Income Tax Appellate Tribunal - Jaipur
Mangalam Cement Ltd,Kota vs Dcit, Circle-2, Kota, Kota on 15 January, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
JAIPUR BENCH "B", JAIPUR
BEFORE SHRI GAGAN GOYAL, ACCOUNTANT MEMBER AND
SHRI NARINDER KUMAR, JUDICIAL MEMBER
IT (TP) A No. 01/JPR/2024 (A.Y. 2020-21)
M/s. Mangalam Cement Limited,
Aditya Nagar Morak,
Aditya Nagar, Kota- 326520.
PAN No.: AABCM 6602Q ..... Appellant
Vs.
DCIT, Central, Circle-2,
Kota. ..... Respondent
Appellant by : Mr. P. C. Parwal, CA, Ld. AR
Mr. Yogesh Parwal, CA, Ld. AR
Respondent by : Ms. Alka Gautam, Ld. CIT, DR (Thro. V. C)
Date of hearing : 19/12/2024
Date of pronouncement : 15/01/2025
ORDER
PER GAGAN GOYAL, A.M:
This appeal by assessee is directed against the order of Dispute Resolution Panel-1, New Delhi dated 23.04.2024 passed u/s. 144C(5) of the Income Tax Act, 1961 (in short 'the Act') for A.Y. 2020-21. The assessee has raised the following grounds of appeal:-
1 Based on the facts and in law, the Ld. AO has erred in making an adjustment of Rs. 46,16,39,395/- u/s. 92CA(3) of the Act on account of deduction u/s. 80-IA of IT Act by not appreciating that due to set off of 2 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 A.Y. 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.4.57 per unit as determined by the TPO as against Rs.7.77 per unit determined by the assessee on the basis of rates at which M/s. 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. 4.57 per unit as determined by the TPO as against Rs. 7.10 per unit determined by the assessee on the basis of rates at which m/S. 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 not considering the modified return of income filed under section 119(2) (b) of the Act on 22 May 2024 pursuant to receipt of approval from the assessing officer inspite of its cognizance in the final assessment order and therefore has incorrectly computed the total taxable income, tax liability, MAT credit and carried forward losses.
4. the appellant craves to alter, amend and modify any ground of appeal.
5. Necessary cost to be awarded to the assessee."
2. The brief facts of the case are that the assessee company filed its return of income for the assessment year under consideration on 12.02.2021 declaring a total income of Rs. Nil (after set off of brought forward loses of Rs. 71,05,48,196/- The assessee company was amalgamated with M/s. Mangalam Timber Ltd., subsequently the assessee company filed return of income u/s. 119(2)(b) of the 3 Income Tax Act, 1961 on 22/05/2024 after amalgamation, declaring total income of NIL after set off of income against brought forward losses. The case of the assessee is selected for Complete Scrutiny under CASS for the following reasons:
• Stock Valuation • High Creditors/liabilities • Ind.-AS Compliance and Adjustment • Deduction Claimed for Industrial Undertaking 80IA/ 80IAB/ 80IAC/ IB/ IC/ IBA/ 80ID/80IE/10A/10AA • ICDS Compliance and Adjustment • Specified Domestic Transactions • Taxability of business liability written off u/s. 41 of the Act or any other section • Foreign Outward Remittance • Expenditure by Way of Penalty or Fine for Violation of any Law
3. As there were specified domestic transactions entered into by the assessee and the same were flagged in the reasons for selection of case, the case of the assessee was referred to the Transfer Pricing Officer to determine the arms length price in respect of the specified domestic transaction entered into by the assessee during the year. The Transfer Pricing Officer, New Delhi passed an order u/s. 92CA(3) of the Act vide dated 28.07.2023 proposing an adjustment of Rs. 46,16,39,395/- is as under:-
Sl. No. Description Adjustment u/s. 92CA (In Rs. 1 Transfer of power from coal based plants Rs. 42,14,13,760/- Transfer of power from windmill Rs. 4,02,25,635/- Total adjustments u/s. 92CA of the Act Rs. 46,16,39,395/- 4
4. Based on above order of the TPO passed u/s. 92CA (3) of the Act, a draft assessment order was passed on 29.09.2023. Against this draft order assessee filed objections before the Ld. Dispute Resolution Penal (DRP) by filing Form No. 35A on 17.10.2023. The Ld. DRP confirmed the action of the AO and TPO on which assessee objected. The assessee being aggrieved with the order of the AO passed with reference to the direction of Ld. DRP, 1 Delhi preferred the present appeal before us. We have carefully considered the draft order of the AO read with the order of the TPO passed u/s. 92CA(3) of the Act, order of the Ld. DRP passed u/s. 144C(5) of the Act and final assessment order passed u/s. 143(3) r.w.s 144C(13) and 144B of the Act.
