RELIANCE INFRASTRUCTURE LTD, MUMBAI V. ACIT 14(1)(2) , MUMBAI

ITA 476/MUM/2022

AI Insights

The case involves Reliance Infrastructure Limited appealing against the final assessment orders for the assessment years 2017-18 and 2018-19, which included transfer pricing adjustments and disallowances under various sections of the Income Tax Act. The primary issues revolved around the arm's length pricing of electricity transferred between the company's generation and distribution units, disallowances under section 14A related to exempt income, and the allocation of head office expenses for computing deductions under section 80IA. The Tribunal examined the methods used for determining the arm's length price, the appropriateness of the comparables selected, and the application of relevant judicial precedents and statutory provisions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299627 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2023
• Appeal Filed By: Assessee
• Order Result: AllowedAllowedAllowed
• Bench Allotted: J
• Next Hearing Date: 04-01-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 14-03-2022
• Other Referred Cases: Maxopp Investments Ltd. v. Principal Commissioner of Income-tax, Modern Dental College & Research Centre v. State of M.P., O.N.G.C. v. Assn. of Natural Gas Consuming Industries of Gujarat, DCM Shriram Ltd. v. ACIT, Geometric Software Solutions Co. Ltd. v. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Rectification of order; Earning of tax free income; Cost of acquisition; Revised return; Revenue expenditure; TDS; Rule 8D
• Section: 154; 143(3); 92; 92F; 14A; 115JB; 133(6); 80G; 143(1); 195; 80IA; 144C; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & SHRI M. BALAGANESH, AM आयकरअपीलसं./ I.T.A. No. 476 & 2106/Mum/2022 (ननधधारणवर्ा / Assessment Year: 2017-18 & 2018-19) Reliance Infrastructure Limited. Ground Floor, Reliance Centre, 19 Walchand Hirachand Marg, Ballard Estate, Mumbai-400 001 बनाम/ Vs. ACIT -14(1)(2), R. No. 455, Aayakar Bhavan, M. K. Marg, Mumbai-400 020 स्थधयीलेखधसं./जीआइआरसं./PAN No. AACCR7446Q (अपीलधथी/Appellant) : (प्रत्यथी / Respondent) अपीलधथीकीओरसे/ Appellant by : Shri Niraj Sheth /Shri Jitendra Sanghvi /Shri Amit Khatiwala, Ld. ARs प्रत्यथीकीओरसे/Respondent by : Shri Shyam Prasad, Ld. DR सुनवधईकीतधरीख/ Date of Hearing : 05.01.2023 घोर्णधकीतधरीख / Date of Pronouncement : 23.03.2023 आदेश / O R D E R Per Amit Shukla, Judicial Member: The aforesaid appeals have been filed by the assessee against final assessment order dated 28.01.2022 and 31.07.2022 for the AYs 2017-18 and 2018-19 respectively, passed u/s 143(3) r.w.s. 2 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 144C(13) in pursuance of the directions given by the Ld. DRP vide order dated 17.08.2021 for the AY 2017-18; and order dated 25.06.2022 for AY 2018-19. 2. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore the same were heard together and are being disposed of by way of this consolidated order. In both the appeals, following issues are raised:- Particulars AY 2017-18 (in Rs.) AY 2018-19 (in Rs.) 1) TP Adjustment 2,68,81,82,932/- 5,00,79,86,612/- 2) Disallowance u/s 14A 1,01,73,54,403/- 93,05,58,791/- 3)Expenditure on Replacement of electricity meters 10,63,70,295/- 10,94,29,843/- 4)Proportionate apportionment and allocation of head office expenses for computing deduction u/s 80IA 2,39,64,32,137/- 1,93,81,15,563/- 5) Deduction u/s 80IA restricted to business income in respect of gross total income. Nil Nil 6) Deduction u/s 80G Nil Yes 7) Short Grant of TDS credit 39,89,761/- 2,85,117/- 8) Computation of book profit u/s 115JB Book profit not considered u/s 115JB Book profit not considered u/s 115JB (9) Book profit made u/s 115JB Disallowance made u/s 14A to the book profit Computation of book profit u/s 115JB – 3 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited u/s 115JB depreciation allowed on replacement of meters. 3. Firstly, we will take the issue with regard to transfer pricing adjustment which is common in both the appeals on account of specified domestic pricing u/s 92BA(iii) r.w.s. 80IA (8) of the Act. 4. The facts as culled out from the impugned orders are that, assessee, i.e., R-Infra is engaged in the business of generation, transmission and distribution of electricity. It had the license to distribute electricity in the suburban areas of Mumbai. The company has a 2X250 mw thermal power plant at Dahanu (referred to as the generation undertaking – R-infra G) which generates power and transmits the same through the transmission lines to its distribution undertaking (R-infra – D) for further supply of power to the ultimate consumers. The distribution undertaking of the company namely R-infra - D is eligible to claim deduction under section 80-IA(1) r.w.s. 80IA(4)(iv)(c) of the Act, whereas no deduction u/s. 80IA is available to the generation undertaking (R-infra – G). 4 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 5. During the year under consideration, R Infra – G, which is non-eligible undertaking at Dahanu, has transferred electricity to R Infra – D valued at Rs. 3.24 per unit amounting to Rs. 1079,27,04,708 for sale to ultimate consumers. The electricity has been valued at Rs. 3.24 per unit based on the weighted average cost worked out considering the power purchase prices approved for the power supplied under long term PPAs based on competitive bidding by various states for power purchased from all sources for F.Y. 2016-17 as per the report of the „Administrative Staff College of India‟ (ASCI). 6. Similarly for the AY 2018-19, assessee determined the arm‟s length price for transfer of electricity unit at Rs. 3.03 per unit based on competitive bidding by various states for power purchased from all sources for F.Y. 2017-18 as per the report of the Administrative Staff College of India (ASCI), Hyderabad, which is a Government of India enterprise based on which, R-infra G‟s revenues and costs of Rinfra D were worked out at Rs. 966,50,95,182/-. The per unit value of Rs. 3.03 was arrived at based on the weighted average cost 5 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited worked out considering the power purchase prices approved for the power supplied under long term PPAs. 7. For the sake of ready reference, the issue of TP adjustment pertains to AY 2017-18 is taken up first. In the transfer pricing study report, assessee had valued electricity at Rs. 3.24 per unit based on the weighted average cost considering the power purchase prices approved for the power supplied under long term PPA‟s based on competitive bidding by various states for power purchased from all the sources for FY 2016-17. Accordingly, CUP was considered as a most appropriate method to value the arm‟s length nature of Specified Domestic Transfer (SDT). The assessee before the TPO also submitted that in the report of Administrative Staff College of India (ASCI) for FY 2016-17 which was considered as the best for determining the transfer pricing. Accordingly, it was stated that an inter-unit transfer of goods and services by a non-eligible undertaking to an eligible undertaking of R-Infra was at ALP in terms of section 92BA(iii) r.w.s. 80IA(8) of the Act, which provides that profit of eligible unit should be considered at the market value of goods and services transfers to the market eligible by any other 6 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited business undertaking. However, Ld. TPO noted that there are other electricity distributors like BEST (Brihan Mumbai Electric Supply & Transport Undertaking), MSEDCL (Maharashtra State Electricity Distribution Co. Ltd.) and Tata Power, etc which are appropriate comparable under the CUP method as a distributors of electricity to the ultimate customers in an around Mumbai like assessee. The TPO had obtained information u/s. 133(6) of the Act regarding the price of purchase of thermal power/electricity by Distribution Companies in Mumbai during F.Y.2016-17 and relied upon the following transactions:- 1. Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) purchased power from Maharashtra State Power Generation Co. Ltd. (MSPGCL) at INR 4.08 per kWh. 2. The Brihan Mumbai Electric Supply & Transport Undertaking (BEST) purchased power from Tata Power at INR 4.92 per kWh. The TPO then worked out the average price of the above two transaction value and sought to adopt the purchase value of power at Rs.4.50 per kWh, instead of Rs.3.24 adopted by the assessee vide SCN dated 15.01.2021. 7 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 8. In response, the assessee provided different datasets considering transactions as per the ASCI Report, transactions of thermal power purchase by independent power generating companies with our subsidiary company BSES Rajdhani Power Ltd., purchase transactions by the assessee from Non Associated Enterprises, transactions given by the TPO in show cause notice and transactions of purchase of thermal power by MSEDCL from various sources as per Tariff Order no. 195 of 2017 dated 12 th September 2018. The assessee worked out the percentile range using various permutations and demonstrated that in all the situations, the price adopted for transfer of power from Dahanu unit to Distribution division was within the percentile range. The assessee also provided justification on the ALP adopted by it on the basis of ASCI Report and the price paid by it for purchase of power on the IEX. 9. The TPO rejected the assessee‟s submission stating that ASCI report was on pan-India basis and the power sector is regulated by each state separately in India through State Power/Electricity Regulatory Commissions /Committees, therefore it is required to 8 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited compare the prices within a State and more particularly in an around the same area. He further held that adoption of a lower rate of 3.24 per kWh based on pan-India rate in ASCI report rather than the prices of similar transactions in the same geographical area appears to be to inflate the profits of the eligible unit Le R-Infra-D to claim higher deductions u/s 80-1A of the Act. This is evident from the fact that the non-eligible power generating unit R-Infra-G disclosed loss during the same FY 2016-17, whereas the eligible power distribution unit R Infra-D has declared heavy profits. The attempt to shift profits from the non-eligible unit to eligible unit is clearly evident here. 10. TPO noted that Clause (b) of Rule 10B(2) requires that the functions performed, assets employed and risks assumed by the parties to the comparable transaction should be similar to the functions performed, assets employed and risks assumed by the parties to the specified domestic transaction. Therefore, in the given case, the R- Infra-D being the distributor of power should perform functions, employ assets and ready to assume risks that are similar to the power distributors in the proposed comparable transaction. 