TaxTMI 
TaxTMI 
2026 (7) TMI 868
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....ct ("the Act") dt. 27.11.2025 at an income of Rs. 1,22,46,66,77,92/- as against the returned income of Rs. 11870,13,11,947/-. 2. That on the facts and circumstances of the case and in law the order dated 12.11.2025 passed by the AO / NFAC under section 143(3) read with section 144B /144C(13) of the Act, having been passed beyond limitation provided in terms of Section 144C(13) read with section 153(3) of the Act, is illegal being barred by limitation, void ab initio and is liable to be quashed. 3. That the DRP/AO/ NFAC/TPO erred on facts and in law in disallowing deduction claimed by the appellant under section 80-IA of the Act in respect of Captive Power Plant (CPP) amounting to Rs. 566,98,50,458/- in the final assessment Order dt. 12.11.2025 under section 143(3) r.w.s. 144C(13)/144B read with order u/s. 154 r.w.s. section 143(3) of the Act dt. 27.11.2025 in respect of the eligible undertakings, allegedly on the basis of the order passed under section 92CA(3) of the Act dt. 28.01.2025 read with Order under section 154 dt 21.06.2025 by the Transfer Pricing Officer (TPO'). 3.1 That the DRP/NFAC/AO/TPO erred on facts and in law in reducing the claim under s....
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....h/2022 respectively), AY 2012-13 (ITA No. 404 & 412/Jodh/2017) and AY 2011-12 (ITA Nos. 262 & 246/Jodh/2017). 4. That the DRP/NFAC/AO/TPO erred on facts and in law in holding that the Appellant was not entitled to deduction u/s. 80-IA of the Act amounting to Rs. 10,56,99,413/- for generation and transfer of steam which is included in the profit computed for Dariba CPP of 160MW and LCV Boiler CPP, thus reducing the claim of the Appellant u/s. 80-IA by the corresponding amount in the Final Assessment Order dt. 12.11.2025 under section 143(3) r.w.s. 144C(13)/144B read with order u/s. 154 r.w.s. section 143(3) of the Act dt. 27.11.2025, allegedly on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer (TPO'). 4.1 That the DRP/NFAC/AO/TPO erred on facts and in law in rejecting the aggregate benchmarking analysis of transfer of steam along with transfer of power. 4.2 That the DRP/NFAC/AO/TPO erred on facts and in law in arbitrarily considering cost of steam at NIL allegedly by applying other method, when the powers of TPO are limited to determining the Arm's Length Price. 4.3 That the NFAC/AO erred on facts....
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....der under section 154 dt 21.06.2025 by the Transfer Pricing Officer (TPO'). 6.1 That the DRP/AO/NFAC/TPO have erred in both facts and law by rejecting the 'Other Method' applied by the appellant as the most appropriate method for benchmarking (based on quotation provided by an independent vendor for operations and maintenance of ETP units), and instead incorrectly applying the Comparable Uncontrolled Price ("CUP") method, without there being any comparable uncontrolled transaction. 6.2 Without prejudice, the DRP/AO/NFAC/TPO erred on facts and in law, while making adjustment towards transfer of treated water by ETP units, by not allowing a set off in respect of the lower margin of Dariba ETP unit which has earned the gross profit of 80% vis-à-vis the gross profit of 127.375% of the comparable companies determined by the TPO himself and as such the Appellant should have been provided the benefit of set off of such lower margin, which would lead to Nil adjustment on net basis for transfer of treated water by ETP units. 7. Without prejudice, the AO/ NFAC erred in facts and in law in not allowing additional MAT Credit of Rs. 131,57,69,489/-, while compu....
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....th the order passed by the AO, the assessee has filed this appeal before us. 5. Ground No. 1, being a General Ground, does not need any specific adjudication. 6. Ground No. 2 is pertains to the contention of the appellant that the assessment order is barred by limitation provided in terms of Section 144C(13) read with Section 153(3) of the Act. However, the Ld. counsel for the assessee did not press this ground and therefore, the same is dismissed, as not pressed. 7. Ground Nos. 3-3.7 are interlinked and related to disallowance of deduction claimed under section 80IA of the Act in respect of Captive Power Plants (CPPs) amounting to Rs. 5,66,98,50,458/- (in aggregate) in respect of the eligible undertakings, based on the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer (In short 'TPO'). 7.1 The Ld. Counsel for the assessee narrated the facts that the Appellant has eligible Thermal Captive Power Plant located at Dariba (capacity 160MW), Solar Captive Power Plant at Debari and Dariba (capacity 12MW and 4 MW respectively), engaged in generation of electricity. During the Assessment Year 2022-23, the CPPs and the solar power plants were engaged i....
