AI Insights
Dev Priya Products Pvt. Ltd. appealed against the assessment order which included significant adjustments to their income due to transfer pricing adjustments on specified domestic transactions involving the transfer of electricity and steam between their units. The Transfer Pricing Officer (TPO) had proposed adjustments amounting to INR 5,90,24,706, which were upheld by the Dispute Resolution Panel (DRP). The Tribunal examined the methods used by the TPO for determining the Arm's Length Price (ALP) and found discrepancies in the calculation of transmission losses and the valuation of steam, leading to the decision to partly allow the appeal and direct a re-assessment.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 669352 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-06-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
H
Assessment Year
2020-2021
Judgement Text
"ITA No.4433/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “H” BENCH: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.4433/Del/2024 [Assessment Year : 2020-21] Dev Priya Products Pvt.Ltd., 4, Shankar Vihar, 1st Floor, Vikas Marg, Delhi-110092. PAN-AAACD4276C vs DCIT/ACIT, Central Circle, Meerut APPELLANT RESPONDENT Appellant by Shri Ved Jain, Adv. & Shri Ayush Garg, CA Respondent by Shri S.K.Jhadav, CIT DR Date of Hearing 02.04.2025 Date of Pronouncement 27.06.2025 ORDER PER MANISH AGARWAL, AM : The present appeal is filed by the assessee against the assessment order dated 31.07.2024 passed u/s 143(3) r.w.s 144C(13) of the Act arising out of the order of ld. Dispute Resolution Panel (ld. DRP) dt. 20/06/2024 pertaining to assessment year 2020-21. 2. Brief facts of the case are that the assessee has filed its return of income on 08.02.2023 declaring total income of INR 29,71,31,030/-. The said return was processed and the case of the assessee was selected for scrutiny. The assessee is engaged in the business of manufacturing and sale of paper and paper products besides is also engaged in power generation where the electricity is produced for own consumption as well as transfer to its other group ITA No.4433/Del/2024 Page | 2 units. Therefore, the matter was referred for determination of Arms’ Length Price (“ALP”) of the specified domestic transactions of transfer of electricity and steam to its non-eligible units. The TPO in terms of order dated 28.07.2023 has proposed the adjustment of INR 1,82,07,226/- towards the transfer of electricity and adjustment of INR 4,08,17,480/- was with respect to transfer of steam from eligible unit to non-eligible unit thus, an aggregate adjustment of INR 5,90,24,706/- was proposed by the TPO on specified domestic transactions as result of which the deduction u/s 80IA was reduced to this extent. The AO based on the proposal made by the TPO has passed the draft assessment order u/s 144C(1) of the Act dated 26.09.2023 wherein the total income of the assessee as declared at INR 29,71,31,030/- was upwardly taken at INR 5,90,24,706/-. 3. Against such order, the assessee has filed objections before Ld. DRP wherein it is stated that the adjustments proposed are incorrect and further it was brought to the notice of Ld.DRP that TPO has made incorrect calculation in respect of the transfer of steam. However, the claim of the assessee was dismissed by Ld. DRP who has upheld the adjustments proposed by the TPO. Accordingly, the AO passed the final assessment order dated 21.07.2024 wherein adjustment of INR 5,90,24,706/- were made to the total income of the assessee. Against which the assessee is before us by taking following grounds of appeal:- 1. “On the facts and circumstances of the case, the final assessment order passed by learned AO u/s 143(3) r.w.s ITA No.4433/Del/2024 Page | 3 144C(13) of the Income Tax Act, 1961 is bad both in the eyes of law and on facts. 2. On the facts and circumstances of the case, the final assessment order passed by learned AO u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 is bad in law and liable to be quashed as barred by limitation as the same has been passed beyond the due date prescribed under the Act. 3. On the facts and circumstances of the case, the learned AO/ TPO has erred both on facts and in law in determining its own Transfer Pricing Analysis despite the assessee bringing on record the detailed Transfer Pricing study done by it. 4. On the facts and circumstances of the case, the learned AO/ TPO has erred both on facts and in law in making the assessment at the income of Rs. 35,61,55,736/- as against the returned income of Rs. 29,71,31,030/- declared by the assessee. 5. (1) On the facts and circumstances of the case, the Ld. AO has erred both on facts and in law in making the transfer pricing adjustment of Rs.1,82,07,226/- in relation to the following specified domestic transactions: a. Inter-unit transfer of power from the captive power division to other division (paper unit) of the assessee of Rs. 1,31,35,979/- b. Sale of Power to M/s RPG Industrial Products Pvt. Limited of Rs. 50,71,247/- (ii) That the above mentioned addition has been made ignoring the explanation and evidence submitted by the assessee in support of his contention. 