9 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited However, as already noted, the assessee has relied on the ASCI report that has taken companies that are not comparable owing to their locations being different from that of the assessee. In view of the same, as the comparability requirement of Rule 108(2) of the Rules is not fulfilled in this case and the CUP proposed by the assessee is rejected. He further observed that assessee vide reply dated 21/01/2021 has provided six transactions to be considered as comparables. It was further stated that it has purchased power from the Indian Energy Exchange Limited at INR 2.84 per unit. Like the comparables taken in the ASCI Report, the Indian Energy Exchange Limited also provides rates from across the country and hence, the price is not a suitable comparable. When the prices of power purchase are available locally in Mumbai in case of power distributors, it is not proper and tenable to take prices from Indian Energy Exchange Limited. Further, the transactions covered in the Indian Energy Exchange Limited are on pan-India basis. As the power sector in regulated by each State separately in India through State Power / Electricity Regulatory Commissions / Committees, it is required to compare prices within a State, and more particularly in an around the same area. In its reply dated 21/01/2021, the 10 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited assessee has also proposed the transactions with internal CUP, viz., Knowledge Infrastructure System, PTC India Limited, JSW Power Trading Co. Ltd., and Jindal Steel and Power Limited as CUP to be considered. The details of purchase made from these four entities by the assessee are as follows: S. No. Name of the Party Qty in kWh Rate per kWh Amount in INR 1 Knowledge Infrastructure System 133,74,165 3.02 4,03,89,978/ 2 PTC India Limited 3,37,77,620 3.03 10,23,19,993/ 3 JSW Power Trading Co. Ltd. 2,68,94,180 3.15 8,47,26,207/- 4 Jindal Steel and Power Limited 4,36,91,654 4.67 20,41,84,881/- 5 Power transferred from R-Infra G (non-eligible Unit) to R-Infra-D (eligible Unit) 333,10,81,700 3.24 1079,27,04,708/ 11. TPO further stated that the purchases made by the assessee from the four entities mentioned, i.e., Knowledge Infrastructure System, PTC India Limited, JSW Power Trading Co. Ltd., and Jindal 11 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Steel and Power Limited is meager compared to the total power purchased by R-Infra-D from R-Infra-G. The total power purchased by the assessee from these four entities comes to only 3.99% of the total power purchased by R-Infra-D from R-Infra-G. These transactions appear to have been entered into just to show for the internal CUP purpose. Therefore, considering the small quantum of purchases, these four transactions are not at all comparable transactions as volume is a big price factor which would materially affect the pricing majorly. Hence, the assessee's suggestion is rejected. As gathered from the website of the entity Knowledge Infrastructure System, it is observed that this company is majorly into metals & mining business. Generation of power is not one of its activities. This comparable is completely unsuitable. Further these four comparables Knowledge Infrastructure System, PTC India Limited, JSW Power Trading Co. Ltd., and Jindal Steel and Power Limited taken by the assessee are not into distribution of electricity to end consumers. These four transactions are, therefore, not at all comparable transactions. 12 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 12. TPO further observed that the assessee also provided the comparable transaction of power purchase from Maharashtra State Electricity Board amounting to Rs. 257,99,04,304/- at the rate of Rs. 3.14. As the purchase is from a PSU and from an entity in Maharashtra, this transaction is being accepted as comparable transaction. With regard to benchmarking of the Transaction, it was submitted that as per the reply dated 11/01/2021 received from the power distributor Brihan Mumbai Electric Supply & Transport Undertaking (BEST) to the notice issued u/s 133(6) of the Act, it has purchased thermal power from Tata Power Company at an average rate of INR 4.92 per unit during the F.Y. 2016-17. As per the reply dated 11/01/2021 received from the PSU Maharashtra State Power Generation Company Limited (MSPGCL) in response to the notice issued u/s 133(6) of the Act, it sold thermal power to the Maharashtra State Electricity Distribution Company Limited (MSEDCL) at the rate of INR 4.08 per unit. The per unit rate of thermal power purchased by the assessee from the Maharashtra State Electricity Board was INR 3.14. The average of three rates comes to INR 4.05 per unit (kWh). However, in the case of the assessee, the power distributor R Infra-D (eligible for 80-1A 13 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited deduction) purchased thermal power (333,10,81,700 units of electricity) from assessee's generation unit (R Infra-G) to the tune of INR 1079,27,04,708/- at the rate of INR 3.24/- per unit. The ALP of the transaction of purchase of power is INR 4.047/- per unit, as already discussed above. In view of the same, it is evident that the assessee's power distributor unit (eligible unit) purchased power from the assessee's power generation unit (non-80-1A) at a higher rate to the tune of INR 0.807/- per unit and therefore, an adjustment of INR 268,81,82,932/- (3,33,10,81,700 INR 0.807/-) proposed. Therefore, he proposed that the Assessing officer should reduce the claim of deduction u/s 801A to the tune of Rs. 268,81,82,932 for the eligible unit that will simultaneously increase the profit of the non-eligible unit by the same amount. 13. Before the DRP, assessee pleaded that since more than six comparables were available, the TPO/ Assessing Officer ought to have worked out the arm‟s length price in accordance with Rule 10CA(4) and not on the basis of an average rate of any three comparables namely MSEDCL, BEST and MSEB. DRP has partially accepted the assessee‟s contention and worked out the ALP 14 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited applying Rule 10CA(4). The DRP has considered comparables being all Maharashtra units as per the Appellant‟s Internal CUP, comparables as per TPO and comparables as per MERC Order in case of MSEDCL having transactions of more than 1500 MU. The DRP has also added the difference between the purchase price of power from MSPGCL by MSEDCL of Rs. 4.08 per unit as per the show cause notice and Rs. 3.51 per unit as per the MERC Order of MSEDCL in case no. 195 of 2017 dated 12.09.2018 assuming it to be the landing cost. This difference of Rs. 0.57 per unit has been uniformly added to all the selected comparables. ALP has been worked out at Rs. 3.92 per Kwh as against Assessee‟s rate of Rs. 3.24 per Kwh. AO had benchmarked the transaction at Rs. 4.08 per Kwh. Thus, there was reduction in adjustment made to the extent of Rs. 0.16 per unit (Rs. 4.08 – Rs. 3.92) 14. Before us, Ld. Counsel for the assessee submitted that, all comparables operating in the state of Maharashtra namely as per the Assessee‟s internal CUP, comparables as per SCN and comparables as per the MERC order in case of MSEDCL should be 15 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited considered for working out the data set to determine the ALP. Turnover filter of 1500 MU should not be applied. 15. During the course of hearing, the Ld. Counsel for the assessee submitted working of the ALP applying Rule 10CA(4) considering various permutations of comparables as taken by the DRP. The same are summarized as under: Sta tem ent No. Particulars AY 2017-18 AY 2018-19 Remarks No. of Co mp ara bles Range ALP No. of Comp arable s Range ALP 1 Considering all Maharashtra Units, excluding ASCI (Only Internal CUP, TPO & MSEDCL Order) 15 3.03 to 3.35 3.24 16 2.90 to 3.93 3.0 3 Excluding Maharashtra Unit comparables as per ASCI Report 2 Considering all Maharashtra Units, excluding ASCI and Units having quantum of less than 2000 MU (Only Internal CUP, TPO & MSEDCL Order) 6 3.06 to 3.35 3.24 7 2.90 to 3.85 3.0 3 Excluding Maharashtra Unit comparables as per ASCI Report and Maharashtra Units having quantum of less than 2000 MU 3 Considering all Maharashtra Units, excluding ASCI, CGPL and Units having quantum of less than 10 3.06 to 4.07 3.24 11 2.90 to 3.93 3.0 3 Excluding Maharashtra Unit comparables as per ASCI 16 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 100 MU (Only Internal CUP, TPO & MSEDCL Order) Report, CGPL, and Maharashtra Units having quantum of less than 100 MU 4 Considering all Maharashtra Units, excluding ASCI, CGPL, IEX and Units having quantum of less than 100 MU (Only Internal CUP, TPO & MSEDCL Order) 9 3.14 to 4.07 3.24 10 2.90 to 3.93 3.0 3 Excluding Maharashtra Unit comparables as per ASCI Report, CGPL, IEX and Maharashtra Units having quantum of less than 100 MU 5 As per DRP Order 7 3.63 to 4.92 3.92 6 3.56 to 3.85 3.7 1 Excluding Maharashtra Unit comparables as per ASCI Report and Maharashtra Units having quantum of less than 1500 MU 16. From the above chart, he submitted that as can be noted from the above chart, under all the situations, the Assessee‟s ALP is within the ALP range and therefore, no adjustment is required to be made to the transfer price adopted by the Assessee. 17 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 17. As regards the landing cost, Ld. Counsel submitted that average cost per unit of power purchased from MSPGCL of Rs. 3.51 per unit as considered by the DRP on the basis of MERC order of MSEDCL includes the cost of thermal, hydro and gas power, whereas MSPGCL in response to the Notice u/s. 133(6) has provided the average cost per unit in case of thermal power only, since the same is comparable transaction with respect to the transfer of thermal power from R-infra G to R-infra D. Thus, the difference in two prices is not on account of landing cost and therefore, Rs. 0.57 per unit added to the cost per unit of all comparables is wrongly considered. The Assessee also submitted the revised working of the arm‟s length price as per the DRP Order correcting the above error and even as per the said working, the rate adopted by the Assessee is within the percentile range and therefore is rightly the arm‟s length price Therefore no adjustment would be required to be made to the transaction value. 