K R PULP AND PAPERS LTD. ,DELHI vs. DCIT CENTRAL CIRCLE-19 , DELHI

[Assessment Year : 2020-21] K R Pulp & Papers Ltd., vs ACIT, 304, Roots Tower, District Central Circle-19, Centre, Laxmi Nagar, New Delhi New Delhi-110092 PAN-AAACK5861C APPELLANT RESPONDENT Appellant by Shri Gautam Jain, Adv. & Shri Parth Singhal, Adv. Respondent by Shri S.K.Jhadav, CIT DR Date of Hearing 09.04.2025 Date of Pronouncement 04.07.2025 ORDER

PER MANISH AGARWAL, AM :

4. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing and trading of Kraft paper and white paper and filed its return of income on 29.11.2017 declaring total income of INR 34,49,64,520/-. The case was selected for scrutiny through CASS and notice u/s 143(2) of the Act was issued on 09.08.2018. The AO observed that assessee has entered into certain specified domestic transaction and therefore, the matter was referred for determination of ALP of the specified transaction undertaken by the assessee in terms of reference made u/s 92CA(1) of the Act. In compliance, the TPO passed the order u/s 92CA(3) of the Act dated 31.01.2021 wherein he proposed two adjustments with reference to the claim of deduction u/s 80IA of the Act by the assessee. First TPO reduced the amount of deduction claimed u/s 80IA of the Act by INR 32,68,31,286/- on the transfer of power from eligible unit to non-eligible unit. Similarly, the deduction u/s 80IA with respect to transfer of steam from eligible unit to non-eligible Page | 2 4456/Del/2024 unit was reduced by INR 51,63,85,174/-. Thereafter, the AO passed draft assessment order u/s 143(3)/144C of the Act on 30.03.2021 incorporating the adjustments made by TPO by disallowing the deduction u/s 80IA claimed at INR 16,40,46,786/-. Since the assessee claimed deduction u/s 80IA at INR 16,40,46,786/-, therefore, the reduction proposed by the TPO was restricted to such extent by the AO in the draft assessment order. Against this draft assessment order, the assessee filed objections before Ld. Dispute Resolution Panel (“DRP”) who vide its order dated 28.12.2021 u/s 144C(5) of the Act, confirmed the adjustments proposed by the TPO on account of disallowance of deduction u/s 80IA on transfer of electricity and steam. Further with regard to the adhoc disallowance of INR 18,65,470/- made by the AO @ 10% out of legal, professional and consultancy expenses, ld. DRP in para 5.5 directed the AO to allow the expenses if the tax was deducted at source and paid to the Government account. With regard to the addition of INR 4,692/- made on account of interest income and late payment charges, Ld.DRP has rejected the objections raised by the assessee. Similarly, the addition of INR 1,21,74,168/- made on account of difference in custom duty as per export-import data received from CBEC and custom duty reflected in return of income filed, Ld.DRP has rejected the objections raised by the assessee. Accordingly, Ld.DRP has allowed part relief to the assessee against which the assessee is in appeal before the Tribunal by way of following grounds of appeal:-

4456/Del/2024 1. That the learned Joint Commissioner of Income Tax (OSD), Central Circle-19, New Delhi ("AO") has erred both in law and on facts in determining total income of the appellant company at Rs. 50,90,11,310/- as against declared income of Rs. 34,49,64,520/- in an order of assessment dated 28.2.2022 under section 143(3) read with section 144C of the Act.

2. That the learned AO/TPO/DRP has erred both in law and on facts in disallowing the claim of deduction of Rs. 16,40,46,786/- u/s 801A(4)(iv) of the Act by holding that an adjustment of Rs. 84,32,16,460/- is warranted in respect of transfer of power and steam from eligible units to non-eligible units u/s 92CA(3) read with section 801A of the Act.

4456/Del/2024 5. That the learned AO has erred both in law and on facts in disallowing sum of Rs. 18,65,470/- made on adhoc basis i.e 10% of expenditure incurred for obtaining legal, professional and consultancy expenses by the assessee company and in not following the clear direction of DRO to allow the expense if tax has been deducted at source and payments made to the government account.

7. That the learned Assessing Officer has further erred both in law and on facts in levying interest of Rs. 3,30,35,298/- u/s 234B of the Act and interest of Rs. 10,17,224/- u/s 234C of the Act which is not leviable on the facts and circumstances of the case of the appellant company.”

5. Ground No.1 raised by the assessee is with respect to the reference made to the TPO for determination of Arm’s Length Price (“ALP”) of the specified domestic transaction. We find that the action of the AO is in accordance with the provisions of law and therefore, we do not find any force in the arguments in accordance are placed in the written submissions filed by the assessee. Accordingly, Ground No.1 raised by the assessee is hereby dismissed.

Ground No.2 taken by the assessee is with respect to the 6. denial of deduction of INR 16,74,685/- claimed by the assessee u/s 80IA (4) of the Act. On transfer of electricity. Ground Nos. 3 to 3.1 are in relation to the adjustment made at INR 32,68,31,286/- by Page | 5 4456/Del/2024 TPO on the price of power charged by eligible unit to non-eligible unit. Ground Nos. 4 to 4.1 are in relation to the adjustment of INR 51,63,85,174/- made by TPO/AO towards the sale price of steam transferred from eligible unit to non-eligible unit.

4456/Del/2024 10. At the outset, before us, Ld.AR of the assessee submits that the issue with respect to the transfer of electricity from eligible unit to non-eligible unit is covered by the judgement of Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd. 460 ITR 162 (SC) wherein Hon’ble Supreme Court held that the price of electricity is to be computed at the market value of electricity supplied by the captive power plants to its industrial unit after comparing with the power available in the open market and the price charged by the State Electricity Boards while supplying electricity to the industrial consumers.

(i) “PCIT vs Nalwa Steel & Power Ltd. in (ii) Gujarat Alkalies and Chemicals 395 ITR 247 (Guj.); (iii) CIT vs Godavari Power & Ispat Ltd. 42 Taxmann.com 551 (Chhattisgarh); (iv) ACIT vs ACB India Ltd. in dated 31.12.2024; 4456/Del/2024 (v) DCIT vs M/s. Balrampur Chini Mills Ltd. in dated 05.05.2021; (vi) ITA Nos. 138, 139, 191 & 192/Kol/2018 dated 28.02.2019 Electrosteel Casting Limited vs. DCIT (pages 98-132 of JPB) vii) ITA-TP No. 123/Hyd/2022 dated 26.10.2022 Sree Rayalaseerna Hi Strength Hypo Limited Kurnool vs. DCIT (pages 298-306 of JPB) viii) 52 taxmann.com 268 (Mum - ITAT) West Coast paper Mills Ltd vs. Addl. CIT (pages 218-256 of JPB); ix) ITA No. 125/Ahd/2015 dated 24.1.2018 DCIT vs. Vishal Fabrics (P) Ltd. (pages 15-37 of JPB); x) 97 taxmann.com 10 (Ahmedabad-Trib.) dated 13.8.2018 Gujarat Flurochemicals Ltd. vs. DCIT (pages 257-297 of JPB); and xi) ITA No. 3093/Mum/2023 Tata Chemicals Ltd. vs. DCIT (pages 307- 328 of JPB).”

4456/Del/2024 14. With regard to the adjustment of INR 51,63,85,174/- made by AO/TPO on the sale price of steam transfer from eligible unit to non-eligible units, Ld.AR submits that the assessee has two units where the steam is produced. In Unit-1 out of total expenditure of INR 12,88,29,276/- claimed in the Profit & Loss Account, a cost factor @ 56.85% is applied so as to work out the Revenue from steam at INR 71,8,22,321/-. With respect to the steam purchased to Unit-2, a cost factor of 56.85% was applied on the expenditure in the Profit & Loss Account of INR 78,19,92,705/- and Revenue from steam is worked out at INR 44,45,62,853/- for this unit. The TPO/AO take the cost of steam at NIL and made an adjustment of INR 51,63,85,174/-. Ld.AR submits that steam is not a by-product in the process of generation of electricity. In this regard, the assessee has made a detailed submissions as contained in para 61 to 63 of written submissions which is reproduced as under:-