5. The Appellant is a company engaged in manufacturing of cement and generation of power. The manufacturing plant of cement is at Morak, Kota. The two coal based Capital Power Plants ("CPP") having installed capacity of 17.5 MW each is also situated at Morak, Kota and two Wind Power Plants ("WPP") having an aggregate capacity of 13.65 MW is installed in the district Jaisalmer, Rajasthan. The electricity generated from CPP is used at cement plant of the Appellant and the electricity units generated from WPP is transferred to M/s. Jaipur Vidyut Vitran Nigam Ltd. ("JVVNL") who gives credit of the electricity units in the electricity bills issued by them.
6. For the subject A.Y., the Appellant filed return of income declaring total income of Rs Nil after setting off brought forward business loss of Rs. 47, 94, 60,094/- and unabsorbed depreciation of Rs. 64, 41,467/- in the modified return of income filed on 22 May 2024 giving effect of amalgamation of M/s. Mangalam Timber Products Limited with the Appellant, without claiming any deduction under Chapter VI-A/ section 80-IA of the Income-tax Act, 1961 ("ITA"). As the 5 Appellant had generated electricity from its CPP and WPP, the profits of which are eligible for deduction under section 80-IA of the Act, though not available as the Total Income ("TI") of the Appellant is Nil, the Appellant obtained and filed accountants report in Form 10CCB for compliance purpose. Since the transaction is in the nature of specified domestic transaction ("SDT"), the case was referred to the transfer pricing officer ("TPO") wherein the TPO computed arm's length price ("ALP") of the electricity generated by the CPP and WPP in contradiction to the ALP computed by the Appellant and proposed an addition of Rs. 46, 16, 39,395/- for the purpose of determining deduction under section 80-IA of the ITA.
7. Identical issue has been discussed and decided by the coordinate bench for the A.Y. 2018-19 in favour of the assessee company. In this year against the draft assessment order, the Appellant filed objections before the Dispute Resolution Panel ("DRP"). The DRP at para 4.1.4 of its directions held that if the department has filed an appeal before the higher forum against the favorable order of the Jaipur Bench of the ITAT (PB 35-45), then in order to keep the issue alive, and basis the directions given in A.Y. 2018-19, the addition will be sustained. The Assessing Officer ("AO") completed the assessment proceedings after making addition of Rs. 46,16,39,395/- to the total income of the Appellant as the department has filed an appeal before the Rajasthan High Court against the favorable order of the ITAT (PB 57).
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 6 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.
9. Ground No. 2 pertain to the adjustment proposed by the Transfer Pricing Officer (TPO) u/s. 92CA (3) of the Act amounting to Rs. 46, 16, 39,395/-. On this issue, as per the Act, the 'market value' is the price at which transaction is undertaken between two independent persons in uncontrolled condition. In the state of Rajasthan, electricity is supplied by State Electricity Companies only, M/s. Jaipur Vidyut Vitran Nigam Limited, i.e. M/s. JVVNL in the instant case to the consumers (both are independent persons). Thus, the price at which the electricity is supplied by M/s. JVVNL to consumer (the non-eligible cement manufacturing unit of the Appellant) is the ALP/ market value and therefore the same is considered for the purpose of determination of price of transaction undertaken between the eligible unit and the non-eligible unit of the Appellant.
710. M/s. JVVNL supplies electricity to cement plant of the Appellant at Rs 7.77 per unit (PB 15-16) and this rate has been considered as ALP/ market value for supply of electricity by Captive Power Plant (CPP) to the cement plant of the Appellant. For Wind Power Plant (WPP), M/s. JVVNL gives credit of the units in electricity bill of the Appellant at the rate of Rs 7.10 per unit (PB 17-18) (after making deductions, taking charges, voltage rebate, power factor, etc to the rate of Rs 7.77 per unit) and therefore this rate (Rs 7.10 per unit) has been taken as ALP/ market value for determination of sale price of electricity for WPP.
11. In case the Appellant was not having a CPP, the Appellant would have to purchase the electricity from M/s. JVVNL that would have been supplied at the rate of Rs 7.77 per unit to the cement plant. Similarly, in case the credit of electricity generated by the WPP would have not been given by M/s. JVVNL in the electricity bill, the Appellant would had purchased the electricity from JVVNL at rate of Rs 7.10 per unit only and therefore the respective price, basis which the electricity value has been computed by the Appellant is the arm's length price as per section 92F (ii) of the Act.
Determination of price of electricity is a regulated activity and therefore the price at which power is supplied by generation company to transmission or distribution company cannot be said to be under 'uncontrolled condition' to be considered for benchmarking purpose.
12. The activities of generation, transmission and distribution of electricity is a regulated activity in India with the primary legislation being The Electricity Act, 2003, under terms of which Central Electricity Regulation Commission ("CERC") 8 and State Electricity Regulation Commission ("SERC") for various states have been established.
13. As per Section 86 of The Electricity Act, 2003, the SERC have been assigned various functions, including the following:
• determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State • regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State
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.
915. Decisions in favour of the Appellant supporting the ALP determination made by the Appellant:
Following decisions are in favour of the Appellant • CIT vs. Jindal Steel & Power Limited (2023) 118 CCH 207 (SC) dated 6 December 2023 (PB 58-81): The Hon'ble Supreme Court has held that the price at which electricity is supplied by the State Electricity Boards to consumers is the market value of electricity for computing deduction under section 80-IA of the Act. Relevant extracts of the decision are as under:
"30. Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act.
