Income Tax Appellate Tribunal - Amritsar
Satia Industries Limited,Muktsar vs Dcit/Acit Circle I, Bathinda, Bathinda on 16 December, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
(PHYSICAL HEARING)
BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER
AND SH. UDAYAN DASGUPTA, JUDICIAL MEMBER
I.T.A. No. 702/Asr/2024
Assessment Year: 2021-22
Satia Industries Limited Vs. DCIT/ACIT Circle 1,
Vill. Rupana, Malout Road, Bathinda
Distt. Muktsar-152026, Punjab
[PAN: AACCS 7233A]
(Appellant) (Respondent)
Appellant by : Sh. Rohit Kapoor, Adv. &
Sh. V.S. Aggarwal, I.T.P.
Respondent by : Mrs. Roshanta Kumari Meena, CIT-DR
Date of Hearing : 22.09.2025
Date of Pronouncement : 16.12.2025
ORDER
Per Udayan Dasgupta, J.M.:
This appeal is filed against the order of the AO passed u/s 143(3) r.w.s. 144C(13)/144B of the income tax Act 61 (hereinafter the Act 61) dated 25/10/2024, in respect of which reference was made to TPO for determination of ALP u/s 92CA (after 2 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 necessary approval from PCIT), and assessment completed , considering transfer pricing adjustments ,vide order u/s 92CA(3) dated 30/10/2023.
2. Brief facts emerging from records , are that the assessee company is engaged in manufacturing of paper and paper based products at its unit at Muktsar, Punjab, utilizing wood chips, veneer waste, wheat straw and other materials as inputs ( wood and agro based manufacturer ) and for the purpose of its manufacturing activities it has established " Captive Electricity and Steam Generation Unit " (earmarked as Cogeneration Unit - 1 and Unit -2) for the purpose of generation of " Electricity "and " Steam " required in the manufacturing of paper.
3. The assessee during the year has undertaken SDT (specified domestic transactions) with non eligible unit ( paper manufactuting unit ) by transfer of power and steam , and has claimed exemption u/s 80IA(4)(iv) of the Act 61 in respect of the power and steam generated by UNIT -1, (functioning with a capacity of 12.5 Mega Watt), and the electricity and steam so generated being transferred to the paper manufacturing unit (non-specified unit) has adopted TNMM (transactional net margin method), as a comparison for working out net profit margins earned by independent comparable enterprises in similar transactions.
4. The case selected under CASS was referred to the TPO for determination of ALP of specified domestic transactions valued at Rs.62,74,76,383/-, entered into by 3 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 UNIT-1 with the non-specified paper manufacturing unit against which the TPO raised a SCN proposing an adjustment of Rs. 19,44,90,568/- in ALP of power and steam, by application of external CUP method for electricity and cost-plus method for steam, due to the reasons that no power generator is permitted by the "State Electricity Regulatory authority" to supply directly to consumers, except the same being traded through IEX, against which the assessee has raised objections to the change in method adopted.
5. The summary of adjustments as suggested by the TPO u/s 92CA(3) dated 30/10/2023 are tabulated below:
6. The objections raised by the assessee are as follows:
"1. The TPO failed to consider that electricity and steam are generated using biomass fuel, and that PSERC has specifically fixed the tariff for biomass-based projects at 8.75 per kWh.4
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 ii. There was no justification for reducing distribution loss, transmission loss, or cross-
subsidy charges; rather, these components were required to be added.
iii. The base rate of 6.19 per unit adopted by the TPO was incorrect; the correct base rate was 6.41, and further, KVAH required conversion into KWH by applying the power factor of 0.92. Thus, the appellant has applied correct rate of 6.97/KWH (i.e., 6.41/Kvah +0.92)."
7. Subsequently, the AO vide his draft order u/s 144C(1) dated 13/12/2023, made a proposed adjustment of Rs. 19,44,90,568/- in sale value which resulted in disallowance of excess deduction claimed u/s 80-IA amounting to Rs.4,86,44,863/- and made a further disallowance of Rs.51.74 lakhs u/s 80G of the Act, against which objections raised by the assessee on 11th January, 2024, u/s 144C(2) with the DRP ( Dispute Resolution Panel) , culminated in the directions from DRP u/s 144C(5) vide order dated 30th September, 2024, where the adjustments were revised to Rs. 6,66,54,028/- (against the initial suggested amount of Rs.19.44 crores).
8. As such, considering the direction of the DRP and the order in effect of the TPO the adjustments has been revised at Rs. 6.66 crores resulting in an addition to the total income and further-more the deduction claimed by the assessee u/s 80IA at Rs.15,68,04,719/- (24.98% of total sales of Rs.62.74 crores) was reduced to Rs. 14,00,93,424/- (calculated @ 24.98% of Rs.56.08 crores) thus resulting in the excess claim of deduction u/s 80IA of Rs.1,67,11,295/- being disallowed and added back to the total income, against which the assessee is in appeal before this tribunal. 5
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
9. The grounds of appeal preferred by the assessee in form 36 are as follows:
"1. That on the facts and circumstances of the case, the AD erred in making addition of Rs. 8,85,40,036/- vide order under section 143(3) read with section 144C(13) in consequence of directions of DRP u/s144C(5) of the Income Tax Act, 1961.
2. That the Assessing Officer (AO) has erred in making an addition of Rs. 6,66,54,028/-
by reducing the sales value of steam and power to Rs. 56,08,22,355, contrary to the audited results declared at Rs. 62,74,76,383. The AO wrongly reduced the distribution loss and transmission loss from the unit price of electricity, which was not warranted.
2.1 That the Assessing Officer (AO), on the directions of the Dispute Resolution Panel (DRP), has erred in confirming the arm's length price of power transferred from the specified to the non-specified unit at an adjusted price of Rs. 5.53 per unit, as against the Rs. 6.97 per unit taken by the assessee. The DRP erred in reducing the distribution loss and transmission loss from the unit price of Rs. 6.41 per KVAH, which pertains to the general industry. Additionally, the AO failed to appreciate that the correct price to be adopted was the sale price per unit sold by PSPCL to industrial consumers, without making any adjustments for such losses.
3. That the AO failed to provide the benefit of the power factor of 0.92 for converting KVAH to KWH, which is a relevant factor in determining the correct price per unit.
The failure to account for this power factor resulted in an incorrect adjustment, leading to an understatement of the correct price per unit for the transferred power.
4. That the Dispute Resolution Panel (DRP) has erred in shifting the method from the Transactional Net Margin Method (TNMM) to the Cost Plus Method in the case of steam, and to the External Comparable Uncontrolled Price (CUP) method in the case of electricity, without considering the fact that the TNMM method adopted by the appellant was the most appropriate method to determine ALP.
5. That the Assessing Officer (AO) has erred in disregarding the electricity rate of Rs.
6.92 per unit adopted by the assessee for calculating the sales of electricity from the 6 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 specified unit to the non-specified unit. That the DRP failed to appreciate that the rate adopted by the assessee is actually lower than the comparable rate of electricity produced from biomass fuel, which should have been considered as a valid benchmark for determining the correct price.
6. That the Assessing Officer (AO), on the directions of the Dispute Resolution Panel (DRP), has erred in facts and law by self-determining the price of power per unit, ignoring the expression "market value" as defined in the explanation below Section 80-1A(8) of the Income Tax Act, 1961
7. Without prejudice to the above grounds, that the Assessing Officer (AO) further erred in making a separate addition by reducing the deduction under Section 801A by Rs. 1,67,11,295/. That the A.O. failed to appreciate that there is a double addition of Rs 1,67,11,295/, as the AD has already made an addition in respect of the difference in sales of power and steam separately, amounting to Rs. 6,66,54,028/-.
8. That the Assessing Officer (AO) has erred in confirming the disallowance to the extent of Rs. 51,74,713/- on the ground that the underlying expenditure was not in the nature of a donation, but rather a mandatory contribution towards Corporate Social Responsibility (CSR) as specified under the Companies Act, 2013. That A.O. failed to appreciate that CSR contribution to the registered institutions is permissible under section 80G of Income Tax Act 1961.
9. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed of."
10. In course of hearing of the appeal, the assessee has filed a written submissions on all the grounds contained in the memorandum and has based his arguments on the said submission and referred to various decisions of judicial authorities for support. 7
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
11. Then first ground being general in nature, the Ld. AR took up Grounds No 2, 3 & 4 together and submitted that the AO has erred in making an addition of Rs. 6,66,54,028/-by reducing the sales value of steam and power to Rs. 56,08,22,355, contrary to the audited results declared at Rs. 62,74,76,383 by wrongly reducing the distribution and transmission loss from the unit price of electricity, which was not warranted.
12. He further stated that the AO, as per DRP directions, was wrong in confirming the ALP of power transferred from the specified to the non-specified unit at an adjusted price of Rs. 5.53 per unit, as against the Rs. 6.97 per unit taken by the assessee because the DRP was wrong in reducing the distribution and transmission loss from the unit price of Rs. 6.41 per KVAH, which pertains to the general industry, disregarding the fact that the correct price was the sale price per unit sold by PSPCL to industrial consumers, without making any adjustments for such losses.
13. He further submitted that the AO failed to provide the benefit of the power factor of 0.92 for converting KVAH to KWH, which is a relevant factor in determining the correct price per unit, and failure to do so has resulted in an incorrect adjustment, leading to an understatement of the correct price per unit.
14. The Ld. AR also submitted that the (DRP)was wrong by shifting the method from the" Transactional Net Margin Method (TNMM)" to the "Cost Plus Method" in 8 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 the case of steam, and to the "External Comparable Uncontrolled Price (CUP) method" in the case of electricity, without considering the fact that the TNMM method adopted by the appellant was the most appropriate method to determine ALP, because the electricity rate of Rs. 6.92 per unit adopted by the assessee for sales of electricity from the specified unit to the non-specified unit adopted by the assessee is actually lower than the comparable rate of electricity produced from biomass fuel, which should have been considered as a valid benchmark for determining the correct price.
15. It was further stated that in proceedings before the DRP vide reply dated 26.10.2023, it was submitted that the rate adopted by the appellant is less than the comparable rate available in public domain for generating electricity from biomass fuel and in support of the same the appellant submitted "Generic tariff for Renewable Energy technologies using Biomass as fuel" where by the applicable tariff rate for FY. 2020-21 is Rs 8.75/KWH and he argued that the appellant was justified in applying the tariff rate of Rs 6.97/KWH (the same being more favourable).
16. The appellant further explained that the rate relied upon by the AO is unjustified, as the tariff rate of 6.41 is per unit of KVAH (Kilowatt-ampere-hour), whereas the units in question are in KWH (Kilowatt-hour), and it is a mathematically accepted by electrical engineering that a division factor of 0.92 is required to convert KVAH into KWH [For instance, 92 KVAH is equivalent to 100 KWH].
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I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
17. The Ld. AR submits that the AO on direction of DRP erred in deducting distribution loss and transmission loss from the rate, thereby calculating the revised adjusted sale rate of power by PSERC at Rs. 5.53 KVAH/per unit.
Particulars Amount Page No. of PB
Sale rate of Power to PSPCL (A) Rs. 6.41 per unit KVAH
Less: Distribution loss (B) 11.24%
Less: Transmission loss (C) 2.48% 64-65
Less: Cross Subsidy Surcharge (D) -
Revise Sale rate of power (E=A-B-C- Rs. 5.53 per unit KVAH D)
18. He further submitted that vide reply dated 17.10.2023, it was categorically pointed out that the losses as reduced is not correct and the losses are required to be added to calculate the correct rate. It was also explained that the correct rate after removing the infirmities works out Rs 7.65 KWH per unit and not Rs 5.53 KWH per unit as considered by the AO.
19. Regarding the applicability of the external CUP method by the DRP, ignoring the TNMM followed by the appellant, he submitted that if the application of CUP method is taken as correct in that circumstances it is always prudent to apply internal CUP instead of external CUP.
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20. The AR further stated that before application of CUP method, it is important to understand the conditions when the CUP method can be applied and as per his understanding and wisdom the CUP Method can be applied where associated enterprises (AEs) buy or sell similar goods or services in comparable transactions with unrelated enterprises or when unrelated enterprises buy or sell similar goods or services, as is being done between the AEs. He further submitted that the CUP Method, can be broadly classified into two categories:
i.Internal CUP Method.
ii.External CUP Method.
INTERNAL CUP
21. Under the Internal CUP Method, the transaction between the AEs involving buying or selling of goods & services are comparable to the transactions conducted by any of the AEs with unrelated parties for buy or sell of similar goods or services under similar conditions.
External Cup:
22. However, when such internal data is not available, then one may apply external CUP which involves comparison of prices paid/ charged between two unrelated third parties in uncontrolled conditions with the transaction conducted between the AEs. 11
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23. This method involves comparing the price charged in a controlled transaction (i.e., a transaction between related parties) with the price charged in a comparable uncontrolled transaction (i.e., a transaction between independent un-related parties) for identical or similar goods, services, or assets.
24. To summaries the arguments the Ld AR submitted that in the instant case, the non-eligible unit (paper unit) has procured electricity from PSPCL to be used in the manufacturing plant. Thus, the DRP erred in applying the external CUP method after making certain adjustments and ignoring the internal CUP method.
25. He further submitted that it is a matter of record, if the average rate per unit of Rs. 56.88 (including fixed charges at the rate of Rs. 240/- per KVA) is applied on total units 5,60,68,658 transferred to paper unit, in that circumstances the arm length rate works out to 3,18,91,85,267.04.
26. He further referred to the TPO order for the Assessment Year 2017-18 wherein the department accepted the price of electricity at Rs. 6.87 per KWH (calculated as 43,60,95,829/ 6,34,63,979) and the position for the later years are tabulated below:
AY Rate of power Rate of Accepted Method as Relevant page no.
as per power as by per TPO
TPO/DRP per Tribunal
appellant
12
I.T.A. No. 702/Asr/2024
Assessment Year: 2021-22
2017-18 6.87 6.87 NA CUP 102-103
Method
2018-19 7.12 7.12 NA CUP 67-101- Relevant page
Method no. 72
2020-21 4.74 6.73 6.73 CUP 476-524- Relevant
Method page no. 502
27. He further submitted that under Chapter X of the Act which became applicable to specified domestic transactions (SDT), not only the assessee is required to demonstrate that the profits are arrived at by adopting fair value of the goods & services provided to related parties but it is also incumbent to prove that the price charged to the related parties was at arm's length, and price for the goods or services should be determined on the basis of methods prescribed in Section 92C of the Act.
28. In the circumstances, therefore, apart from the fact that the power tariff should be shown to- be fair value, it must also be demonstrated that the price adopted for determination of profits of the eligible undertaking, the assessee had adopted power tariff which could be said to have been arrived at on arm's length principle, and in this case, the transaction in question involves supply of power by the eligible unit at Rs 6.97 unit to the non-eligible unit of the appellant within the same State.13
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29. It is also noted that the eligible unit at Muktsar, Punjab supplied power only to the AE i.e. the non-eligible unit and it did not have any transaction with any unrelated enterprises.
30. We further note that the market value as per the (General Tariff Act) of renewable energy for FY 2020-21 relating to biomass power projects using rice straw is Rs 8.75 per KWH as per order dated 18.09.2020 (page no. 281 of PB). On the contrary, it is noted that the non-eligible unit was sourcing power both from the Associated Enterprise (i.e. the eligible undertaking) as well as unrelated enterprises i.e. the PSPCL.
31. As such in can be said that reliable internal CUP data was available with the appellant to benchmark the ALP of the power generated & supplied by the eligible undertaking to the non-eligible unit.
32. In respect of the basis and benchmarking exercise followed by the Ld. AO/TPO, it was submitted by the ld. AR that it suffers from apparent infirmities, because the TPO wrongly assumed that the CPP (Captive Power Plant) was neither discharging distribution functions nor transmission functions and therefore sought to functionally distinguish it from the PSPCL. However, it is seen from the facts on record, that the CPP was indeed distributing and supplying power to the non-eligible undertaking, through cables and the same was metered. Moreover, the TPO/AO erred in considering 14 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 different forms of power units such as coal based, waste heat gas based etc. to be comparable to the assessee CPP and the basic fact that the assessee's CPP is a power plant producing power from biomass fuel has been overlooked. The Ld. TPO/AO also selected the tariff schedule on random & pick and choose basis without ascertaining as to whether the Tariff schedule was for Low Tension or for High Tension or for that matter for which class of consumers was the tariff rates notified which makes the FAR as well as the Economic Analysis performed by. Ld. TPO was fundamentally flawed and unsustainable.
33. Finally, referring to ground no. 6 and 7, the Ld. AR referred to the expression "market value" as defined in the explanation below Section 80-1A(8) of the Income Tax Act, 1961.
Section 80-IA (8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods 96[or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the 97market value of such goods 96[or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the 97market value of such goods 96[or services] as on that date :
Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents 15 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.
[Explanation. --For the purposes of this sub-section, "market value", in relation to any goods or services, means--
i. the price that such goods or services would ordinarily fetch in the open market; or ii. the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA.]"
34. The Ld AR further submitted that in addition to the above amounts, the customer is also liable to pay to Punjab state power corporation Ltd. (PSPCL), the following amounts, which are reflected in the invoice of PSPCL: -
i. FCA surcharge for availing power from open access @ INR 0.11/ Unit of power purchased from open access and ii. 15% electricity duty (ED) and 5% Infrastructure development fee (IDF) totaling to 20% of the power purchased from open access by applying the tariff rates published by PSPCL multiplied by the units purchased from open access. (Please refer sample copies from of 411-433 of PB)
35. The price at which the State Electricity Board supplies electricity to industrial consumers should be adopted as the market value for computing deduction under section 80-IA. In terms of section 80-IA(8) and the definition of "market value," it is evident that the rate charged to industrial consumers represents the appropriate benchmark. Accordingly, the assessee, maintaining separate accounts, has recorded the supply from the co-generation plant to the manufacturing unit at ₹6.97 per unit, being the rate charged by the State Electricity Board to industrial 16 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 consumers, which reflects the fair value for the purpose of section 80-IA deduction. The relevant section 80-IA(8) is reproduced below for your honour's convenience.
36. The appellant has submitted the following documents before the DRP and AO:-
a. Computation of profits under section 80-IA with details of captive revenue of the power undertaking;
b. Copy of unit wise profitability of the Cogeneration Unit-I;
c. General tariff rate for electricity supply to the industrial consumers for biomass power projects.
37. The ld. AR in support of this arguments relied on the Hon'ble Supreme Court in the case of CIT vs. Jindal Steel and Power Ltd. in [2024] 460 ITR 162 (SC). He submitted that the appellant has determined sales value of electricity @ Rs 6.97 per unit in respect of units transferred to non-specified units and the same is far less than the rate of Rs. 8.75 per unit general tariff rate for Renewable Energy Technologies based on biomass. The said rate is applicable on the appellant since it is generating power using rice husk, bagasse and other agro-based raw material. He submitted that similar issues are dealt by various courts and in support he relied upon:
"(a) Commissioner of Income-tax vs. Jindal Steel & Power Ltd. [2023] 157 taxmann.com 207 (06.12.2023) (refer page no 55 to 79 of Case Law PB) 17 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 I. Section 80-IA of the Income-tax Act, 1961 read with section 43A of the Electricity (Supply) Act, 1948 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment year 2001-02 - Assessee, engaged in electricity generation and industrial activities, established captive power plants due to insufficient supply from State Electricity Board - Surplus electricity was supplied to Board at Rs. 2.32 per unit, whereas Board supplied to industrial consumers at Rs. 3.72 per unit - Assessee computed Section 80-
IA deduction at Rs. 3.72 per unit - Assessing officer, acknowledging deduction but disputing inflated profits, deemed Rs. 2.32 per unit as market value and restricted deduction accordingly - Whether since in present case, captive power plants of assessee could sell or supply surplus electricity (after supplying electricity to its industrial units) to State Electricity Board only and not to any other authority or person and therefore, surplus electricity had to be compulsorily supplied by assessee to State Electricity Board and being in a dominant position, State Electricity Board could fix price to which assessee really had little or no scope to either oppose or negotiate, therefore, determination of tariff between assessee and State Electricity Board could not be said to be an exercise between a buyer and a seller in a competitive environment or in ordinary course of trade and business i.e., in open market - Held, yes-
Whether thus, price at which surplus power supplied by assessee to State Electricity Board was determined entirely by State Electricity Board in terms of statutory regulations and contract, such a price could not be equated with market value as was understood for purpose of section 80-IA (8) and on contrary, rate at which State Electricity Board supplied electricity to industrial consumers would have to be taken as market value for computing deduction under section 80-IA - Held, yes [Paras 25, 26, 29 and 30] [In favour of assessee]
b) Similarly, the Hon'ble Delhi High Court in the case of PR. COMMISSIONER OF INCOME TAX -6 VERSUS NALWA STEEL & POWER LIMITED reported in 2024 (1) TMI 1252 (refer page no 1-3 of Case Law PB) has held 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.
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I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 C) Similarly, the Hon'ble Chhattisgarh High Court in the case Commissioner of Income- tax, Raipur vs. Godawari Power &I spat Ltd. [2014] reported in 42 taxmann.com 551(refer page no 100-105 of Case Law PBhas held that for deduction undersection 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment years 2004-05 to 2006-07 - Assessee, a manufacturer of iron and steel, had established a Captive Power Plant in State of Chhattisgarh to supply electricity to its steel division - It had sold power to steel division at same rate, which was charged by Chhattisgarh State Electricity Board [Board] for supply of electricity to industrial consumers - Assessee claimed deduction under section 80-IA - Assessing Officer computed market value of power supplied by assessee to steel division by taking into account rate charged by Chhattisgarh Electricity Company Limited, Raipur for supply of electricity to Board - Whether market value of power supplied by assessee to its steel division should be computed considering rate of power charged by Board for supply of electricity to industrial consumers - Held, yes [Paras 31 and 34] [In favour of assessee]
d) Similarly, the Hon'ble Bombay High Court in the case of COMMISSIONER OF INCOME TAX-LTU VERSUS RELIANCE INDUSTRIES LTD reported in 2024 (3) TMI 1016 (refer page no 50-54of Case Law PB) has held that market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market.AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.
The Apex court in the case of CIT v Jindal Steel & Power Limited [2023 (12) TMI 417 - SUPREME COURT]as affirmed the aforesaid decision of the Bombay High Court in the assessee's own case. Further, it is not the case of the Revenue that insertion of Section80A(6) of the Act has made any change in law as the AO in coming to its conclusion has himself 19 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 relied on the assessment order for the earlier years. For the reasons given in the said judgment, there is no question of law which arises for consideration.
e) Thereafter, he relied on the assessee's own case Satia Industries Limited vide ITA No.527/Asr/2024 dated 28.0.2.2025 (placed in page no. 363-383 of PB), for which head notes are reproduced below:
TP Adjustment - addition made by AO concerning the variation in the arm's length price of power, where the AO, following the directions of the Dispute Resolution Panel (DRP), reduced the sales value of power from the assessee's reported value - AR submitted that the price at which surplus power is supplied by producers to the Indian Energy Exchange (IEX) is determined by state regulations and contracts and, therefore, cannot be considered the market value for the purposes of Section 80-IA(8) - HELD THAT:- We are of the considered view that the method adopted by the Assessee for determining the arm's length price was correct, and the adjustments made by the AO were not in line with the applicable provisions of the Income Tax Act. Therefore, in this situation, and in our opinion, the addition made by the AO on this account cannot be sustained. Accordingly, the Assessee's appeal on this issue is allowed.
f) Similarly, reliance is placed upon the following case laws in which the same issued has been dealt by various tribunals and High Courts. The citation of the relevant judgments are as under :-
i.DCIT, CIRCLE-6 (1) , KOLKATA VERSUS M/S IFB AGRO INDUSTRIES LTD. reported in 2024 (2) TMI 696 - ITAT KOLKATA ii.THE INCOME TAX OFFICER, CORPORATE WARD 6 (1), CHENNAI VERSUS SJLT TEXTILES reported in 2024 (5) TMI 1013 - ITAT CHENNAI .
iii. TATA CHEMICALS LTD. VERSUS DCIT-2 (3) (1), MUMBAI reported in 2024 (6) TMI 870
- ITAT MUMBAI 20 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 iv.DCIT, CC-1 (3) VERSUS. RUNGTA MINES LTD KOLKATA reported in 2024 (7) TMI 569 - ITAT KOLKATA v.THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA-I VERSUS GUJARAT FLUOROCHEMICALS LTD reported in 2019 (7) TMI 541 - GUJARAT HIGH COURT.
vi.CIT Vs. Gujarat Alkalies and Chemicalsreported in [2017] 395 ITR 247HIGH COURT OF GUJARAT vii.TamilnaduPetro Products Ltd. vs. ACIT [2011] 13 taxmann.com 139 (Madras)/[2011] 202 Taxman 31 (Madras) viii. PR. COMMISSIONER OF INCOME TAX -6 VERSUS NALWA STEEL & POWER LIMITED reported in 2024 (3) TMI 952
1. The ld. AR further submitted that the Assessing Officer has calculated the value of steam at ₹25,07,62,676 as against ₹23,68,24,103 adopted by the appellant by increasing the value of steam with corresponding effect given in electricity while determining the total difference, which indirectly affects the difference in sales value.