6. (i) On the facts and circumstances of the case, the Ld. AO has erred both on facts and in law in making the transfer pricing adjustment of Rs.4,08,17,480/- in relation to the following specified domestic transactions: ITA No.4433/Del/2024 Page | 4 (a) Inter-unit transfer of steam from the captive power division to other division (paper unit) of the assessee of Rs. 3,46,27,145/- (b) Sale of steam to M/s RPG Industrial Products Pvt. Limited of Rs. 61,91,325/- (ii) That the above mentioned addition has been made ignoring the detailed submissions, explanation and evidence submitted by the assessee in support of his contention. 7. On the facts and circumstances of the case, the learned AO/TPO has erred both on facts and in law in making the computational error while calculating the ALP of the transactions. 8. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the abovesaid additions by making the observations and calculations which are contrary to the actual facts of the assessee. 9. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the abovesaid additions by indulging in surmises without bringing on any evidence against the assessee, only on the basis of presumption and assumption. 10. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the abovesaid additions without providing the benefit of tolerance band specified under second proviso to section 92C(2) of the Act. 11. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in charging interest under section 234A, 234B and 234C of the Act. 12. That the appellant craves leave to add, amend or alter any of the grounds of appeal.” 4. Ground No.1 is general in nature, needs no adjudication. 5. Ground No.2 is not pressed hence, dismissed. ITA No.4433/Del/2024 Page | 5 6. Ground Nos.3 & 4 are with respect to the adjustments made to the total income and no specific issue is raised thus, are not adjudicated. 7. Ground No.5 is with respect to the transfer pricing adjustment of INR 1,82,07,226/- made on transfer of electricity from eligible units to non-eligible units. An adjustment of INR 1,31,35,979/- was made for electricity transfer from captive power division to other division/ paper unit and adjustment of INR 50,71,247/- towards sale of power to RPG Industrial power product (“RPG”). 8. Before us, Ld.AR submits that the assessee has entered into two types of specified domestic transactions-(i) transfer of electricity from eligible unit to non-eligible unit and (ii) sale of power. 8.1. The captive consumption of power by assessee’s paper unit, the assessee has valued the transaction at INR 41,70,97,073/- by applying CUP method and price charged @ INR 7.62 per unit i.e. rate at which PVVNL sell power to paper unit. However, the TPO took average rate of PVVNL at Rs. 9.30 per unit and by reducing actual transmission loss @ 20.63%, arrived at the rate of INR 7.38 per unit which has resulted into the adjustment of INR 1,82,07,266/-. 9. Ld.AR submits that TPO while determining the ALP for the sale of electricity, factored the actual transmission loss occurred to PVVNL. Accordingly, to Ld.AR, the actual loss incurred by PVVNL includes exceptional or extra ordinary losses such as theft related ITA No.4433/Del/2024 Page | 6 loss or unusual circumstances effecting actual losses. However, for the purpose of benchmarking the transaction, standard loss is to be considered which according to Ld.AR is 17.49% and as per the same, price worked out at INR 7.67 per unit as against which the assessee has taken price at INR 7.62 & INR 7.66 per unit therefore, no adjustment is required to be made. Ld.AR further submits that it is a settled issue that rate at which the electricity purchased by the paper unit and RPG from the eligible units is to be considered at the price which is charged by the Electricity Board from the consumers. For this, he placed reliance on the judgment of Hon’ble Supreme Court in the case of CIT vs Jindal Steel and power Ltd. (2023) 12 TMI 417 dated 06.12.2023 and further Jurisdictional High Court in the case of PCIT vs DCM Shri Ram (2025) 1 TMI 1128 dated 21.01.2025 and various other judgments which are tabulated in the written submissions filed by the assessee which is placed on record. 10. In the last, Ld.AR submits that the rate at which the PVVNL charges from consumer i.e. INR 9.30 per unit should be taken and accordingly, the claim of deduction u/s 80IA should be revised and enhanced deduction u/s 80IA be allowed to the assessee. 11. In Ground No.6, the assessee has challenged the transfer price adjustment made in relation to transfer of steam from captive power division to other division of paper unit at INR 3,46,27,145/- and with respect to sale of steam to RPG Industrial Products Ltd. at INR 61,91,325/- thus, making the total adjustment of INR 4,08,17,480/-. ITA No.4433/Del/2024 Page | 7 12. In this regard, Ld.AR submits that in the eligible unit of the assessee, the boilers produced high pressure steam which is supplied to turbine to be used for generation of electricity. The high pressure steam is also supplied and sold to its paper unit and its related entity namely RPG. During the year under appeal, the boiler generated 5,72,694 MT of HPS, out of which 5,495 MT was lost during the process and effectively producing 5,67,199 MT of HPS. Out of total HPS generated, 10,951 MT was transferred to the paper unit and 27,055 MT was sold to RPG which is valued at INR 1,250 per MT. The remaining 5,29,193 MT were transferred to turbine for electricity generation. From the input of 5,29,193 MT, total electricity generated is 8,26,67,654 KWH out of which 53,368 KWH was lost in production and effective production was 8,26,15,249 KWH. From this production, 97,70,440 KWH electricity was used by the eligible unit itself and 1,81,11,597 KWH was sold to RPG and 5,47,33,249 KWH was sold to the paper unit. The TPO incorrectly added steam energy with electrical energy into a single unit of measurement (kcal) and allocated costs of steam and electrical energy, determining a revised cost of INR 1,075 per MT for HPS and INR 860 per MT for LPS which resulted into the adjustment of INR 4,08,18,470/-. 13. Ld. AR further submits that while doing so, the TPO failed to appreciate that the steam which was already sold to RPG and paper unit cannot be part of the total cost as their cost and sale price were taken separately therefore, the net HPS transferred to turbine ITA No.4433/Del/2024 Page | 8 should have been considered as against the total production of the HPS. This error has resulted into higher cost. 14. Further, as per Ld.AR, the TPO has taken LPS as by-product and value of the same was taken at NIL. Ld. AR submits that LPS is crucial input in the manufacturing of paper and essential requirement in drying (machine section) & coating (finishing section) processes. Even if, the assessee does not generate steam, it would require LPS in the process of paper production therefore, LPS is not a by-product and is a valuable source of energy. Ld. AR further submits that the TPO has doubly counts the energy of high- pressure steam and electricity while converting everything into a single unit. In the last, Ld.AR submits that TPO has failed to account for the natural loss occurred in the process and therefore, submits that the sale price taken at INR 1250 per unit for HPS is higher thus the cost of steam as computed by assessee deserves to be accepted. 15. On the other hand, Ld.CIT DR supported the orders of the authorities below and submits that TPO has properly valued the transfer of electrical/steam and adjustment made by the TPO deserves to be upheld. 16. Heard both the parties and perused the material available on record. With regard to the issue of transfer of electricity as taken in Ground of appeal No. 5, there is no dispute with regard to the price taken by the assessee and the TPO i.e. price charged by PVVNL and the sole dispute is with respect to the deduction on account of ITA No.4433/Del/2024 Page | 9 distribution/transmission loss where the assessee has taken the standard loss @ 17.49% and the TPO has taken actual loss of 20.63%. It is true that the actual loss includes certain factors which are not affected the electricity transmitted by the eligible unit to non-eligible unit such as loss due to theft, loss due to unusual circumstances such as lightening etc., since it is not dealing with the public at large. Further, the loss of electricity Board like PVVNL is affected by certain extraordinary and exceptional circumstances which are not in existence in the close distribution environment i.e. between eligible unit to non-eligible unit of the assessee. Therefore, as against the actual loss, approved/standard loss prevailing in the industry should be taken as the benchmark. Accordingly, we direct the AO/TPO to take the approved/standard loss as determined by the Regulatory Authority in this regard and re-worked the price of electricity for the purpose of adjustment, if any, required to be made by reducing such transmission loss from the price charged by PVVNL from consumers which is not in dispute. We are not sure whether transmission loss of 17.49% as taken by the assessee is approved/standard loss as no supporting evidences filed before us. Therefore, the same should be taken as per norms prescribed by the regulatory authorities towards transmission/distribution loss and ALP would be worked out accordingly. With these directions, this issue is allowed in favour of the assessee. Ground of appeal No 5 is thus allowed. 17. With regard to the other issue of transfer of steam from eligible unit to non-eligible unit and sale thereof for captive consumption in ITA No.4433/Del/2024 Page | 10 other units as taken in Ground of appeal No. 6, we find that the claim of the assessee that TPO has made a calculation error of taking gross production as against the net production after reducing the HPS transfer /sale to paper unit to RPG unit is correct. This calculation error has affected substantially to the entire working of the ALP. The Co-ordinate Bench of the Tribunal in the case of Pr. CIT-A, New Delhi vs DCM Shriram Ltd. reported in 2025 (1) TMI 1128 dated 21.01.2025 for AY 2014-15 made detailed discussion on this issue and thereafter, the Co-ordinate Bench was of the view that the steam is a valuable source of power and has cost of production. The relevant observations as contained in para 37 to 47 of the order of the Tribunal are under- 37. We have carefully considered the rival contention and perused the orders of the lower authority as well as