31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue." Although the same has been delivered w.r.t. deduction u/s. 80- IA of the Act, but simultaneously decided the issue of Arm's Length Price also for the purposes of section 92CA of the Act.10
• Chhattisgarh High Court in case of CIT, Raipur Vs. Godavari Power & Ispat Limited (2014) 42 taxmann.com 551 (Chhattisgarh) [PB 82-87] • Gujarat High Court in case of PCIT Vs. Gujarat Alkalis and Chemicals Ltd. (2017) 395 ITR 247 (Guj) and ACIT, Bharuch Circle, Bharuch, Through Commissioner vs. Pragati Glass Works Pvt Ltd (2012) 80 CCH 0433 [PB 88-91] • Bombay HC in case of CIT (LTU) vs. Reliance Industries Limited (2020) 421 ITR 0686 (Bom) [PB 92-95] • Rajasthan HC in the case of CIT vs. Shree Cement Limited (ITA No 85/ 2014) [PB 96-
110] • Kolkata ITAT in case of DCIT vs. Balarampur Chini Mills Ltd 62 CCH 95 dated 5 May 2021 [PB 111-125] • Delhi ITAT in the case of DCM Shriram Ltd vs. Addl. CIT [2022] 215 TTJ 299 (Del) dated 28 October 2021 PB [126-160] 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:
(Amount in Rs. per unit of electricity) Name of Average cost of Transfer price Remarks power plant generation adopted by the Appellant CPP I 11.59 7.77 Refer PB 46 for CPP II 7.52 7.77 detailed WPP I 7.17 7.10 calculation 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 12
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 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.
24. As per the assessee Ground No 3 pertains to not considering the modified return of income filed under section 119(2) (b) of the Act on 22 May 2024 pursuant to receipt of approval from the assessing officer inspite of its cognizance in the final assessment order and therefore has incorrectly computed the total 14 taxable income, tax liability, MAT credit and carried forward losses. It is observed that the appellant filed original ROI on 12 February 2021 (PB 1). The ROI was processed under section 143(1) and an intimation dated 5 October 2021 was issued. M/s. Mangalam Timber Products Limited got amalgamated with the Appellant w.e.f 1 April 2019. The appellant received approval from the jurisdictional assessing officer vide letter dated 9 May 2024 (PB 49-50) to file a modified ROI giving effect to the amalgamation in accordance with CBDT order u/s. 119 of the Act vide F. No. 225/5/2021-ITA-II dated 13 March 2024 (PB 51-53). The Appellant filed modified return of income on 22 May 2024 (PB 54).
25. It is also pointed out by the assessee that a letter was filed with the Faceless Assessing Officer intimating the same (PB 47-48) and a request was made to consider the modified ROI while passing the final assessment order. It is observed that in the assessment order as well, the FAO at para 1 (page 1) and para 3.3.5 (page 16) has taken cognizance of filing of the modified ROI by the Appellant. However, the FAO failed to consider the modified ROI and computed the total income as per the original ROI filed on 12 February 2021 considering income under the head PGBP at Rs. 70,41,06,729/- as against Rs. 47,94,60,093/- reported in the modified ROI under the normal provisions of the Act. Similarly, income under section 115JB of the Act was considered at Rs. 109, 85, 36,739/- basis the original ROI dated 12 February 2021 as against Rs. 82, 22, 48,000/- reported in the modified ROI.
26. It is also placed on record that the appellant has filed a rectification application with the jurisdictional assessing officer (PB 55-56) requesting the 15 jurisdictional assessing officer to rectify the mistake apparent from record. We have taken note of the above activities and submissions of the assessee and found the same to be correct. In the light of above facts and documents placed before us, we direct the JAO to dispose the application of the assessee filed u/s. 154 of the Act as per law considering the facts discussed by this bench. In view of the above, Ground No. 3 raised by the assessee is allowed for statistical purposes.
27. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 15th day of January 2025.
Sd/- Sd/-
(NARINDER KUMAR) (GAGAN GOYAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Jaipur, िदनां क/Dated: 15/01/2025
Copy of the Order forwarded to:
1. अपीलाथ /The Appellant ,
2. ितवादी/ The Respondent.
3. आयकर आयु CIT
4. िवभागीय ितिनिध, आय.अपी.अिध., Sr.DR., ITAT,
5. गाड फाइल/Guard file.
BY ORDER,
//True Copy//
(Asstt. Registrar)
ITAT, Jaipur
16
Details Date Initials Designation
1 Draft dictated on PC on 15.01.2025 Sr.PS/PS
2 Draft Placed before author 15.01.2025 Sr.PS/PS
3 Draft proposed & placed before the Second JM/AM
Member
4 Draft discussed/approved by Second Member JM/AM
5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8 Date on which the file goes to the Head clerk
9 Date of Dispatch of order