TaxTMI 
TaxTMI 
2026 (1) TMI 1656
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....ation of fact, facts in AY 2016-17 is treated as lead case. The Revenue in its appeal in ITA No. 5143/M/2024 has raised following grounds of appeal :- "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power from captive power plant of Rs. 74,55,05,907/-? 2. Whether on the facts and circumstances of the case and in low, the Ld. CIT(A) is correct in relying on the decision of Hon'ble Supreme Court in the case of CIT v. Jindal Steel and Power Limited (C. A. No. 13771 of 2015), when the case of the assessee pertains to AY 2015-16 and therefore the judgments of the Hon'ble Supreme Court for years prior to the introduction of Section 80A(6) vide Finance Act.2009 and the amendments in Section 80A(6) and sec 80-LA(8) vide Finance Act, 2012 are not applicable to the facts of the assessee? 3. Whether on the facts and circumstances of the case and in low, the Ld. CIT(A) is correct in relying on the decision of Hon'ble Supreme Court in the case of CIT v. Jindal Steel and Power Limited (C. A. No. 13771 of 2015), when the Hon'ble Supreme Court has clearly sta....
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....rty for choosing the comparable as done by the assessee, but only the power generating unit can be taken as tested party for choosing the matching FAR comparable: a. The object of section 80IA is to quantify the profits and gains derived by an undertaking that is engaged in the eligible activity of power generation. b. The SDT for which ALP is required to be determined is the 'supply of power by the eligible power generation unit". c. The method chosen to determine the ALP as well as the choice of tested party should be such as to arrive at the best possible approximation of the profits of such eligible power generation unit. d. In view of the above, the power generating unit alone should be considered as the tested party and the FAR of the power generating unit which has a direct impact in the quantum of SDT, should be given precedence over the FAR of the power consuming unit for choosing the matching FAR comparable. e. Only when the FAR of the power generating unit is tested against a comparable transaction having a similar FAR, will we be able to reach the correct profitability of the power generation activity, only then the objec....
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....k which is Income as per the provisions of section 41(1) as they were related to the liabilities which pertained to the assets capitalized by the assessee and the assessee had claimed allowance/deduction in the form of deprecation on these capital assets. 10. On the facts and circumstances of the case and in low, the Ld. CIT(A) has erred in directing that the addition made under section 14A read with Rule BD should be recomputed at the rate of 0.5% of average value of only those investments from which the exempt income is earned during the year under consideration which is clearly not in accordance with the provisions of section 144 and the judgment of the Hon'ble Supreme Court in Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 13. On the facts and circumstances of the case and in law, the id. CIT(A) has erred in deleting the addition made under section 14A r.w. 115 disregarding the provisions of section 115/8(2) rw. Explanation-1 r.w. clause f of which requires any expenditure in relation to the exempt income also to be taken into consideration while computing the book profit under section 115/8. 12. The appellant prays that the order of the CIT(A)....
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....-DR for the revenue relied on the decision of Hyderabad Tribunal in Sangi Industries Limited Vs DCIT in ITA (TP) No.104/Hyd/2022 dated 23.01.2025. 5. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that facts relating the adjustment of account of inter transfer of power from captive power plant adjustmentare that during financial year 2012-13, pursuant to the scheme of arrangement and amalgamation approved by Bombay High Court under section 391to 394 of Companies Act, Tarapur Unit JSW Steel Limited was transferred to assessee. At the time of transfer of Tarapur unit of JSW Stell Limited consist of manufacturing unit and a Captive Power Plant (CPP). As CPP unit of Tarapur unit was availing tax holiday benefit under section 80IA(8), the assessee began availing tax holiday benefit. During the year under consideration Tarapur unit supplied power to assessees Stell manufacturing unit and excess power that was not consumed captively by steel unit was sold to Maharashtra State Electricity Distribution Company (MSEDCL). The justify the specified transaction with its group company, the assessee in its t....
