MANGALAM CEMENT LTD,KOTA, RAJASTHAN V. DCIT, CIRCLE-2, KOTA, KOTA

ITITA 3/JPR/2024

AI Insights

Mangalam Cement Ltd. appealed against the order of the Deputy Commissioner of Income Tax, which included a significant transfer pricing adjustment and incorrect computation of brought forward losses and unabsorbed depreciation for the Assessment Year 2021-22. The Tribunal examined the adjustments made under section 92CA(3) concerning the ALP of electricity transferred from the company's power plants. The Tribunal found that the adjustments were not in line with the market value as determined by the Supreme Court in CIT vs Jindal Steel & Power Limited and other precedents. Additionally, the Tribunal noted discrepancies in the computation of brought forward losses and unabsorbed depreciation, leading to incorrect income assessment under normal provisions of the Act. The Tribunal's decision was influenced by previous rulings in similar cases and the specific provisions of the Income-tax Act concerning market value and ALP.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 313048 (ITAT-JAIPUR)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 28-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2021-2022
• Other Referred Cases: CIT vs Jindal Steel & Power Limited, CIT, Raipur Vs. Godawari Power & Ispat Limited, PCIT Vs. Gujarat Alkalies and Chemicals Ltd., CIT (LTU) vs Reliance Industries Limited, CIT vs Shree Cement Limited, DCIT vs Balarampur Chini Mills Ltd, DCM Shriram Ltd vs Add CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHANWAR SINGH RATNU
• Assessee Lawyers: P.C. PARWAL
• Keywords: Set aside; Transfer pricing; Depreciation; Unabsorbed depreciation
• Section: 143(3); 92F

Judgement Text

" vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@IT(IT)A No. 03/JP/2024 fu/kZkj.k o\"kZ@Assessment Year : 2021-22 M/s Mangalam Cement Ltd., Aditya Nagar, Aditya Nagar S.O Fatehpur, Kota cuke Vs. DCIT, Circle-02, Kota LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCM6602Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal, CA jktLo dh vksj ls@ Revenue by : Sh. Bhanwar Singh Ratnu, CIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 06/03/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 28/04/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM By way of present appeal the assessee challenges the order of Income Tax Assessment unit [ for short AO ] passed u/s. 143(3) r.w.s. 144C(13) r.w.s 144B of the Income Tax Act, 1961 [ for short Act ] for the assessment year 2021-22 dated 19.09.2024. Ld. AO passed that order after considering the directions given by the Dispute Resolution Panel [ for 2 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT short “DRP’] as per provision of section 144C(5) of the Actdated 07.08.2024. 2. In this appeal, the assessee has raised following grounds: - “1 Based on the facts and in law, the Ld. AO has erred in making an adjustment of Rs. 48,64,37,771/- u/s 92CA(3) on account of deduction u/s 80-IA of IT Act by not appreciating that due to set off of brought forward losses, the assessee has not claimed any deduction under this section and thus, no adjustment is required and the Ld. DRP has erred in confirming the addition only to keep the issue alive as an appeal has been filed by the income tax department before the Rajasthan High Court against the favourable order of the Jaipur Tribunal in assessee's own case for AY 2018-19. 2. Based on the facts and in law, the Ld. DRP/Ld. AO has erred in confirming the computation of Arm's Length Price (ALP) of the power transferred by captive power plant (CPP) to the cement plant at Rs.3.91 per unit as determined by the TPO as against Rs.7.88/Rs 7.93 per unit determined by the assessee on the basis of rates at which Jaipur Vidyut Vitran Nigam Ltd. (JVVNL) supply electricity units to the assessee and the ALP of electricity generated by the wind power plant transferred to JVVNL at Rs.3.91 per unit as determined by the TPO as against Rs.7.13/Rs 7.16 per unit determined by the assessee on the basis of rates at which JVVNL supply electricity units to the assessee without considering the favourable decision of the Hon'ble Supreme Court of India in the case of CIT vs Jindal Steel & Power Limited (2023) 118 CCH 207 dated 6 December 2023 wherein the SC has held the ALP to be the market value of the power supplied by the State Electricity Board to the industrial consumers. 3. Based on the facts and in law, the Ld. AO has erred in considering brought forward loss for set off against total income at Rs 105,92,31.882 as against Rs 110,20,06,032 considered by the Appellant in its return of income resulting in short set off of 3 losses by Rs 4,27,74,150 and has further erred in not grating set off of balance carried forward unabsorbed depreciation of Rs 230,66,46,368 as reported in the income tax return and thereby incorrectly computing the total income under normal provisions of the Act at Rs 52.92,11,922 as against Rs Nil. 4. The Appellant craves to alter, amend and modify any ground of appeal 5. Necessary cost be awarded to the Appellant.” 