18. Similarly in the AY 2018-19, the TPO obtained information u/s. 133(6) of the Act regarding the price of purchase of thermal 18 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited power / electricity by Distribution Companies in Mumbai during F.Y.2017-18 and relied upon the following transactions:- 1. Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) purchased power from Maharashtra State Power Generation Co. Ltd. (MSPGCL) at INR 2.77 per kWh. 2. The Brihan Mumbai Electric Supply & Transport Undertaking (BEST) purchased power from Tata Power at INR 5.16 per kWh. 19. The TPO worked out the average price of the above two transaction value and sought to adopt the purchase value of power at Rs.3.97 per kWh instead of Rs.3.03 adopted by the Appellant vide SCN dated 12.07.2021 following the same approach as adopted by him for AY 2017-18. 20. Assessee vide its reply dated 13.07.2021 in response to the SCN referred to Rule 10CA(4) which provides that where in respect of a specified domestic transaction, the application of the most appropriate method results in determination of more than one price, then the arm‟s length price shall be computed in accordance with the provisions of this rule. The Assessee provided different datasets considering transactions as per the ASCI Report, 19 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited transactions of thermal power purchase by independent power generating companies with our subsidiary company BSES Rajdhani Power Ltd., purchase transactions by the Assessee from Non Associated Enterprises, transactions given by the TPO in show cause notice and transactions of purchase of thermal power by MSEDCL from various sources as per Tariff Order no. 322 of 2019 dated 30 th March 2020. The Assessee worked out the percentile range using various permutations and demonstrated that in all the situations, the price adopted for transfer of power from Dahanu unit to Distribution division was within the percentile range. The Assessee also provided justification on the ALP adopted by it on the basis of ASCI Report. 21. The TPO had called for the MERC order in case of R-infra D highlighting the pages where power purchase cost was discussed vide its notice dated 19.07.2021, in response to which the Assessee vide letter dated 19.07.2021 had submitted the copy of MERC Order in case no. 325 of 2019 dated 30.03.2020. The TPO issued another show cause notice dated 28.07.2021 asking the Assessee to show cause why the per unit cost of Rs. 4.60 as determined by the 20 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited MERC Order in case of Rinfra – G plus a mark-up should not be considered as the ALP for benchmarking the transaction of transfer of power from Rinfra – G to Rinfra – D. In addition the TPO raised other aspects with respect to per unit cost of electricity by suppliers being much higher than the ALP as suggested in the TP study report resulting in eligible units taking benefits of low rate of electricity and he also referred to the provisions of section 92(3). 22. The Assessee has made detailed submissions vide letter dated 30.07.2021 as under:  The Appellant submitted that MERC order rate includes markup i.e. return on equity / capital in respective unit / companies. Electricity Act allows rate of 15.50% return of equity / capital employed and the same is added to the cost incurred and the tariff is determined. Thus the rate of Rs. 4.60 determined in the MERC Order for Rinfra-G is inclusive of mark-up and no further mark-up is to be added.  MERC has worked out the cost of electricity to be transferred from Dahanu Unit to Distribution Division at Rs.4.60 per kwh. MERC follows the methodology prescribed in Electricity Act which is cost plus return on equity being percentage on capital employed structure. Thus the rate of Rs.4.60 per kwh is not the market value but is based on the cost incurred by Dahanu Unit 21 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited  Tariff of each power generating company is determined and / or affected by various factors like quantum of purchase (Plant load Factor), Fixed cost of thermal plant, Landed fuel cost, Station Heat Rate, Gross Calorific Value, Auxiliary consumption of the plant, other factors. Thus an efficient generator with favourable factors will be able to have a lower cost structure whereas not so efficient generator will have the higher cost structure.  MSPGCL has supplied electricity at Rs. 2.77 per Kwh to MSEDCL and TPC has supplied electricity at Rs. 5.16 per Kwh to BEST which shows that there is a vide variation between the two rates which may have been determined by the MERC tariff order in the respective company. This shows that the tariff rate approved by MERC is based on the cost incurred by the generator and has nothing to do with the open market price. Even the rate of electricity supplied by TPC from their different units vary which also shows that the MERC only approves the cost of each unit separately. It also may be pointed out that TPC after having high tariff rate approved by MERC has incurred losses. Thus, the cost of generation of electricity by Dahanu Unit is not the correct method for adopting the transfer price of the electricity utilized in Distribution Division.  The Appellant by making reference to provisions of section 80A(6), 80IA(8) and 92F of the Act has submitted that all the referred sections require that the price to be adopted has to be 22 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited what is applied in non-AE transactions which are in uncontrolled conditions. Thus market value denotes a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition.  The Appellant submitted that all generators of electricity are governed by Electricity Act and their tariffs are regulated there under. Thus, all supplies of electricity are under regulated environment. However, within this regulated environment, there are multiple generators who have different cost and therefore different tariff, there is a free market of all suppliers from whom the electricity can be purchased. Thus, there is an open market within the regulated environment. In this regard reliance was placed on the Supreme Court decision in case of Modern Dental College & Research Centre v. State of M.P., (2016) 7 SCC 353  Electricity has a wider market since many independent players have been given licence for transmission and/or distribution and/or trading of power. These independent parties are required to file statutory returns (of the transactions entered into by them) with the Electricity Regulatory Commission which data is available in public domain. With the above, the assessee has a ‘basket’ of market values. The Appellant therefore submitted that in the open market, where basket of market values are available, the law does not put restriction as to which market value it has to adopt. It is the initial 23 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited prerogative of choosing comparable cases is that of assessee. In this regard reliance was placed on the Supreme Court decision in case of O.N.G.C. v. Assn. of Natural Gas Consuming Industries of Gujarat, 1990 Supp SCC 397.  The Appellant further submitted that per unit cost as per MERC Order at Rs. 4.60 per Kwh is not the market value or the arm’s length value as provided in section 80IA(8) and section 92F / 92BA(iii). The working of per unit cost is based on the cost of generation and return on equity / capital and has nothing to do with market value. The cost of electricity of Dahanu unit is high in the same manner as that of TPC. Rinfra-G supplying power to Rinfra-D is not a transaction between non-AEs and also is not in uncontrolled conditions and therefore the value of Rs.4.60 per Kwh in MERC order cannot be adopted for determining the profits eligible for deduction u/s.80IA.  The Appellant stated that the cost of generation of electricity cannot be considered as market value and cannot be adopted. Adopting the value of Rs. 4.60 per Kwh as per the MERC Order is not an act of determining the arm’s length price but the act of substituting the transfer value recorded at Rs. 3.03 per Kwh by Rs. 4.60 per Kwh which is not the part of the transfer pricing provisions. 23. The TPO had also provided an analysis of purchase of electricity transaction from R-infra G and five other companies namely Vashpet (Reliance Power Ltd. – RPL), DSPPL, VIPL, RIPL and 24 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited AAASPL. The Assessee has justified in each case that there is no variation in the rate adopted by the Assessee in the transfer pricing study report and the MERC Orders of the respective companies and therefore no adjustment was required. 24. The Assessee made a without prejudice submission that the cost per unit of Rs. 4.12 as determined by MERC in the provisional tariff order no. 34 of 2016 dated 21.10.2016 ought to be considered as against the cost per unit of Rs. 4.60 determined by MERC in the final tariff order no. 325 of 2019 dated 30.03.2020. In this regard the Assessee explains hereunder the process of tariff determination by MERC:- RInfra was engaged in the business of generation, transmission and distribution of electricity. Rinfra has its generation unit at Dahanu having capacity of 500 MW. RInfra’s electricity distribution network covers the suburbs of Mumbai city. The electricity distributed by RInfra is partly generated in its own plant at Dahanu (500 MW) and the rest of the requirement is purchased from electricity suppliers and generators. RInfra is a licensee for carrying out the business of distribution and retail supply of electrical energy within the area of supply as specified in the license for distribution and retail supply of 25 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited electricity issued by the Maharashtra Electricity Regulatory Commission (MERC) in Suburban Mumbai. MERC is the regulatory authority which determines the tariff to be charged to consumers by power distribution undertaking of RInfra. MERC which is the governing body under the Electricity Act undertakes various activities such as  To make Regulations  To issue Orders on Petitions for : i. Determination of tariff ii. Grant Licence iii. Review Miscellaneous petition While discharging the functions, MERC undertakes consultation with public and Consumer's Representatives by following a detailed and transparent process before issuing Regulations. The charge of tariff to consumers is determined by MERC on year to year basis. MERC decides the tariff considering the annual revenue requirements petitions filed by the company. RInfra is required to bill consumers as per the tariff orders issued by MERC. While deciding the tariff for any financial year, MERC also conducts Annual Performance Review (APR) for the preceding financial year and truing up of the earlier financial year to decide as to whether the collection of revenue from supply of electricity covers the expenses and the return on investment and determines the revenue surplus or 26 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited revenue gap. If there is a revenue surplus, the same is adjusted in determination of tariff for the next financial year and if there is a revenue shortfall, then the same is added to the Aggregate Revenue Requirements (ARR) for determination of tariff for the next financial year. Adjustment of the prior years’ deficit creates a situation where along with the current financial year annual revenue requirement; the required tariff increase sometimes is very high. RInfra submits the annual revenue requirement to cover both the costs incurred and a reasonable return on capital base/equity. MERC while fixing up the tariff redraws upon the profitability based on allowance or disallowance of certain item of expenses and income. 