1.1. He submitted that the DRP has further reduced 20.5% on account of subsequent losses in the process of conversion of high-pressure steam(energy) into medium-pressure steam and low-pressure steam. In this respect, it is submitted that high-pressure steam is generated in the boiler and fed to the turbine, from which medium-pressure steam, low-pressure steam, and electricity are produced.
Total MP & LP steam transferred to Paper unit as per appellant (Table A) S.No. Particulars Mkal (As Remarks per appellant)
1. Total energy to turbine @ 65kg/cm2, 490 Deg 39,56,76,900 Refer Pg 211 of PB 21 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
2. Less: Loss due to friction/Radiation/Convection -8,17,33,400 Refer Pg 211 of PB (20.50%)
3. Net energy available for MP, LP and electricity 31,39,43,500 Refer Pg 211 of PB generation
4. Medium Pressure & Low-Pressure steam produced 25,08,54,786 Refer Pg 211 of PB
5. 1 kg of condenser steam 64,79,600 Refer Pg 211 of PB
6. Total energy consumed in generation of electricity 5,66,09,114 Refer Pg 211 of PB 1.2. The DRP has misapprehended the fundamental fact that the assessee has already accounted for the 20.5% loss in the process of generating MP steam, LP steam, and electricity. The calculation are on record.
Revised Calculation as per TPO (Table B) -Page 121 of PB S.No. Particulars Mkal (As per Remarks TPO)
1. Medium and 25,08,54,786 The DRP/TPO erred in considering that medium Low-pressure pressure (MP) steam and low-pressure (LP) steam steam produced were transferred to the turbine. In fact, it is high-
pressure (HP) steam that is transferred to the turbine, which subsequently generates medium-
pressure steam, low-pressure steam, and electricity.
2. Wastage @20.5% -5,18,26,599 The DRP/TPO has erred in reducing 20.5% wastage from the finished product, namely Medium and Low-
pressure steam. The TPO failed to appreciate that the 20.5% loss has already been accounted when high-
pressure steam energy (HP) energy is used in turbine to generate MP steam, LP steam and electricity.
Therefore, this reduction constitutes duplication, as the appellant has already considered this loss in the calculation (Refer page no.211 of PB) 22 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
3. MP & LP 19,90,28,187 The DRP/TPO failed to appreciate that the medium transferred to pressure (MP) and low-pressure (LP) steam Paper unit transferred to the paper unit is metered. Therefore, (3=1-2) the reduction of units is contrary to the facts and circumstances of the case. This is clearly demonstrated by the snapshot provided at Page No. 525 of the PB. As a result, the calculation made by the DRP is incorrect, as evidenced by the Table A outlined above.
4. Condenser steam 64,79,600 No dispute
5. Generation of 5,66,09,114 No dispute electricity
38. From the above facts and circumstances, the calculation relied upon by the DRP/TPO is erroneous, as the loss has effectively been deducted twice. This action of reducing 20.5% losses again, when the same had already been considered, is contrary to facts and circumstances of the case.
39. It is a matter of record that all medium-pressure steam and low-pressure steam transferred to the paper unit are duly metered and consumed as raw material. High- pressure steam is used to generate MP steam, LP steam, and electricity.
40. The TPO has also stated that steam is not marketable a finding which is contrary to fact. In the case of Khanna Paper Mills, the TPO himself has accepted that the arm's length price of steam must be computed after applying an appropriate margin. 23
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 Similarly, in the assessee's own case for AY 2020-21, the same ratio was accepted by the Hon'ble Jurisdictional Tribunal Bench vide order dated 28.02.2025 reported in ITA No.527/Asr/2024.
41. It is further a matter of record that the department has wrongly applied the Cost Method instead of the Cost Plus Method. The correct method requires determination of the arm's length price of products/services in controlled transactions by comparing the gross margin over costs with margins earned by independent parties in comparable uncontrolled transactions. Therefore, a gross margin was required to be added to compute the ALP. The failure of the DRP to include any margin is inconsistent with its own approach in AY 2020-21, where the issue was adjudicated in favor of the appellant.
42. Considering the facts and circumstances of the case, it is submitted by the ld. AR that the replacement of the steam value by the department at ₹25,07,62,676 as against ₹23,68,24,103 does not actually have any impact as DRP has increased the value of Steam. However, the difference in overall value has been computed by reducing the sales value of steam and sale value of electricity. The assessee has already placed detailed submissions on record regarding the applicability of the correct rate for electricity. Therefore, the action of the DRP in altering the method of determination of 24 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 ALP by shifting from Cost Plus Method to Cost Method is not acceptable, keeping in view the factual matrix of the case.
43. Reliance has been placed by the ld. AR on judicial precedents wherein it has been consistently held that steam is a marketable product, and that an appropriate margin is required to be added while applying the Cost Plus Method.