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....not be the "Arms' Length Price" in the facts and circumstances of comparative Functions, Assets and Risks distribution between the Taxable units and CPP eligible units and also questioned applicability of other method. 7.5 The Ld. Counsel of the Assessee, inter alia, further submitted as below: "In this regard, it is also submitted that Other Method as per Rule 10AB can be applied in case of the appellant. The Hon'ble Delhi High Court in the case of Sabic India Private Limited (ITA 514/2024) undertook a detailed analysis of the provisions of Rule 10AB and held that Rule 10AB of the Rules expressly contemplates adoption of a method which takes into account price that has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, under similar circumstances. The relevant portion of the said judgment reads as below: "36. Rule 10AB of the Rules expressly contemplates adoption of a method which takes into account price that has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, under similar circumstances. It is, thus, essential that the transactions which are b....
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....o assessee's own taxable units. The relevant portion of the judgment is reproduced below: "9. The CIT(A) embarked upon an enquiry or in other words a fact finding exercise and called upon the assessee to explain why the CUP method should be considered to be the most appropriate method for the purpose of determining the sale price for the transfer of power from the assessee's eligible units namely the Captive Power Plant (CPPs) to the assessee's non eligible units namely the manufacturing units. The reply given by the assessee found acceptance by the CIT(A). The assessee submitted that the CUP method compares the price charged for property/services transfers/rendered in a controlled transaction with the price charged for similar property/services transfer/rendered in a comparable uncontrolled transaction under comparable circumstances. The assessee's contention was that a transaction is considered comparable only if, both, the property/services as well as the circumstances surrounding the controlled transaction are substantially the same as though that exists in uncontrolled transaction. The most important factor in determining the comparability under the CUP me....
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....lants and therefore accepted the applicability of Internal CUP method as adopted by the assessee. The CIT(A) appears to have called for various documents and took note of the sample copies of the bills showing purchase of power by non-eligible units. Further the CIT(A) noted that the availability of reliable data has not been disputed by the TPO. Reference was made to the decision of the learned tribunal in the case of M/s. Star Paper Mills Limited Versus DCIT in ITA No. 127/Kol/2021 dated 26.10.2021 and the decision in the case of Reliance Industries Limited (supra). With regard to the product comparability and the choice of the tested parties, the following findings was rendered by the CIT(A): Therefore, 'product comparability' is undoubtedly of paramount importance and therefore the choice of 'tested party' follows. In the present case, it is noted that the product in question is 'power'. The manufacturing unit procures power from the eligible CPPs as well as the Grid and the said product viz., 'power' purchased from both these parties is strictly comparable. Unlike other products where there may be difference in quality, size etc., there....
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....80IA held that the market value of the power supplied by State Electricity Board to the Industrial consumers should be construed to be the market value of electricity and it should not be compared with the rate of power sold to or supply 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. It was further held that the State Electricity Boards rate when it supplies power to the consumer have to be taken as market value for computing the deduction under Section 80IA of the Act. Thus, applying the decision of the Hon'ble Supreme Court in Jindal Steel and Power and in the light of the reasoning given in the preceding paragraphs, we hold that the learned tribunal rightly dismissed the appeals filed by the revenue. 22. In the result, these appeals are dismissed and the substantial questions of law are answered against the revenue." The Ld. DR in his submission, has also alleged that rate of power supplied by power generating companies to State Discoms should be compared and not the price charged by State Discoms to ultimate industrial consumers. In this regard, it is submitted ....
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.... It is submitted that in the case of CIT v. GlaxoSmithKline Asia (P.) Ltd.; 236 CTR 113 (SC), relied upon by the Ld. DR, the Hon'ble Apex Court merely suggested, for the purpose consideration by the CBDT, that transactions mentioned under section 80-IA of the Act may be brought within the ambit of transfer pricing provisions without laying down any directives or principles for determination of arm's length price. The relevant extract of the decision of the Hon'ble Apex Court is as follows: "6. 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 and whether the taxpayer should obtain an audit report from his Chartered Accountant so that the taxpayer maintains proper documents and requisite books of account reflecting the transactions between related entities as at arm's length price based on generally accepted methods specified under the Transfer Pricing Regulations. Normally, this Court does not make recommendations or suggestions. However, as stated abo....
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....et, then same can be adopted for the purpose of Section 80IA(8). The word "or" appearing between two sub-clauses in Explanation to Section 80IA (8) cannot be inferred that after the introduction of SDT from A.Y. 2013-14 only sub-clause (ii) alone can be applied. The use of the word "or" be interpreted as below: (a) both manner are available with the assessee to demonstrate that market value of the goods and services has to be either by showing that the price of such goods and services is in consonance with the price available in the open market; or (b) if assessee is not able to establish the price available in the open market, then the price of goods and services has to be established through arm's length principle u/s. 92CA/92F. It also means that, if the price of the transfer of goods and services is in consonance with the price available in the open market then the profits of the eligible business shown as per this price is eligible for deduction and in that case the second option may not be necessary. The Hon'ble Supreme Court in case of Jindal Steel & Power Limited [2024] 460 ITR 162 categorically held that power supplied by the SEB....
