AI Insights
The case involves K R Pulp & Papers Ltd., which appealed against the assessment orders for the Assessment Years 2017-18 and 2020-21 concerning transfer pricing adjustments and disallowances under various sections of the Income Tax Act, 1961. The primary issues revolved around the arm's length pricing of electricity and steam transferred between the company's eligible and non-eligible units, and the disallowance of certain legal and consultancy expenses. The Tribunal's decision was influenced by precedents and judgments from the Supreme Court and other High Courts, which clarified the interpretation of 'market value' and 'arm's length price' in the context of the Income Tax Act.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 705919 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-07-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Assessment Year
2017-2018
Judgement Text
"ITA Nos.755/Del/2022 & 4456/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.755/Del/2022 [Assessment Year : 2017-18] K R Pulp & Papers Ltd., 304, Roots Tower, District Centre, Laxmi Nagar, New Delhi-110092 PAN-AAACK5861C vs DCIT, Central Circle-19, New Delhi APPELLANT RESPONDENT ITA No. 4456/Del/2024 [Assessment Year : 2020-21] K R Pulp & Papers Ltd., 304, Roots Tower, District Centre, Laxmi Nagar, New Delhi-110092 PAN-AAACK5861C vs ACIT, Central Circle-19, New Delhi APPELLANT RESPONDENT Appellant by Shri Gautam Jain, Adv. & Shri Parth Singhal, Adv. Respondent by Shri S.K.Jhadav, CIT DR Date of Hearing 09.04.2025 Date of Pronouncement 04.07.2025 ORDER PER MANISH AGARWAL, AM : The captioned appeals have been filed by the assessee against the assessment order dated 28.02.2022 passed by Ld. Joint Commissioner of Income Tax (OSD), Central Circle-19, New Delhi u/s 143(3)/144C of the Income Tax Act, 1961 (“the Act”) and against the assessment order dated 26.07.2024 passed by Ld. ACIT, ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 2 Central Circle-19, Delhi u/s 143(3) r.w.s144C of the Act pertaining to Assessment Years 2017-18 and 2020-21 respectively. 2. Since the issues involved in both the appeals filed by the assessee are common, therefore, both the captioned appeals are taken together and decided through a common order. ITA No.755/Del/2022 (AY 2017-18) 3. We first take the appeal filed by the assessee in ITA No.755/Del/2022 for AY 2017-18. 4. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing and trading of Kraft paper and white paper and filed its return of income on 29.11.2017 declaring total income of INR 34,49,64,520/-. The case was selected for scrutiny through CASS and notice u/s 143(2) of the Act was issued on 09.08.2018. The AO observed that assessee has entered into certain specified domestic transaction and therefore, the matter was referred for determination of ALP of the specified transaction undertaken by the assessee in terms of reference made u/s 92CA(1) of the Act. In compliance, the TPO passed the order u/s 92CA(3) of the Act dated 31.01.2021 wherein he proposed two adjustments with reference to the claim of deduction u/s 80IA of the Act by the assessee. First TPO reduced the amount of deduction claimed u/s 80IA of the Act by INR 32,68,31,286/- on the transfer of power from eligible unit to non-eligible unit. Similarly, the deduction u/s 80IA with respect to transfer of steam from eligible unit to non-eligible ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 3 unit was reduced by INR 51,63,85,174/-. Thereafter, the AO passed draft assessment order u/s 143(3)/144C of the Act on 30.03.2021 incorporating the adjustments made by TPO by disallowing the deduction u/s 80IA claimed at INR 16,40,46,786/-. Since the assessee claimed deduction u/s 80IA at INR 16,40,46,786/-, therefore, the reduction proposed by the TPO was restricted to such extent by the AO in the draft assessment order. Against this draft assessment order, the assessee filed objections before Ld. Dispute Resolution Panel (“DRP”) who vide its order dated 28.12.2021 u/s 144C(5) of the Act, confirmed the adjustments proposed by the TPO on account of disallowance of deduction u/s 80IA on transfer of electricity and steam. Further with regard to the adhoc disallowance of INR 18,65,470/- made by the AO @ 10% out of legal, professional and consultancy expenses, ld. DRP in para 5.5 directed the AO to allow the expenses if the tax was deducted at source and paid to the Government account. With regard to the addition of INR 4,692/- made on account of interest income and late payment charges, Ld.DRP has rejected the objections raised by the assessee. Similarly, the addition of INR 1,21,74,168/- made on account of difference in custom duty as per export-import data received from CBEC and custom duty reflected in return of income filed, Ld.DRP has rejected the objections raised by the assessee. Accordingly, Ld.DRP has allowed part relief to the assessee against which the assessee is in appeal before the Tribunal by way of following grounds of appeal:- ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 4 1. That the learned Joint Commissioner of Income Tax (OSD), Central Circle-19, New Delhi (\"AO\") has erred both in law and on facts in determining total income of the appellant company at Rs. 50,90,11,310/- as against declared income of Rs. 34,49,64,520/- in an order of assessment dated 28.2.2022 under section 143(3) read with section 144C of the Act. 2. That the learned AO/TPO/DRP has erred both in law and on facts in disallowing the claim of deduction of Rs. 16,40,46,786/- u/s 801A(4)(iv) of the Act by holding that an adjustment of Rs. 84,32,16,460/- is warranted in respect of transfer of power and steam from eligible units to non-eligible units u/s 92CA(3) read with section 801A of the Act. 3. That the learned AO/TPO/DRP have also erred both in law and on facts in making an adjustment of Rs. 32,68,31,286/- to the sale price of power by the eligible units (captive power plants) to non-eligible units by adopting average rates of power charged to industrial customers in Uttar Pradesh by Indian Energy Exchange Ltd. as best external comparable uncontrolled price for the determination of arm's length price in preference to the claim of the appellant that purchase price charged by M/s Madhyanchal Vidyut Vitran Nigam Ltd. (\"MVVNL\") from industrial users for purchase of power, which is otherwise also in consistence to rates adopted for transfer in previous years duly accepted in assessments u/s 153A of the Act; and in disregard of the decision of Hon'ble Income Tax Appellate Tribunal for AY 2008-09 in ITA No. 1344/Del/2013 and AY 2009-10 in ITA NO. 1920/Del/2013. 3.1. That the justification at the basis that \"sale rates of producers cannot equated with the purchase rate of end users since the purchase rate of end user contains many factors which increases the rate\" is not only theoretical but overlooks the factual matrix, commercial and market realities and statutory position. 4. That the learned AO/TPO/DRP have also erred both in law and on facts in making an adjustment of Rs. 51,63,85,174/- to the sale price of steam transferred by the eligible units to the non-eligible units by erroneously concluding and that too without opportunity that calculation of calorific value from steam is not certified by an independent party and details of expenditure as per profit and loss account for calculating the cost factor of 55.75% for Unit-1 and 56.85% for Unit-II has not been furnished. 4.1. That furthermore the learned TPO has made the aforesaid adjustment in excess of jurisdiction and concluding that the cost of steam production is to be taken at Nil since steam is a by product of power and it does not have any additional/separate cost to be recovered from non eligible units. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 5 5. That the learned AO has erred both in law and on facts in disallowing sum of Rs. 18,65,470/- made on adhoc basis i.e 10% of expenditure incurred for obtaining legal, professional and consultancy expenses by the assessee company and in not following the clear direction of DRO to allow the expense if tax has been deducted at source and payments made to the government account. 6. That the learned AO / DRP has erred both in law and on facts in making an addition of Rs. 1,21,74,168/- representing alleged difference between custom duty as per export-import data received from CBEC and custom duty as reflected in return of income and, erroneously taxed as unexplained expenditure of the assessee company. 6.1. That the learned AO / DRP has erred both in law and on facts in determining that appellant has not placed any evidence or narrative about claim of input credit of Rs. 16,74,685/- on imports and Rs. 79,80,055/- on high sea purchases and balance custom duty of Rs. 28,24,182/- included in purchase cost. 7. That the learned Assessing Officer has further erred both in law and on facts in levying interest of Rs. 3,30,35,298/- u/s 234B of the Act and interest of Rs. 10,17,224/- u/s 234C of the Act which is not leviable on the facts and circumstances of the case of the appellant company.” 5. Ground No.1 raised by the assessee is with respect to the reference made to the TPO for determination of Arm’s Length Price (“ALP”) of the specified domestic transaction. We find that the action of the AO is in accordance with the provisions of law and therefore, we do not find any force in the arguments in accordance are placed in the written submissions filed by the assessee. Accordingly, Ground No.1 raised by the assessee is hereby dismissed. 6. Ground No.2 taken by the assessee is with respect to the denial of deduction of INR 16,74,685/- claimed by the assessee u/s 80IA (4) of the Act. On transfer of electricity. Ground Nos. 3 to 3.1 are in relation to the adjustment made at INR 32,68,31,286/- by ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 6 TPO on the price of power charged by eligible unit to non-eligible unit. Ground Nos. 4 to 4.1 are in relation to the adjustment of INR 51,63,85,174/- made by TPO/AO towards the sale price of steam transferred from eligible unit to non-eligible unit. 7. As all above-mentioned grounds are inter-related and inter- connected therefore, these are taken together for consideration. 8. Brief facts leading to these issues are that the assessee is having Two paper manufacturing units which were set up in the year 1996 and 2008-09 and treated as non-eligible unit whereas the assessee is having Two power generation units, the first wherein unit was installed in the year 2006 with the capacity of 2.5 MW of electricity and second unit was installed in the year 2009 with capacity of production of 12 MW electricity and both are treated as eligible units. The assessee while computing the total income had claimed deduction u/s 80IA at INR 16,40,46,786/- on account of transfer of electricity and steam generated from eligible units to non-eligible unit for captive consumption. The deduction claimed u/s 80IA of the Act is duly backed by the necessary Audit Report duly filed before the lower authorities. The deduction u/s 80IA claimed u/s 16,40,46,786/- was computed as below:- ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 7 9. The TPO has made the adjustments on the price of transfer of electricity by reducing price of electricity from INR 6.36/- per unit to INR 2.58/- per unit which is based on the information provided by the IEX of the average rate for Uttar Pradesh and proposed the adjustments of INR 32,68,31,286/-. The TPO has taken the cost of steam production at NIL by treating it as a by-product and therefore, the adjustments on account of transfer of steam from eligible unit to non-eligible unit of INR 51,63,85,174/- was proposed. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 8 10. At the outset, before us, Ld.AR of the assessee submits that the issue with respect to the transfer of electricity from eligible unit to non-eligible unit is covered by the judgement of Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd. 460 ITR 162 (SC) wherein Hon’ble Supreme Court held that the price of electricity is to be computed at the market value of electricity supplied by the captive power plants to its industrial unit after comparing with the power available in the open market and the price charged by the State Electricity Boards while supplying electricity to the industrial consumers. 11. Ld. AR submits that the assessee has taken the price of INR 6.63/- per unit being the price of power charged by MVVNL (“Madhyanchal Vidyut Vitran Nigam Ltd”) from other industrial users and accordingly, in view of the judgement of Hon’ble Supreme Court in the case of Jindal Steel and Power Ltd. (supra), the price charged by the eligible unit from non-eligible unit on account of transfer of electricity is ALP and thus, required no modification on the same. He also placed reliance on the following judgements passed by Various Hon’ble Supreme Court and High Courts and ITAT:- (i) “PCIT vs Nalwa Steel & Power Ltd. in ITA No.725/Del/2019; (ii) Gujarat Alkalies and Chemicals 395 ITR 247 (Guj.); (iii) CIT vs Godavari Power & Ispat Ltd. 42 Taxmann.com 551 (Chhattisgarh); (iv) ACIT vs ACB India Ltd. in ITA No.5469/Del/2019 dated 31.12.2024; ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 9 (v) DCIT vs M/s. Balrampur Chini Mills Ltd. in ITA No.1672/Kol/2019 dated 05.05.2021; (vi) ITA Nos. 138, 139, 191 & 192/Kol/2018 dated 28.02.2019 Electrosteel Casting Limited vs. DCIT (pages 98-132 of JPB) vii) ITA-TP No. 123/Hyd/2022 dated 26.10.2022 Sree Rayalaseerna Hi Strength Hypo Limited Kurnool vs. DCIT (pages 298-306 of JPB) viii) 52 taxmann.com 268 (Mum - ITAT) West Coast paper Mills Ltd vs. Addl. CIT (pages 218-256 of JPB); ix) ITA No. 125/Ahd/2015 dated 24.1.2018 DCIT vs. Vishal Fabrics (P) Ltd. (pages 15-37 of JPB); x) 97 taxmann.com 10 (Ahmedabad-Trib.) dated 13.8.2018 Gujarat Flurochemicals Ltd. vs. DCIT (pages 257-297 of JPB); and xi) ITA No. 3093/Mum/2023 Tata Chemicals Ltd. vs. DCIT (pages 307- 328 of JPB).” 12. Ld.AR further submits that in case of assessee itself in AYrs 2008-09 & 2009-10, adjustments were made u/s 80IA which were deleted by the Hon’ble ITAT and Revenue has not preferred any appeal before Hon’ble High Court. It is further submitted that in other AYs, no adjustments were made on this account. Thus, following the principle of consistency, the adjustments made during the year under appeal deserves to be deleted. For this, he placed reliance on the judgement of Hon’ble Supreme Court in the case of CIT vs Excel Industries Ltd. 358 ITR 295 (SC) and CIT vs Berger Paints 266 ITR 99 (SC) and certain other judgements which are placed at page 29 in para 40 of its written submissions filed during the course of hearing. 13. It is thus, submitted by Ld.AR that the adjustment made of INR 32,68,31,286/- to the sale price of electricity from eligible unit to non-eligible unit deserves to be deleted. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 10 14. With regard to the adjustment of INR 51,63,85,174/- made by AO/TPO on the sale price of steam transfer from eligible unit to non-eligible units, Ld.AR submits that the assessee has two units where the steam is produced. In Unit-1 out of total expenditure of INR 12,88,29,276/- claimed in the Profit & Loss Account, a cost factor @ 56.85% is applied so as to work out the Revenue from steam at INR 71,8,22,321/-. With respect to the steam purchased to Unit-2, a cost factor of 56.85% was applied on the expenditure in the Profit & Loss Account of INR 78,19,92,705/- and Revenue from steam is worked out at INR 44,45,62,853/- for this unit. The TPO/AO take the cost of steam at NIL and made an adjustment of INR 51,63,85,174/-. Ld.AR submits that steam is not a by-product in the process of generation of electricity. In this regard, the assessee has made a detailed submissions as contained in para 61 to 63 of written submissions which is reproduced as under:- ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 11 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 12 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 13 15. It is further submitted by Ld.AR that the method of computation of cost of steam was disputed in AY 2008-09 which was settled by the Co-ordinate Bench of the Tribunal in assessee’s own case in ITA No.1344/Del/2013 for AY 2008-09 and further in ITA No.1920/Del/2013 for AY 2009-10. He further placed reliance on the following judgement which are as under:- ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 14 (i) Pr.CIT vs Jay Chemical Industrial Ltd. reported in 275 Taxman 78 (Guj. HC); (ii) Nectar Life Sciences Ltd. vs DCIT reported in 138 Taxmann.com 557 (Delhi –Trib.); (iii) CIT vs Tanfac Industries Ltd. SLP (C) No.18537 of 2009 319 ITR (st.) 8 (Mum-Trib.); (iv) SIAL SBEC Bioenergy Ltd. vs DCIT (2004) 83 TTJ 866 (Delhi); (v) DCIT vs Maharaja Shree Umaid Mills Ltd. [2009] 29 SOT 278 (Jaipur Trib.); (vi) Tamil Nadu Petro Products Ltd. vs ACIT 238 CTR 454 (Mad); (vii) DCW Ltd. vs Addl.CIT [2010] 37 SOT 322 (Mum.) 16. In view of the above submissions, Ld.AR submits that cost of steam produced in both units cannot be taken at NIL and accordingly, adjustment made by AO/TPO of INR 51,63,85,174/- deserves to be deleted. 17. On the other hand, Ld.CIT DR supported the orders of the lower authorities and submitted that AO/TPO discussed this issue at length and further Ld.DRP had decided this issue which orders deserves to be sustained. Ld. CIT DR for the Revenue further stated that the TPO has held that the steam is a by-product and generated during the production activity and its cost has already been absorbed in the manufacturing activity therefore, it has no cost remained. He prayed accordingly. 18. We have heard the rival contentions and perused the material available on record. In the instant case, the TPO made the adjustments towards the sale price taken for transfer of electricity ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 15 as per the average rate at IEX in Uttar Pradesh. Further the cost of production of Steam from eligible unit to non-eligible unit is taken at NIL by holding the same as By-Product. The appellant had generated electricity from two power plants and the electricity produced is only meant for captive consumption and not otherwise. The appellant did not sell any electricity to the outsiders. The generation of electricity and its supply are controlled by the Electricity Act, 2003 and the Electricity (Supply) Act, 1948. As per the Act, no person without a license can trade in the electricity. The generation companies are different from the distribution companies. The generation companies, as per the statutory mandate, are bound to sell electricity to the distribution companies and the price thereof is determined as per the formula given in the Electricity Act and the contracts as executed between the generation companies and distribution companies. In the open market, none of the generation companies can supply electricity. So, the end consumers always remain served by the electricity supplied by the distribution companies. The eligible units of the appellant are also involved in supply of electricity to the non-eligible units for consumption. The non-eligible units are the end user of the supplies made by the eligible units. 19. Now the question comes at what rate it should be charged/ priced when transferred to another unit. On perusal of the provisions of sub-section (6) of Section 80A of the Act, it is clear that in case where the goods of the eligible business are transferred to the non-eligible units of the assessee itself meant for ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 16 consumption in non-eligible units, then the profits of the eligible units have to be worked out, thereby taking into account the market value of the goods so transferred irrespective of the value assigned in the books of account. The expression 'market value' in Section 80A(6) of the Act has been defined in the Explanation attached thereto. Under the Explanation, the market value has been explained in two types of cases. Clause (i) and clause (ii) of the Explanation deal with the cases where the profit must be determined with an application of the transfer pricing provisions. Clause (iii) of the Explanation deals with the cases where the inter- se transactions are considered as specified domestic transactions in terms of Section 92BA of the Act. Clause (iii) of the Explanation states that if the transactions are specified domestic transactions as referred to in Section 92BA, then the market value of the goods remains the ALP as defined in clause (ii) of Section 92F of the Act. 20. We observed that similar provisions are contained in Section 80IA(8) of the Act where the clause (ii) of Explanation to Section 80IA(8) also states that the market value in relation to any goods transferred means an arm's length price as defined in clause (ii) of Section 92F of the Act where the transfer of such goods is a specified domestic transaction in Section 92BA of the Act. Both clause (iii) of the Explanation to Section 80A(6) as well as clause (i) of the Explanation to Section 801A(8) have been brought to the statute book by the Finance Act, 2012 with effect from 1st April 2013. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 17 21. Now coming to the facts of the present case where the TPO had evaluated and compared the transactions with reference to the average price of IEX. The power generating companies, who did not sell the electricity in the open market on account of the restrictions made in the Electricity Act, and are bound to sell the electricity only to the State Electricity Board as per the contractual terms who in turn supplied the electricity in the open market to end consumers. The Co-ordinate bench of ITAT, Jaipur in the case of Wonder Cement Ltd. (supra) after considering these facts did not accept the TPO's order. The coordinate bench in paragraph 14 of its order has made following observations: \"14. Evaluating this in light of the meaning of arm's length price i.e. a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions, it is evident that the transaction of purchase of electricity by State Electricity Boards from independent power producers is a regulated activity, being subject to approval of SERC, and therefore is not a transaction undertaken in uncontrolled conditions. Thus, the transaction between power producers and state electricity board is not fit to be considered comparable to the tested transaction of sale of electricity by eligible unit to non-eligible unit. Thus, the average rate of Rs 4.57 per unit, being the price for transfer of electricity by power producers to third party customers cannot be treated as arm's length price as it is a price under controlled conditions.\" 22. In the appellant's own case for Assessment Year 2008-09, the coordinate bench of Tribunal vide ITA No. 1344/Del/2013 accepted the appellant's contention and directed the Assessing Officer to re- compute eligible profits in reference to Section 80IA(8) of the Act with reference to rates at which the respective State Electricity Boards/distribution companies, wherever eligible units were located, supplied electricity to the end consumers in open market. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 18 23. This proposition is further supported by the Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd.(supra). The Hon’ble Jurisdictional High Court in the case of CIT Vs. DCM Shriram Ltd. in ITA No.566/2023 vide order dated 02.05.2024, held that Revenue has failed to controvert the assertions that rates in IEX are for power purchase and not for power consumption whereas electricity supply by power distribution company is charged on the basis of power consumed. The Hon’ble High Court further followed the Judgement of Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd. (supra) and held the order of the Tribunal as reasonable order and confirmed the same. The observations of the Hon’ble High Court as contained in para 43 to 60 of the order are reproduced as under- 43. In the present case, the question is to determine the market value or the ALP of power supplied by power plants established by the Assessee to its other units. Supplying of electricity is governed by the Electricity (Supply) Act, 1948 and Electricity Act, 2003. The transmission of electricity is also governed by the Electricity Rules, 2005. 44. Thus, the market for supply of electricity is regulated. Thus, to apply the CUP method, it would be necessary to ascertain the comparable transactions that are similar in material aspects and there is no difference between the transactions which has a bearing on the price of the power supplied. 45. The question whether the average IEX rate at which power is traded on IEX, is a comparable uncontrolled transaction, is required to be evaluated by determining whether there are any differences between the specified domestic transaction6 and the uncontrolled transaction of trade on the IEX. 46. The Assessee states - and the same is not controverted - that the availability of power on IEX is unpredictable and the supply of power is unreliable. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 19 47. It is stated that in order for a party to purchase power from IEX, the said party has to participate in the bidding process. The same entails furnishing a bid in advance for supply of fifteen minutes slots. Illustratively, it is stated that if a party requires power supply for a period of four hours, it would be required to submit sixteen bids for fifteen minutes slots. Further, the bidder cannot resile from the bids furnished by it in advance. 48. In view of the above, it is contended that power traded on IEX cannot be compared with the power supplied by a SEB. 49. It is not disputed that IEX is a platform, which is used by power producing units to sell surplus power for short term requirements. IEX is not a platform for sourcing continuous power for power consuming units. It is also pointed out that there is a high level of volatility in the IEX rates as it depends on immediate availability of surplus electricity. 50. It is also contended by the Assessee that the rates quoted on IEX are in respect of power supplied and not the power that is consumed and therefore, there is a material difference between the power that is purchased from IEX and the power which is supplied by the SEBs or power distribution companies. The said submission is also not controverted. The Assessee claims that it had on occasions purchased power from IEX. 51. We find considerable merit in the Assessee's contention that the transactions of sale and purchase of power on the IEX is not comparable to the regular supply of power by the SEB or the power distribution companies. Undisputedly, IEX is not a source for uninterrupted power on the basis of which any power consumer can set up its unit. It is also not disputed that there is a wide fluctuation in the IEX rates. The Revenue has also not controverted the assertion that rates for power quoted on IEX are for power purchased and not for power consumed. Thus, if an entity bids for certain quantity of power on IEX and is successful, it is required to pay for the same. However, the electricity supplied by power distribution companies is charged on the basis of the power consumed, which is recorded in the metering devices. 52. It is also clear that the said material differences between the electricity supplied by SEBs or power distribution companies and those secured by bidding on IEX would have a significant bearing on the price of power. 53. As noted above, the CUP method is an appropriate method only in cases where there is sufficient degree of identity between the tested transactions and comparable uncontrolled transactions. The CUP method cannot be applied where there is significant dissimilarity between the ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 20 comparable transactions and it is not feasible to determine an adjustment to eliminate the impact of the said differences on the prices of comparable transactions. 54. In the present case, the Assessee had supplied excess power to UPPCL in UP region at the rate of ₹4.39 per kWh. Thus, the said transaction was accepted by the learned DRP as well as the learned ITAT as an internal uncontrolled transaction. The rate at which such electricity was supplied by the Assessee being ₹4.39 per kWh, was rightly accepted as an ALP. 55. As noted above, the learned ITAT also accepted the rates at which electricity was supplied by the SEBs/power distribution companies to the Assessee in Gujarat and Rajasthan regions as the said rates was considered as an external CUP. 56. Undoubtedly, there is a degree of similarity between the transaction of supply of electricity by SEBs to the Assessee and the supply of electricity by the Assessee's eligible units. However, there is a difference between the transactions being benchmarked, which is supply of electricity by captive units, and the transaction of supply of electricity by distribution companies/corporations. The power distribution companies enjoy a near monopoly status. The tariff charged by such companies are regulated tariffs. However, we accept that there is a sufficient degree of similarity between the said transaction for reasonably determining the ALP by using the CUP method. 