3 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT 3. Succinctly, the fact as culled out from the records is that the assessee, a company registered under the Companies Act and filed its return of income for the Assessment Year 2021-22 on 28/03/2022, declaring a total income of NIL. The Income Tax Return was processed vide order u/s.143(1) of IT Act, 1961 on 14/10/2022 computing income of NIL. The case was selected for complete scrutiny assessment under CASS for the reasons “Large Specified Domestic Transactions”. During the year, under consideration, the assessee company is engaged in the business of manufacturing of cement and generation of power. Ld. AO has discussed the submission of the assessee and direction of the ld. DRP. After discussing that he has assessed the income of the assessee by observing as under: 3.3.4 It is noted from the above giving effect order of JAO that an appeal has been preferred before the Hon'ble High Court on 20/05/2023 vide appeal No. ITA/73/2023 for the Asst. Year 2018-19 on similar issues. The status of the appeal has been obtained from High court site, which is still pending. Therefore, as per directions of the Ld. DRP given in para 4.1.4, in order to keep the issue alive, action of TPO is considered as upheld by the Ld. DRP. As in the event of the filing of appeal before Hon'ble High Court, Ld. DRP has inclined to uphold the action of the AO in this issue, therefore, adjustment made in order u/s 92CA(3) dated 28/10/2023 for Rs.48,64,37,771/- remains unchanged. 4. Conclusion drawn In light of the above discussions, and after exa the details & documents produced through e-assessment, the assessment proceedings are hereby concluded by making Disallowance of Rs.48,64,37,771/- as Transfer Pricing adjustment u/s. 92CA(3) of the Income-tax Act, 1961 as under: 4 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT S. No. Nature of the Transaction Value of Adjustment (In Rs. 1 Transfer of Power from Coal Based Plants 440678725/- 2 Transfer of Power from Windmill 45759046/- Total 486437771/- 4. Aggrieved from the above order passed by the ld. AO, the assessee has preferred the present appeal before this tribunal which was passed after considering the direction of the DRP. Ld. AR of the assessee submitted that issue of transfer pricing adjustment when the assessee has not claimed the deduction u/s 80IA of the Act be made or not is pending before the Rajasthan High Court to be decided no stay is granted to the revenue and therefore, the issue is covered by the decision of this ITAT in years and therefore, ground no. 1 is covered. As regards the ground no. 2 & 3 the same has been allowed by the recent order dated 15.01.2025 by the co-ordinate bench in the case of the assessee for the assessment year 2020-21. In support of the contention so raised ld. AR of the assessee has filed a detailed paper book containing following evidence / records / decisions: S. No Particulars Pg No 1. Acknowledgement of filing return of income along with relevant pages of ITR 6 1-11 2. Copy of submission dated 17 April 2023 filed with the TPO submitting the following documents: 12-16 5 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT S. No Particulars Pg No • CPP rate calculation • WPP rate calculation 17-21 22-23 3. Copy of submission dated 12 September 2023 filed with the TPO submitting the following documents: • Show cause notice dated 19 July 2023 issued by the TPO • Copy of order dated 28 November 2022 for AY 2018-19 pronounced by the Jaipur Bench of ITAT in Appellant’s own case • Calculation of landed cost of electricity 24-30 31-38 39-49 50 4. Copy of decision of Supreme Court of India in case of CIT vs. Jindal Steel & Power Limited (2023) 118 CCH 207 51-74 5. Copy of decision of Chhattisgarh High Court in case of CIT, Raipur Vs. Godawari Power & Ispat Limited (2014) 42 taxmann.com 551 (Chhattisgarh) 75-80 6. Copy of decision of Gujarat High Court in case of PCIT Vs. Gujarat Alkalies and Chemicals Ltd. (2017) 395 ITR 247 (Guj) 81-84 7. Copy of decision of Bombay HC in case of CIT (LTU) vs Reliance Industries Limited (2020) 421 ITR 0686 (Bom) 85-88 8. Copy of decision of Rajasthan HC in the case of CIT vs Shree Cement Limited (ITA No 85/ 2014) 89-103 9. Copy of decision of Kolkata ITAT in case of DCIT vs Balarampur Chini Mills Ltd 62 CCH 95 dated 5 May 2021 104-118 10. Copy of decision of Delhi ITAT in the case of DCM Shriram Ltd vs Add CIT [2022] 215 TTJ 299 (Del) dated 28 October 2021 119-153 11. Copy of order dated 15 January 2025 for AY 2020-21 pronounced by the Jaipur Bench of ITAT in Appellant’s own case 154-169 12. Copy of Departmental Appeal filed before the Rajasthan HC for AY 2018- 19 170 5. The ld DR is heard who relied on the findings of the lower authorities and submitted that the order of the ITAT is challenged before the High Court and therefore, the addition is required to be sustained and he relied on the orders of the lower authority. 