44. In the case of DCW Ltd. v. Additional Commissioner of Income-tax, 3(1), Mumbai reported in [2010] 37 SOT 322 (MUM.), it has been held by the Mumbai ITAT that income from sale of steam was income derived from industrial undertaking, it was eligible for deduction under section 80-IA. The relevant head notes are reproduced as under: -
Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2003-04 - Assessee claimed deduction under section 80-IA from its captive power plant unit - Assessing Officer allowed assessee's claim - On appeal, Commissioner (Appeals) reduced amount of deduction for following reasons: firstly, assessee had taken into account electricity tax levied by State Government while working out market price of electricity for purpose of section 80-IA(8), secondly, certain amount of indirect expenses was to be allocated to C.P.P. unit for calculating eligible profit under section 80-IA and, thirdly, income from sale of sludge and sale of steam was not eligible for deduction under section 80-IA - Whether price charged by assessee while transferring manufactured electricity from C.P.P. unit to its other unit including electricity tax levied by State Electricity Board was price ordinarily prevailing in open market, and, therefore, Commissioner (Appeals) was not justified in disallowing assessee's claim on said ground - Held, yes - Whether as regards second ground, incomes and expenditures which were not directly relatable to industrial unit 25 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 had to be ignored and, therefore, Commissioner (Appeals) was not justified in allocating indirect expenses not directly relatable to industrial unit of assessee for purpose of computation of its income for deduction under section 80-IA - Held, yes - Whether as regards third ground, sale of sludge did not amount to income derived from industrial undertaking and, therefore, it was not eligible for deduction under section 80-IA - Held, yes - Whether, however, in view of fact that steam produced by assessee from eligible unit was a bye-product and income from sale of steam was income derived from industrial undertaking, it was eligible for deduction under section 80-IA - Held, yes Similarly in the case of M/S. TATA CHEMICALS LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME TAX-2 (3) MUMBAI reported in 2023 (9) TMI 25 - ITAT MUMBAI (Refer page No 114-142 of PB). It was held that assessee is entitled for deduction u/s. 80IA of the Act in respect of sale of steam from its power plant to non-eligible units. Assessee was justified in recognizing the sale income of power at the rate of 4.74 power unit. Thus, we find that basis on which the deduction u/s. 80IA of the Act has been denied by the ld. AO for the year under consideration has no legs to stand in the eyes of law. Hence, we direct the AO to grant deduction u/s. 80IA of the Act in respect of its captive power plant, in accordance with law. Accordingly, ground raised by the assessee is allowed.
That the ITAT in the case of DEPUTY COMMISSIONER OF INCOME TAX vs. MAHARAJA SHREE UMAID MILLS LTD. reported in (2009) 29 SOT 278 has held that the stream shall be termed as power and thus, eligible for deduction u/s 80-IA(iv) of Income Tax Act, 1961. The Hon'ble ITAT has pointed out that energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under s. 80-IA(iv), held the Tribunal.
Similarly in the case of Asstt. CIT vs Sial SBEC Bioenergy Ltd reported in 4SOT 730(Del) has held that law pressure steam used for sugar plant for production of final sugar is eligible for deduction u/s 80-IA as steam is form of energy.26
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
45. Furthermore, reliance is being placed on the following case laws:-
(i) VARDHMAN TEXTILES LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX reported in (2024) 38 NYPTTJ 1316 (Chd).
(ii) N.R. AGARWAL INDUSTRIES LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX reported in (2021) 91 ITR_TRIB (Trib) 503 (Surat)
(iii) DCM SHRIRAM LTD. vs. ADDITIONAL COMMISSIONER OF INCOME TAX reported in (2022) 215 TTJ (Del) 299
(iv) SAF YEAST CO. (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME reported in (2018) 62 ITR_TRIB 381 (Mumbai)
(v) WEST COAST PAPER MILLS LTD. vs. ADDITIONAL COMMISSIONER OF INCOME TAX reported in (2014) 33 ITR_TRIB 560 (Mumbai)
46. Ground-7: Without prejudice to the above grounds, that the Assessing Officer (AO) further erred in making a separate addition by reducing the deduction under Section 80IA by Rs. 1,67,11,295/-. That the A.O. failed to appreciate that there is a double addition of Rs. 1,67,11,295/-, as the AO has already made an addition in respect of the difference in sales of power and steam separately, amounting to Rs. 6,66,54,028/-.
27
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
47. The disallowance of deduction under section 80-IA on account of reduction in the sales value of electricity and steam is merely consequential. Considering the facts and circumstances of the case, the applicant has correctly determined the sales value of both steam and electricity. Therefore, the disallowance of deduction by artificially reducing the sales value is wholly unwarranted, in light of the submissions made above.
48. Before concluding the Ld AR referred to the decision of the coordinate Bench of this Tribunal in the assessee own case in ITA No : 527/ASR/2024, Asst year 2020- 21, where identical issues were before the tribunal and the Hon'ble Tribunal has decided the appeal in favour of the assessee in respect of the disallowance u/s 80IA of the Act.
49. The Ld DR relied on the order of the DRP and the findings of the TPO and the assessment order and retreated the same arguments as contained in the order of the DRP and prayed for sustaining the revised adjustments as per its direction in the matter. 28
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
50. We have considered the rival submissions and the paper book filed by the assessee and we also refer to the order of the coordinate Bench of the tribunal in the assessee own case for the Asst year 2020-21, where identical issues were involved.
51. We are of the opinion that the method adopted by the assessee in determining the Arm's Length Price (ALP) of electricity generated (Biomass Power Projects) and transferred by the Captive Unit-1 to the non-specified paper manufacturing unit, @ 6.07 per unit are reasonable and acceptable, considering the fact that the same being less than the rate of Rs.8.75 per unit as prescribed by (General Tariff rate for Renewable Energy Technology based on biomass fuel), and there is no grounds to dispute the same, and as such, we hold that the adjustments made by the AO were not in line with the applicable provisions of the Act, 1961, and nothing contrary has been brought to our notice by the ld. D.R.
52. Therefore, in our opinion, the additions made by the AO cannot be sustained and the appeal of the assessee on this ground is allowed.
53. Copy of General Tariff for Renewable Energy Projects as prescribed is made a part of this order for ready reference.
29
I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 30 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22
54. Ground No. 7: Regarding the addition of Rs.1.67 crores disputed by the assessee, we hold that the sale of steam is also eligible for deduction u/s 80IA from the assessee's captive plant to the non-eligible unit. We also take note that in the instant case, there is an error in the calculation of loss and the loss has been deducted twice @ 20.50% (as evident from the computation sheet as per Table-'A' and Table-'B' which is made a part of this order (paragraph 37), and the DRP has committed an inadvertent error on this ground. Therefore, the addition of Rs.1.67 crores made by the AO on this issue cannot be sustained and the same is deleted and the appeal on this ground is allowed.
55. Ground No. 8 The ld. AR has filed submission on disallowance of CSR expenses are as under:
"Submissions in regard to Ground No 8 regarding 80G disallowance amounting to Rs. 51,74,713/- against CSR contribution made at Rs. 1,22,19,293/-
Ground-8 :That the Assessing Officer (AO) has erred in confirming the disallowance to the extent of Rs. 51,74,713/- on the ground that the underlying expenditure was not in the nature of a donation, but rather a mandatory contribution towards Corporate Social Responsibility (CSR) as specified under the Companies Act,2013. That A.O. failed to appreciate that CSR contribution to the registered institutions is permissible under section 80G of Income Tax Act 1961, 15.1 That the appellant had originally claimed a total deduction of ₹51,74,713 u/s 80G.
However, the correct eligible deduction works out to be ₹44,07,000. This mistake was duly brought to the notice of the DRP, and accordingly, an addition of ₹7,67,713 is required to be made (Refer page no.444 Of PB) 31 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 15.2 Furthermore, it is a matter of record that the appellant has made total charitable contributions amounting to ₹1,25,81,893, out of which ₹1,22,19,293 represents CSR expenditure and ₹3,62,600 represents other charitable donations. Accordingly, out of the total deduction of ₹44,07,000 allowed under section 80G, the CSR-eligible deduction is ₹43,85,500 and the balance ₹18,500 relates to other charitable donations. 15.3 That deduction of Rs.44,07,000 is allowed u/s 80G of Income Tax Act,1961. However, the Assessing Officer (AO), following the direction of the Dispute Resolution Panel (DRP), has disallowed the claim on the grounds that contributions made towards Corporate Social Responsibility (CSR) are not eligible for a deduction under section 80G. The DRP has observed that a donation, by definition, is a voluntary act and not made in exchange for any consideration (quid pro quo)."
56. The DRP further pointed out that CSR expenses cannot be claimed as a deduction from income, and attempting to claim a deduction under section 80G for such contributions constitutes an indirect claim.
57. However, the appellant contends that the DRP's findings are inconsistent with the facts of the case. In addition to the CSR contributions, the appellant has made regular donations, as detailed in the chart below. Furthermore, the appellant submits that contributions made towards CSR should indeed be eligible for deductions under section 80G, as per applicable legal provisions and various judicial precedents.
58. On this issue we find that the Honb'le Tribunal in the Asstt. Year 2020-21 has already taken a view that the CSR expenses are not allowable deduction because the same if claimed u/s 80G would defeat the very basic requirement of CSR expenditure 32 I.T.A. No. 702/Asr/2024 Assessment Year: 2021-22 (on total amount), therefore, claim of 80G on CSR expenditure is not to be allowed as per se. Accordingly, AO's action of rejecting the claim of 80G on CSR expenditure is justified. Hence, assessee's appeal on this ground is dismissed.
59. In the result, the appeal of the assessee is partly allowed.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 as on 16 .12.2025 Sd/- Sd/-
(Dr. M. L. Meena) (Udayan Dasgupta)
Accountant Member Judicial Member
*GP/Sr.PS*
Copy of the order forwarded to:
(1) The Appellant:
(2) The Respondent:
(3) The CIT concerned
(4) The Sr. DR, I.T.A.T
True Copy
By Order