perused the judicial precedents relied upon by both the sides. The facts shows that assessee has transferred low-pressure steam from eligible business to other business amounting to ₹ 1,028,618,630/–. The rate at which the low-pressure steam is supplied from eligible unit to non eligible unit is at cost. The assessee adopted “other method” as the most appropriate method. The learned transfer pricing officer objected to the same and initially stated that assessee should have adopted the cost plus method for the benchmarking of transfer of steam. However letter on when the assessee contended that if the assessee would have used the cost plus method, the relevant deduction u/s 80 IA would have been much higher. Thereafter, the learned transfer pricing officer changed its stand and directed the assessee to submit a statement of cost of production of steam manufactured during the period 1/4/2013 231/3/2014. Assessee stated that it is submitted original set of corsets of the cost of production of steam transferred certified by the cost accountant. However letter on the learned transfer pricing officer on examining the process of power generation stated that the power plants are not installed for steam production but for power generation and as steam being byproduct do not have any cost. Therefore he rejected the most appropriate method applied by the assessee he further held that activity regarding production of steam shows that steam is produced as a result of burning of fuel in boiler. This steam is used for generation of electricity. Thus the entire cost of electricity absorbs ITA No.4433/Del/2024 Page | 11 entire cost of production of steam. Thus the resultant cost of excess team is nil. Therefore he made an adjustment of ₹ 1,035,745,275 on this account. The learned dispute resolution panel also agreed with the view of the learned transfer pricing officer. 38. We are not in agreement with the findings of the lower authorities for the simple reason that the Institute of cost and works accountants and issued a guidance note “Guidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8))” which provides guidance as to how the cost of utilities such as production of steam can be determined. According to that guidance note in paragraph number 5.1 it is stated that each type of utility shall be treated as a distinct cost object as Under:- “5.1 Each type of utility shall be treated as a distinct cost object. As each utility is a distinct cost object, cost of each utility is to be collected and measured separately. For example power, steam, water, compressed air, oxygen, nitrogen, coke oven gas and the like are distinct utilities, and the cost is collected and measured for each utility separately. The costs are booked to each utility Page 34 of 55 through initial documents such as supplier ‘s bill, if directly identifiable with utility, payroll analysis sheet, stores requisition, etc. A separate cost statement is to be prepared for each utility.” In paragraph number 5.3.2 it has provided as Under:- “5.3.2 In case of Utilities generated for the purpose of inter unit transfers, the distribution cost incurred for such transfers shall be added to the cost of utilities determined as per paragraph 5.3.1. If utilities generated are transferred to inter units of an entity, the cost of distribution of such utilities will be included in the cost of utility as determined under para 5.3.1. It will comprise cost of generating utility and cost of distribution facility. Distribution may be through a pipe line/transmission line. The cost of maintenance of pipe line/ Transmission line for transfer of utility will be added to the cost of utility. In paragraph number 5.3.1 it is provided however cost of utilities are to be determined. 5.3.1 Cost of self generated utilities for own consumption shall comprise direct material cost, direct employee cost, direct expenses and factory overheads. The cost of generating a utility may comprise water, fuel, power, direct expenses ( such as boiler inspection fee) consumable stores, direct employee cost, repair and maintenance, depreciation, inter– utility transfer and factory overhead. For example: Cost of power generation will include cost of fuel such as furnace oil, coal, salaries and wages, consumable stores, repair and maintenance, ITA No.4433/Del/2024 Page | 12 deprecation and factory overhead. Unit cost is arrived at on the basis of the net aggregate consumption in different departments after adjusting transmission losses. In case of cogeneration (power and steam) where waste heat from TG (Turbine Generation) is recovered in waste heat recovery unit and used for production of steam, due credit should be given to the Power plant and corresponding charge to SGP(Steam Generation Plant). Charging of power to the consuming cost object is generally done at the weighted average of the cost of power purchased , generated and distribution cost at the consuming point. Steam: A separate statement of cost of steam is prepared indicating the quantity of steam generated, cost of fuel, soft water, power, employee cost for operating staff, sundry supplies, chemical additives, deprecation and other works overhead. Unit cost of steam is arrived at on the basis of units