6 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT 6. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee vide ground no. 1 so far as the ground no 1 is concerned the same is covered by the decision of the co-ordinate bench of this tribunal vide ITA no. 01/JP/2024 for assessment year 2020-21 wherein the co-ordinate bench has held as under : 8. It is observed that the coordinate bench in Appellant’s own case for A.Y. 2018- 19 vide order dated 28 November 2022 (PB 35-45) has held that adjustment could have been made if the assessee had claimed deduction under section 80- IA or because of the addition made, the income would have been positive on which deduction under section 80-IA could have been allowed. However, as the Appellant has neither claimed deduction under section 80-IA due to losses or AO made any addition wiping off the losses and assessing the income, addition made on account of transfer pricing adjustment on account of supply of electricity was deleted by the coordinate bench. As there is no order by any higher appellate authority, i.e. the Hon’ble High Court or Supreme Court in favour of the Revenue and also the Revenue is not able to make out the case, distinguishing the earlier ratio laid down by the coordinate bench, we are in agreement with the order of the coordinate bench and respectfully following the same, Ground No. 1 raised by the assessee is allowed. Since the facts of that case for A. Y. 2020-21 are same for the year under consideration ground no. 1 raised by the assessee is allowed. 7. Without prejudice to the ground no. 1 vide ground no. 2 the assessee raised the issue of the computation of Arm's Length Price (ALP) of the power transferred by captive power plant (CPP) to the cement plant at Rs.3.91 per unit as determined by the TPO as against Rs.7.88/Rs 7.93 per 7 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT unit determined by the assessee on the basis of rates at which Jaipur Vidyut Vitran Nigam Ltd. (JVVNL) supply electricity units to the assessee and the ALP of electricity generated by the wind power plant transferred to JVVNL at Rs.3.91 per unit as determined by the TPO as against Rs.7.13/Rs 7.16 per unit determined by the assessee on the basis of rates at which JVVNL supply electricity units to the assessee without considering the favourable decision of the Hon'ble Supreme Court of India in the case of CIT vs Jindal Steel & Power Limited (2023) 118 CCH 207 dated 6 December 2023 wherein the SC has held the ALP to be the market value of the power supplied by the State Electricity Board to the industrial consumers. So far as this issue is concerned, it is also decided in favour of the assessee by the co-ordinate bench in the recent decision dated 15.01.2025 for the assessment year 2020-21, while dealing with the issue the bench held as under : Cost of electricity generation of the Appellant is higher than the price considered by the Appellant for section 80-IA 16. The cost of electricity generation of the Appellant after considering a return on capital of 15.5 percent is higher than the price at which the electricity has been transferred by CPP and WPP to the cement plant and M/s. JVVNL respectively. As per section 45 of RERC Regulation, 2009, the tariff is determined by considering the cost of generation and adding thereto return on capital at 15.5% of the equity. Taking the same as base, the ALP of electricity generated by the four 11 power plants of the company would be more than the rate at which the electricity generated by CPP and WPP has been transferred to cement plant and JVVNL respectively as computed under: 8 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT Name of power plant Average cost of generation Transfer price adopted by the Appellant Remarks CPP I 11.59 7.77 Refer PB 46 for detailed calculation CPP II 7.52 7.77 WPP I 7.17 7.10 WPP II 8.14 7.10 Thus, even if the cost of generation of electricity plus return on capital is considered by the Appellant, the same is higher than the price which has been taken for the purpose of transfer of electricity by CPP and WPP to the cement plant. 