57. We also consider it apposite to refer to the recent decision of the Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Limited. The principal issue involved in the said decision was the determination of market value of goods and services. In terms of Clause (i) of Explanation to Sub-section (8) of Section 80IA of the Act, the market value in relation to goods and services would mean the price that such goods or services would ordinarily fetch in the open market. In the aforesaid context, the Supreme Court had considered the question of what would constitute an open market in the context of determining the market value of electricity supplied by captive power units of the assessee in that case. In that case, the assessee had entered into an agreement with the SEB of State of Madhya Pradesh to supply surplus electricity at the rate of ₹2.32 per unit. However, the Assessee had (2024) 460 ITR 162 computed the revenue from supply of electricity to its own unit at the rate of ₹3.72 per unit. It was the Assessee's case that the market value of the electricity was ₹3.72 per unit as that was the rate charged by the SEB for supply of electricity to industrial consumers including the Assessee. The learned ITAT had accepted the assessee's stand and had set aside the order passed by the CIT(A) rejecting the assessee's appeal in that regard. The High Court had also rejected the Revenue's appeal by referring to its ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 21 earlier decision where the question of law had been answered against the Revenue and in favour of the Assessee. 58. The Revenue had approached the Supreme Court assailing the orders passed by the learned ITAT and the High Court. In the aforesaid context, the Supreme Court had held as under: \"23. This brings to the fore as to what do we mean by the expression \"open market\" which is not a defined expression. 24. Black's Law Dictionary, 10th Edition, defines the expression \"open market\" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression \"open market\" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression \"market value\" in relation to any goods as defined by the Explanation below the proviso to sub-section (8) of section 80 IA would mean the price of such goods determined in an environment of free trade or competition. \"Market value\" is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 22 entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition. 27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit. 28. Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act.\" [emphasis added] 59. As is apparent from the above, the Supreme Court had accepted the rates at which electricity was supplied by the SEBs to industrial consumers as being the market value of the said supplies for the purposes of Sub-section (8) of Section 80IA of the Act. 60. In view of the above, the questions of law are answered in favour of the Assessee and against the Revenue.” ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 23 24. The Co-ordinate Bench of ITAT, Kolkata in the case of DCIT Vs. Philips Cabon Black Ltd. under identical circumstances has dismissed the appeal of the revenue by making following observations: “9. In this regard we have gone through a later judgment of the Hon'ble Calcutta High Court in the case of CIT v. Star Paper Mills Ltd. [2025] 172 taxmann.com 391 filed by the assessee [Page 1-19 of the Judicial PB]. In the decided case the assessee who was engaged in manufacture of paper had set up a captive power plant to supply power to its paper manufacturing units. The assessee had benchmarked the transfer of power from its power unit to its manufacturing unit at the price at which the paper manufacturing unit was procuring power from the State Electricity Board. In this decided case also, the TPO had benchmarked the transfer of power at which the power generating stations was supplying power to the State Electricity Board by following the earlier decision of Hon'ble Calcutta High Court in the case of ITC Ltd (supra). On appeal, the Hon'ble ITAT, Kolkata following their earlier decision rendered for AY 2016-17 in Star Paper Mills Ltd. v. Dy. CIT [2022] 134 taxmann.com 177 upheld the benchmarking methodology adopted by the assessee to value the transfer of power at the rate at which the manufacturing unit was procuring power from the Grid. On further appeal by the Revenue, the Hon'ble Calcutta High Court after taking note of the decision of Jindal Steel & Power Ltd (supra) wherein their earlier decision in the case of ITC Ltd (supra) was reversed, since upheld the decision of the Hon'ble ITAT vide its recent order dated 05.02.2025 passed in ITAT/214/2024. It is also material to mention that the Hon'ble ITAT, Kolkata in ITC Ltd's own case for subsequent AY 2009-10 in ITA Nos. 685/Kol/2014 & 1267/Kol/2014 read with MA Nos. 17-18/Kol/2019 have also expressed a divergent view as expressed in their own case by Hon'ble Calcutta High Court in FY 2001-02 by holding that the said judgment has since been reversed by Hon'ble Supreme Court and following the ratio decidendi laid down therein, the assessee's benchmarking methodology viz., the price at which the manufacturing units procures power from SEB, was held to be appropriate ALP.” 25. In view of the above facts, and by respectfully following the judgements of the Hon’ble Supreme Court and of the jurisdictional High Court as relied upon herein above, in our considered opinion, for the purposes of determination of the market value of the ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 24 transfer of electricity from eligible unit to non-eligible unit is to be taken at the market value at which the electricity company charges from consumers as has been requested by Ld.AR. Since in the present case, the assessee has taken the price at the rates at which the electricity is supplied by MVVNL to the industrial consumers i.e. Rs. 6.36 per unit thus, the sale value computed by the assessee for transfer of electricity from eligible unit to non-eligible unit is at Arm length price and accordingly the adjustment made by the AO / TPO at Rs. 32,68,31,286/- is hereby deleted. The grounds of appeal No. 3 to 3.1 are allowed. 