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.....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. ......................... 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 Electricity Board. 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 i.e. Rs. 3.72/- per unit. 28. Thus, 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. ....
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....nder: It is submitted that sub-section (8) of section 80 IA of the Act clearly mandates that the price at which goods are to be transferred from one business of the assessee to another business should correspond to the market value of such goods for computing the profits of the eligible business. The expression 'market value' has been defined in Explanation to sub-section (8) to section 80-IA of the Act, as the price which such goods would ordinarily fetch when sold in the open market. From the aforesaid, it can be deciphered that sub-section (8) of section 80-IA of the Act seeks to provide that the profits of the eligible business should be computed by recording inter unit transfer of goods and services at the price such goods would ordinarily fetch on sale in the open market. Section 92F of the Act defines the term arm's length price to mean a price which is applied or proposed to be applied in a transaction between unrelated enterprises under uncontrolled circumstances. Vide the amendment brought in vide Finance Act, 2012 in Section 80-IA(8) w.e.f. AY 2013-14 transfer pricing regulations were made applicable to certain domestic transactions. T....
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....n 80A, that the express "market value" in relation to any goods or services sold, supplied or acquired means the "arm's length price" as defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in section 92BA? ..... (d) Whether on the facts and in the circumstances of the case, the order of the Learned Income Tax Appellate Tribunal is perverse on the ground that the Transfer Pricing Officer has not applied external CUP method, which is one of the several methods for determining Arm's Length Price as laid down in the Act and the Hon'ble ITAT has not discussed in the body of the order as to why the same is not the most appropriate method? (e) Whether in facts of the case and in law, the Hon'ble Income Tax Appellate Tribunal order is perverse in not appreciating: (i) that the assessee's generating unit (the CPP) cannot as such claim any amount of benefit under Section 80-IA of the I.T. Act computed on the basis of rates charged by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulation commi....
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....e Hon'ble Calcutta High Court analyzed the issues and relying upon the decision of the Hon'ble Supreme Court in the case of CIT v. Jindal Steel & Power Ltd (supra), dismissed the appeal of the revenue. All these issues w.r.t. the applicability of Hon'ble Supreme Court decision in Jindal Steel & Power Ltd (supra) vis-à-vis the amended provisions are also clearly explained by Hon'ble Mumbai tribunal in DCIT v/s JSW Energy Ltd. [2026] 182 taxmann.com 201 while dismissing the grounds of revenue. It is also submitted that Hon'ble Supreme Court in para 32 (this para has been quoted by the Ld. DR also) of its judgment in case of Jindal Steel and Power Ltd (supra) has categorically held that the decision of Calcutta High Court in the case of Commissioner of Income-tax, Kolkata - III v. ITC Ltd. (236 Taxman 612 (Calcutta)/2016) will be of "no assistance to the revenue". Hence, the contention of the Ld. DR, that the decision in ITC Ltd (supra) has received any indirect observational approval from the Apex Court, is factually incorrect. It is imperative that the said decision cannot be relied on by the Ld. DR. Hence, the contention of the Ld. DR is devoid of any merit....
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....ertilizers & Chemicals Limited vs CIT (ITA No. 459/JP/12 & others dated 28.10.2016). In light of the said decisions, DR argued that in view of amendment in section 80A(6) & 80IA(8) of the Act, decisions rendered prior to the amendment were inapplicable for AY 2013-14 onwards. In this regard, it is submitted that the coordinate bench of the ITAT, Jaipur in all later judgments in the case of the same assessee including in DCIT vs Shree Cement (ITA No. 142/JP/2023), related to the assessment year 2014-15, has reiterated its reliance on the Jurisdictional Rajasthan High Court decision in Shree Cement (supra) and on the past orders of the coordinate bench in favour of the assessee. The said judgment in DCIT vs Shree Cement (ITA No. 142/JP/2023) has also discussed the amended provisions of section 80A(6) and 80-IA(8) and dismissed the ground of the revenue. Relevant portion of the said judgment reads as follows: "30. We have heard the rival submissions, perused the material on record and gone through the orders of the revenue authorities and the case laws cited before us. At the outset, we find that this ground of the Revenue has already been decided by the Tribunal in earlier y....