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....nable and directed to delete the adjustment. 6. We find that Third Member (Special Bench) of Mumbai Tribunal in Aditya Birla Nuvo Ltd. vs DCIT in ITA No. 563/M/2018 on similar issue passed the following order: "27. I have carefully considered the exhaustive submissions made by the parties and perused the materials on record. I have also gone through the respective orders proposed by the learned Members constituting the Division Bench in respect of ground no. 7, relating to the issue of the quantum of deduction allowable to the assessee u/s. 80IA of the Act. I have also applied my mind to the catena of judicial precedents cited before me. As far as the factual position relating to the issue in dispute is concerned, there is no dispute that the assessee has set up a captive power plant known as 'Rayon CPP-2' for generation and supply of power to its manufacturing unit-Rayon Plant. The CPP undoubtedly is the eligible business of the assessee for the purpose of section 80IA of the Act. Even, the department has no quarrel on this aspect. Further, there is no dispute between the assessee and the department that the transaction relating to sale/purchase of power betwee....
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....ion 92BA 30. As could be seen from a reading of the said Explanation, clause (i) is verbatim same to the earlier Explanation. What is new is clause (ii), which provides that in case of SDT, the ALP in terms with section 92F(ii) would substitute the market value of goods or services transferred to the Associated Enterprise. At this stage, I must observe, a holistic reading of Explanation under sub section (8) of section 80IA of the Act would make it clear that clause (i) and clause (ii) operate in different situations. When the transaction between the related parties is in the nature of SDT coming within the ambit of section 92BA of the Act and is above a particular threshold limit, in that case, clause (ii) would be applicable and in all other cases clause (i) of Explanation would apply. 31. Having said that, it is now necessary to look into the aspect as to what should be the ALP of the SDT relating to sale of power by CPP to Rayon Plant. As stated earlier, clause (ii) to Explanation under sub section (8) of section 80IA of the Act refers to the ALP as defined in clause (ii) of section 92F of the Act in respect of SDT. Section 92F(ii) of the Act defines ALP as un....
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....ch owns or operates or maintains a generating station. Section 2(30) of the Electricity Act defines "generating station" or "station" to mean any station for generating electricity, including any building and plant with step-up transformer, switchgear, switch yard, cables or other appurtenant equipment, if any, used for that purpose and the site thereof; a site intended to be used for a generating station, and any building used for housing the operating staff of a generating station, and where electricity is generated by water-power, includes penstocks, head and tail works, main and regulating reservoirs, dams and other hydraulic works, but does not in any case include any sub-station. Whereas, "Captive generating plant" has been defined u/s. 2(8) of the Electricity Act to mean a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association. Section 2(17) defines "distribution licensee" to mean a licensee authorised to operate and maintain a distribution system for supplying el....
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....provision, while it is the duty of a distribution licensee to develop and maintain an efficient, co-ordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in the Act, a captive power generating plant shall have open access only on payment of wheeling charge and surcharge. Sections 61 and 62 of the Electricity Act empowers the Regulatory Commission to determine and prescribe tariff both in case of supply of power by generating company to distribution licensee and in case of a distribution licensee to the consumers. However, the captive power generating units have been kept out of all such control and regulation under the Electricity Act. Section 86 of the Electricity Act empowers the State Commission to determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State. 34. The purpose of dealing in detail with the various provisions under the Electricity Act is to demonstrate that while the power generating companies, who have to sale/supply power to the distribution licensees, are fettered with various rules/....
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....rating plant is minuscule in comparison. While the power generating company is subject to all regulatory measures under the Electricity Act, the captive power generating plant has not been put under such restrictions. Thus, in my opinion, a captive power plant cannot be equated with a bulk power generating company, either in functionality or in employment of assets or even on account of risk undertaken, as the power generated by a captive power plant is for own captive consumption, hence, with minimal risk. In such a scenario, what can be considered for comparability, analysis is a transaction with sufficient degree of similarity. 36. Before us, the learned DR has put much stress on section 80A(6) of the Act to emphasise that due to its overriding effect, it will override even the Explanation u/s. 80IA(8) of the Act. In this context, he has submitted that as per Explanation u/s. 80A(6) of the Act, there is no 'or' between various clauses, hence, the conditions would apply cumulatively. He has submitted that as per clause (i) to Explanation u/s. 80A(6), the market value of goods or services in open market conditions subject to statutory or regulatory consideration, ....
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....s. 39. In the facts of the present appeal, admittedly, the Rayon Plant had purchased electricity from the State owned distribution licensee at Rs.6.62 per unit. Had the Rayon Plant not purchased power from CPP to meet its requirement, it would have purchased power from the distribution licencee at the very same rate of Rs.6.62 per unit. Therefore, there cannot be any doubt that the rate at which the Rayon Plant purchased power from the distribution licensee can be applied as a valid CUP to determine the ALP of the power supplied/sold by CPP to Rayon Plant. In this context, the ld. DR has advanced an argument that even the cost of supply of power by the distribution licensee to the assessee is not a uncontrolled transaction in strict sense of the term, as, it is regulated by tariff determined by the regulatory commission under the Electricity Act. Therefore, it cannot be taken as ALP in terms with section 92F(ii) of the Act. To answer the aforesaid argument of ld. DR, it would be apposite to quote the following observations of the Hon'ble Delhi High Court in the case of Pr. CIT vs. DCM Shriram Ltd. [2025] 170 taxmann.com 631 (Delhi) : 56. Undoubtedly, there is ....
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....e, the Learned Income Tax Appellate Tribunal was justified in law in not considering the provisions of Income Tax Act, 1961 where it has been mandated in cases of transaction between eligible units and non-eligible units of an undertaking, in explanation (iii) of sub section (6) of Section 80A, that the expression "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 transactions referred to in section 92BA? 43. After examining various provisions under the Electricity Act, 2003 as well as provisions contained under the Income Tax Act, the Hon'ble High Court upheld the decision of co-ordinate bench with the following observations: 14. It is not in dispute that the main business of the assessee is not generating power to sell the same to distribution companies/SEBs. It is also not in dispute that the Captive Power Plants (CPPs) were established by the assessee for its own need, i.e. for supply of uninterrupted power to its manufacturing units as well as to save the cost of power purchased from SEBs. If such....
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....ts to the destination of its use and no surcharge is leviable in case open access is provided to captive units by the central or state transmission utility or the transmission licensee involved in the distribution/transmission of power. Further the provision make it clear that there is no embargo to other power generating companies to directly sell the power to such consumer at mutually agreed rate. This being not the legal position when the decision in ITC Limited was rendered, the said decision could not have been relied upon by the TPO/assessing officer. 18. We concur with the views expressed by the learned tribunal that the consumer/contracting parties will certainly desire to purchase electricity at lesser rate than the rates offered by State Electricity Board whereas the Captive Power Plants/generating companies would desire to get maximum rate on the sale of power in unregulated and uncontrolled transaction and both the parties would settle at mutually agreed rates irrespective of the rates at which the State Electricity purchases power from other generating units. 19. The learned tribunal in the case of Star Paper Mills Limited Versus DCIT Circle 4 Kolkata....
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....y, generated was to be wheeled out to the electricity board grid pursuant to an agreement between the State Electricity Board and the assessee at a rate fixed by the State Electricity Board. The question which arose of consideration is as to the quantum of deduction which the assessee would be entitled to claim under Section 80IA of the Act. The assessing officer held value of the electricity should be computed based on the rate fixed by the State Electricity Board for the electricity which is purchased by the assessee. The Dispute Resolution Panel (DRP affirmed the view taken by the assessing officer and the matter was challenged before the tribunal. The tribunal followed the decision in the assessee's own case for an earlier assessment year which order had become final as the department did not prefer any appeal under Section 260A of the Act. In the batch of cases, in Jindal Steel and Power one of the appeals was an appeal filed by the assessee namely ITC Limited against the judgment of the Division Bench ofthis court in Commissioner of Income Tax Versus ITC Limited (supra) in CA No. 9920 of 2016 and this appeal was allowed by the Hon'ble Supreme Court by order dated 07.1....
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....ier 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. 44. It is noteworthy, in case of Star Paper Mills Limited vs. DCIT(supra) identical view expressed by the Bench has been upheld by the Hon'ble Calcutta High Court. At this stage, we must observe, in case of Jindal Steel & Power Ltd. (supra), the Hon'ble Supreme Court while was on the issue of what should be the market value u/s. 80IA(8) of the Act prior to its amendment in 2013, had observed that in case the assessee had not obtained power from the captive power plant, it would have purchased power from the State Electricity Board and in such a scenario, it would have purchased power at the same rate at which the State Electricity Board supplies power to other cons....
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....h amended explanation, 92F(ii), Rule 10B etc. Therefore, these decisions carrying precedent value cannot be lightly brushed aside by branding them as per incuriam or having been rendered sub silentio of certain relevant provisions, merely because they are against the revenue. 46. Thus, 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 ALP of sale/supply of power by the CPP to the Rayon Plant. In other words, the price of Rs.6.62 per unit charged by CPP to the Rayon Plant can be considered as ALP of the power supplied by the CPP to Rayon Plant. Thus, I agree with the view expressed by learned Judicial Member that the deduction claimed by the assessee u/s. 80IA of the Act should be allowed without making any downward adjustment. 47. Having held so, I do not intend to dwell upon the question nos. 3 & 4 as they are of mere academic importance and not necessary for deciding the issue arising in ground no. 7. Records may be return....
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....hat in assessee's holding company in appeal for A.Y. 2004-05, the co-ordinate bench of Mumbai Tribunal in ITA No. 923/Bang/2009 and 930/Bang/2009 passed the following order: 29. We have heard the rival submissions made by the parties and also considered the relevant finding given in the impugned orders. First of all it is seen that Assessing Officer's case is that provisions of section 41(1) are applicable because the assessee has claimed depreciation in the earlier years on the loan taken for acquisition or capital asset and for coming to this conclusion he has heavily relied upon the decision of Hon'ble Bombay High Court in the case of Nectar Beverages vs. DCIT (supra). This observation and finding of the Assessing Officer now stands negated by the judgment of Hon'ble Supreme Court in the case of Nectar Beverages vs. DCIT (supra) wherein the Apex Court has reversed the said decision of the Hon'ble Bombay High Court and observed that depreciation is neither a trading liability as referred to in section 41(1) nor the principal component of the borrowings for acquisition of a capital asset has not been allowed as an allowance or deduction in the earlier ....
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....e as depreciation is neither a loss nor an expenditure as held by the Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. (supra); and secondly, liability incurred by the assessee was utilized for the purchase of capital asset and therefore, under no circumstances it can be held to be a trading liability. Depreciation allowance has no connection with waiver of the capital loans in question and hence would not attract section 41(1). By way of additional grounds the Ld. D.R. has sought to contend that in view of the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. 308 ITR 407 the waiver of a loan is to be reckoned as in the nature of trading liabilities and therefore, it is taxable under section 41(1). As discussed in detail in the earlier part of the order, here it is not the case of the Assessing Officer that the principal amount of loan taken by the assessee was for any trading account, albeit it was for the purchase of a capital asset which has never been allowed as a deduction. The loan taken for an acquisition of a capital asset does not constitute trading liabilities which has been allowed as a deduction in earlier years and any ki....
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....in the case of Solid Containers Ltd. (supra). The present case is, therefore, covered in favour of the respondent-assessee by the decision of this court in the matter of Mahindra and Mahindra Ltd. (supra)." Therefore the plea raised by the Revenue through additional ground cannot be upheld and same is rejected. 11. Considering the decision of Tribunal in assessee's own case on similar set of fact, we do not find in the merit in the grounds of appeal raised by revenue. In the result, ground no. 9 of the appeal is dismissed. 12. Ground no. 10 relates to disallowance under section 14A and ground no. 11 relates to adding the disallowance of section 14A to book profit under section 115JB. The ld. AR of the assessee submits that these grounds of appeal are also covered by the decision of Special Bench of Delhi Tribunal in ACIT vs Vireet Investment (P) Ltd. 58 ITR 313. 13.On the other hand, ld. CIT-DR for the Revenue supported the order oflower authorities. 14. We have considered the rival submissions of both the parties and haves gone through the orders of lower authorities carefully. We find that during the year under consideration, the assessee has shown / earn....