26. Regarding the adjustment made by the AO/TPO on the transfer of steam from eligible unit to non-eligible unit by taking the cost of production of steam at NIL, in our considered view steam is commercial and viable product and its value cannot be taken at NIL. Since the steam is one of the forms of power and thus can be considered as joint product and not as by-product. Similar issue was came for consideration before the Co-ordinate Bench of the ITAT Delhi bench in the case of DCM Sriram Ltd. in ITA No. 7362/Del/2018 in AY 2014-15 wherein a detailed discussion is made on this issue and thereafter, the Hon’ble Co-ordinate Bench of the Tribunal 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 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 25 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 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.” ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 26 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, 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 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 27 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 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 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 28 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 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 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 29 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 appellant for generation of the power is a back pressure ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 30 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 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 31 heat value of the output steam at 3.5 KG/cm2 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 Nos.755/Del/2022 & 4456/Del/2024 Page | 32 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 ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 33 Revenue. However, the Tribunal allowed the application for rectification and recalled its 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 non- eligible units at cost only. v. Such cost is certified by the Cost Accountant, Chartered Accountant, and Chartered Engineers. vi. It cannot have Nil cost ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 34 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.” 27. This order of the Tribunal was challenged by the Revenue before the Hon’ble High court in ITA No.566/2023 wherein no substantial question of law was admitted on this issue by the Hon’ble 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. 28. In view of the above facts and by respectfully following the decision of Co-ordinate Bench and of the Hon’ble jurisdictional high court in the case of DCM Shriram Ltd. (supra) and further relying upon the judgement of Hon'ble High court in the case of CIT vs Cushman & Wakefield 367 ITR 730 (Del.), transfer of steam from eligible unit valued at cost of production for the purpose of claiming ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 35 deduction u/s 80IA is hereby held as reasonable and the adjustment of Rs.51,63,85,174/- made by AO/TPO by taking the cost of production of steam at NIL is deleted. Accordingly, Ground No. 4 to 4.1 taken by the assessee are allowed. 29. Ground No.5 raised by the assessee with regard to adhoc disallowance @ 10% of INR 18,65,470/- made out of legal, professional and consultancy charges paid. 30. The AO made the disallowance by observing that the assessee has failed to submit details/documents with respect to the expenses claimed. Though the Ld. DRP gave directions that if the TDS is deducted and deposited, no disallowance is to be made however, in the final assessment order, the AO has not followed these directions of Ld. DRP and by alleging that the assessee has not filed the justification of steep rise in the expenses and made the disallowance. 31. Before us, Ld. AR submits that the expenses were disallowed on assumption on presumption basis and adhoc disallowance is made out of total expenses claimed without there being any instance of excess claim of expenditure or alleging the same as bogus. Ld.AR further submits that the AO in its final order has failed to follow the specific directions given by Ld.DRP. He further submits that the assessee is a company where adhoc disallowance is not tenable in the eyes of law. For this, reliance is placed on the following judgements:- ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 36 (i) DCIT, Circle-1(1), Kolkata vs Lexicon Auto Ltd. in ITA No.1354/Kol/2016 (ITAT-Kol.); (ii) TUV India Pvt. Ltd. v. DCIT-15(3)(1) in ITA No.6628/Mum/2017; (iii) DCIT, Circle-2, Gurgaon v. Surinder Kumar Mehta in I.T.A. No. 1661/Del/2014; iv) Biswanath Agarwala v. ACIT, Circle-43 in ITA No.461/Kol/2016; v) Lever India Exports Ltd. vs. CIT reported in 78 taxmann.com 88 (Bombay); vi) D.S. Agencies & Associates v. ACIT reported in 44 ITR(T) 46 (Mum); vii) Det Norske Veritas A/S v. ADIT, International Taxation reported in 67taxmann.com 16 (Mum); viii) Amserve Consultants Ltd. v. ADIT reported in 72 taxmann.com 204 (Del); ix) Firmenich Aromatics (India) (P.) Ltd. v. ACIT reported in 106 taxmann.com 166 (Mum); x) MohitLal Ghosh v. ACIT in ITA No. 868/Kol/2014; xi) ITO vs. Mayur Aggarwal, 2010, ITAT reported in 43 DTR 116 (TM) (Agra); xii) Dinesh Mills Ltd. vs. CIT, 2001, ITAT reproted in 254 ITR 673 (Guj); xiii) Goodyear India Ltd v ITO, 2000, ITAT reported in 73 ITD 189 (Del); xiv) Sunder Mal Sat Pal vs. ITO, 2005, ITAT reported in 94 TTJ 423 (Asr); xv) Coco Cola (India) Ltd. v. JCIT, 2005, ITAT reported in 104 TTJ 254 (Pune) 32. He, therefore, requested for the deletion of the disallowance made by the AO. 33. On the other hand, Ld.CIT DR supports the orders of the AO and submits that the expenses stood increased from INR 95.16 lakhs to INR 1.86 crores in the year under appeal and no proper ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 37 explanation was given for such increase therefore, disallowance was rightly made by the AO which deserves to be upheld. 