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....thod adopted by the Ld. CIT(A) vide his order dated 15-11- 2019, we observe that the Ld. CIT(A) has adopted average annual landed cost of electricity purchased by the Cement Unit of the assessee from the State Grid as the market value. While determining the said market value, Ld. CIT(A) has placed reliance on the decision of ITAT in assessee's own case in A.Y. 2007-08 to 2009-10 vide order dated 27-01 2014. The Ld. CIT(A) has stated that as per clause (b) of para 13 of the order of ITAT, value at which the assessee has sold power to State Grid or third party does not constitute market value in terms of Explanation to Section 801A(8). As per the order of Tribunal, the value adopted by the assessee under the bilateral contract with the independent third party has been specifically mentioned to be stated to constitute market value in terms of Explanation to Section 80IA(8) read with Section 80A(6) of I.T. Act. Thought it cannot be ruled out that the average annual landed cost of electricity purchased by the Cement Unit of the assessee from the State Grid can also be one of the market value in terms of Section 801A(8) read with Section 80A(6) of I.T. Act since it represents rate at....
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....the open market or (ii) the arm's length price as defined in clause (ii) of Section 92F. Since the statute has itself provided the assessee with an option to compute market value under either of the two clauses, market value computed based on clause (i) i.e., the price that such goods or services would ordinarily fetch in the open market still holds good. Hence, there has been no change in definition of market value even after the introduction of provisions of specified domestic transactions. 30.6 The ld. A/R further pleaded that even the transfer price adopted by the assessee in the instant case represented the arm's length price as per the definition of Section 92F of the Act. In support of his contention he relied upon order of Ld. CIT (Appeals) which is reproduced below: "8.13 A bare reading of the above amended provision shows that the definition of market value as per Sec 80-1A(8) has been amended to provide an option to compute the market value of goods or services based on the price that such good or services would fetch in the open market or the arm's length price as defined in clause (ii) of Sec. 92F. It is observed that the....
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....transfer price of power u/s. 80-IA(8) of the Act, we note that the considerations taken into account under the open market valuation standards by the High Courts in the above decided cases (supra) are consistent with the considerations and guidelines under the arm's length standards set out in Chapter X of the Act and therefore the ratio laid down in the above decisions (supra) indeed applies in the present case as well." 8.15 As far as mode of computation of transfer price of power transferred from eligible unit to other eligible/non-eligible units of the appellant by applying CUP method is concerned, appellant submits that the rate at which power is sold by the Grid to various manufacturing units has been judicially held to be market value of power as per the provision of sec. 80IA(8) of the Act. The ld. A/R relied upon following case laws in this regard : a) Nectar Lifesciences Limited vs ACIT (AY 2013-14) [ITA No. 567/Del/2019/ dated 13-09-2021): The ITAT, Delhi held that held that electricity available to a customer from Grid at a specific rate corresponds to 'market value' and can be used for benchmarking the transaction for transfer of power from eligib....
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....t is further observed form the order of ld CIT(A) that 'open market value' standards as stated under amended section 80IA(8) and 'arm's length price' standards as stated under section 92F would ordinarily yield the same results. While upholding the said principle ld. CIT(Appeals) has referred to various judicial pronouncements which are discussed herein below: In the case of Star Paper Mills Limited vs. DCIT (ITA No. 127/Kol/2021 dated 26- 10- 2021) following was held by the Kolkata Tribunal: "24. The contention of the ld. CIT D/R that the above referred decisions are not applicable since they were rendered in the context of 'open market value' and not arm's length price is found to be misplaced. We agree with the ld. A/R of the assessee that, the 'open market value' standards and 'arm's length price' standards would ordinarily yield the same results, unless the considerations and rules involved are different. On this particular issue of determination of the transfer price of power us 80-IA(8) of the Act, we note that the considerations taken into account under the open market valuation standards by the High Courts in the above deci....
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....ompanies to middlemen (i.e. B2B business models) which are governed by altogether different level of market and are therefore not comparable to the rates which are charged to ultimate consumer (B2C Business Models), Further, each of the entities involved in the power market (engaged in generation of power, transmission, distribution as well as trading of power) are regulated by separate regulatory provisions thus it is not appropriate to compare the rates at which the generating companies sell power to other licensees as these licensees are not the ultimate consumers as in the case of assessee where the CPPs transfer power directly to the ultimate industrial consumer i.e. the manufacturing units of assessee. 30.13. Further, the aspect as to why rate at which power is sold to 3rd parties including Power distribution companies should not be considered as internal CUP and hence considered for computing arm's length price under the Transfer Pricing regulations, needs to be dealt with. The ld. A/R submitted that sale to 3rd party by the power unit is not comparable with the transaction of captive consumption of power by the Cement manufacturing unit due to various factors. ....