25. Thus, as per the above tariff determination process, the tariff for a particular year is determined before the commencement of the year on the basis of projected costs for the year. The consumers are charged as per the tariff which is determined on projected basis. After the year end MERC undertakes the truing up of the tariff which is determination of the tariff based on the actual costs incurred by the company. The shortfall or excess recovery from the consumers is adjusted in the tariff of the subsequent year. 27 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 26. In light of the above facts, it was submitted that, while approving the ARR and determining the tariff for FY 2017-18 on a provisional basis, MERC vide its order in case no. 34 of 2016 dated 21.10.2016 has determined the per unit cost for R-infra G at Rs. 4.12 per unit. As per the process, MERC had to true up the provisional tariff and decide the final tariff which was done in order no. 325 of 2019 dated 30.03.2020 and the actual cost per unit was determined at Rs. 4.60 per unit. The effect of the variation in tariff is considered in the tariff of next financial year and recovered / reimbursed through the future tariff. Thus the difference of Rs. 0.48 per Kwh (Rs. 4.60 – Rs. 4.12) was allowed to the distribution business in the FY 2020-21. The effect of the above two orders relating to FY 2017-18 will be that tariff recovery during FY 2017- 18 has considered only Rs. 4.12 per Kwh relating to electricity supplied by Dahanu. Balance of Rs. 0.48 per Kwh will be recovered in FY 2020-21, in which year Rinfra was not the licensee and therefore the recovery will be made by the successor i.e. Adani Electricity Mumbai Ltd. In these circumstances adoption of per unit cost of Rs. 4.60 per Kwh was not correct and at best should be restricted to Rs. 4.12 per Kwh. The above contention is without 28 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited prejudice to the Assessee‟s claim that per unit cost cannot be taken as per the MERC Order. 27. Accordingly it was submitted that the TPO sought to apply the provisions of section 92(3) of the Act which provide that the computation of income u/s. 92 would not be applicable where it results into reduction of the taxable income. The Assessee replied that in its case the income chargeable to tax was not getting reduced on account of benchmarking but the deduction is being quantified on account of benchmarking of the transaction. The Assessee submits that the question of applying section 92(3) only arises when by application of section 92, the income reduces or loss increases and, in such a case, section 92(3) states that the adjustment as per section 92 is not to be made. Therefore, if the Revenue‟s case is that section 92(3) is applicable in the present case, then, as a consequence, the adjustment should not be made. 28. The TPO disregarding the Assessee‟s submissions has adopted the actual cost per unit of R-infra G of Rs. 4.60 per unit as the ALP stating that in the case of the Assessee, a government approved rate which measures cost plus assured mark up is available which is 29 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited binding on the Assessee and therefore, the artificial price for the transaction cannot be adopted. The TPO applied other method instead of CUP method applied by the Assessee and as also confirmed by the AO and DRP for AY 2017-18 when there is no change in the facts and circumstances of the Assessee. 29. As regards the Assessee‟s without prejudice contention that the rate of Rs. 4.12 per unit be adopted instead of Rs. 4.60 per unit, the TPO stated the difference in the two rates i.e. Rs. 0.48 per unit would have been factored by the Assessee in the sales consideration received from AEML. Thus, the TPO confirmed an adjustment of Rs. 1.57 per unit (Rs. 4.60 – Rs. 3.03) i.e. Rs. 500.79 crore to the transaction of purchase of power by Rinfra D from Rinfr a G. 30. Ld. DRP while analyzing the transaction has referred to the benchmarking done by the TPO and directions of the DRP for the same transaction in AY 2017-18, stating that the Assessee is generating power at a higher cost but for the purpose of deduction, benchmarking the transaction at a lower cost taking shelter of TP mechanism has adopted other method instead of CUP. The DRP has accepted the TPO‟s contention that the provisions of S. 92(3) are 30 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited applicable to the Assessee‟s case as the deduction is getting enhanced and the profits chargeable to tax is getting reduced on account of the ALP adopted by the Assessee. The DRP also noted that if the same approach as adopted for AY 2017-18 is followed, the ALP would work out to Rs. 3.71 per unit and would result in confirmation of adjustment of Rs. 216.91 crore as against Rs. 500.79 crore adjustment made by TPO. After stating the above facts, the DRP has confirmed the adjustment made by the TPO stating that the cost of generation can be the ALP placing reliance on the judgment of the Hon‟ble Delhi ITAT in case of M/s. DCM Shriram Ltd. (ITA No. 7362/Del/2018) for AY 2014-15 dated 28.10.2021. The DRP thus confirmed the findings of the TPO and has also suggested that remedial action to be taken for AY 2017-18. 31. Before us, Ld. Counsel for the assessee submitted that the rate as determined in the MERC order is based on the cost plus return on equity being percentage of capital employed structure. The rate determined is not the market value but is based on the cost incurred by R-infra G. There are various factors viz., quantum of purchase, fixed cost of thermal plant, landed fuel cost, station 31 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited heat rate, gross calorific value, auxiliary consumption of the plant, other factors etc which affect the cost structure of the generators and therefore the cost of the generation cannot be equated to market value. This is evident from the fact that an efficient generator with favorable factors will have a lower cost structure whereas not so efficient generator will have a higher cost structure. The Assessee further relies on the definition of “market value” as provided in sections 80IA(6), 80IA(8) and 92F to mean the price which such goods or services would fetch in the open market. The above sections require that the price to be adopted has to be the price which is applied in non-AE transactions in uncontrolled conditions. 32. He further submitted that all the electricity suppliers are under regulated environment and have different tariffs. Thus, even under the regulated environment there is a free market of all suppliers from whom electricity can be purchased. Further, choosing of comparables is the initial prerogative of the assessee and the Assessee has rightly ascertained the market value of 32 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited electricity in transactions between non-associated enterprises by obtaining the report from the Administrative Staff College of India. 33. He further submitted that R-Infra - D has purchased power from various parties other than R-Infra - G which would constitute market prices. Thus, where more than six transactions were available, the Assessing Officer ought to have applied Rule 10CA(4) for benchmarking the transaction rather than adopting the cost plus rate determined by MERC for R-Infra - G which cannot be equated to market price. He further submitted that Market rates clearly reflect the value of power in the open market and cannot be disregarded merely because there is a regulated price determined for the power transferred. Our attention was also invited to Rule 7 of the Income Tax Rules, 1962 which provides that the market price shall be the price at which the goods are sold during the relevant previous year. Thus, the price at which the electricity was sold in the open market has to be taken into consideration and not only the regulated price. 34. He further submitted that the TPO has only considered the rate as approved purchase cost in the tariff order for R-Infra - D of 33 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Rs. 4.60 per Kwh for benchmarking the transaction of transfer of power from R-Infra - G to R-Infra - D ignoring the other comparables for power purchase. The TPO failed to appreciate the fact that this rate does not represent the comparable rate of electricity following the arm‟s length principle for the reason that no power generating station / company can or would sell electricity to any industrial consumer at these rates. The rate represents only the cost of generating electricity by R-Infra - G. In section 80IA(8) of the Act, what is required to be ascertained is the market value of the goods transferred by the eligible business when such transfer is by eligible business to another non-eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to the market value of such goods. The term “market value” is further explained in the explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. The rate determined in the tariff order only represents the cost of electricity generated and not the market value thereof. 