34. Heard both the parties and perused the material available on record. From the perusal of the order of AO, it is seen that the AO has made the disallowance for the sole reason that the expenses were increased substantially as compared to previous year however, Ld.DRP after considering the aspects in para 5.5 of the order has given following directions:- 5.5. “Keeping in view of the above discussion, the DRP directs the AO to allow the expenses if tax has been deducted source and payment made to the Government account. Ground of appeal is accordingly disposed off.” 35. From the perusal of the directions given by Ld.DRP and the final assessment order of AO, we find that AO has not followed the directions given by Ld.DRP in the final assessment order and therefore, we set aside the order of AO and remand back this issue to the file of AO to follow the directions as made by Ld.DRP by making verification of facts whether TDS was deducted and deposited on such payments claimed towards legal, professional and consultancy expenses and if found so, no disallowance is to be made. With these directions, this Ground of appeal is partly allowed for statistical purposes. 36. Ground Nos. 6 to 6.1 is in respect to the addition of INR 1,21,74,168/- made on account of difference between custom duty as per export-import data and is reflected in the return of income. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 38 37. Before us, Ld.AR of the assessee submits that the assessee has paid custom duty of INR 1,21,74,168/- on imports & high sea sales and after reducing the input credit on imports and high sea purchases the balance amount of INR 25,24,182/- was included in the purchase cost for which following details were filed before us:- (i) Details of custom duty as per IEC data; (ii) Details of custom duty paid on imports alongwith custom duty challan; (iii) Details of custom duty paid on high sea purchases alongwith custom duty challans. 38. Ld.AR further submits that detailed re-conciliation statement according to which, there was no difference and thus, requested for deletion of the addition so made by the AO. 39. On the other hand, Ld.CIT DR submits that details submitted by the assessee needs to be verified at the end of the AO and the matter may be sent to the file of the AO for necessary verification on the facts as contended by Ld.AR of the assessee. 40. Heard both the parties and perused the material available on record. From the submissions of the assessee and the orders of the lower authorities, we find that the re-conciliation statement as stated to have been submitted before the AO and Ld.DRP was not considered by them in proper perspective and therefore, in the interest of justice, we remand back this issue to the file of the AO with the direction that to verified the difference as explained by the assessee in terms of the re-conciliation statement and other evidences stated above as and decide the issue in accordance with ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 39 law. With these directions, this ground of appeal is partly allowed for statistical purposes. 41. Ground No.7 raised by the assessee is with regard to the levy of interest u/s 234B & 234C of the Act. The levy of interest is mandatory however, the amount charged is consequential to the income finally determined and therefore, the AO is directed to charge the interest u/s 234B on the income finally computed after giving effect to the order of the Tribunal. 42. In the result, appeal of the assessee is partly allowed. ITA No. 4456/Del/2024 [Assessment Year : 2020-21] 43. Ground Nos. 1 to 4 raised by the assessee are in respect of the transfer pricing adjustments of INR 89,64,57,563/- made u/s 80IA of the Act in respect to the transfer of electricity and steam to compute the profit for the purpose of deduction u/s 80IA(4) of the Act. 44. The identical issues have been decided by us in assessee’s own case in ITA No.755/Del/2022 (AY 2017-18) herein above. Both the parties agreed that the facts and circumstances are identical to the facts in AY 2017-18. Thus, by following the observations made while deciding Ground Nos. 2 to 4 of the assessee in ITA No.755/Del/2022 (AY 2017-18), the Grounds of appeal Nos.1 to 4 taken by the assessee in present appeal are allowed. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 40 45. Ground No.5 is with respect to the claim of deduction of INR 97,98,021/- on account of health and education cess. During the course of hearing, this Ground is not pressed by Ld.AR thus, the same is hereby, dismissed. 46. Ground No.6 raised by the assessee is with regard to the disallowance of INR 9,82,283/- made by invoking the provision of section 41(1) of the Act, which is not pressed during the course hearing hence, dismissed. 47. Ground Nos. 7 & 8 raised by the assessee wherein the assessee has challenged the order passed u/s 143(3)/144C of the Act on account of limitation and DIN issue. However, during the course of hearing, both these grounds of appeal are not pressed hence, dismissed. 48. Ground No.9 raised by the assessee with regard to the levy of interest of INR 6,57,25,630/- u/s 234B & 234C of the Act. The levy of interest is mandatory however, the amount charged is consequential to the income finally determined and therefore, the AO is directed to charge the interest u/s 234B on the income finally computed after giving effect to the order of the Tribunal. 49. In the result, appeal of the assessee is partly allowed. ITA Nos.755/Del/2022 & 4456/Del/2024 Page | 41 50. In the final result, both appeals of the assessee in ITA No.755/Del/2022 (AY 2017-18) and ITA No.4456/Del/2024 (AY 2020-21) are partly allowed. Order pronounced in open court on 04.07.2025. Sd/- Sd/- (ANUBHAV SHARMA) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "
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