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....d considered the judicial pronouncements cited including the orders passed by this Coordinate Bench in the earlier years. We find that the Hon'ble Supreme Court in CIT vs Jindal Steel and Power Ltd. [2024] 460 ITR 162 categorically held that power supplied by the SEBs to the industrial consumers should be construed to be the market value of electricity. The Hon'ble Supreme Court also held that it should not be compared with the rate of power sold to or supplied to the SEBs since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The relevant extract reads as below: "28. Thus, 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 p....
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....of the decision reads as below: "13.3. From the above it is clear that, the Explanation to Section 80IA defines the term "Market Value" in relation to any goods or services can be calculated in two ways or can be calculated by adopting two mechanisms:- (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 section 92BA. 13.4. From the above it is noted that, "or", is dividing the two clauses under Explanation to Section 80IA which clearly indicates the intention of the legislature to give an option to the assessee entitled to claim deduction u/s. 80IA(8) to choose either of the two mechanisms. 13.5. If in a scenario, the availability of the market value that one would ordinarily fetch in the open market is not possible to be determined then, the second option is always available with the assessee. For instance, if there are certain unique services which have been transferred or any unique goods or goods produced with patented IPR or intangib....
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....ory 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 defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in Section 92BA." 13.7. From the plain reading of the aforesaid Explanation hereinabove, one can clearly note the difference in Explanation to Section 80IA (8). In Section 80IA(8) the expression "market value" has been elaborated in the Explanation in three sub-clauses word "or" used, albeit the three clauses are separated by using semicolon, which means in these specific transactions "market value" has to be ascertained and determined in that particular manner only and there is no option for "or". Thus, difference in treatment in different sections cannot be lost sight of while interpreting the provisions. 13.8. In our....
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....exicon 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 free trade or competition. "Market value" is an expression which denotes 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." 24. The Hon'ble Supreme Court also held that price at which electricity is sold to SEBs, that is, distribution company selling the power to SEBs, (which precisely has been done by the TPO here in this case), cannot be considered as "market value" for which their Lordships have given reasons as to why it is tainted. The Apex Court observed as under:- ......... 15.2. The Ho....
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....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." 15.3. Having observed so, thereafter the Hon'ble Supreme 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:- "28. Thus, 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 is sold by the assessee to the ....
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....n 92(BA) was introduced owing to the observation contained in the decision of Glaxo Smithkline (supra) that caused the introduction of specified domestic transaction u/s. 80IA(8) and as such supported the proposition that the decision of the Hon'ble Supreme Court in the case of Jindal Steel & Power Ltd (supra) and earlier decisions of the ITAT in assessee's own case cannot be relied upon in view of amended provision. In this regard, we find that the coordinate bench of the Hon'ble Mumbai Tribunal in DCIT v/s JSW Energy Ltd. (supra) had the occasion to examine this issue also where the Hon'ble Tribunal, after considering the judgment in GlaxoSmithkline (supra), has reaffirmed the view taken by the Hon'ble Supreme Court in Jindal Steel & Power Ltd (supra) even post amendments as contemplated by the Ld. DR and held as under: "14. The contention of the Revenue has been that now Section 92(BA) has been introduced owing to the observation contained in the decision of the Hon'ble Supreme Court in the case of CIT v. Glaxo Smithkline Asia (P.) Ltd. [2010] 195 Taxman 35 that caused the introduction of specified domestic transaction u/s. 80IA(8). For the sake of ready reference, ....
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....rsy at hand, since it dealt with the interpretation of law prior to the introduction of Clause (ii) to Explanation to Section 80IA, therefore the principles of the judgment is no longer applicable. Be that as it may, if one goes through the judgment of the Hon'ble Supreme Court and also on deeper scrutiny, then the stand of 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 (supra). While holding that the price at which electricity sold to SEBs should be taken as market value, the Hon'ble Supreme Court 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 ....
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....e 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 80-1A 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." 15.4. Thus, the Hon'ble Supreme Court categorically held that power supplied by the SEB to the industrial consum....
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.... the assessment year 2014-15, has reiterated its reliance on the Jurisdictional Rajasthan High Court decision in Shree Cement (supra) and also on the past orders of the coordinate bench in favour of the assessee. Relevant portion of the decision reads as follows: "30.7. We find force in the argument of the ld. A/R and the observations as made by CIT (Appeals). The provisions of the Act give the assessee an option to adopt the transfer price of power in accordance with any of the clause as stated under section 80-IA(8) of the Act i.e. either as goods or services would ordinarily fetch in the open market or the ALP as defined in Section 92F(ii) of the Act. 30.8. It is further observed form the order of ld CIT(A) that 'open market value' standards as stated under amended section 80IA(8) and 'arm's length price' standards as stated under section 92F would ordinarily yield the same results. While upholding the said principle ld. CIT(Appeals) has referred to various judicial pronouncements which are discussed herein below: In the case of Star Paper Mills Limited vs. DCIT (ITA No. 127/Kol/2021 dated 26- 10- 2021) following was held by the Kolkata Tri....