34 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 35. Ld. Counsel further submitted that the transaction value cannot be equated with the market price especially when the transaction is between two related parties. Thus, the action of the Assessing Officer of adopting the approved power cost of R-infra G as the arm‟s length price is not justified and the adjustment made on account of the same ought to be deleted. It is submitted that a transaction between two associated enterprises falls outside the definition of arm‟s length price, since ALP can only be determined with reference to transactions between unrelated entities. 36. He further submitted that when necessary inputs for applying CUP method were available and there was no dispute about the comparability of the inputs, there is no good reason to resort to other method. Further, in the case of the assessee, it would be appreciated, that Rinfra D has been purchasing power from other unrelated parties which is directly comparable to the transaction under consideration. This comparison undoubtedly provides the most reliable and direct benchmark for establishing the arm‟s length prices of transaction of purchase of power as entered into by Rinfra D. Therefore, in the case of the Appellant, CUP could 35 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited appropriately be applied considering internal comparable uncontrolled transactions entered into by Rinfra D with unrelated parties. 37. He further reiterated that in its own case and for the same transaction of inter-unit transfer of power, the Hon‟ble DRP has accepted the CUP method for benchmarking the transaction for AY 2017-18. The same was also accepted in the completed transfer pricing assessments for AY 2013-14 and AY 2016-17. There are no changes in the facts and circumstances in the present AY and hence the decision of the DRP / TPO rendered for the earlier years should be applied to the year under consideration. Therefore, he submitted that the CUP is the most appropriate method and should be adopted for benchmarking the transaction of transfer of power. 38. Ld. Counsel further submitted that all comparables operating in the state of Maharashtra namely as per the Assessee‟s internal CUP, comparables as per SCN and comparables as per the MERC order in case of MSEDCL should be considered for working out the data set to determine the ALP as was done for AY 2017-18. 36 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 39. During the course of ITAT hearing, the assessee has submitted working of the ALP applying Rule 10CA(4) considering various permutations. The same are summarized as under: Stat eme nt No. Particulars AY 2017-18 AY 2018-19 Remarks No. of Com parab les Range ALP No. of Com parab les Rang e ALP 1 Considering all Maharashtra Units, excluding ASCI (Only Internal CUP, TPO & MSEDCL Order) 15 3.03 to 3.35 3.24 16 2.90 to 3.93 3.03 Excluding Maharashtra Unit comparables as per ASCI Report 2 Considering all Maharashtra Units, excluding ASCI and Units having quantum of less than 2000 MU (Only Internal CUP, TPO & MSEDCL Order) 6 3.06 to 3.35 3.24 7 2.90 to 3.85 3.03 Excluding Maharashtra Unit comparables as per ASCI Report and Maharashtra Units having quantum of less than 2000 MU 3 Considering all Maharashtra Units, excluding ASCI, CGPL and Units having quantum of less than 100 MU (Only Internal CUP, TPO & MSEDCL Order) 10 3.06 to 4.07 3.24 11 2.90 to 3.93 3.03 Excluding Maharashtra Unit comparables as per ASCI Report, CGPL, and Maharashtra Units having quantum of less than 100 MU 4 Considering all Maharashtra Units, excluding ASCI, CGPL, IEX and Units having quantum of less than 100 MU (Only Internal CUP, TPO & MSEDCL Order) 9 3.14 to 4.07 3.24 10 2.90 to 3.93 3.03 Excluding Maharashtra Unit comparables as per ASCI Report, CGPL, IEX and Maharashtra Units having quantum of less than 100 MU 5 As per DRP Order 7 3.63 to 4.92 3.92 6 3.56 to 3.85 3.71 Excluding Maharashtra Unit comparables as per ASCI Report and Maharashtra Units having quantum of less than 1500 MU 37 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 40. As can be noted from the above chart, under all the situations, the Assessee‟s ALP is within the data range and therefore no adjustment is required to be made to the transfer price adopted by the Assessee. 41. As regards the Assessee‟s without prejudice submissions that the value of the transaction should be considered at Rs. 4.12 per Kwh as against Rs. 4.60 per Kwh adopted by the TPO, the Assessee submitted that the final tariff order no. 325 of 2019 dated 30.03.2020 approving the rate of Rs. 4.60 per Kwh was not available when the transaction was recorded in the books of account i.e. during FY 2017-18 and the MERC order in case no. 34 of 2016 dated 21.10.2016 approving the rate of Rs. 4.12 per Kwh was available. The difference in tariff (Rs. 4.60 – Rs. 4.12) i.e. Rs 0.48 per Kwh would be recovered in FY 2020-21 when the Appellant was not the licensee on account of sale of business to Adani Electricity Mumbai Ltd. (AEML). Ld. Counsel therefore submitted that the rate of Rs. 4.60 per Kwh cannot be considered. 38 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 42. On the other hand, Ld. CIT DR after referring to the various observations made by the TPO and DRP submitted that TPO has given detail reasons as to why the heavy reliance placed by the assessee on ASCI report, cannot be relied on, whereas on contrary, the AO has taken similar comparables involved in distribution of electricity within the same area. Apart from that, TPO has also relied on the transactions between MSEDCL and BEST which has purchased the power from other companies at a large higher rate which under the facts and circumstances where the best comparables. The TPO has also called for any MERC order in the case of assessee only, wherein power purchase cost was more than as determined by MERC which was Rs. 4.60 per unit, out of which DRP has already worked out ALP @ 3.71 per unit. Thus, he strongly relied on the direction given by DRP and the order of TPO. DECISION 43. We have heard the rival submissions and perused the relevant findings given in the impugned order as well as material referred TO before us. On perusal of the aforesaid facts and the observations made by the TPO and DRP on account of transfer 39 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited pricing adjustment, it is seen that in AY 2017-18, the TPO has taken purchase transaction of MSEDCL which has purchased power from Maharashtra State Power Generation Co. Ltd. (MSPGCL) and BEST has purchased from Tata power, based on information obtained u/s 133(6) and held that the rate of 3.24 per unit for the transaction of purchase of electricity as disclosed by assessee is not at ALP; and instead after detail reasoning has determined ALP of 4.047 per unit, which the DRP has reduced the ALP at 3.92 per unit. Whereas, in AY 2018-19, the TPO has determined the tariff rate as determined by Maharashtra Electricity Regulatory Commission at 4.60 per unit and DRP had directed to determined the ALP at Rs. 3.71 per unit. 44. It is an undisputed fact that R Infra-G which is non-eligible undertaking has transferred electricity to R Infra-D, therefore it is specified domestic transfer which falls within the scope of 92BA(iii) and 80IA(8) of the Act. Now before us, at the time of hearing, based on the information taken by the TPO and all the information discussed in the impugned orders, including DRP, it has been stated that if all the comparables operating in the state of 40 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Maharashtra including which has been taken as internal CUP by the assessee, comparables taken by the TPO and the comparables as per the MERC order in the case of MSEDCL, if all taken into consideration and data is worked out to set to determine the ALP as per Rule 10CA(4), then it has been found to be at ALP. The said table has been incorporated in the foregoing para 39. 45. The aforesaid table is based on various computation of TP rate computed for purchase cost from all Maharashtra Units, firstly by taking comparables of the TPO, certain internal CUP and as per MSEDCL order taken by the TPO. For the sake of ready reference, they are elaborated as under:- TP Range Computed for Purchase Cost from All Maharashtra Units excluding ASCI list (only Internal CUP, TPO and MSEDCL order) AY 2017 - 18 AY 2018-19 Sr. No. Name of Unit Qua ntit y (MU) Cost per KwH Sourc e Ref. Sr. No. Name of Unit Quan tity (MU) Cost per KwH Sourc e Ref. 1 CGPL 514 9 2.40 MSED CL Order 1 CGPL 4990 2.43 MSED CL Order 2 NPCIL 421 0 2.50 MSED CL Order 2 Maharashtr a State Electricity Distribution co. Ltd. 861 2.64 Intern al CUP 3 JSW 174 2 2.60 MSED CL Order 3 Dodson 83 2.65 MSED CL Order 41 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 4 Indian Energy Exchange Ltd 872 2.84 Intern al CUP 4 NTPC 30116 2.75 MSED CL Order 5 Knowledge Infrastructure System 13 3.02 Intern al CUP 5 JSW 1899 2.89 MSED CL Order 6 PTC India Ltd 34 3.03 Intern al CUP 6 NPCIL 2591 2.9 MSED CL Order 7 NTPC 274 12 3.06 MSED CL Order 7 PTC India Ltd 26 3.43 Intern al CUP 8 Maharashtra State Electricity Board 820. 98 3.14 TPO 8 MSPGCL- Thermal 48843 3.56 MSED CL Order 9 JSW Power Trading Co. Ltd 27 3.15 Intern al CUP 9 Indian Energy Exchange Ltd 1628 3.84 Intern al CUP 10 Adani Power 172 94 3.35 MSED CL Order 10 Adani Power 17257 3.85 MSED CL Order 11 EMCO Power 147 5 4.07 MSED CL Order 11 EMCO Power 1261 3.93 MSED CL Order 12 MSPGCL- Thermal 384 45 4.08 TPO 12 JSW Power Trading Co. Ltd 208 4.18 Intern al CUP 13 Jindal Steel and Power Ltd 44 4.67 Intern al CUP 13 Dhariwal Infrastructu re Ltd. 1 4.2 Intern al CUP 14 The Brihan Mumbai Electric Supply & Transport Undertaking 219 0 4.92 TPO 14 Power Exchange India Ltd. 1 4.83 Intern al CUP 15 Rattan India 170 1 8.62 MSED CL Order 15 Rattan India 4347 4.96 MSED CL Order 16 The Brihan Mumbai Electric Supply & Transport Undertakin g 2200 5.16 TPO Comparable total 15 Comparabl e total 16 42 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Particulars Place Range Particulars Place Ran ge 35th Percentile 5.25 6th 3.03 35th Percentile 5.6 6th 2.90 65th Percentile 9.75 10th 3.35 65th Percentile 10.4 11th 3.93 Range 3.03 to 3.35 Range 2.90 to 3.93 Reliance Infrastructure Ltd 3.24 Reliance Infrastructu re Ltd 3.03 TP Range Computed for Purchase Cost from All Maharashtra Units excluding ASCI list and quantity less than 2000 MU (only Internal CUP, TPO and MSEDCL order) AY 2017 - 18 AY 2018-19 Sr. No. Name of Unit Quanti ty (MU) Cost per KwH Source Ref. S r. N o. Name of Unit Quant ity (MU) Cost per KwH Source Ref. 1 CGPL 5149 2.40 MSEDCL Order 1 CGPL 4990 2.43 MSEDC L Order 2 NPCIL 4210 2.50 MSEDCL Order 2 NTPC 30116 2.75 MSEDC L Order 3 NTPC 27412 3.06 