consumed in different departments after adjusting distribution loss. Steam may be of high pressure, low pressure and medium pressure with multiple paths by which the steam pressure is reduced according to the purpose of use. Steam costs are highly dependent on the path that steam follows in the generation and distribution system. Raw water: Raw water is either purchased or obtained from ground wells/canal. The cost of water mainly consists of share of cost of power allocated through inter-utility transfer. The total cost of water should include employee cost, fuel, power, repair and maintenance of tube wells, depreciation, overhead. The total monthly cost of operating this department is divided by the quantity of K Ltr of water pumped during the month to determine the unit cost of water pumped. Cost of Soft Water: Water, if hard, requires treatment. The cost of soft water will include the cost of raw water, chemicals, cost of maintenance of settling tanks, employees cost, depreciation and the like. The cost of demineralised water is also arrived at on the above basis. There is inter–utility transfer cost for a utility. For example water utility may be used in generation of steam and power. Power may be required for pumping water from tubewell. Inter-utility cost is to be determined by the following method: a) repeated distribution method; b) matrix algebra through computer application (a) When Repeated Distribution Method is adopted, the utility costs are repeatedly allocated in the specified percentage until the figures become too small to be significant. Steps to be followed under this method are: I. The proportion at which the cost of a utility is to be distributed to production cost centres and other utilities centre is determined based on usage. II. Cost of first utility is to be apportioned to production cost centres and other utilities in the proportion as determined in step (a) above. III. Similarly cost of other utilities is to be apportioned. IV. This process as stated above is to ITA No.4433/Del/2024 Page | 13 be continued till the figures remaining undistributed in the utility are too small to be significant. The small amount left with utilities may be distributed to the production cost centres. b) Matrix algebra through computer application: Spread sheet software such as Excel provides facility for inter-division cost ascertainment and reapportionment of inter utility. This application may be used for determining inter-utility transfer cost. Quantitative records of production and distribution should be recorded for each utility to measure the unit cost of a utility. An illustration of steam cost is at Annexure 2. 39. In the annexure – 2 it is given and examples of the total steam cost to be determined in the manner when it is transferred to other units as Under:- “Examples of Steam cost – Transfer to Other units Steam cost per tonne works out to Rs 471.09 as illustrated under Annexure 2. If steam is transferred to other unit, distribution cost will be in addition to the above cost as illustrated below 1 Steam generation cost as 5.3.1 above Rs 471.09 Per MT 2 Distribution cost : Operation & Maintenance cost of distribution line Depreciation Other Total Distribution cost Per MT Rs 1.00 Rs 0.75 Rs 0.75 Rs 2.50 3. Inter Unit transfer cost Rs. 473.59 Cost of a utility determined as per para 5.3.2 plus share of administrative overhead to be charged.” 40. Therefore, from the above analysis it is apparent that the learned revenue authorities have incorrectly held that there is no cost of production of steam. 41. Even otherwise steam is a commercially viable product and it is a form of power and therefore it cannot be said to be produced at nil cost. The assessee has submitted a detailed cost sheet duly certified by the cost accountant following the standards issued by the Institute of cost and works accountant for determining the exact cost of steam, it has also been certified by the chartered accountant and further a chartered engineer certificates is also provided. All these cost statement duly certified by the professionals were rejected by the learned revenue authorities without any basis. 42. Further in the case of the assessee sister concern in case of SRF Ltd the learned dispute resolution panel on the identical facts and circumstances has held that steam has a cost and therefore the arm’slength price of steam cannot be determined at nil. It further held that the value of steam can be expressed in terms of equivalent units of electricity that would have been generated and such value is usually higher than the cost of steam. 43. Further in case of the assessee for assessment year 2015 – 16 the learned CIT – capital has rejected the action of the learned transfer pricing ITA No.4433/Del/2024 Page | 14 officer of determining the arm’s-length price of steam at nil and upheld the assessee’s approach of benchmarking the transfer price of steam at cost. This order has been accepted by the revenue and no further appeal has been filed. Therefore this issue becomes final with respect to the determination of ALP of transfer of steam at cost by the eligible unit to non eligible unit. 44. Further Honourable Gujarat High court in Principal Commissioner of Income Tax v. Jay Chemical Industries Ltd 2020] 120 taxmann.com 315 (Gujarat)/[2020] 275 Taxman 78 (Gujarat)/[2020] 422 ITR 449 (Gujarat) has held that:- “13. It appears that during the year under consideration, the assessee had claimed deduction of Rs. 32,51,080/- under section 80IA(4) of the Act. This claim was on account of the operation of the Captive Power Plant. The assessee showed income from sale of Power to the tune of Rs. 1,23,10,500/- and the sale of vapour of Rs. 6,59,77,170/-. The Assessing Officer took the view that \"Vapour\" would not fall within the meaning of \"Power\". The case of the assessee is that \"steam\" is also a form of \"power\". 14. The case of the Revenue is that \"steam\" is only an intermediate raw material for the manufacturing process. In other words, the production of \"steam\" is only a byproduct, which is used by the assessee for its manufacturing activity. 15. In this regard, the CIT (A) recorded the following findings: \"2. The appellant has also claimed deduction under section 80 IA on account of sale of steam to the chemical plant. \"The steam was generated by the power plant in the boiler and part of it was also utilised for the chemical process of the non-eligible unit. The AO has held that the appellant was not entitled to the deduction on account of sale of steam to the power plant. It has been held by her that steam does not fall within the meaning of \"power\". In this reference she has made reliance on the judgment of honourable ITAT Ahmadabad in the case of N R Agrawal Industries Ltd v. DCIT dated 26/07/2013. The appellant on the other hand has submitted that the value of steam should be considered for arriving the profit as the scheme is being gererated for generation of electricity and after utilising the same for electricity generation the balance steam is used for the chemical process. Therefore, it is a byproduct and therefore, the deduction was admissible. On a careful consideration of the facts related to the issue, it is noted that that appellant is generating steam at high-pressure and temperature and the steam is being fed into turbine and the steam which is coming out from turbine is utilised for the chemical process. The details on record to show that the turbine utilised by the ITA No.4433/Del/2024 Page | 15 appellant for generation of the power is a back pressure turbine. In back pressure turbine the intake is of highpressure steam which is used for generation of power and the exhaust steam is also at certain pressure so that it can utilised for some other purpose. The design of the turbine is done in such a manner so that all energy of the steam is not utilised by the turbine for generation of power but certain part of it is released in the exhaust steam also. Therefore, the design of the turbine used by the appellant is in such a manner that the exhaust steam is at a certain pressure so that it can be utilised for some other work. Accordingly, this steam cannot be consider as a by product but it is intentionally being produced or generated for a specific purpose. Further the intention of the legislature was to provide deduction for generation of electricity and not for generation of steam. The intention is clearly evident from the perusal of the speech of the honourable Finance Minister while introducing the provisions for deduction in the budget. The use of word 'power' is intended for 'electricity' as the other relevant sections clearly mentioned the word 'electricity'. The honourable Bench of ITAT Ahmadabad while deciding the issue in N.R.Agrawal Industries Private Limited has discussed these aspects in detail and accordingly relying on the judgment it is held that the appellant is not entitled for deduction under section 80 I-A on sale of such steam to its chemical plant. Accordingly, the decision of the AO in this regard is upheld. 3. For the purpose of calculation the quantum of deduction and allocation of expenditure incurred for production of steam the appellant had given certain information-related to the heat value of steam (Enthalpy). The details given by the appellant were also forwarded to the AO and she has also given her comments on the same. In order to arrive at a logical conclusion it would be useful to understand the process involved. The appellant has installed a boiler which generates high-pressure steam at a very high temperature. The steam is first fed in the turbine where part of the heat energy of the steam is utilized in generating the electricity and the balance energy available in the steam coming out from the turbine is utilised in the chemical process. The appellant is incurring expenses such as coal consumption, boiler running, depreciation of boiler and other machinery and the building in which the whole generation plant is housed. The expenditure for the steam, which is utilised in generation of power, and the balance steam which is utilised by the chemical plant can be determined by distributing the same in proportion to the heat value (Enthalpy) of the inlet steam and the outlet steam of the turbine. As per the details available on record the heat value of the inlet steam at 65.5 KG/cm2 is 793 kcal per KG whereas the heat value of the output steam at 3.5 KG/cm2 ITA No.4433/Del/2024 Page | 16 is 653.7 kcal per KG. The quantity of input and output steam remains the same and only the calorific value of the heat value goes down as part of the energy is utilised for generation of power. Accordingly, the expenses can be apportioned in the ratio of enthalpy of the inlet and output steam. The same is worked out as under:— Total enthalpy of the steam coming out of the boiler 793 kcal per KG The enthalpy of the steam coming out of the turbine 653 kcal per KG The enthalpy utilised by the turbine for generation of electricity 139 kcal per KG Percentage of energy utilised in the generation of electricity 17.66% Total expenses for Boiler 1800000 Generation of steam to be allocated on a percentage basis expenses Boiler maint 1 728903 Coal expenses 38733894 Depreciation other than turbine 10522945 Total expenses 52785832 Expenses for steam utilised for 17.66% of 52785832 Generation of electricity 9321977 In addition to above expenses for generation of steam, the expenses of head office of the appellant company which looks after the management or the affairs of-the Company and also the power plant are also to be disallowed on proportionate basis. It is also noted that the appellant has taken loan from financial institutions for installing the power plant. The appellant is also paying huge amount of interest on the loan. Proportionate allocation of the interest expenditure should also be done and added to the cost of generation of steam. Since the details related to the expenses of head office as well as interest expenditures are not available before me, the AO is directed to work out the proportionate allocation of the interest expenditure should also be done and added to the cost of generation of steam. Since the details related to the expenses of head office as well as interest expenditure are not available before me, the AO is directed to work out the proportionate allocation of these expenses by obtaining suitable details from the AO. The details of following expenses are readily available from record:— ITA No.4433/Del/2024 Page | 17 Expenses for generation of steam 9321977 Depreciation on turbine 1289189 Electricity duty 787872 The AO is also directed to verity the above figures. Accordingly the AO is directed to rework the deduction under section 80I-A claimed by the appellant as indicated in the preceding discussion.\" 16. The Tribunal, concurred with the aforesaid findings recorded by the CIT (A), by taking support of the decision of a Co-ordinate Bench of the ITAT, Mumbai, in the case of West Cost Paper Mills (P.) Ltd. v. CIT, [2014] 52 taxmann.com 268. As regards section 80IA of the Act, strong reliance has been placed on behalf of the Revenue on the decision of this Court in the case of CIT v. Atul Ltd. [2016] 74 taxmann.com 255. In Atul Ltd. (supra), the assessee had established a new power plant by expending a sum of Rs. 14.62 Crore and claimed deduction under section 80IA. The Assessing Officer upon examination of such claim, arrived at the conclusion that the production of power would require boiler and also a turbine since the boiler would manufacture steam which would be a raw material for the production of power with the aid of turbine and such a plant would be a new industrial undertaking capable of generating electricity. The case of the assessee was that in the existing power plant the assessee had excess steam production capacity which was to be utilised by the turbine installed in the new plant. The Assessing Officer ultimately rejected the case of the assessee on the ground that the turbine should be treated as an independent power generating unit and thereby disallowed the claim of deduction under section 80IA of the Act. 17. The assessee carried the matter in appeal. The CIT (A) held that no industrial undertaking would come into existence within the meaning of the provisions contained in section 80IA of the Act by transferring the boiler or by installing new machinery for the purpose of generation of the power. The appeal came to be dismissed and the assessee carried the matter before the Tribunal. The Tribunal dismissed the appeal. 18. It appears that the assessee preferred an application for rectification before the Tribunal contending that after the judgment was delivered by the Tribunal, the High Court, in the case of Gujarat Alkalines and Chemicals Ltd. v. CIT [2013] 350 ITR 94/[2012] 208 Taxman 31/20 taxmann.com 764 (Guj.) has delivered a judgment which would have a bearing on the issue decided by the Tribunal. The said application was opposed by the Revenue. However, the Tribunal allowed the application for rectification and recalled its ITA No.4433/Del/2024 Page | 18 earlier judgment. The Revenue came before this Court in appeal. This Court took the view while allowing the appeal of the Revenue that the claim of the assessee for deduction under section 80IA of the Act was not tenable in law. 19. This Court took notice of the fact that the assessee had installed turbine for power generation which relied on the excess steam production capacity of the plant. This Court ultimately took the view that the installation of turbine for power generation could be said to setting up of a new industrial unit and therefore, the