Act empowers the Regulatory Commission to determine the tariff (i) for supply of electricity by generating company to a distribution licensees (ii) transmission of electricity (iii) wheeling of electricity (iv) retail sale of electricity. He submitted, Section 86 of the Electricity Act sets out the functions of State Electricity Regulatory Commission. He submitted, as per Section 86(1)(a) of the Act, the State Commission has authority to determine the tariff for generation, supply, transmission and wheeling of electricity on wholesale, bulk, or retail, as the case may be, within the State. However, in so far as open access for certain category of persons in terms of Section 42 of the Electricity Act, the commission shall determine only the wheeling charges and surcharge if any. He submitted, Section 86(1)(b) authorizes the state commission to regulate electricity purchase and procurement process of distribution license fees, including price at which electricity shall be procured from the generating companies or license fees or from other sources through agreement for purchase of power for distribution and supply within the stat....
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.... the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could 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 electricit....
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....ower was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the 43 concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is de....
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....ion 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 Madhya Pradesh to supply surplus el....
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....n could 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 cont....
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.... purposes of Sub-section (8) of Section 80IA of the Act." 15. He submitted, in case of "CIT Vs. Reliance Industries Ltd." [2019] 102 Taxmann.com 372, the Hon'ble Bombay High Court after taking note of the decisions of Hon'ble Chhattisgarh High Court in the case of CIT vs. Godavari Power and Ispat Ltd.[2014] 42 Taxmann.com 551 and Hon'ble Gujarat High Court in case of CIT Vs. Gujarat Alkalies and Chemicals Ltd. 395 ITR 247. [2017] 395 ITR 247 has held that the market value of power supplied by the captive power plant to the manufacturing unit should be the cost at which the manufacturing units/industrial consumers purchase power from SEB/distribution company. He further submitted, in the aforesaid judgment the Hon'ble Bombay High Court did not agree with the view expressed by the Hon'ble Kolkata High Court in the case of CIT vs. ITC Ltd. (supra) relied upon by the Department. He submitted, in case of various other assessees the coordinate Benches of the Tribunal, after taking note of the amended provisions Section 80IA(8) and Section 80A(6) of the Act have held that the ALP/market value of electricity/power supplied by the CPP to manufacturing unit would be the cost at which the ....
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...., 2003 and Section 80A(6) of the Act. He submitted, in terms with Electricity Act, 2003, the regulatory commission determines and regulates the price of electricity sold by the generating company to the distribution licensee as well as by the distribution licensee to the end consumer. He submitted, even Rule 10B(2)(b) which provides for determination of ALP and difference in the FAR analysis between a power generator and distribution licensee has to be accounted for. He submitted, while learned Accountant Member has taken note of such difference in FAR analysis, learned Judicial Member has not disputed it. He submitted, decisions cited by learned counsel for the assessee are sub silentio on this aspect. He submitted, since the decisions cited on behalf of the assessee have not taken note of Section 80A(6) of the Act, they cannot be applied. 18. In this context, learned Departmental Representative (DR) relied upon the following decisions: i. Delhi Transport Corporation vs. Vidyawati and others [2009] ILR 4 Delhi 546. ii. Nalini Mahajan vs. Director of Income Tax [2002] 257 ITR 123 (Delhi). iii. Shinhan Bank vs. DDIT (IT) [2022] 139 Taxmann.com 563 (Mum-....
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.... apply only to Sections 92, 92B, 92C, 92D and 92E of the Act. He submitted, concept of AE in Section 92A does not apply to SDT in Section 92BA of the Act. Hence, the view expressed by learned Judicial Member may not be the correct view. He submitted, in case of Sanghi Industries Ltd. vs. DCIT, ITA(TP) No. 104/Hyd/2022 dated 23.01.2025, the Tribunal, after examining Clause-(ii) under explanation to Section 80IA(8) has upheld the stand of Revenue that the rate at which electricity is sold by a power generating company to the State Electricity Board shall be the ALP of the transaction between the CPP and the manufacturing unit. He submitted, since as per Rule 10B(2)(b) of the Act FAR analysis has to be made, the functions performed, assets employed and risk undertaken by a power generating company being totally different to a power distributing company, the price at which power is sold by a power distributing company cannot be taken as the ALP in case of power sold by a power generating company. He submitted, even as per Rule 10B(2)(d), while comparing a SDT with uncontrolled transaction, the Government laws and order in force needs to be taken into consideration. Thus, he submitted, ....
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.... with provisions of Electricity Act, learned counsel submitted, this issue has been specifically addressed in case of PCIT vs. DCM Shriram [2025] 170 taxmann.com 631 (Delhi HC), wherein, the Hon'ble Court has held, though, the tariff charged by distribution company to the industrial consumers are regulatory tariff however there is a degree of similarity between supply of electricity by SEB to the industrial consumer and the supply of electricity by CPP to the manufacturing unit. 24. With regard to contention of learned DR that even the transaction between the SEB/distribution company with the consumer is a controlled transaction as the tariff is regulated by the tariff regulatory commission, learned counsel submitted that as per the decision of the Coordinate Bench in case of Star Paper Mills vs. DCIT (Supra) the fact that the rate at which SEB supplies power to consumer is fixed by regulatory authority is of no consequence as it is not a case that the rate has been fixed only for the assessee. Rather, the SEB/ distribution company supplies power at the same tariff to all industrial consumers similar to the assessee within the same State, which thus represents the prevailing mar....
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....dispute between the assessee and the department that the transaction relating to sale/purchase of power between CPP-2 and Rayon Plant qualifies as SDT u/s. 92BA of the Act. Even, the assessee had undertaken a benchmarking analysis of the SDT. Since, in the year under consideration, the Rayon Plant had also purchased power from a State owned distribution licensee at Rs. 6.62 per unit, the said rate has been applied as CUP to determine the ALP of the sale of power by CPP to Rayon Plant. 28. However, according to the TPO, the distribution licensee being functionally different from a power generating entity, the price charged by it cannot be compared to the price charged by a power generating company. Thus, the TPO has applied the per unit rate of Rs. 2.52/- at which the distribution licensee purchases power from power generation companies. Thus, the issue arising for consideration is-what should be the ALP of sale/supply of power by CPP to Rayon Plant?". 29. Before I proceed to deal with the issue, it needs to be mentioned that if one looks at the legislative history of sub section (8) of section 80IA of the Act, it can be seen, initially, as per the said provision where any goo....
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....tion 92F of the Act in respect of SDT. Section 92F(ii) of the Act defines ALP as under: Definitions of certain terms relevant to computation of arm's length price, etc. 92F. In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,- (i) ......... (ii) "arm's length price" means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions; 32. The definition of ALP, as reproduced above, speaks of two conditions. Firstly, the transaction must be between two unrelated parties and secondly, such transaction must be in uncontrolled conditions. In the facts of the present appeal, undisputedly, the Rayon Plant has purchased power from the distribution licensee at Rs. 6.62 per unit. The assessee has applied the said price as CUP to benchmark the sale of power by CPP to Rayon plant. At this stage, it needs to be noted that section 92C of the Act prescribes the method for computation of ALP. Whereas, Rule 10B prescribes the mode and manner of computation of ALP under different methods. Undisputedly, the assessee has applied CUP method to....
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....d to operate and maintain a distribution system for supplying electricity to the consumers in his area of supply. "Distribution system" has been defined u/s. 2(19) of Electricity Act to mean the system of wires and associated facilities between the delivery points on the transmission lines or the generating station connection and the point of connection to the installation of the consumers. Section 7 of the Electricity Act provides that any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73. Whereas, section 8 of Electricity Act provides for Hydro-electric generation which can only be set up with concurrence of the competent authority and must involve capital expenditure exceeding the limit as may be fixed by the Central Government through Notification. Section 9 of the Electricity Act provides that notwithstanding anything contained in the Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines. The said provision provides that where the sup....