MSEDCL Order 3 NPCIL 2591 2.9 MSEDC L Order 4 Adani Power 17294 3.35 MSEDCL Order 4 MSPGC L- Therma l 48843 3.56 MSEDC L Order 5 MSPGCL - Thermal 38445 4.08 TPO 5 Adani Power 17257 3.85 MSEDC L Order 6 The Brihan Mumbai Electric Supply & Transpor t Underta king 2190 4.92 TPO 6 Rattan India 4347 4.96 MSEDC L Order 7 The Brihan Mumba i Electric Supply & Transp 2200 5.16 TPO 43 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited ort Undert aking Compar able total 6 Compa rable total 7 Particul ars Place Rang e Particu lars Place Ra ng e 35th Percentil e 2.1 3rd 3.06 35th Percent ile 2.45 3rd 2.9 0 65th Percentil e 3.9 4th 3.35 65th Percent ile 4.55 5th 3.8 5 Range 3.06 to 3.35 Range 2.9 0 to 3.8 5 Reliance Infrastru cture Ltd 3.24 Relianc e Infrastr ucture Ltd 3.0 3 TP Range Computed for Purchase Cost from All Maharashtra Units excluding ASCI list, CGPL, units with low quantity (only Internal CUP, TPO and MSEDCL order) AY 2017 - 18 AY 2018-19 Sr. No. Name of Unit Quantit y (MU) Cost per KwH Source Ref. Sr. No. Name of Unit Quant ity (MU) Cost per KwH Source Ref. 1 NPCIL 4210 2.50 MSEDCL Order 1 Maharashtra State Electricity Distribution co. Ltd. 861 2.64 Internal CUP 2 JSW 1742 2.60 MSEDCL Order 2 NTPC 30116 2.75 MSEDCL Order 3 Indian Energy Exchange Ltd 872 2.84 Internal CUP 3 JSW 1899 2.89 MSEDCL Order 4 NTPC 27412 3.06 MSEDCL Order 4 NPCIL 2591 2.9 MSEDCL Order 5 Maharashtra State Electricity Board 820.98 3.14 TPO 5 MSPGCL- Thermal 48843 3.56 MSEDCL Order 44 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 6 Adani Power 17294 3.35 MSEDCL Order 6 Indian Energy Exchange Ltd 1628 3.84 Internal CUP 7 EMCO Power 1475 4.07 MSEDCL Order 7 Adani Power 17257 3.85 MSEDCL Order 8 MSPGCL- Thermal 38445 4.08 TPO 8 EMCO Power 1261 3.93 MSEDCL Order 9 The Brihan Mumbai Electric Supply & Transport Undertaking 2190 4.92 TPO 9 JSW Power Trading Co. Ltd 208 4.18 Internal CUP 10 Rattan India 1701 8.62 MSEDCL Order 10 Rattan India 4347 4.96 MSEDCL Order 11 The Brihan Mumbai Electric Supply & Transport Undertakin g 2200 5.16 TPO Comparable total 10 Comparabl e total 11 Particulars Place Range Particular s Place Rang e 35th Percentile 3.5 4th 3.06 35th Percentile 3.85 4th 2.90 65th Percentile 6.5 7th 4.07 65th Percentile 7.15 8th 3.93 Range 3.06 to 4.07 Range 2.90 to 3.93 Reliance Infrastructur e Ltd 3.24 Reliance Infrastruct ure Ltd 3.03 TP Range Computed for Purchase Cost from All Maharashtra Units excluding ASCI list, CGPL, IEX and small quantity (only Internal CUP, TPO and MSEDCL order) AY 2017 - 18 AY 2018-19 S r . N o . Name of Unit Quanti ty (MU) Cost per KwH Source Ref. S r. N o. Name of Unit Quan tity (MU) Co st per Kw H Source Ref. 1 NPCIL 4210 2.50 MSEDCL Order 1 Maharash tra State Electricity 861 2.6 4 Internal CUP 45 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Distributio n co. Ltd. 2 JSW 1742 2.60 MSEDCL Order 2 NTPC 30116 2.7 5 MSEDCL Order 3 NTPC 27412 3.06 MSEDCL Order 3 JSW 1899 2.8 9 MSEDCL Order 4 Maharashtr a State Electricity Board 820.98 3.14 TPO 4 NPCIL 2591 2.9 MSEDCL Order 5 Adani Power 17294 3.35 MSEDCL Order 5 MSPGCL- Thermal 48843 3.5 6 MSEDCL Order 6 EMCO Power 1475 4.07 MSEDCL Order 6 Adani Power 17257 3.8 5 MSEDCL Order 7 MSPGCL- Thermal 38445 4.08 TPO 7 EMCO Power 1261 3.9 3 MSEDCL Order 8 The Brihan Mumbai Electric Supply & Transport Undertakin g 2190 4.92 TPO 8 JSW Power Trading Co. Ltd 208 4.1 8 Internal CUP 9 Rattan India 1701 8.62 MSEDCL Order 9 Rattan India 4347 4.9 6 MSEDCL Order 1 0 The Brihan Mumbai Electric Supply & Transport Undertaki ng 2200 5.1 6 TPO Comparabl e total 9 Comparab le total 10 Particulars Place Range Particular s Place Range 35th Percentile 3.15 4th 3.14 35th Percentile 3.5 4th 2.90 65th Percentile 5.85 6th 4.07 65th Percentile 6.5 7th 3.93 Range 3.14 to 4.07 Range 2.90 to 3.93 Reliance Infrastructu re Ltd 3.24 Reliance Infrastruct ure Ltd 3.03 46 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 46. The aforesaid exercise was done as per our direction only to incorporate various data and various comparables with the companies under similar line of distributors in Maharashtra, in order to benchmark with all the comparables of TPO. As accepted by the DRP, whether the price shown by the assessee for purchase is at arm‟s length price or not. The fundamental principle is to determine the arm‟s length price under the transfer pricing provision is to benchmark and to see whether the cost of purchase of electricity with the AE is comparable with the uncontrolled transactions having similar functions and providing similar goods and services, especially if one adopts external CUP method, and also to have broad comparable data to see the percentile range under the Rules. 47. Thus, if we analyze from the above computation of comparables as taken by the TPO and DRP, it can be seen that the median range is well within the price shown by the assessee and therefore, we hold that same are at arm‟s length price and no further TP adjustment was required to be done. 47 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 48. Otherwise also, if we analyze the order of DRP given in AY 2017-18 which has been followed in AY 2018-19 also, the DRP has made the following observations in AY 2017-18 which are as under:- We are of the considered view that the TPO is justified in rejecting the rate of ASCI adopted by the assessee. We endorse the reasons given by the TPO in this regard. The TPO has taken comparable rates of thermal power purchased by MSEDCL from MSPGCL. MSEDCL is engaged in the power distribution activity in state of Maharashtra. MSPGCL generating power in state of Maharashtra. Therefore, we are of the considered view that the CUP comparables in the instant case need to be from the similar geographical location of the state of Maharashtra and not Mumbai alone. The assessee has pleaded before us that, if thermal power purchase rate of MSEDCL from MSPGCL is taken for comparison, then there are other sources of thermal power producers in Maharashtra from whom MSEDCL had purchased thermal power, in FY 2016-17 [which are mentioned in the tariff order no. 195 of 2017 dated 12.09.2018 issued by Maharashtra Electricity Regulatory authority (MERC)], and therefore, the rates from those sources should also be considered for comparison, We find merit in the submission of the assessee. We have seen the tariff order which is available in the public domain. The MERC is a statutory 48 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited body. We are of the considered opinion that the information provided in the tariff order can be accepted for comparison. In this regard, we get indicative guidance from Rule 10THC (2)- 'Safe harbour Rules for Specified Domestic Transactions'. We take purchases of thermal power from thermal power producers in Maharashtra. We take for comparison the sources which had sold 1500 million units (MUS) to MSEDCL. Thus, we find that NTPC (Mouda), JSW (Ratnagiri), Adani Power (Dahanu and Tiroda- Gondia) and Rattan India (Nashik) have thermal power plants in Maharashtra and sold more than 1500 MUS to MSEDCL in FY 2016-17. The relevant information provided by MSEDCL to MERC is as under: Sr. no. Source MSEDCL Actual Purchases Cost per unit worked out Quantum (MUs) Cost Rs. (Rs. cr.) 1 MSPGCL 46,796 16,458 3.51 2 NTPC 27,412 8,376 3.06 3 JSW 1,742 452 2.6 4 Adani Power 17,294 5,786 3.35 5 Rattan India 1,701 1 ,466 8.62 We note that u/s 133(6), the price of thermal power to MSEDCL from MSPGL is reported at Rs. 4.08/- per unit. Apparently, Rs. 0.57/- per unit is landing cost addable to the cost per unit Rs. 3.51/- per unit in the table supra, which is also evident from the referred tariff order. Having noted the above facts and discussion 49 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited supra, we are of the considered view that cost of the thermal power purchased by MSEDCL from the parties (including MSPGCL) in the table supra can be taken for benchmarking. We are of the considered opinion that the landing cost of Rs. 0.57/- per unit need to be added to the purchase cost per unit of suppliers at sr. nos. 2, 3, 4 and 5 in the table supra to arrive at the purchase price per unit of the thermal power purchased by MSEDCL. Thus, the arm's length price should be at Rs. 3.92/- per unit for the SDT under question, which is Rs. 0.68/- more than the price taken by the assessee. Therefore, the adjustment should be of Rs. 226,51,35,556/- (Rs. 333,10,81,700/- x Rs. 0.68/-). The assessing officer should reduce the claim of deduction u/s 80 IA of the Act to 50 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited the tune of Rs. 226,51,35,556/-. The ground of objection no. 2 is partly allowed, 49. However, there is a slight fallacy in the order of the DRP while constructing the data set of comparables. The DRP has added extra landing cost of Rs. 0.57 per unit to the MERC approved rate of all comparables in case of MSEDCL Order for AY 2017-18. The DRP has assumed the difference between the MERC approved cost in case of MSPGCL of Rs. 3.51 per unit and the per unit rate of Rs. 4.08 as per the reply received from MSPGCL in response to the notice u/s. 133(6), being Rs. 0.57 (Rs. 4.08 – Rs. 3.51) as the landing cost and uniformly applied the same to the cost per unit of all comparables considered as per the MERC order in case of MSEDCL. The difference in the two rates in case of MSPGCL, i.e., Rs. 3.51 and Rs. 4.08 as per reply of MSPGCL has been explained as under: Station Actual Power Purchase from MSPGCL stations Cost per Unit Remarks Qty in MUs. Cost (Rs. in crore) Paras Unit 3 & 4 2,679 1,127 Refer Page 217 of MERC Order of MSEDCL in case no. 195 of 2017 dated 12.09.2018 Chandrapur 3 to 7 10,751 3,283 Chandrapur 8 & 9 2,906 1,164 Nasik 3,4 & 5 2,973 1,409 GTPS Uran 3,203 742 51 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Parli Replacement 8 22 12 Khaparkheda – 1 to 4 3,821 1,479 Khaparkheda 5 3,241 1,364 Bhusawal 2 and 3 574 305 Bhusawal 4 and 5 5,089 2,650 Koradi 5,6 & 7 546 336 Parli 3,4 & 5 (12) 96 Parli 6 & 7 1,399 737 Koradi 8,9 & 10 4,237 1,749 Hydro 4,418 715 Infirm 949 653 Others (1,362) Total – (A) 46,796 16,458 3.51 Less: Other than Thermal Plants included above GTPS Uran 3,203.49 742 Hydro 4,418.23 715 Infirm 949.34 653 Others (220.39) (1,362.50) Balance – (B) 38,445.33 15,710.50 4.08 As per reply dated 20.01.2021 received from MSEDCL in response to Notice u/s. 133(6) Difference (B) – (A) 0.57 Difference on account of cost of other than thermal power included and not on account of landing cost 50. Thus the average cost per unit of power purchased from MSPGCL of Rs. 3.51 per unit has been considered by the