ACIT (CIR.) - 6(1)(2), MUMBAI V. BHANDAR POWER LTD., MUMBAI

ITA 1908/MUM/2018

AI Insights

The case revolves around the dispute concerning the eligibility of Bhandar Power Ltd. to claim deductions under section 80IA of the Income Tax Act, 1961, for the Assessment Year 2013-14. The Revenue challenged the deductions claimed by the assessee, arguing that the arrangements made under the PPAs with related parties were a 'colourable device' to avail dual benefits of tax deductions. The CIT(A) had earlier allowed the deductions, which the Revenue contested in the Tribunal. The Tribunal examined the terms of the PPAs, the nature of the income derived, and the compliance with transfer pricing regulations, ultimately dismissing the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779820 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 26-03-2018
• Other Referred Cases: CIT(A) vs. Meghalaya Steels Ltd., ACIT vs. Maxcare Laboratories Ltd., Magnum Power Generation Ltd. vs. DCIT, Sterling Foods vs. CIT, Orissa State Warehousing Corporation vs. CIT, Liberty India vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF FIXED COST
• Keywords: Set aside; Business income; Transfer pricing; Depreciation; Commercial expediency; Search and seizure; Scheme of amalgamation; Fuel Charges
• Section: 148; 143(3); 154; 263; 10

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 1908/MUM/2018 Assessment Year: 2013-14 Assistant Commissioner of Income Tax, Circle 6(1)(2), Mumbai Vs. Bhandar Power Ltd. 14th Floor, Essar House, 11, K. K. Marg, Mahalaxmi, Mumbai - 400034 (PAN: AAACB6693B) (Appellant) (Respondent) Present for: Assessee : Shri Vijay Mehta, FCA and Shri Tarang Mehta, Advocate Revenue : Shri Satyaprakash R. Singh, CIT DR Date of Hearing : 29.07.2025 Date of Pronouncement : 13.10.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of Ld. CIT(A), Delhi, vide order dated 25.01.2018 passed against the assessment order by ITO 6(1)(4), Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 20.12.2016, for Assessment Year 2013-14. 2. Grounds taken by the Revenue are reproduced as under: 1. On the facts and in the circumstances of the case and in law, the CIT(A) is not justified in deleting the disallowance of deduction u/s 80IA of the Income Tax Act of Rs. 203,13,43,740/-without considering the fact that the provisions of section 801A(10) is clearly attracted in this case hence the assessee is not eligible for claiming deduction u/s 801A of the Income Tax Act. Printed from counselvise.com 2 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) is not justified in deleting the disallowance of deduction u/s 801A of the Income Tax Act, without considering the fact that every assessment year is different. 3. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. 3. By way of the above stated two grounds of appeal, the only issue raised by the Revenue is in respect of disallowance of deduction u/s. 80IA(4) by the application of sub-section (10) of section 80IA, by which ld. Assessing Officer can determine the reasonable profit when it appears to him that owing to close connection between the assessee carrying on eligible business and any other person, the arrangement so made in the course of business is such that assessee earns more than ordinary profits. 4. Brief facts of the case are that assessee is engaged in the business of generation of electricity. It has set up a power plant of 500 MW capacity at Hazira near Surat in the state of Gujarat. Power plant consists of 3 units, namely Phase I for 155 MW, Phase II for 200 MW and Phase III for 145 MW. Phase I commenced generation of electricity on 15.01.2006. Phase II and III commenced generation of power on 18.12.2007. All the units are eligible for deduction u/s.80IA for 10 Assessment Years, out of first 15 years of their operation. Assessee claimed deduction u/s. 80IA in respect of Phase I, starting from Assessment Year 2007-08. In respect of phase II and III, it claimed deduction u/s.80IA for the first time in the year under consideration, i.e., Assessment Year 2013-14 even though generation of power had commenced on 18.12.2007, by taking into account window of 15 years available to it. Printed from counselvise.com 3 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 4.1. Assessee filed its return of income on 29.11.2013, reporting total income at Rs.4,57,220/- after claiming deduction u/s.80IA of Rs.110,30,57,821/- for Phase I and of Rs.92,82,85,919/- for Phase II and III, total claim of deduction amounting to Rs.203,13,43,700/-. Assessee had entered into a long time Power Purchase Agreement (PPA) with the companies of the Essar Group vide agreement dated 08.03.2010. This agreement was entered by the assessee with Essar Steel India Ltd. (ESTL), Essar Projects (I) Ltd. (EPL), Essar Bulk Terminals Ltd. (EBTL), Essar Heavy Engineering Services (EHESL) which is a division of Essar Projects (India) Ltd., Essar Steel Hazira Ltd. (ESHL), Hazira Pipemill Ltd. (HPML) and Hazira Plate Ltd. (HPL). Out of the above three companies, namely ESHL, HPML and HPL were amalgamated into ESTL w.e.f. 05.08.2010 after obtaining approval of the Hon'ble Gujarat High Court under the scheme of amalgamation. 4.2. As per the PPAs entered into by the assessee with its group companies, the assessee had earmarked/allocated its power generation capacity to the said companies. Under the terms of the PPAs, the fuel for the generation of electricity is required to be supplied by the respective customer companies and in case they are unable to arrange the supply of the fuel, assessee would put in efforts to source the fuel from the third party. As per the PPAs, the price for supply of electricity by assessee to the group companies comprises of two components viz Annual fixed charges and Variable charges. The Annual fixed charges consist of the interest on debt, return on equity, depreciation on the assets and operation and maintenance cost which are apportioned among the customers in proportion to the power generation capacity allocated to them. Monthly fixed charges are computed at one-twelfth of Printed from counselvise.com 4 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 the Annual fixed charges. The variable charges comprise of the fuel charges, wherever the assessee sources the fuel from third party suppliers on account of inability of the customer company to supply the fuel. 4.3. For the above, the impugned PPA, dated 08.03.2010 was perused to take note of ‘effective date’ which shall mean 01.04.2010 and the ‘expiry date’ which shall mean up to 31.03.2030. ‘Schedule 3’ of this agreement contains details about annual charges and monthly charges and the same is extracted below for ready reference: Printed from counselvise.com 5 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 Printed from counselvise.com 6 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 4.4. Assessee has stated that it had collected certain fixed capacity charges based on the capacity allocated towards the buyer which includes collections towards depreciation, maintenance cost and return on equity and variable cost. The mechanism of determining the tariff, which includes the fixed capacity charges is as per general industry practise in the power sector and also as per the tariff regulation issued by the Central Electricity Regulatory Commission (CERC). Assessee furnished details about the committed and actual supply of power under the said PPA for the year under consideration as well as for the preceding three years, which are extracted below: Printed from counselvise.com 7 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 AY 2013-14 Sr. No. Customer Committed supply in Million Units (MU) Actual supply in Million Units (MU) 1 Essar Steel India Ltd. 3,246 1,372 2 Essar Steel Hazira Ltd. 3 Hazira Pipemill Ltd. 4 Hazira Plate Ltd. 5 Essar Projects (India) Ltd. 13 0 6 Essar Bulk Terminals Ltd, 13 6 7 Essar Heavy Engineering Services Ltd. 13 11 AY 2010-11 Sr. No. Customer Committed supply in Million Units (MU) Actual supply in Million Units (MU) 1 Essar Steel India Ltd. 4,328 1,991 2 Essar Steel Hazira Ltd. 3 Hazira Pipemill Ltd. 4 Hazira Plate Ltd. 5 Essar Projects (India) Ltd. 18 0 6 Essar Bulk Terminals Ltd. 18 0 7 Essar Heavy Engineering Services Ltd. 18 0 Note: The companies at Sr. nos. 2, 3 and 4 merged with Essar Steel India Ltd w.e.f. 01.04.2009 vide order of Hon'ble Bombay High Court dated 30.06.2010 Printed from counselvise.com 8 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 AY 2011-12 Sr. No. Customer Committed supply in Million Units (MU) Actual supply in Million Units (MU) 1 Essar Steel India Ltd. 3,246 2,481 2 Essar Steel Hazira Ltd. 3 Hazira Pipemill Ltd. 4 Hazira Plate Ltd. 5 Essar Projects (India) Ltd. 13 0 6 Essar Bulk Terminals Ltd. 13 0 7 Essar Heavy Engineering Services Ltd. 13 0 Note: The committed supply of units was reduced vide agreement dated 08.03.2010 w.e.f. 01.04.2010 AY 2012-13 Sr. No. Customer Committed supply in Million Units (MU) Actual supply in Million Units (MU) 1 Essar Steel India Ltd. 3,246 2,787 2 Essar Steel Hazira Ltd. 3 Hazira Pipemill Ltd. 4 Hazira Plate Ltd. 5 Essar Projects (India) Ltd. 13 0 6 Essar Bulk Terminals Ltd. 13 6 7 Essar Heavy Engineering Services Ltd. 13 11 Printed from counselvise.com 9 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 4.5. In the year under consideration, assessee has submitted the following particulars in Form No.10CCB in respect of claim of deduction made u/s. 80IA: Particulars Phase I (amount in Rs) Phases II and III (amount in Rs) Total value of machinery or plant used in business 278,94,22,000/- 714,34,36,714/- Total sales during FY 2012- 13 163,92,68,624/- 232,67,03,853/- Profits and gains derived 110,32,46,803/- 92,85,54,152/- Deduction claimed u/s. 801A 110,30,57,821/- 92,82,85,919/- 4.6. Details of receipts from sale of power in respect of the buyers under the said PPA along with quantum of electricity supplied during the year is tabulated below: Customer Receipts from sale of power (Rs.) Electricity supplied to the customers (No. of million units) Phase -1 Phase-II & III Total Phase -I Phase- II & 111 Total Essar Steel India (ESTL) Ltd. 140,35,56,000 199,21,44,000 339,57,00,000 171 1201 1372 Essar Projects (1) Ltd. (EPL) 56,62,665 80,37,331 1,36,99,996 0 0 0 Essar Bulk Terminals Ltd. (EBTL) 56,62,665 80,37,331 1,36,99,996 0 6 6 Essar Heavy Engineering Services Ltd. (EHESL) 56,62,665 80,37,331 1,36,99,996 5 5 10 Total 142,05,43,995 201,62,55,994 343,67,99,989 176 1212 1388 5. In the course of assessment proceedings, ld. Assessing Officer observed that even though receipts from sale of power have been shown from EPL, EBTL and EHESL, yet no electricity has been supplied to them during the year. He therefore, computed the receipts from actual Printed from counselvise.com 10 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 supply of power by considering fixed cost of Rs.1.01 per unit. Based on his workings, ld. Assessing Officer observed that the sale receipts to the extent of Rs.203.50 crores cannot be considered as forming part of operating income of the assessee derived from generation and supply of electricity. He thus, disallowed the claim of deduction made by the assessee u/s.80IA and held that receipt of annual fixed charges from the customers irrespective of actual supply of electricity is a financial arrangement between the assessee and the group concerns made with a view to avail dual benefit of deduction of profits u/s.80IA in the hands of the assessee and deduction of expenses in the hands of the buyer companies, without actual supply of power. The computation made by the ld. Assessing Officer as discussed above is tabulated below: Customer Sale receipts from actual supply of power (Rs.) Balance sale receipts (Rs.) Phase -I Phase-II & III Total Phase -I Phase-II & III Total Essar Steel India Ltd. (ESTL) 17,22,95,900 121,34,54,400 138,57,50,300 123,12,60,100 