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....he distribution licensees, are fettered with various rules/regulations/control under the provisions of the Electricity Act, the captive power generation plants have been purposefully kept out of all such control and regulatory measures. In terms with section 9 of the Electricity Act, 2003, the captive power plants have been given the right of open access for carrying electricity from the captive generating plant to the destination for own use, of course, only on payment of wheeling charge. In other words, the provisions under the Electricity Act make it clear that the similarity between a power generating plant and captive power plant is only to the limited extent of generation of power and the similarity ends there. Under the Electricity Act itself captive power generating plant is treated differently than a generating company. That being the position under the Electricity Act, by no stretch of imagination functions performed, assets employed and risk undertaken by a power generating company which sales/supplies power to a distribution licensee for ultimate supply/sale of power to the consumers cannot be equated with a small captive generation plant. Rule 10B(2) prescribes the ....
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....ory or regulatory consideration, if any, has to be considered. Referring to clause (iii) of Explanation u/s. 80A(6) of the Act, he has further submitted that in respect of SDT, the ALP in terms with section 92F(ii) will apply. Thus, according to him, clause (i) and (iii) to Explanation u/s. 80A(6) of the Act, being provisions having overriding effect, would get precedence over any other provisions under the Act, including Explanation u/s. 80IA(8) of the Act. 37. On carefully going through the provisions contained u/s. 80IA(8) and 80A(6) of the Act, in my understanding, there is no conflict between them. As discussed earlier, w.e.f. 01.04.2013 the earlier Explanation u/s. 80IA(8) of the Act was substituted by a new Explanation, where under, the only new addition is clause (ii), which substitutes the market value under clause (i) with ALP as per section 92F(ii) qua SDT. Simultaneously, w.e.f. 01.04.2013, clause (iii) to Explanation u/s. 80A(6) of the Act was introduced which is more or less parimateria to clause (ii) to Explanation u/s. 80A(8) of the Act. Clause (iii) to Explanation u/s. 80A(6) and clause (ii) to Explanation u/s. 80IA(8) of the Act were introduced simultaneously o....
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.... 56. Undoubtedly, there is a degree of similarity between the transaction of supply of electricity by SEBs to the assessee and the supply of electricity by the Assessee's eligible units. However, there is a difference between the transactions being benchmarked, which is supply of electricity 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 transaction for reasonably determining the ALP by using the CUP method. 40. Though, Hon'ble Delhi High Court acknowledged the fact that the tariff charged by distribution companies are regulated, however, the Hon'ble High Court has held that there being sufficient degree of similarity between the two transactions it can be taken as CUP for determining ALP. More so, when the rate at which the distribution licensee supplies poweris not exclusively fixed for a particular consumer but is applicable to a large segment of consumers. It will be relevant to observe, the aforesaid judgment o....
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.... the factual position the Arm's Length Price cannot be determined by taking the average market rates of power supply units to distribution companies as the assessee is not in the business of selling power to distribution companies. Therefore, the Arm's Length Price has to be determined bearing in mind the reason behind establishment of the CPPs namely to ensure uninterrupted power and to save on cost of electricity which otherwise has to be paid to the State Electricity Board. 15. At this juncture, it would be relevant to take note of the Electricity Act, 2003. Section 2(8) of the Act defines "Captive Generating Plant" to mean a power plant set up by any person to generate electricity primarily for its own use and includes its power plant set up by any cooperative society or association of persons for generating electricity primarily for use of members of such cooperative society or association. Section 9 of the Act deals with Captive Generation. Subsection 1 of Section 9 commences with a non obstante clause and states that notwithstanding anything contained in the Electricity Act, 2003, a person may construct, maintain or operate a Captive Generating Plant and ded....
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....held that where the assessee company, engaged in business of manufacturing and sale of paper, had set up Captive Power Plant (CPP) to meet its requirements of its paper manufacturing units which also availed power from State Electricity Board, the said transaction being in nature of specified domestic transaction, transfer price of power supplied by CPP was to be bench marked at annual average of landed cost at which power was being purchased by manufacturing units from State Electricity Board. The revenue carried the matter on appeal before this court and the appeal filed by the revenue was dismissed and the said decision is reported in (2025) 172 taxman.com 391 (Kolkata). In the said appeal, the following two substantial questions of law were taken up for consideration:- "(a) WHETHER in facts of the case and in law, the Hon'ble ITAT is justified upholding the internal CUP applied by the assessee to benchmark the transaction (sale of power) to its AE, as well as computation of deduction under section 80-IA of the Act, whereas as per explanation to section 80-IA(8) of the Act, "market value" in relation to any goods or services, means (a) the price that such goods or s....
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....23 and the Hon'ble Supreme Court held as follows:- "28. Thus, the market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier, i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80IA 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 sinc....
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.... can be considered as the market value. The learned DR has forcefully submitted that the decision of Hon'ble Supreme Court having been rendered prior to the amendment to section 80IA(8) of the Act and having not been rendered in the context of Explanation u/s. 80A(6) of the Act, will not apply. The learned DR has further submitted that the decision of Hon'ble Delhi High Court in case of DCM Shriram Ltd. (supra) and other decisions having not taken note of the overriding effect of section 80A(6) of the Act, are per incuriam and aresub-silentio on the issue of applicability of section 80IA(6) of the Act and hence, will not constitute binding precedents. In my considered opinion, such contention of learned DR is unacceptable for the simple reason that ITAT being at a lower level in the judicial hierarchy than High Courts, does not have the power or competence to question the correctness of a judgment rendered by Hon'ble High Court or declare it as per incuriam. The correctness or otherwise of a judgment of Hon'ble High Court can be tested by an aggrieved party before the highest court and not before the Tribunal. 45. At this stage, I must observe, learned DR has hea....
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.... concerned Division Bench to pass the concerned order as per majority view. 17-11-2025 For the Appellant : Shri Yogesh Thar a/w. Shri Riken Shah & Ms. Sukanya Jayaram For the Respondent : Shri Himanshu Joshi, Sr. DR ORDER PER AMIT SHUKLA (J.M): These cross appeals were earlier disposed of by two separate orders, one passed by the learned Accountant Member and the other by the learned Judicial Member. A difference arose only on Ground No. 7 relating to the determination of fair market value for captive transfer of electricity for the purpose of computing deduction under section 80 IA. In view of this divergence, the matter was placed before the Hon'ble President under section 255(4) of the Act. The points of difference were thereafter referred to the Hon'ble Third Member for resolution. The Hon'ble Third Member has now rendered his detailed opinion, and the appeals have been placed before us to pass the consequential confirmatory order that must follow the majority view. 2. At the outset, it deserves to be recorded without any ambiguity that except for Ground No. 7 there was no disagreement between the learned Members. The learned Judicial Member concurred entir....
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....ence of opinion. 5. After considering all relevant material, the Hon'ble Third Member expressed his conclusions in paragraph 46 of his order. Paragraph 46 forms the fulcrum of the majority view, and for completeness it is necessary to incorporate and discuss it fully in this confirmatory order. The Hon'ble Third Member held as follows:- "46. Upon considering the overall facts and circumstances of the case in the light of the judicial precedents cited before me, I am of the considered opinion that the price at which the assessee purchased power from the distribution licensee GUVNL can be applied as a valid CUP for determining the arm's length price of sale or supply of power by the captive power plant to the Rayon Plant. In other words, the price of Rs 6.62 per unit charged by the captive power plant to the Rayon Plant can be considered as the arm's length value of power supplied by the captive power plant to the Rayon Plant. Thus, I agree with the view expressed by the learned Judicial Member that the deduction claimed by the assessee under section 80 IA of the Act should be allowed without making any downward adjustment. Having held so, I do not intend to dwell upon th....