17. Case laws relied upon by the TPO/ AO are not applicable: The TPO for the purpose of the addition has relied upon the following cases: i. CIT vs. ITC Ltd. (2016) 236 Taxman 612 (Calcutta) (HC) for A.Y. 2002-03 dated: 01.06.2015 ii. M/s. Chambal Fertilizers & Chemicals Ltd. vs. Addl. CIT ITA No.459 & 558/JPR/2012 for A.Y. 2008-09 orders dated 28.10.2016 iii. Shree Cement Ltd. vs. ACIT ITA No.162 & 181/JPR/2016 for A.Y. 2012-13 18. The above cases relied upon by the TPO are not applicable in the case of the Appellant and are distinguishable on facts and in law as the A.Y. concerned in case of the Appellant is A.Y. 2020-21 whereas the A.Y.s concerned in above cases were A.Y. 2002-03 (ITC), A.Y. 2008-09 (Chambal) and A.Y. 2012-13 (Shree Cement) wherein the provisions of the Act were different. 19. In case of ITC Ltd (supra), definition of market value was construed with respect to section 80-IA of the Act which was based upon the pre-amended provisions of section 80-IA of the Act wherein the term ‘market value’ was defined to mean ‘the price that such goods or services would ordinarily fetch in the open market’. However, with effect from 1 April 2013, the definition of the term ‘market value’ was amended to refer to the arm’s length price as defined in clause (ii) of section 92F of the Act. Also, section 80A of the Act overrides section 80-IA of the Act and the case law of ITC Ltd. is distinguishable as the definition of market value is different in section 80A(6) and 80-IA of the Act. 20. Similarly, in case of Chambal Fertilizers (supra) and Shree Cements (supra), definition of market value was construed with respect to clause (i) to explanation to section 80A (6) of the Act wherein the ‘market value’ was defined to mean price that goods or services would fetch if these were sold in the open market, subject to statutory or regulatory restrictions, if any. However, in this case, clause (iii) to explanation to section 80A (6) of the Act, inserted by Finance Act, 2012 (with effect from 1 April 2013) is applicable wherein the ‘market value’ has been defined to mean the arm’s length price as defined in clause (ii) of section 92F of the Act which 9 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT means ‘price which is applied or proposed to be applied in a 13 transaction between persons other than associated enterprises, in uncontrolled conditions”. 21. Thus, the above case laws are not applicable and are distinguishable basis the applicable provisions of the Act. As per the legal maxim ‘generalibus specialia derogant’, it is a settled principle of law that special things derogate from general things. If a special provision is made on a certain matter, the matter is excluded from the general provisions. 22. In light of above, it is submitted that the clause (iii) to explanation to section 80A of the Act for the purpose of determination of market value, being specific provision will prevail over the general provision provided in clause (i) and (ii) to explanation to section 80A of the Act. 23. In the light of above detailed discussion considering the submissions of the assessee and the orders of the authorities below, we are of the considered opinion that the transfer price of electricity considered by the Appellant is ALP and therefore the additions proposed by the TPO and further confirmed by the Ld. DRP not sustainable in law. Hence directed to be deleted, in the result Ground No. 2 raised by the assessee is allowed. On being consistent with the above finding ground no. 2 raised by the assessee is allowed. 8. Now coming to ground no. 3 raised by the assessee wherein the assessee challenges that ld. AO has not considered the fact that the brought forward loss for set off against total income at Rs 105,92,31.882 as against Rs 110,20,06,032 considered by the Appellant in its return of income resulting in short set off of 3 losses by Rs 4,27,74,150 and has further erred in not grating set off of balance carried forward unabsorbed depreciation of Rs 230,66,46,368 as reported in the income tax return and 10 IT(IT)A No. 03/JP/2024 Mangalam Cement Ltd. vs. DCIT thereby incorrectly computing the total income under normal provisions of the Act at Rs 52.92,11,922 as against Rs Nil. On this aspect of the matter ld. AR of the assessee stated that the claim of the needs to be set aside to verify the contention of the assessee for which ld. DR has not raised any objection and therefore, ground no. 3 raised by the assessee is considered as allowed for statistical purposes and the ld. AO verify the contention of the assessee and consider the issue in of carried forward in accordance with law. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 28/04/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/04/2025 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Mangalam Cement Ltd., Kota 2. izR;FkhZ@ The Respondent- DCIT, Circle-02, Kota 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (IT(IT)A No. 03/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar "