TaxTMI 
TaxTMI 
2026 (7) TMI 1699
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....ower generation etc. The return of income was filed on 30.11.2022, declaring total income at Rs. 10,86,46,23,950/- after claiming deduction under section 80IA of the Act in respect of power generation units. The company has declared book profit u/s. 115JB at Rs. 15,43,98,75,705/-. Income-tax was paid by company under normal provisions of the Act. The case of the assessee was taken up for scrutiny and a reference under section 92CA of the Act was made to the TPO for determination of ALP in respect of international transactions and specified domestic transactions. On various additions / disallowance proposed in the draft assessment order, the assessee company raised objections before the DRP. After incorporating the DRP directions vide order dated 29.09.2025, several transfer pricing adjustment as well corporate additions were made in the final assessment order, which are agitated by the assessee before us in the following grounds of appeal :- General Grounds 1. That the Ld. Assessing Officer/National Faceless Assessment Centre ("AO/NaFAC") has grossly erred in law and on facts, in the circumstances of the assessee's case in making an addition of Rs. 500,95,84,199/-....
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....priate market rate for benchmarking the similar transaction of transfer of electricity. 3.3 That the Ld. TPO and consequently the Ld. AO/NaFAC have grossly erred in law and on facts and circumstances of the case in not following rule of consistency as well the principle of judicial discipline by completely disregarding the fact that same methodology has been followed by assessee year on year which has also been approved by Hon'ble Delhi High Court in assessee's own case for AY 2014-15 vide judgment dated 21.01.2025 (ITA no. 566/2023) and by Hon'ble ITAT in assessee's own case for AY 2015-16, AY 2018-19 and AY 2020-21. 3.4 That the Ld. TPO and consequently the Ld. AO/NaFAC have grossly erred in law and on facts and in circumstances of the assessee's case by not allowing the relief to the assessee and in effect choosing to not follow the binding judicial precedent (Hon'ble Delhi High Court) by merely stating that the revenue is in the process of filing SLP before the Hon'ble Supreme Court. That the said action of Ld. TPO and consequently the Ld. AO/NaFAC is in complete contradiction to the binding directions of DRP and hence resulting addition is liable to be delete....
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....which is beyond the mandate of transfer pricing statute. Sale of Hybrid Seeds - Adjustment of Rs. 6,39,24,000/- 8. That the DRP, ld. TPO and consequently the ld. AO/NaFAC have erred in law and facts and in circumstances of the case in making an addition of Rs. 6,39,24,000/- in respect of international transaction of sale of hybrid seeds to the associated enterprises on wholly illegal and erroneous grounds as follows: - 8.1 by rejecting the assessee's MAM being the Cost-Plus Method ('CPM') without any cogent reason and instead applying Transactional Net Margin Method ('TNMM') to benchmark the aforesaid International Transaction. 8.2 By rejecting the following comparables selected by the assessee based on its comparability analysis on erroneous grounds: i. Rejecting the turnover filter applied by the assessee contending the same as not being an appropriate filter. ii. Rejecting assessee's comparable namely M/s Rallis India Limited, M/s Agarwal Cotspin Private Limited alleging that said comparables fails the functional filters. 8.3 by erroneously conducting a fresh search process without providing the assessee with the cru....
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....e to building, being a depreciable asset, was duly adjusted / deducted from the Written Down Value, WDV of the 'block of building' in accordance with provisions of section 50 of the Act instead of separately offering it under head 'capital gains'. 12. That the Ld. AO/NaFAC have grossly erred in law and on facts and in circumstances of the assessee's case in acting contrary to the binding directions of Hon'ble DRP by not verifying the assessee's submission and not passing speaking order in this regard. 13. That the ld. AO / NaFAC has erred in law in making the above addition erroneously, without application of mind, completely ignoring the statutory mandate of section 50 of the Act as well the submissions of the assessee and without even mentioning the provisions of the Act under which the said addition has been made and effectively making the double addition in the hands of the assessee. Without prejudice- Income tax payable computed as per computation sheet forming part of final order u/s. 143(3) of the Act is inaccurate and erroneous 14. That the ld. AO has grossly erred in applying the normal tax rate @34.944% on the addition of capital gains ....
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....ssee in its transfer pricing study has benchmarked the prices charged for captive supply of electricity for unit situated at Bharuch, Gujarat by applying internal CUP being the prices at which power was purchased from respective State Electricity Board (SEB). The TPO examined the captive transfer of electricity between eligible and noneligible units situated at Bharuch, Gujarat. The assessee company, based on the internal CUP method, determined the transfer price rate for electricity at Rs. 7.33 per unit at Bharuch, Gujarat plant. 6. The TPO in its show cause notice stated that rate at which power is purchased from the SEB is materially different from the rate at which the power is sold by the captive eligible units to non-eligible unit due to cross subsidy embedded in the cost charged by the discoms. The TPO therefore proposed an alternative approach of benchmarking using the 'other method' by using the average rate at which power is traded at Indian Energy Exchange (IEX). To obtain such average rate on IEX, TPO issued notice u/s. 133(6) of the Act to Principal Officer, IEX, New Delhi on 14.06.2025 which was replied through email on 15.06.2025 informing him the average sale pri....
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....tained the addition stating that the revenue has not accepted the decision of Hon'ble High Court in assessee's case for AY 2014-15 and the tax department is in the process of filing SLP against the said order. The relevant para of the TPO-Order Giving Effect to the DRP Directions is reproduced herewith as follows: - "4.2.2 It is submitted that the decision of the Hon'ble Delhi High Court in the assessee's case for AY 2014-15 has not been accepted by the Revenue. The Jurisdictional Assessing Officer (JAO) was requested vide email dated 16.10.2025 to confirm the status of the appeal before the Hon'ble Supreme court. In response, the JAO informed the TPO vide email dated 24.10.2025 that the Department is in the process of filing a Special Leave Petition (SLP) against the said decision of the Hon'ble High Court, as the same has not been accepted by the Department. Accordingly, since the matter is under consideration by the Department, the adjustment proposed by the AO/TPO on this issue remain unchanged." 10. During the course of hearing before us, the ld.AR for the assessee pointed out that the issue is fully covered by the catena of judicial precedents especially ....
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....nding order of Hon'ble jurisdictional High Court but also the binding nature of directions issued by the DRP. The ld. AR submitted that no appeal has been preferred by the tax department against the Hon'ble Delhi High Court order dated 21.01.2025 for AY 2014-15. This fact is also supported by the screenshots from the Supreme Court website wherein no record of any SLP is available. 13. The assessee in its submissions referred to the following judicial precedents in support of the legal principle that even it is assumed that SLP has been filed by the revenue, then by mere filing of SLP, binding effect of order of the High Court cannot be ignored, until and unless the said order is stayed from its operation by the Apex Court:- a) Kunhayammed vs State of Kerala [2000] 113 Taxman 470 (SC) b) Khoday Distilleries Ltd. vs. Mahadeshwara Sahakara Sakkare Karkhane Ltd [2019] 104 taxmann.com 25 (SC) c) Hapag Lloyd India Pvt. Ltd [TS-368-HC-2023(BOM)] d) Green Maiden A 2013 Trust [TS-71-ITAT-2023(Mum)] e) Haier Appliances India Pvt Ltd [TS-627-HC-2022(DEL)-TP] 14. The ld. DR fairly agreed that above issue is no longer a res-integra and is fully....
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....r the average IEX rate at which power is traded on IEX, is a comparable uncontrolled transaction, is required to be evaluated by determining whether there are any differences between the specified domestic transaction and the uncontrolled transaction of trade on the IEX. 46. The Assessee states - and the same is not controverted - that the availability of power on IEX is unpredictable and the supply of power is unreliable. 47. It is stated that in order for a party to purchase power from IEX, the said party has to participate in the bidding process. The same entails furnishing a bid in advance for supply of fifteen minutes slots. Illustratively, it is stated that if a party requires power supply for a period of four hours, it would be required to submit sixteen bids for fifteen minutes slots. Further, the bidder cannot resile from the bids furnished by it in advance. 48. In view of the above, it is contended that power traded on IEX cannot be compared with the power supplied by a SEB. 49. It is not disputed that IEX is a platform, which is used by power producing units to sell surplus power for short term requirements. IEX is not a platform for s....
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....ion. The rate at which such electricity was supplied by the Assessee being Rs.4.39 per kWh, was rightly accepted as an ALP. 55. As noted above, the learned ITAT also accepted the rates at which electricity was supplied by the SEBs/power distribution companies to the Assessee in Gujarat and Rajasthan regions as the said rates was considered as an external CUP. 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 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 a....
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....section 80 IA 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. 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 electr....
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....ate 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 80 IA of the Act." [emphasis added] 59. As is apparent from the above, the Supreme Court had accepted the rates at which electricity was supplied by the SEBs to industrial consumers as being the market value of the said supplies for the purposes of Sub-section (8) of Section 80IA of the Act. 60. In view of the above, the questions of law are answered in favour of the Assessee and against the Revenue." 17. The limited issue is whether the assessee's benchmarking approach of adopting the purchase price of electricity from respective SEB for determination of transfer price of captive power adheres with the arm's length principle or not. As stated above, this question has been answered by the Hon'ble Hi....
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....te authority is "not acceptable" to the department, and is the subject matter of an appeal, can furnish no ground for not following a judicial precedent, unless its operation has been suspended by a competent Court. If this healthy rule is not followed, it would lead to undue harassment to assessee's and result in chaos in the administration of tax laws. 16. In this regard, the reliance placed by the Petitioner to the decision rendered by this Court in the case of Samp Furniture Pvt. Ltd. v. ITO [WP NO.: 3290/2024; order dated 05.08.2024], is well founded. In this decision it was held as under: "11. This apart we also find that quite absurd and unwarranted statements are made by the JAO in paragraph 12 of the reply affidavit, when he says that the department does not agree with the judgment of this Court in Hexaware Technologies Limited (supra). It may be that the Revenue has not "accepted" the judgment but it would not mean that till the same is set aside in a manner known to law, the same has lost its binding force as the deponent intends to say in paragraph 12, so as to proceed as if there is no such decision of this Court, and much less a binding decision. ....
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....15JC was a decided issue by the jurisdictional Tribunal in the case of S.K. Ventures us. ITO (supra). If the assessee is pleading that its interpretation of the applicability of Section 115JC has already been decided by the jurisdictional Tribunal, then in such a case, Respondent No. 2 ought to have considered the facts and law of the said case. If the facts are identical, then it ought to have been followed. Instead, Respondent No. 2 states that the doctrine of binding judicial precedents would apply only when the decision of the superior authority/Court is rendered in respect of the same party. It is the claim of Respondent No. 2 that because the Petitioner was not a party to the decision in the case of S.K. Ventures v. ITO (supra), the ratio laid down therein would not apply to the Petitioner. We are of the view that if in the facts and circumstances of the case and in law, the case of the Petitioner is in consonance with the facts in the decision rendered by the jurisdictional Tribunal, then it ought to be followed as a matter of judicial discipline." 18. We caution, that not only the TPO / AO but DRP has somehow failed to appreciate the above principles. There is no doubt t....
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....n under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment and chaos in to assessee's administration of tax laws." (emphasis supplied) Therefore, in our view, the tax authorities and tribunal are bound to follow the order of jurisdictional High court in assessee's own case for AY 2014-15, till it is stayed from its operation by the Hon'ble Supreme Court and till then no deviation from the binding precedent is permitted. 19. Thus, respectfully following the judgement of Hon'ble High Court and Co-ordinate Benches of the Tribunal in the case of assessee, we hereby delete the transfer pricing addition of Rs. 131,28,53,044/- in respect of 'transfer of electricity'. Ground of appeal No. 3....
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.... is a valuable sources of power ii. it has cost of production, iii. There are methods and Costing Standards for determining the cost of production of steam. iv. Assessee has transferred the steam from eligible units to non eligible units at cost only. v. Such cost is certified by the Cost Accountant, Chartered Accountant, and Chartered Engineers. vi. It cannot have Nil cost" 26. This order of the Tribunal was further challenged by the Revenue before the Hon'ble High court in ITA No. 566/2023, and the Hon'ble court did not even admit the ground of revenue on steam holding no substantial question of law. The relevant observations as contained in ITA No. 566/2023 and CM Application No. 51969/2023 while deciding the substantial question of law in para 5 of the Hon'ble High Court is as follows: "5. Question C pertains to the transfer of steam from the eligible unit to the non-eligible unit of the assessee. The appellant seeks to contend that since steam was a by-product of the business and would have been included in the cost of power generation, it should not have been taken into account. We, however, find that the aforesaid issu....
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....essee's case for AY 2014-15 has not been accepted by the Revenue. The Jurisdictional Assessing Officer (JAO) was requested vide email dated 16.10.2025 to confirm the status of the appeal before the Hon'ble Supreme court. In response, the JAO informed the TPO vide email dated 24.10.2025 that the Department is in the process of filing a Special Leave Petition (SLP) against the said decision of the Hon'ble High Court, as the same has not been accepted by the Department. Accordingly, since the matter is under consideration by the Department, the adjustment proposed by the AO/TPO on this issue remain unchanged." The TPO /AO therefore sustained the addition on the ground that department is in the process of filing SLP against the high court's order. 31. We hold that TPO / AO have erred in not following the directions unreservedly which is against the statutory mandate as contained in section 144C(10) of the Act. In terms of their own submissions, no appeal was filed by the revenue against the order of Hon'ble High Court in AY 2014-15 till the date of giving effect to the DRP directions, therefore, they should have followed the DRP directions and deleted the addition. Relia....
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....ssee's annual report. TPO rejected three comparables taken by the assessee and had added seven additional comparables and determined the arm's length range [35th percentile to 65th percentile of weighted average PLIs] of the 12 comparables (including 5 comparables from the TP Study) at 11.49% - 21.00% with a median of 19.28% and accordingly computed transfer pricing adjustment of Rs. 7,09,61,000/-. 35. Against this order, assessee filed objections before the DRP, which upheld the method and filters applied by the TPO for selection of comparables. For the comparable objected by the assessee based on persistent loss namely Ajeet Seeds Pvt. Ltd., DRP directed the TPO to verify these factual contentions and pass a speaking order in this regard along with re-evaluating the PLIs of the comparables. For new comparable introduced by TPO, and opposed by assessee namely KRBL Ltd., DRP accepted contention of assessee and directed the TPO to exclude this comparable. Following the DRP directions, TPO reduced the adjustment from Rs. 7,09,61,000/- to Rs. 6,39,24,000/- after excluding KRBL Ltd. and accepting Ajeet Seeds Pvt. Ltd. as comparable along with re-computing the PLI of comparables. ....
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....r the assessee's SBG unit margin should be adjusted to exclude cost pertaining to extraordinary events relating to assessee's business during the year; b) In alternative, the PLIs of the comparables should be adjusted to account for the extraordinary business conditions and events of the assessee's business; or c) TNMM may be applied on the Transactional level, working of which were provided by the assessee during the course of transfer pricing proceedings, but ignored by the TPO. 39. The assessee submitted the detailed workings of PLI of assessee's SBG unit as well the comparable under each of above alternatives, which are discussed hereunder: a) The assessee submitted that PLI of assessee's SBG unit under the Transactional Net Margin Method ("TNMM") may be recomputed by making suitable adjustments to neutralize the impact of extraordinary costs incurred during the relevant year. For this purpose, the extraordinary costs have been benchmarked against the average cost levels of the same unit in the preceding and succeeding years, during which the unit was operating under normal circumstances and earning profits. The assessee drew reference to the chart....