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.... 80A(6) of the Act. 30.11. The ld. D/R in his submissions relied strongly on the order of TPO and the method adopted by TPO for determining market rate of power. According to ld. D/R, TPO has adopted the rate of power at which Distribution companies purchase power from the Generating companies. We find that this aspect has also been dealt with by ld. CIT(Appeals) in his order wherein he has held that the sale rate of Generating Companies does not represent actual market value. The relevant extract of the same is reproduced below:- "8.18 The appellant in its submissions has also explained as to why the rates adopted by the TPO should not be considered. ........................ (3) Rate of sale of power by the generating companies-The rate at which Adani Power Rajasthan Ltd (APRL) and Raj West Power Limited (RWPL) supplies power to distribution companies is a regulated price which is determined by the State Electricity Regulatory Commission It is therefore not a market driven rate determined by forces of demand and supply and also does not denote rate available in the open market Power sold by generating company to a distribution company is a total....
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..... 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 electricity at the rate of Rs. 2.32/- per unit. However, the Assessee had computed the revenue from supply of electricity to its own unit at the rate of Rs. 3.72/- per unit. It was the Assessee's case that the market value of the electricity was Rs. 3.72/- per unit as that was the rate charged by the SEB for supply of electricity to industrial consumers including the Assessee. The learned ITAT had accepted the assessee's stand and had set aside the order passed by the CIT(A) rejecting the assess....
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....ction (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 services would ordinarily fetch in the open market; or (b) 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? (b) WHETHER in facts of the case and in law, the Hon'ble ITAT is justified in not appreciating the finding of the TPO that the assessee's generating unit cannot as such claim any benefit under section 80IA of the Income Tax Act computed on the basis of rates charged by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulation commission for sale of electricity by the generating companies to the distribution company? 20. The Court took note of the decision of the Hon'ble Supreme Court in CIT Versus Jindal Steel and Power Limited. In the said case, the assessee having found that the electricity supp....
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....n, 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. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market, i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the Revenue." 21. The Hon'ble Supreme Court after taking note of the relevant provisions of the Income Tax Act, and in particular Section 80IA held that the mar....
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....hi High Court in PCIT v. DCM Shriram Ltd. (supra) and of the Hon'ble Calcutta High Court in Rungta Mines Ltd (supra) and Star Paper Mills Ltd (supra), along with judgments of the coordinate benches of the various Tribunal, for Assessment Year 2013-14 and onwards, which were ruled in favor of the assessee and where grounds of the revenue were dismissed, relying on Hon'ble Supreme Court in case of Jindal Steel & Power Ltd. (supra). 7.14 In light of the above discussions, coming to the contention of the Ld. DR or the TPO that the rate at which power is supplied by SEBs to industrial consumers is not to be considered as market value in terms of provisions of Section 80A(6) of the Act. We are of the view that unlike Section 80IA(8), the word "OR" is missing in provisions of Section 80A(6) of the Act. As per provisions of Section 80A(6), if any goods or services whether sold or acquired falls within the category specified domestic transactions of Section 92BA then in such case it is mandatory to adopt market value as per clause (iii) of Section 92BA of the Act. Since, it has already been held in various decisions quoted above that the rate at which power is supplied by SEBs to ind....
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....e disallowance of deduction u/s. 80IA of the Act amounting to Rs. 10,56,99,413/- for generation and transfer of Steam. 8.1 The Ld. AR submitted that the eligible units of the Appellant transfer steam to the taxable units on a cost-to-cost basis, without charging any profit margin. The TPO concluded that since the arm's length price of power has already been computed which includes the cost of steam, the arm's length price of steam is held to be NIL. Thus, the TPO made adjustment of Rs. 10,56,99,413/- in the TP order. The Assessee has explained in the TP study the process of generation of electricity as a whole, which includes steam as well, and also discussed the assets and risks involved in this as well. The ld. counsel for assessee reiterated during hearing that the issue is already decided by the Hon'ble Tribunal in favour of appellant for AYs- 2011-12, 2012- 13, 2017-18, 2018-19 [Para 18 CLPB Pgs. 256-260] and 2020-21 [Para 8.3 CLPB Pgs. 77-85]. 8.2 On the other hand, the Ld. DR relied upon the order of the Assessing Officer/ Transfer Pricing Officer and had no further objection to the contentions made by the Ld. AR. 8.3 We have heard rival contentions, perused the mat....