DRP on the basis of MERC order of MSEDCL which includes the cost of 52 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited thermal, hydro and gas power, whereas MSPGCL in response to the Notice u/s. 133(6) has provided the average cost per unit in case of thermal power only, since the same is comparable transaction with respect to the transfer of thermal power from Rinfra G to Rinfra D. Thus, the difference as reconciled above is not on account of landing cost and therefore, Rs. 0.57 per unit added to the cost per unit of all comparables was wrongly considered by the DRP. 51. If based on this revised working of arm‟s length price, even as per the DRP‟s order is done after correcting the said fallacy, then following weighted average price will be determined:- Revised TP Range Computed as per the DRP order Sr. No. Name of Unit Cost per KwH as per the DRP order Revised Cost per KwH Source Ref. 1 JSW 3.17 2.60 MSEDCL 2 NTPC 3.63 3.06 MSEDCL 3 MSEB – TPO 133(6) 3.14 3.14 TPO 133(6) 4 Adani Power 3.92 3.35 MSEDCL 5 MSPGCL – MERC Tariff order 4.08 4.08 MSEDCL 6 The Brihan Mumbai Electric Supply & Transport Undertaking 4.92 4.92 TPO 133(6) 53 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 7 Rattan India 9.19 8.62 MSEDCL Comparable total 7 Particulars Place Range 35th Percentile 2.45 3 rd 3.14 65th Percentile 4.55 5 th 4.08 Range 3.14 to 4.08 Reliance Infrastructure Ltd 3.24 52. Accordingly, on the basis of DRP order also, if the revised TP range is computed, then the middle range is between 3.14 to 4.08, and therefore, the ALP rate of assessee Rs. 3.24 is at ALP. Thus, from all the angles if determination of ALP is taken within as per the working of revenue authorities in a proper perspective, there is no case of any transfer pricing adjustment. Accordingly, the TP adjustment made in the AY 2017-18 and 2018-19 is hereby deleted. 53. Now coming to issue in respect of disallowance made u/s 14A in AY 2017-18 of Rs. 1,01,73,50,403/-. 54. The facts in brief are that during the year assessee had earned dividend income of Rs. 10,62,92,762 which had been claimed exempt u/s. 10 of the Act. The Assessee had disallowed a sum of Rs. 9,02,383 in the original return of income as per the amended 54 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Rule 8D considering only those investments on which dividend was received during the year and excluding there from investments in subsidiaries. The Assessee in its revised return of income had disallowed a sum of Rs. 2,10,92,321 u/s. 14A as per the amended Rule 8D considering only those investments on which dividend was received during the year including investments in subsidiaries in view of the Supreme Court decision in case of Maxopp Investments Ltd. reported in 402 ITR 640. 55. The amended Rule 8D w.e.f. 02.06.2016 provides that the disallowance u/s. 14A is the aggregate of the following: i) Any amount of expenditure which is directly relating to exempt income ii) Amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. 56. During the course of assessment proceedings, the Assessee was asked to furnish details as per the provisions of section 14A and Rule 8D, in response to which the Assessee had made submissions vide its letter dated 03.03.2021. The Assessee also 55 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited submitted without prejudice computation of disallowance u/s. 14A as per Rule 8D considering all investments capable of earning exempt income. The disallowance accordingly worked out to Rs. 103,84,42,724. Further, without prejudice to above the Assessee had submitted that the disallowance u/s.14A be restricted to exempt income i.e., Rs. 10,62,92,762/-. 57. The AO after considering the Assessee‟s submissions worked out the disallowance as per Rule 8D at Rs. 103,84,42,724/- considering all investments capable of earning tax free income. After adjusting the disallowance offered by the Assessee of Rs. 2,10,92,321, the AO has disallowed a sum of Rs. 101,73,50,403/- u/s. 14A. 58. Before the DRP, assessee had relied on the decision of the Hon‟ble ITAT in its own case for AY 2015-16 and other judicial precedents in support of its contention that only those investments which have yielded exempt income ought to be considered for working out the disallowance u/s. 14A. In support of it‟s without prejudice contention that the disallowance u/s. 14A ought to be restricted to exempt income, the Assessee placed reliance on the 56 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Supreme court decision in case of Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322 (SC) wherein it was held that upper disallowance u/s. 14A cannot exceed exempt income of relevant year and also held that where for year in question, finding of fact was that assessee had not earned any tax free income, corresponding expenditure could not be worked out for disallowance. 59. The DRP however has not allowed the ground stating that the view of the Assessing Officer that investments which has not earned dividend income in the year but is capable of earning dividend income need to be considered for working out the disallowance u/s. 14A. In respect of the Assessee‟s contention that disallowance u/s. 14A should be restricted to the exempt income earned by the Assessee, the DRP has stated that the SC decision relied upon by the Appellant in the case of Caraf Builders is only a dismissal of SLP and the issue has not attained finality. Thus, DRP has confirmed the disallowance made by AO. 57 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 60. Similarly in AY 2018-19 disallowance u/s 14A of Rs. 93,05,58,791/-, the assessee has earned dividend income of Rs. 23,58,73,222/-. The assessee disallowed of Rs. 2,03,26,213/- in the original return of income considering only those investments on which dividend was received during the year. During the course of assessment proceedings, the assessee had also given alternative and without prejudice computation of disallowance considering all those investments whether exempt income earned or not, which worked out at Rs. 95,08,85,004/- and in case disallowance is to be made, the same should be restricted to exempt income. 61. Now, it is has pointed out that, ITAT in assessee‟s own case for AY 2015-16 after following the various decisions held that disallowance u/s 14A worked out as per rule 8D should be after considering only those investments on which exempt income has been received during the year. Therefore, following the precedence of the earlier order, the disallowance is only restricted for considering the purpose of rule 8D(ii) only on those investments on which exempt income has been received during the year. 58 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Accordingly, the disallowance made by the AO and confirmed by the DRP in both the assessment years is hereby deleted. 62. Now coming to the common issue of expenditure on replacement of meters in both the AY 2017-18 & 2018-19. 63. The facts in brief are that the assessee is engaged in the business of distribution of electricity in the suburbs of Mumbai catering to over 2.9 million consumers. The Assessee has installed separate meters in the premises of each consumer (either residential or commercial or industrial). These meters have to be periodically replaced on account of obsolescence, reading of the meter becoming faulty, meter being burnt etc. Many times on account of manufacturing defects, the entire lot of meters has to be replaced. In the books of account, the Assessee capitalizes the cost of these replaced meters as per the governing provisions of the Electricity Act, however in the computation of income, the expenditure incurred on replacement of meters is claimed as revenue expenditure since the replacement of meters only facilitates better reading and does not in any way enhance the capital assets or the quantity of power supply. The Assessee has been claiming 59 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited the expenditure on replacement of meters as revenue expenditure since AY 1999-2000 onwards. 64. The AO has treated the expenditure incurred on replacement of meters as capital expenditure and allowed depreciation thereon as against the Assessee‟s claim for the said expenditure as revenue expenditure in the computation of income. 65. The DRP has not allowed this issue stating that expenditure on replacement of meters is capital expenditure giving enduring benefit to the assessee. Expenditure incurred on replacement of meters which was capital in nature cannot change the character of the expenditure and the same would remain capital in nature. 66. Before us, Ld. Counsel for the assessee submitted that this issue has been allowed by the Hon‟ble Bombay High Court in Assessee‟s own case for AY 2006-07 to AY 2009-10 and also by ITAT Mumbai Benches for AY 2002-03 to AY 2015-16. 67. After considering the aforesaid facts and earlier judicial pronouncements in assessee‟s own case, it is seen that the expenditure has been incurred on replacement of meters which is 60 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited treated as revenue expenditure for facilitating the business operations and enables the maintenance and conduct of the assessee‟s business more effectively or more profitably. The replacement of meter does not increase the Assessee‟s generation or distribution capacity. In fact assessee replacing old meters by new meters which resulted in better readings of the electricity/ current consumption and do not in any way enhance the capital assets or the quantity of power supply. Accordingly, the same is rightly claimed as revenue expenditure. Moreover, this issue has been covered by the decision of Hon‟ble Bombay High Court in assessee‟s own case for AY 2006-07 to AY 2009-10 and also by ITAT Mumbai for AY 2002-03 to AY 2015-16. Accordingly, the disallowance of expenditure made by the AO in both the assessment years is hereby deleted. 68. Now coming to the common issue of allocation of head office expenses for computing deduction u/s 80IA in both the AY 2017-18 & 2018-19. 69. It is undisputed fact that Assessee is eligible for deduction u/s. 80IA in respect of its distribution division. The Assessee has 61 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited incurred various expenses at its head office. The Assessee has not allocated the commonly incurred head office expenses to arrive at the profit of the eligible 80IA undertaking since the deduction is allowable in respect of profits derived from the business. The common expenses incurred cannot be allocated to the eligible 80IA undertaking to arrive at the business profits in the absence of direct nexus. 