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....ng functional similarity. Having done so, it was incumbent upon the TPO to first examine and reject the internal comparables with cogent reasons before resorting to external TNMM. The judicial precedents relied upon by the assessee, particularly the recent decisions of this Bench, clearly hold that internal TNMM deserves primacy when reliable segmental data is available. Respectfully following the same, we hold that rejection of internal TNMM in the present case is unsustainable in law. Since the segmental results demonstrate that margins from AE transactions are higher than those from non-ASSESSEE transactions, the international transactions are at arm's length. COVID-19 Impact and Loss Situation The financial data placed on record shows that while the assessee incurred loss during AY 2021-22, it earned profits in both the preceding and succeeding years. The gross profit margins across the three years remain broadly consistent. The erosion in net margins during AY 2021-22 is attributable to sharp decline in revenue, under-absorption of fixed overheads, and additional COVID-19 related costs. These are extraordinary external factors. ....
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....ade by the TPO on the working submitted by the assessee respect to the Transactional level TNMM. Accordingly, we direct TPO to apply transactional TNMM and verify the contentions of the assessee with workings submitted by the assessee with respect to its own PLI as well the PLI of comparables along with selection of comparables as submitted by the assessee. It is directed that TPO shall make appropriate adjustment in the computation of PLIs of the comparables to account for the extraordinary circumstances in the assessee's business viz. substantial reduction in volumes, provisioning for non-moving / slow-moving inventory, discarding of seeds etc. The TPO/ AO shall provide a reasonable opportunity to the assessee and assessee shall file all the relevant documents and workings. It is directed that on application of methodology as directed, if assessee's transactional PLI falls within the range as computed in terms of section 92C rwr. 10CA, the TPO / AO shall delete the impugned adjustment on sale of hybrid seeds as per law. Therefore, Ground of appeal No. 8 raised by the assessee is allowed for statistical purposes. Ground no. 9 : Interest on foreign currency loan, addition of Rs.....
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.... of +/- 3%. We thus direct to delete the adjustment of Rs. 2,22,203/-made on account of interest income on foreign currency loans. Thus, Ground of appeal No. 9 raised by the assessee is allowed. Ground no. 10 to 13: Addition on account of sale of property- Rs. 9,11,36,320/- 48. Grounds of appeal No. 10 to 13 raised by the assessee is in respect of the addition made of Rs. 9,11,36,320/- on account of sale of property. 49. Brief facts involved in this issue are that the assessee has sold various properties consisting of Land and Buildings amounting to Rs. 40,15,25,821/- during the year under consideration. In accordance with the provisions of the Income Tax Act, the sale consideration of land amounting to Rs. 31,01,89,501/- has been offered to tax under the head "Capital Gains". Further the sale consideration pertaining to building which is a depreciable asset has been adjusted against the written down value (WDV) of the respective block of assets i.e. building in accordance with the provisions of section 50 of the Act. 50. Before us, Ld.AR for the assessee submitted that that AO has inadvertently treated the entire sale consideration from the transfer of a building as in....
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....ion sheet attached with the final order inadvertently applied an incorrect rate of tax by taxing the addition of Rs. 9,11,36,320 @ 34.944% instead of the correct applicable rate of 23.296%, thereby resulting in an excess tax liability of Rs. 1,06,15,559/-. Since the said addition has been made under the head "Capital Gains," it ought to have been taxed at the applicable rate of 23.296% (i.e. tax rate for long term capital gain 20% + surcharge 12% + cess 4%). 56. The ld. AR for the assessee w.r.t Ground No. 15 further submitted that the AO has erred in the computation sheet attached with the final assessment order by not granting the correct amount of MAT credit available under Section 115JAA of the Act. The assessee in its ITR for relevant year had brought forward MAT credit of Rs. 5,47,90,45,607/- eligible for set off. Now, since the income under normal provisions of the Act has been assessed at Rs. 15,94,29,45,929/-, the assessee is entitled to utilize the MAT credit of Rs. 2,86,28,32,383/- (difference between tax payable under the normal provisions of Rs. 5,56,04,87,467/- and tax payable under Section 115JB of Rs. 2,69,76,55,084/-) which has not been given by the AO in comput....