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....ch of the Tribunal in assessee's own case in ITA No. 127 & 128/Jodh//2022 for the AY 2017-18 & AY 2018-19 in para 18 in favour of assessee. 8.5 We, therefore, respectfully following the consistent view taken by the Coordinate bench of the Tribunal as referred hereinabove, allow this ground of the assessee." 8.5 Respectfully following the consistent view taken by the Coordinate bench of the Tribunal as referred hereinabove, we allow this ground of the assessee. 9. Ground Nos. 5 to 5.2 are related to allocation of head office expenses to eligible units. 9.1 Before us, the ld. Counsel for the assessee has submitted as under:- "The Head Office expenses and common assets have no proximate connection with the industrial undertaking eligible for deduction under the Act. These expenses would have been incurred otherwise also had there been no tax benefit units in existence and these expenses represent common corporate expenditure which cannot be allocated or assigned to any particular unit or activity. The Ld. TPO, however, held that the assessee's submission that "no such allocation of HO expenses is required considering the eligible units are not depen....
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....s below. We find that the identical issue was in the year 2004-05 in ITA No. 235/JU/2008. The coordinate Bench has decided the issue in Para 17.9 holding as under:- "17.9 We have heard the rival contention and perused the material available on record. It is settled law that when the assessee claims any allowable deduction the explanation and evidence submitted in this behalf is to be objectively considered by ld. AO. In case of any infirmity in the claim, the same should be effectively dealt and the claim should be denied by proper discharge of onus. Without effective rebuttal and objective consideration assessee's beneficial claim cannot be disallowed on assumptions and intendments. It is also settled jurisprudence that while interpreting the beneficial legislations a liberal approach should be adopted. This is so as a very strict interpretation will defeat the legislative intent of encouraging captive power plants in electricity starved nation in general and power short state of Rajasthan. Provisions of Sec. 80IA of the IT Act are undoubtedly beneficial in nature, so in case of ambiguity about its interpretation a liberal approach is mandates by settled judicial preceden....
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....e equipment, furniture, fixtures, computers, motor vehicles etc. are also exclusively used for the day to day working of Udaipur Unit and they can in no way be supposed to be used for CPP. Since respective units retain control over their assets, they have no occasion of user by CPP. Rom the facts and circumstances emerging form the record and contentions. We observe that: a) No allocation of Ho and other expenses is justified since such expenditure on Ho and other units was incurred even prior to setting up of eligible CPP unit. b) The assessee is primarily engaged in the activities of mining and manufacturing of Zinc and lead metals. This business of the assessee is one and indivisible from CPP unit. In the absence of any direct nexus the apportionment is not mandated by the correct interpretation of sec 80IA. c) It has not been rebutted that after the commencement of CPP activity there was no increase in the HO expense relatable to employee's remuneration & benefits an Administrative expense as a whole, in comparison to the earlier year. Rather HO expenses for the year under consideration have been reduced drastically. Thus there is no reason to assume ....
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....le to" are much wider in meaning than the words "derived from". b. Hon'ble Supreme Court in the case of IT vs. Sterling Foods (1999) 153 ITR CTR (SC) 439: (1999) 237 ITR 579 (SC) has held that or application of the words "derived from". There must be a direct nexus between the profits and the activity of the industrial undertaking, consequently, it is by now a settled proposition that remote or indirect nexus would not be sufficient for application of the words "derived from". c. In the case of IT vs. Strawboard Manufacturing Co Ltd. {(1989) 177 ITR 43} in the context of deduction under section 80E, Hon'ble Supreme Court held that: "The provision for rebate has been made for the purpose of encouraging the setting up of new industries. It is necessary to remember the when a provision is made in the context of a law providing for concessional rate of tax for the purpose of encouraging an industrial activity, a liberal construction should be put upon the language of the statute. In our view, the controversy in question stands squarely covered by the case of Zandu Pharmaceuticals Works Ltd. (supra) in favor of the assessee. In this case assessee incu....
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....e for statistical purpose." 9.3.1 The above view has also been affirmed by the Jodhpur Bench of the Tribunal in the assessee's own case in ITA No. 184/Jodh/2012 dated 04.09.2017 for the assessment year 2008-09 by observing vide para 277 as below: "277. Having considered the submissions of the parties we find the contentions raised by the ld. A/R to be correct and note that one of disputes raised by the Assessee in the earlier order was also on the basis of allocation. However, we direct the Assessing Officer to apportion such expenditure on a reasonable basis and not on the basis of turnover as was done by him in the Assessment years. For this we find support from the decision of a Coordinate Bench in the case of ACIT vs. P.I. Industries (144 TTJ 353)(Jodhpur) where the Tribunal has disapproved the turnover basis for allocating common expenditure. In our opinion only such expenses should be attributed which have a direct bearing of the business activity. With these observations this ground of revenue is partly allowed." 9.3.2 On the very same issue the Coordinate Bench of the Tribunal in ITA No. 246/Jodh/2017 dated 04.09.2017 for the assessment year 2011-12 observed ....