77,86,89,600 200,99,49,700 Essar Projects (I) Ltd. (EPL) O 0 0 56,62,665 80,37,331 1,36,99,996 Essar Bulk Terminals Ltd. (EBTL) O 56,45,900 56,45,900 56,62,665 23,91,431 1,13,08,565 Essar Heavy Engineering Services Ltd. (EHESL) 52,41,900 50,50,000 1,02,91,900 4,20,765 29,87,331 29,87,331 Total 17,75,37,800 122,41,50,300 122,41,50,300 124,30,06,195 79,21,05,694 203,51,11,889 5.1. Ld. Assessing Officer disallowed the claim of deduction u/s.80IA on the following three premise: Printed from counselvise.com 11 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 i) PPA entered by the assessee with its related parties is nothing but a colourable device as it results into tax free income in the hands of the assessee and at the same time buyers claim deduction of expenditure towards their purchase of electricity though no power has been supplied. According to the ld. Assessing Officer, the arrangement whereby vendor is obliged to purchase minimum quantity of power even if the power consumed by the purchase party is lower than the minimum guaranteed quantity, the party has to make the payment of minimum charges to the minimum quantity, which are determined based on fixed cost and profit of the assessee, is nothing but a colourable device. ii) Income received by the assessee from related parties on account of committed/minimum charges is not “derived from” eligible undertaking and therefore, not eligible for deduction u/s.80IA. iii) Deduction u/s.80IA is subject to condition prescribed u/s.80IA(10), according to which if the business is arranged with a closely connected party, so as to produce more than ordinary profit, the profit can be restricted to a reasonable amount by the Assessing Officer. According to the ld. Assessing Officer, income to the extent of Rs.203,51,11,889/- is not ordinary profit, hence not eligible for deduction u/s.80IA. 5.2. Ld. Assessing Officer, further, observed that deduction available u/s.80IA is in respect of profits and gains derived by undertaking from any eligible business, as specified in section 80IA(4). According to him, deduction is available on the income derived from generation of power and it cannot be extended to the entire income of power generating Printed from counselvise.com 12 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 company. Therefore, the deduction is to be restricted to profits emanating from actual generation and supply of power to the customer companies. 6. In the first appeal, assessee submitted that the issue raised by the ld. Assessing Officer is squarely covered by the decision of Coordinate Bench in assessee’s own case for Assessment Year 2010-11 to 2012-13. Ld. CIT(A) elaborately dealt with the submissions made by the assessee and held that income on account of sale of power is the income derived from the business of generation and supply of electricity by the eligible undertaking. He also took note of the factual position that claim of the assessee for deduction u/s.80IA has been accepted by the Revenue while completing the assessments for Assessment Year 2007-08, 2008- 09 and 2009-10 for which no proceedings u/s.148 or u/s.263 had been initiated. He placed reliance on certain decisions of Hon'ble Supreme Court and High Courts to conclude that income received by the assessee has direct nexus with the business of the eligible undertaking. He followed the ratio laid down by the Hon'ble Supreme Court in the case of CIT(A) vs. Meghalaya Steels Ltd., 383 ITR 217 (SC) and at the same time distinguished the judicial precedents relied upon by the ld. Assessing Officer. 7. Aggrieved by the outcome of the first appellate order, Revenue is in appeal before the Tribunal contending that decision rendered by ld. CIT(A) in favour of the assessee is without going into the substance of the PPA and without analysing the actual generation of power which is the core determinant for allowing deduction u/s.80IA. According to the Revenue, ld. CIT(A) has wrongly allowed the deduction on the entire sum collected by the assessee under the PPA. Contention of the Revenue Printed from counselvise.com 13 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 reiterates the observations and findings of ld. Assessing Officer to state that out of 1,388 units of power supplied during the year, 1,372 units were supplied to ESIL and only 16 units were supplied to the remaining entities. Collection on account of other entities is therefore, not substantially out of supply of power. They pertain to amounts of additional revenue not emanating from the power unit. These receipts are not for actual supply of power and hence, are not operating income. Revenue, further contends that amounts received by the assessee are in the nature of financial arrangement which negates allowability of deduction u/s.80IA(4). According to it, provisions of section 80IA(10) are clearly attracted and therefore disallowance made is justified. 8. Per contra, before us, ld. Counsel for the assessee assertively submitted that the issue raised by the Revenue in the present appeal is squarely covered by the decision of Coordinate Bench in assessee’s own case for the preceding years (supra). The only difference in the present year as compared to the preceding years is applicability of provisions of section 92BA whereby Specified Domestic Transactions (SDT) having subjected to transfer pricing Regulations and the claim of deduction made by the assessee u/s.80IA falls withing the meaning of SDT subjected to transfer pricing regulation. Apart from this, there is no change in the material facts in the present case. Ld. Counsel submitted that section 92BA along with other corresponding relevant provisions were introduced by the Finance Act, 2012 w.e.f. 01.04.2013 whereby under the clause (iii) any transfer of goods or services referred to in sub- section (8) of section 80IA and by clause (iv) whereby any business transacted between the assessee and other person as referred to in sub section (10) of section 80IA were subjected to transfer pricing regulation if the aggregate of such transaction exceeded the prescribed threshold. Printed from counselvise.com 14 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 The impugned year Assessment Year 2013-14 is the first year wherein assessee was subjected to transfer pricing regulation in respect of its claim made u/s.80IA. In this respect, in the course of impugned assessment proceedings, ld. Assessing Officer made the reference u/s.92CA(1) to the Transfer Pricing Officer (TPO) for computation of Arms’ Length Price (ALP) in relation to the Specified Domestic Transaction (SDT). Assessee had furnished Form No.3CEB as prescribed u/r. 10E of the Income-tax Rules, 1962 (the Rules). In clause 25 of this Form, assessee reported about entering of transaction towards SDT for sale of power and charges to its Associated Enterprises (AEs) for which the method used for determining ALP was reported as Comparable Uncontrolled Price method (CUP). 8.1. Ld. TPO carried out a transfer pricing assessment proceeding for which due compliance was made by the assessee. After taking into consideration the facts and circumstances of the assessee, along with documentary evidences, value of SDT with AEs was considered at ALP by the ld. TPO and thus, no adjustment was proposed. Contents of the order passed by the ld. TPO u/s.92CA(3), dated 28.10.2016 are extracted below for ready reference: Printed from counselvise.com 15 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 Printed from counselvise.com 16 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 8.2. Despite this, acceptance by the ld. TPO on the value of SDTs to be at ALP, ld. Assessing Officer raised the issue under the provisions of section 80IA(10) to taint the transactions of the assessee as colourable device, resulting into more than ordinary profits and thus, resorting to dislodging the claim of deduction u/s. 80IA made by the assessee. 8.3. He also pertinently pointed out that income arising in the year under consideration is out of the same agreement in respect of Phase I, II and III which has already been reported in the earlier years and the claim of deduction u/s.80IA has been allowed. The said PPA continued Printed from counselvise.com 17 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 in the year under consideration also with no change in the terms thereof. 9. We have heard both the parties and perused the material on record. Both the parties furnished their written submissions along with relevant corroborative documentary evidences as well as judicial precedents of the preceding years to which we have given our thoughtful consideration. We have also perused orders of the authorities below to take note of their observations and findings both, on the factual position and the applicable provisions of law as well as various judicial precedents relied upon. Fact of the matter is that there is a PPA placed in order and is the one, which still continues under which assessee is deriving its income from business of generation and supply of power of electricity. It is the same agreement whereby assessment year 2010-11, 2011-12 and 2012-13 have been dealt by the Co-ordinate Bench in assessee’s own case, allowing the deduction u/s.80IA. What is material is that there is no fresh PPA entered into during the year. What is also material is the transfer pricing provision brought under the Act to cover SDT for determining its ALP, which undisputedly in the present case of the assessee, has been held to be at ALP by the ld. TPO vide order passed u/s.92CA(3) already extracted above. 9.1. At this juncture, it is extremely important to understand the nuances of power business and its regulatory framework which is elaborated as follows based on submissions made before us by the assessee: i. Considering the perennial shortage of power in India, regular liberalization process is initiated by the government, the participation of private players in generation and distribution of power is allowed under the stringent regulations of central and state body administering a power business Printed from counselvise.com 18 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 ii. We wish to bring to your kind attention that BPOL has entered into long term PPAs with its customers for generation of power. As any prudent business would, and in line with the commercial practice, followed by the industry, power companies attempt to engage with customers over a long term, committing to them that the extent of power as determined necessary by the purchaser will be generated for them and the requisite capacity of the power plant will be earmarked for them for the purpose. iii. From the perspective of the customers, they make an estimate of their power requirements, and seek to ensure a committed supply of the requisite power over a period of time. In doing so, they are conscious of the fact that, longer period contract would a) entail relatively lower costs, b) saves them from the uncertainty of trying to acquire power strictly on a need basis, and c) that organizing an efficient source is crucial for their operations, regardless of short term variations in off-take. In the power business the power suppliers may not wait/ be available when power is required on an immediate basis, but would prefer to the up with customers who would commit to a long term arrangement. Equally, power suppliers, Including BPOL, would constantly look out for, and attempt to ensure that their entire capacity is allocated so as to generate revenue at the earliest possible opportunity instead of letting their capacities remain idle and wait for customers who would purchase power on a need basis. Charges: Fixed Charges: Based on the capacity so allocated for each customer, fixed charges determined. Annual fixed charges comprise, inter-alia, interest on debt, depreciation, maintenance cost, and return on equity. Since, for the purpose of keeping the capacity ready to generate power for likely demand from its customers out of the allocated capacity, BPOL has to incur the above costs, these are rightly Invoiced to customers purely as a part of power generation activity and in line with the terms of the PPA. As for variable charges, their inclusion in the total charges depends upon contractual arrangements as explained hereinabove. Regulatory provisions: Recovery of capacity charges as a part of tariff is in line with the notification of Central Electricity Regulatory Commission (CERC). It will be appreciated that tariff is finalized and charged after a detailed process involving compliance with the norms set out by the electricity commission, certification by auditors, and approval by the commission. In terms Clause 13 (1) Chapter 3 relating to Computation of the Tariff’ of the Notification dated 19th Januaгу, 2009 issued by the CERC. \"Components of Tariff (1) the tariff for supply of electricity from a thermal generating station shall comprise two parts, namely, capacity charge (for recovery of annual fixed cost consisting of the components specified in regular-Jan 14) and energy charge (for recovery of primary fuel cost and limestone cost where applicable).” Printed from counselvise.com 19 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 Clause 14 Annual fixed cost: The annual fixed cost (AFC) of a generating stationer a transmission system shall consist of the following components-  Return on equity;  Interest on loan capital;  Depreciation;  Interest on working' capital;  Operation and maintenance expenses;——\" Further, as per clause 21 of the aforementioned Notification, which deals with Computation and Payment of Capacity Charge and Energy for Thermal Generating Stations \"The total capacity charge payable for a generating station shall be shared by its beneficiaries as per their respective percentage share/allocation in the capacity of the generating station.\" From the aforesaid sit will be clear that appellant entered into arrangements for power supply in the form of Power Purchase Agreements (PPAs'), whereby the appellant collected certain fixed capacity charges, based on the capacity requirement of buyer and variable costs. The mechanism of determining the tariff which includes fixed capacity charges is as per general industry practice in the power sector and also as per tariff regulation issued by the regulatory authority viz. Central Electricity Regulatory Commission ('CERC'). General Industry practice It needs to be appreciated that the components of the charges for power supply merely represent the method of computing the consideration, which as explained hereinabove, is aligned with regulatory 'provisions. To the extent that a customer does not off-take power from the capacity that the supplier has allotted to it, the overall cost of power over a period of time increases. The deliverable for which the charges are invoiced continues to be generation of power. Billing of fixed cost based on capacity allocation is a general industry practice which has been welt supported by tariff regulation issued by Central Electricity Regulatory Commission (CERC).” 9.2. Keeping the above in context, the important question before us is whether the income received by the assessee by way of fixed cost charges under the PPA could be said to be income derived from the business of undertaking set up for generation and supply of electricity which would be eligible for deduction u/s.80IA. For this, let us understand the provisions of section 80IA in the facts of the present case for which relevant portion is extracted below for ready reference: \"(1) Where the gross total income of an assessee includes any profit and gains derived by an undertaking or an enterprise from any business referred to in the sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this Printed from counselvise.com 20 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. \" ….. (4) This section applies to – (iv) an undertaking which, - is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2014 ......\" [underlined for emphasis] 9.3. As observed from the above, any profits derived by the undertaking \"from the business of power generation and distribution\", referred to in sub-section (4) of section 80-IA is eligible for deduction under section 80-IA of the Act. Thus, what is required is that profits and gains should be derived from the business of the undertaking, i.e., profits and gains derived from the business of generation and distribution of power. Use of phrase “any business of” signifies that benefit of deduction is to be given not only to the profits and gains derived from the industrial undertaking but also to give benefit of deduction in respect of income having a close and direct nexus with the profits and gains of the industrial undertaking. Thus, any income generated out of an act which is required to be undertaken essentially for carrying out the business of industrial undertaking is to be considered for computing the deduction u/s.80IA. In the present case, it is the business of generation and supply of electricity by the industrial undertaking. 9.4. In the case of the assessee, it is indisputably set up for the generation of power. Further, it has been generating power over the years as its sole business; it is not engaged in any other business. As such, its entire income is divided from the eligible business of power generation. Based on these facts, there can be no dispute that its entire Printed from counselvise.com 21 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 income is eligible for deduction under section 80IA. In this connection, the fact that the revenues earned do not correspond with the actual power generated cannot be a basis for restricting such deduction. As explained hereinabove, an industrial customer enters into an agreement for committed supply of power based on requirements over a period of time, and not as and when required. He does so for his own benefit, viz. to hedge against potential shortage and higher costs when taken on spot basis. If during that period, there are phases when the customer does not need to off-take power due to business reasons, which does not in any way make the power tariff paid to the supplier as anything but profits derived by the supplier undertaking which is set up for the generation of power. 9.5. For the above, we take note of the decision by the Co-ordinate Bench of ITAT, Cuttack in the case of ACIT vs. Maxcare Laboratories Ltd. which dealt with the phraseology used in section 80IA vis-à-vis section 80I to observe that the word “business” is a word of wide amplitude so as to cover any trade, industry or any act of adventure in the nature of trade. It noted that words used in section 80IA “income derived from business of industrial undertaking” are intended by legislature to give more extended benefit. According to it, legislature certainly wants to give benefit of deduction not only to the income derived from industrial undertaking, but to all sorts of income which is derived from the business of the industrial undertaking, meaning thereby, all sort of income which is inextricably related to the carrying on of the business of industrial undertaking, is to be considered for computing deduction u/s.80IA. It was thus concluded that, an activity undertaken essentially for carrying of business in industrial Printed from counselvise.com 22 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 undertaking, results into generation of income out of such activity, the same is to be considered for computing the deduction u/s.80IA. 9.6. We also refer to the decision of Hon'ble Supreme Court in the case of Meghalaya Steels Ltd. (supra) whereby power subsidy, interest subsidy and transport subsidy were held to have direct nexus with the business of the undertaking and were held to be income derived from the undertaking as it goes to reduce the cost of production and deduction u/s.80IB was held to be held allowable. Relevant portion of the judgement is reproduced below: “17. An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Company Limited v Commissioner of Income Tax, Gujarat II, this Court held that since an expression of wider import had been used, namely “attributable to” instead of “derived from”, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression “attributable to”. Since we are directly concerned with the expression “derived from”, this judgment is relevant only insofar as it makes a distinction between the expression “derived from”, as being something directly from, as opposed to “attributable to”, which can be said to include something which is indirect as well. 18. The judgment in Sterling Foods lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking in as much as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post manufacture namely, export. On an application of the aforesaid test to the facts of the present case, it can be said that as all the four subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. Printed from counselvise.com 23 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The “profits and gains” spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chemicals Limited v Commissioner of Income Tax is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself.” 9.7. We also refer to the decision of Co-ordinate Bench of ITAT, Delhi in the case of Magnum Power Generation Ltd. vs. DCIT [2011] 16 taxmann.com 75 (Del) which dealt with similar issue wherein Revenue had raised similar ground in respect of deduction u/s.80IA in respect of deemed generation of income without appreciating that the income was earned by the assessee merely on account of terms and conditions of the agreement entered between assessee and the electricity board Printed from counselvise.com 24 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 without generating/supplying any power and thus, the said income could not be said to be derived from the industrial undertaking. Co- ordinate Bench while dealing with the issue, which is similar to the case before us, delve into the judicial precedents in the case of CIT vs. Sterling Foods [1999] 237 ITR 579 (SC), Orissa State Warehousing Corporation vs. CIT [1999] 237 ITR 589 (SC) and allowed the claim of the assessee. 9.8. Considering the above judicial precedents, we note in the present case that assessee has set up industrial undertaking for generation and sale of power and it is an undisputed fact that it is not engaged in any other business activity other than the business of generation and sale of power, for which it has entered into PPA with its buyers valid for a period of 20 years. Under the PPA entered into by it, the power tariff has been specified in Schedule C, extracted above, whereby annual fixed cost incurred by the assessee for generation of electricity as well as keeping the power plant in a state or readiness to generate power as and when required by the customers, is recovered from the customers by allocating the same to them, in proportion to the power generation capacity earmarked for each of them. Details relating to power generation capacity earmarked is already tabulated above. Further, it is already on record that power tariff pricing mechanism followed by the assessee is in line with the general industry practice and is in conformity with the CERC regulations. The variable charge under the PPA arise only when the customer is unable to supply the fuel required for generation of electricity to the assessee. This variable charge is levied by the assessee in such a case for recovery of cost of fuel incurred by the assessee on behalf of the customer. From the PPA, it is noted that it does not merely provide for supply of power but also provide for Printed from counselvise.com 25 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 assured supply of power to the extent of power generation capacity allocated to each of the customer. In the given set of facts, we find that entire receipts of the assessee towards annual fixed charges emanating from the PPA are derived from the business of the generation and supply of electricity eligible for deduction u/s.80IA. 9.9. The issue raised before us is no longer res integra, as strongly asserted by the ld. Counsel that Co-ordinate Bench in assessee’s own case for Assessment Years 2010-11 to 2012-13 had dealt with the identical issue arising out of the same PPA with no change in the terms and conditions to allow deduction u/s.80IA. Co-ordinate Bench had followed its own decision in appeal for Assessment Year 2012-13 in ITA No.7601/Mum/2016, dated 02.08.2019. The facts of the case in the present appeal of the assessee and those already dealt by the Co- ordinate Bench in the precedent Assessment Years are identical. In fact, in the present year before us, provisions of section 92BA became applicable and the claim of deduction u/s.80IA falling within the definition of SDT was subjected to transfer pricing regulation. We have already noted that ld. TPO had accepted the value of SDT pertaining to claim of deduction u/s.80IA is at ALP by passing of order u/s.92CA(3), copy of which is already extracted above. The findings of the Co-ordinate Bench in assessee’s own case for Assessment Year 2010-11 and 2011- 12 in ITA No. 6061 and 6062/Mum/2016, dated 31.05.2019 are extracted below for ready reference: 13. We have heard the rival contentions of both the parties and perused carefully the records as placed before us including the impugned decision of the CIT(A) and case laws relied by both the parties. This is undisputed that the assessee’s only business activity is electricity generation which commenced in the financial year 2006-07 relevant to the assessment year 2007-08. It is also not disputed that the deduction u/s 80IA of the Act has been allowed in the earlier three years in assessments framed u/s 143(3) of the Act and no action u/s 148 or 263 of the Act is pending against the Printed from counselvise.com 26 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 assessee in respect of these years which has also been admitted by the ld DR when a query was put during the course of hearing. The assessment years in which the deduction was allowed u/s 80IA are as under: 2007- 08 143(3) dated 23.3.2009 2008- 09 143(3)dated 24.12.2010 2009- 10 143(3) dated 26.12.2011 14. Thus there is merit in the arguments of the ld AR that when the revenue has accepted the claim of the assessee u/s 80IA of the Act in the earlier years and there being no change in facts and circumstances during the year ,the claim of the assessee can be rejected in the year under consideration. We are in agreement with the conclusion of the ld CIT(A) and the ld counsel of the assessee on this issue. The case of the assessee is squarely covered by the various case laws as stated supra to this effect that once the claim of the assessee is accepted in the initial year it can not be rejected in the subsequently. 15. On the issue of high net profit rate in phase 1 and low net profit in other two phases 11 and 111, the ld CIT(A) has given a categorical finding that in phase-1, the fuel cost is borne by M/S Essar Steel Ltd. and if the adjustments are made to that effect, the profit would be comparable to other units and thus there is no force in the findings of the AO to this effect. It is also true that assessee has entered into PPAs with various related parties as stated hereinabove out of commercial expediency and commercial considerations to ensure sale of power generated and received revenue in respect of fixed charges but that is done out of business considerations only. So far as the allegations and observations of the AO on the issue of financial arrangement between the group companies are concerned, the ld AR has proved that no evasion of tax has taken place as M/S Essar Steel Ltd from whom substantial revenue has been received is a loss making entity as is apparent from the following data: 1. 2010-11 -29.62 -2,990.09 2. 2011-12 -986.77 -3,976.86 3. 2012-13 2,845.60 -6,822.45 4. 2013-14 6,321.22 -13,143.67 The ld CIT(A) comprehensively brought out all the facts and taken a very reasoned view considering all the facts. We also note that even the assessee company has been paying MAT every year. So considering all these facts and circumstances we hold that allegation of the AO that there was tax evasion has no weight. Printed from counselvise.com 27 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 16. We have also perused the decisions relied upon by the ld DR and observe that the these are distinguishable on facts and rendered on different context and are not applicable in the present case. The Revenue has failed to controvert the findings of the ld CIT(A) and also the arguments of the ld AR and thus we do not find any reason to interfere in the order of CIT(A) on this issue. Accordingly the ground no. 1 and 2 raised by the Revenue are dismissed.” 9.10. Another important fact which is to be taken note of is that during the preceding three assessment years, on the basis of PPA executed by the assessee with Essar Steel India Ltd., Assessing Officer has allowed deduction u/s.80-IA in scrutiny assessments made u/s. 143(3) as under:- A.Y. Date of Order 2007-08 23.03.2009 2008-09 24.12.2010 2009-10 26.12.2011 10. It is also worth noting the fact that an order u/s. 154 was passed, dated 09.04.2017 which notes that issue of payments to related parties are covered under transfer pricing report. Assessee’s application on this issue was found to be correct by the ld. Assessing Officer and accordingly rectification was made to the total income assessed u/s.143(3) assessment order by reducing the amount of Rs.17,55,83,387/- in respect of payments made to related parties as they had already been subjected to transfer pricing regulation vide order passed u/s. 92CA(3) whereby SDTs were