70. The AO has allocated commonly incurred head office expenses to all undertakings on the basis of turnover resulting in reduced profits of eligible 80IA undertaking stating that the head office expenses have been incurred for running and administration of all the units/activities of the assessee company including the activities of the eligible units. As per section 80IA(5), profits of these units are to be computed as if these units are the only source of income and therefore, the expenses of the head office, which controls the business of these units, must be apportioned to arrive at the correct eligible profits 71. The DRP has rejected the same merely relying on the arguments and reasoning provided by the AO in the draft order. 62 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited 72. Before us, Ld Counsel for the assessee submitted that the head office expenses should not be allocated while computing the profits of the eligible 80IA undertaking. The profit of the eligible undertaking has to be worked out as if such undertaking was only the source of income during the previous year. Further, the deduction u/s.80IA is allowable in respect of profits and gains “derived” from such business. He further stated that the head office expenses cannot be deducted from the profits and gains which are derived from the eligible business as these expenses do not have the direct and immediate connection with the unit. He further submitted that this issue has been allowed by the Hon‟ble Bombay High Court in Assessee‟s own case for AY 2006-07 to AY 2009-10 and also by ITAT Mumbai Benches for AY 2002-03 to AY 2015-16. 73. After considering the aforesaid facts and earlier judicial pronouncements in assessee‟s own case, we find that that this issue is now covered by the decision of Hon‟ble Bombay High Court in assessee‟s own case for AY 2006-07 to AY 2009-10 and also by ITAT Mumbai for AY 2002-03 to AY 2015-16. Thus, we direct the AO to allow the deduction u/s 80IA against gross total income. 63 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Accordingly, this ground raise is both the assessment years are allowed. 74. Now coming to the issue with regard to Short Grant of TDS credit in both the AYs 2017-18 and 2018-19. 75. Having heard both the parties and also on perusal of relevant findings in the impugned order as well as material placed on record, we find that the AO has not granted credit for TDS as the same did not reflect in Form 26AS of the assessee. As stated the TDS credit pertains to entities merged with the assessee in whose Form 26AS credit for TDS was reflected. The assessee had submitted the Form 26AS of the respective companies and the merger order which was not considered by the AO. Before the DRP, assessee had sought rectification of the final assessment order u/s. 143(3) in which credit for TDS was not granted, however no rectification order u/s. 154 has been passed till date. 76. Ld. Counsel of the assessee submitted that the income of the merged undertakings was accounted and offered to tax by the assessee and therefore the credit for TDS corresponding to the income ought to be granted to the assessee. The assessee has 64 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited submitted the relevant documents to the Assessing Officer on the basis of which credit for TDS should be granted. 77. From the above facts and circumstances, we direct the AO after examining; allow this issue in accordance with law in both the assessment years. Accordingly, this ground is allowed. 78. Now coming to issue with regard to disallowance u/s 14A while computing book profit u/s 115JB in AY 2017-18. We find that this issue is covered by the decision of ITAT in assessee‟s own case for AY 2013-14 to AY 2015-16 wherein it was held that no disallowance u/s. 14A is required to be made for computing book profits u/s. 115JB. Apart from that, reliance was also placed in the case of ACIT vs. Vireet Investments P. Ltd. (ITA No. 502/Del/2012) and C.O. No. 68/Del/2014) (SB) and ACIT, Ward 10(2) v. Geometric Software Solutions Co. Ltd. [2022] 140 taxmann.com 647 (Mum. Trib). Accordingly, this ground is allowed. 79. Now coming to the issue with regard to depreciation allowed on replacement of meters added to the books profit u/s 115JB in AY 2018-19, we find that the AO has failed to appreciate the 65 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited depreciation allowed by him in the assessment had not been debited to profit and loss account and therefore could not be added back under clause (g) for computing book profit u/s 115JB of the Act. Therefore, the assessee has rightly claimed expenditure incurred on replacement of meters as revenue expenditure in the computation of income. Accordingly, this ground is allowed. 80. Now coming to the issue with regard to deduction u/s 80G as raised in the appeal for the AY 2018-19. 81. The facts as culled out from the records are that, the assessee had made donation of Rs 15.05 crores which was eligible for 50% deduction u/s. 80G i.e. Rs. 7,52,50,000/-. In the return of income filed on 30.03.2019, the benefit of the same was not taken since deduction u/s. 80IA was claimed against the gross total income. The deduction u/s. 80IA was more than the gross total income and hence no deduction u/s. 80G was considered. There was a reduction in the amount of deduction u/s. 80IA and gross total income has been worked out. The Assessee claimed that it should be granted the deduction u/s. 80G against “gross total income” 66 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited subject to the limits provided in the section 80G. A claim for the same was made in the revised return of income filed on 30.03.2019. 82. Further the Assessee vide its submissions dated 20.09.2021 had pointed out that deduction u/s. 80G ought to be granted against the taxable income subject to the limits specified in the section as the claim for it was made in the revised return of income filed on 30.03.2019. Assessee has also made submissions vide letter dated 27.09.2021 for rectification of the mistake of not granting deduction u/s. 80G against gross total income and also submitted the relevant extracts of the ITR 6 giving details of donations made along with supporting donation receipts. However, no communication has been received on the same. 83. The AO has worked out the gross total income in the draft assessment order and only granted deduction u/s. 80IA against it. The Assessee is otherwise eligible to claim deduction u/s. 80G and has made a claim for it in the revised return of income. The benefit of deduction u/s. 80G has not been granted against the gross total income by the AO stating that the details of donations entitled for 67 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited deduction had not been filled in the relevant schedules of the return of income. 84. The DRP for AY 2017-18 had directed the Assessing Officer to verify the claim of the Appellant and grant deduction u/s. 80G. The DRP for AY 2018-19 has referred to the said directions of the DRP for AY 2017-18 and relying on it has dismissed the ground instead of directing the Assessing Officer to verify the claim and grant deduction u/s. 80G. 85. Since DRP has given direction the AO to verify the claim and grant deduction u/s 80G, the deduction u/s 80G is to be allowed against the gross total income subject to the limits provided in the section, we do not find any infirmity in such direction. Accordingly, this ground is allowed for statistical purposes. 86. Lastly, coming to the issue with regard to computation of book profit u/s 115JB which is loss as per profit and loss account as raised in AY 2018-19. 87. The facts in brief qua the issue are that, the AO had not computed book profits u/s. 115JB in the draft order proposed to be 68 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited issued as per the show cause notice dated 17.09.2021. The same was pointed out by the Assessee in its reply dated 20.09.2021. The AO has thereafter computed book profits u/s. 115JB in the draft order u/s. 144C dated 24.09.2021. However while computing the same, the AO has considered the book profit u/s. 115JB as Nil as per the Intimation u/s. 143(1) dated 11.11.2019 as against the book loss of Rs. 38,03,97,436 computed as per the revised return of income filed on 30.03.2019. 88. It is noticed that the AO has started the computation of book profits u/s. 115JB taking the returned book profits / loss as „Nil‟ instead of book loss of Rs. 38,03,97,436 computed by the Assessee. The AO failed to appreciate the fact that CPC while processing the return u/s. 143(1) for all the assessee‟s mentions the book profit u/s. 115JB as Nil in case book loss is reported. The Assessee had computed book loss of Rs. 38,03,97,436 in the revised return of income and CPC while processing the return vide Intimation u/s. 143(1) has mentioned the same as nil. The AO in the draft order issued u/s. 144C has therefore made adjustments to the book profits mentioned as nil in the Intimation u/s. 143(1) and worked 69 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited out taxable book profits at Rs. 96,31,95,861 which otherwise would have reduced the book losses reported u/s. 115JB. The Assessee had pointed out the above mistake in its rectification letter dated 27.09.2021, However, neither any communication nor any rectification order has been passed till date. 89. The DRP has accepted the Assessee‟s claim and directed the AO to rectify the error by passing a rectification order in the matter, however, no rectification order u/s. 154 has been passed till date. 90. Since DRP has given direction the AO to rectify the error by passing a rectification order in the matter, therefore we reiterate the same and direct the AO to rectify the error by passing a rectification order in the matter which has not been passed till dated. Accordingly, this ground is allowed for statistical purposes. 91. In the net result, both the appeals filed by the assessee stands allowed. Orders pronounced in the open court on 23 rd March, 2023. Sd/- Sd/- (M. Balaganesh) (Amit Shukla) Accountant Member Judicial Member मुंबई Mumbai;नदनधंक Dated : 23/03/2023 70 I.T.A. No. 476 & 2 106/Mum/2022 Reliance Infrastructure Limited Sr.PS. Dhananjay आदेशकीप्रतितितिअग्रेतिि/Copy of the Order forwarded to : 1. अपीलधथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. नवभधगीयप्रनतनननध, आयकरअपीलीयअनधकरण, मुंबई/ DR, ITAT, Mumbai 6. गधर्ाफधईल / Guard File आदेशानुसार/ BY ORDER, .उि/सहायकिंजीकार (Dy./Asstt.Registrar) आयकरअिीिीयअतिकरण, मुंबई/ ITAT, Mumbai