assessee would not be entitled for deduction of sum under section 80IA of the Act. 20. In our view, the facts in the case of Atul Ltd. (supra) are quite different and the ratio, as propounded in the same, will have no applicability to the case on hand, more particularly, the question No. 3 with which we are dealing with. 21. It is difficult for us to take the view as suggested by the learned standing counsel appearing for the Revenue that \"steam\" would not amount to power. The word \"Power\" used in Section 80IA(4) has not been defined under the Income-tax Act. 22. The word \"Power\" should be understood in common parlance as \"Energy\". \"Energy\" can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the \"steam\" produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act.” 45. Further Hon’ble Supreme Court in CIT v. Tanfac Industries Ltd., SLP (C) No. 18537 of 2009 [319 ITR 8 (st)] wherein while applying section 80-IA of the IT Act, the Hon’ble Supreme Court took a view that the value of steam used for captive consumption by the assessee was entitled to be deducted under section 80-IA of the Act. 46. Therefore it is apparent that i. steam 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 noneligible units at cost only. v. Such cost is certified by the Cost Accountant, Chartered Accountant, and Chartered Engineers. vi. It cannot have Nil cost ITA No.4433/Del/2024 Page | 19 47. In view of above facts, we are of the view that ld Revenue authorities erred in holding that the steam does not have any cost and therefore steam transferred by assessee’s eligible units to non eligible units at cost, which is determined by Cost accountants and Other professional, has the Arms length price of Rs Nil instead of cost of Rs 103745275/- . Therefore we allow ground number 3 of the appeal and direct the learned transfer-pricing officer to delete the addition of ₹ 1,035,745,275 which was made determining the arm’s-length price of transfer of steam from eligible unit to non-eligible unit by considering the cost of production of the steam at Rs. Nil.” 23. This order of the Tribunal was challenged by the Revenue before the Hon’ble Delhi High court in ITA No.566/2023 wherein no substantial question of law was admitted on this issue by the hon’ble jurisdictional high court. The relevant observations as contained in ITA No.566/2023 and CN Application No. 51969/2023 while admitting 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 issue and aspect was concerned with the transfer of steam to the non-eligible unit and for the purposes of which the assessee would have been justified in relying on the cost of production. We therefore, are of the opinion that Question C raises no substantial issue.” 18. In view of the above facts, we hold that the working of TPO by converting the HPS to LPS and electricity as common measurement unit i.e. kcal is incorrect and correct calculation as given by the assessee in written submission at page 11 which is reproduced as under:- Cost calculation based on TPO’s approach 38. “Considering the Ld. TPO’s approach, the assessee has calculated and submitted before lower authorities, the cost incurred with respect to each type of energy finally produced High Pressure Steam Electricity-using a common unit of measurement, i.e. Kcal. The following working prepared in alignment with the Ld. TPO’s methodology, demonstrates the cost allocation: 19. Therefore, the AO/TPO is directed to re steam after considering notice by the assessee and then worked out the amount of adjustment, if any. With these directions, all partly allowed for statistical 20. In the result, appeal Order pronounced in the open Court on Sd/- (ANUBHAV SHARMA) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* ITA No. Cost calculation based on TPO’s approach “Considering the Ld. TPO’s approach, the assessee has calculated and submitted before lower authorities, the cost incurred with respect to each type of energy finally produced High Pressure Steam (HPS), Low Pressure Steam (LPS), and using a common unit of measurement, i.e. Kcal. The following working prepared in alignment with the Ld. TPO’s methodology, demonstrates the cost allocation:- Therefore, the AO/TPO is directed to re-workout the cost considering the errors and omissions brought to the notice by the assessee and then worked out the amount of if any. With these directions, all grounds of appeal are partly allowed for statistical purposes. In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 27.06.2025. (MANISH AGARWAL) ACCOUNTANT MEMBER ITA No.4433/Del/2024 Page | 20 “Considering the Ld. TPO’s approach, the assessee has calculated and submitted before lower authorities, the cost incurred with respect to each type of energy finally produced- (HPS), Low Pressure Steam (LPS), and using a common unit of measurement, i.e. Kcal. The following working prepared in alignment with the Ld. TPO’s orkout the cost of the errors and omissions brought to the notice by the assessee and then worked out the amount of of appeal are e is partly allowed. .2025. Sd/- MANISH AGARWAL) ACCOUNTANT MEMBER ITA No.4433/Del/2024 Page | 21 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "
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