held to be at ALP. This order u/s. 154 reinforces acceptance of the SDTs by the Department at ALP. 11. We also note that Revenue has observed that Phase II and III were commenced during the year under consideration to contend that the judicial precedents in assessee’s own case for the preceding years are Printed from counselvise.com 28 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 not applicable. To this effect, the correct factual position is that Phase II and III had commenced generation of power on 18.12.2007 which ld. Assessing Officer himself has noted in the impugned assessment order in para 4.1. Assessee had claimed the deduction for the first time in the impugned year for Phase II and III by executing the choice available to it of claiming the deduction in respect of 10 years out of the 15 years available under the provisions of section 80IA. Hence contention of Revenue that decisions of preceding years are not applicable, loses its force. 12. On the contention of the Revenue that assessee has resorted to tax advantage strategy for claiming deduction u/s.80IA, we take note of the details of loss to Essar Steel Ltd. since Assessment Year 2010-11, which has got huge brought forward loss and depreciation. The details are tabulated below: Sr. No. Assessment Year Returned Income / (Loss) (in Rs. Crores) Brought Forward (Loss /Depreciation) (in Rs. Crores) 1 2010-11 (29.62) (2,990.09) 2 2011-12 (986.77) (3,976.86) 3 2012-13 (2,845.60) (6,822.45) 4 2013-14 (6,321.22) (13,143.67) 5 2014-15 (6,098.46) (19,242.13) 6 2015-16 (5,367.95) (24,610.08) 7 2016-17 (6,661.87) (31,271.95) 8 2017-18 (2,238.54) (33,510.49) 9 2018-19 (2,222.83) (35,733.32) Printed from counselvise.com 29 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 12.1. Thus, in view of the above tabulated huge brought forward loss and depreciation, it is noted that there is no advantage for Essar Steel by making artificial higher payment to the assessee. There is prescribed limitation for utilisation of these brought forward losses, which gets lapsed year on year, if left unutilised. Also, assessee has made payment of Minimum Alternate Tax (MAT) of Rs.53.47 crores in the year under consideration. It has carried forward of MAT credit which has remained unutilised and has lapsed. Accordingly, it is manifest that there is no tax advantage as alleged by the Revenue. 13. Through the grounds of appeal raised by the Revenue, the Power Purchase Agreement entered into by the assessee is a colourable device to which provisions of section 80IA(10) are attracted, dis-entitling the assessee from deduction claimed by it. 13.1. We have elaborately dealt with the terms and conditions of PPA and taken note of the manner of fixing the tariff for the supply which is in line with the general industry practise in the power sector and which is in conformity with the CERC tariff regulations. We note that CERC tariff regulations are not mandatory in the case of assessee, it being a private power generating company. However, the fact remains that the pricing mechanism followed by it is on the same lines as that of the mechanism prescribed under CERC tariff regulations which shows bonafide of the assessee. The terms and conditions under the PPA agreed between the parties are to meet the requirements of power industry wherein substantial investment is required by the power generating company, so that investor has an assurance of the cost incurred for operating the power plant including the finance cost along Printed from counselvise.com 30 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 with a reasonable return on the investment made. Also, claim of assessee in the year under consideration is arising from the same PPA which has been held to be not a colourable device as it has been accepted in the preceding assessment years whereby the Co-ordinate Bench has held in favour of the assessee. 13.2. Further, we note that sub-section (10) to section 80IA talks about assessee producing more than ordinary profits which might be expected to arise by way of an arrangement in the course of business transacted between the assessee and others, while carrying on the eligible business. For the quantification of this excess profit over and above ordinary profit is taken care of by way of introduction of SDT by Finance Act, 2012, w.e.f. Assessment Year 2013-14. A proviso was added w.e.f. Assessment Year 2013-14 to sub-section (10) to section 80IA, so as to determine this excess profit having regards to ALP as defined in section 92F(ii). In this regard, the most clinching and undisputed fact has been reiterated several times in this order relating to the order passed by ld. TPO u/s.92CA(3), dated 28.10.2016, whereby SDT undertaken by the assessee for claiming deduction u/s.80IA has been found to be at ALP. Accordingly, ld. Assessing Officer resorting to provisions of section 80IA(10) to dislodge the claim u/s.80IA(4) made by the assessee is hit by the provisions to the sub-section and has no legs to stand. Grounds raised by the Revenue by referring to section 80IA(10) are dismissed. 14. Considering the above stated factual position, detailed deliberation on the provisions of the law, judicial precedents in the assessee’s own case as well as others and also exhaustive fact based findings arrived at by ld. CIT(A) covering every aspect of the issue including judicial precedents relied upon by the ld. Assessing Officer, Printed from counselvise.com 31 ITA No. 1908/Mum/2018 Bhandar Power Ltd. AY 2013-14 we do not find any reason to interfere with the findings so arrived at by ld. CIT(A) on the issue relating to claim of deduction u/s. 80IA by the assessee which is held to be allowed. 15. In the result, appeal of the Revenue is dismissed. Order is pronounced in the open court on 13 October, 2025 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 13 October, 2025 MP, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai Printed from counselvise.com "