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....lus Method made adjustment of Rs. 24,21,59,598/-. The TPO rejected the benchmarking undertaken by the appellant applying 'Other Method' and held that the approach of the Appellant is not tenable for the following reasons: a) Price in a quotation cannot be treated as final price as they are subject to negotiations based on quantity, quality, reliability, credit period etc. due to which prices are lower in favour of buyer b) The appellant has taken a single quotation and used it as the basis of benchmarking. This does not achieve the purpose of arm's length principle that is based on actual price discovery for notional price benchmarking for intra group transfers. It is submitted that the various data that may be used for comparability purposes under other method, includes third party quotation which represents the price that would have been charged by an independent third-party service provider. For the purpose of applying 'other method' Rule 10AB of the Rules expressly contemplates adoption of a method which takes into account price that has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled tr....
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.... authentic and reliable quotation could be considered for determination of arm's length price of the transaction under consideration." 10.2 On the other hand, the ld. DR submitted that FAR (Functions, Assets, Risks) analysis for ETP and third-party water suppliers was not undertaken by the appellant, while comparing price of comparable uncontrolled price, for applying Other Method. Further, he has questioned application of other method under Rule 10AB read with rule 10B. 10.3 The Ld. Counsel of assessee further submitted that a detailed FAR analysis has been made in the TP Study Report. The Ld. TPO, while rejecting the benchmarking undertaken by the assessee, applied 'Other Method' and held that the approach of the Appellant is not tenable only because price in a quotation cannot be treated as final price and a single quotation has been used as the basis of benchmarking. In response to the contention of Ld. DR, the Ld. Counsel for the assessee, inter alia, submitted as below: "The Appellant submits that it has complied with the provisions of Rule 10D of the Rules by maintaining the prescribed TP documentation and substantiating the ALP of the specified domestic trans....
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.... It is also submitted that as per Section 92C(3) of the Act, the Assessing Officer may proceed to determine the ALP in relation to an international transaction or specified domestic transaction on the basis of material or information or document available with him, if any one of the four conditions are satisfied: a) The price charged or paid in an international transaction/SDT has not been determined in accordance with Sections 92C(1) and 92C(2) of the Act: b) Proper documentation has not been maintained in terms of Section 92D(1) r.w. Rule 10D of the Income Tax Rules, 1962; c) The information or data used in computation of ALP is not reliable or correct; d) Failure to furnish any information or document, as required by the AO/TPO during the course of assessment proceedings. It is observed that the Ld. TPO or the Ld. DR has not substantiated that any of the above four conditions was applicable in this case. The Ld. TPO has also not questioned the genuineness of the quotation but has merely ignored the quotation as in his view price in a quotation cannot be considered for benchmarking analysis and appellant has obtained only a single qu....
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....red the quotation as in his view, price in a quotation cannot be considered for benchmarking analysis and assessee has obtained only a single quotation. The ld. Counsel for the assessee has also submitted that the Income-tax Act or Rules do not prescribe the number of quotations that should be considered for arm's length price under the Other Method. It is relevant to note that Rule 10AB does not describe any methodology but only provides an enabling provision to use any method that has been used or may be used to arrive at the price of a transaction undertaken between non-associated enterprises or third parties. 10.4.1 The Ld. counsel for assessee argued that in terms of Rule 10AB of the Rules, benchmarking analysis can be undertaken even on the basis of one comparable basis and reliance placed on the decision of Hon'ble Mumbai Bench of Tribunal in the case of Petro Araldite Private Limited [ITA No. 6217/ MUM/2012] wherein the hon'ble Tribunal upheld benchmarking analysis basis selection of only one comparable. Further, the Ld. counsel for the assessee relied on various decisions of the Hon'ble High Courts and Tribunals, including the decisions of CIT vs Adani Wilmer Ltd [363 I....
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.... takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm's length price. In this view of the matter, the business model said to have been adopted by the assessee, in principle, meets the test of arm's length price determination under rule 10BA as well." The above decision of the Delhi Tribunal has been upheld by the Hon'ble Delhi High Court in PCIT vs. Toll Global Forwarding India Pvt. Ltd. 381 ITR 38 (Del-HC)]. 10.4.4 We also find that similar findings have been upheld by the coordinate bench of the ITAT, Jaipur in case of DCIT vs Shree Cement Limited in ITA no. 142/JP/2023 relying on the decision of PCIT vs Toll Global Forwarding India Pvt Ltd (supra). The relevant extract of the said decision is reproduced here below: "38. ...............We find that the Coordinate Bench of the Tribunal Delhi in case of Toll Global Forwarding India Pvt. Ltd. vs. DCIT, 37 ITR_Trib 391 (Delhi) while dealing with the matter, has held as under :- " 25. In effect, thus, it would appear that as long as one can come to the conc....