4456/Del/2024 (i) Pr.CIT vs Jay Chemical Industrial Ltd. reported in 275 Taxman 78 (Guj. HC); (ii) Nectar Life Sciences Ltd. vs DCIT reported in 138 Taxmann.com 557 (Delhi –Trib.); (iii) CIT vs Tanfac Industries Ltd. SLP (C) No.18537 of 2009 319 ITR (st.) 8 (Mum-Trib.); (iv) SIAL SBEC Bioenergy Ltd. vs DCIT (2004) 83 TTJ 866 (Delhi); (v) DCIT vs Maharaja Shree Umaid Mills Ltd. [2009] 29 SOT 278 (Jaipur Trib.); (vi) Tamil Nadu Petro Products Ltd. vs ACIT 238 CTR 454 (Mad); (vii) DCW Ltd. vs Addl.CIT [2010] 37 SOT 322 (Mum.) 16. In view of the above submissions, Ld.AR submits that cost of steam produced in both units cannot be taken at NIL and accordingly, adjustment made by AO/TPO of INR 51,63,85,174/- deserves to be deleted.

17. On the other hand, Ld.CIT DR supported the orders of the lower authorities and submitted that AO/TPO discussed this issue at length and further Ld.DRP had decided this issue which orders deserves to be sustained. Ld. CIT DR for the Revenue further stated that the TPO has held that the steam is a by-product and generated during the production activity and its cost has already been absorbed in the manufacturing activity therefore, it has no cost remained. He prayed accordingly.

19. Now the question comes at what rate it should be charged/ priced when transferred to another unit. On perusal of the provisions of sub-section (6) of Section 80A of the Act, it is clear that in case where the goods of the eligible business are transferred to the non-eligible units of the assessee itself meant for Page | 15 4456/Del/2024 consumption in non-eligible units, then the profits of the eligible units have to be worked out, thereby taking into account the market value of the goods so transferred irrespective of the value assigned in the books of account. The expression 'market value' in Section 80A(6) of the Act has been defined in the Explanation attached thereto. Under the Explanation, the market value has been explained in two types of cases. Clause (i) and clause (ii) of the Explanation deal with the cases where the profit must be determined with an application of the transfer pricing provisions. Clause (iii) of the Explanation deals with the cases where the inter- se transactions are considered as specified domestic transactions in terms of Section 92BA of the Act. Clause (iii) of the Explanation states that if the transactions are specified domestic transactions as referred to in Section 92BA, then the market value of the goods remains the ALP as defined in clause (ii) of Section 92F of the Act.

4456/Del/2024 21. Now coming to the facts of the present case where the TPO had evaluated and compared the transactions with reference to the average price of IEX. The power generating companies, who did not sell the electricity in the open market on account of the restrictions made in the Electricity Act, and are bound to sell the electricity only to the State Electricity Board as per the contractual terms who in turn supplied the electricity in the open market to end consumers. The Co-ordinate bench of ITAT, Jaipur in the case of Wonder Cement Ltd. (supra) after considering these facts did not accept the TPO's order. The coordinate bench in paragraph 14 of its order has made following observations: "14. Evaluating this in light of the meaning of arm's length price i.e. a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions, it is evident that the transaction of purchase of electricity by State Electricity Boards from independent power producers is a regulated activity, being subject to approval of SERC, and therefore is not a transaction undertaken in uncontrolled conditions. Thus, the transaction between power producers and state electricity board is not fit to be considered comparable to the tested transaction of sale of electricity by eligible unit to non-eligible unit. Thus, the average rate of Rs 4.57 per unit, being the price for transfer of electricity by power producers to third party customers cannot be treated as arm's length price as it is a price under controlled conditions."

22. In the appellant's own case for Assessment Year 2008-09, the coordinate bench of Tribunal vide accepted the appellant's contention and directed the Assessing Officer to re- compute eligible profits in reference to Section 80IA(8) of the Act with reference to rates at which the respective State Electricity Boards/distribution companies, wherever eligible units were located, supplied electricity to the end consumers in open market.

4456/Del/2024 23. This proposition is further supported by the Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd.(supra). The Hon’ble Jurisdictional High Court in the case of CIT Vs. DCM Shriram Ltd. in vide order dated 02.05.2024, held that Revenue has failed to controvert the assertions that rates in IEX are for power purchase and not for power consumption whereas electricity supply by power distribution company is charged on the basis of power consumed. The Hon’ble High Court further followed the Judgement of Hon’ble Supreme Court in the case of Jindal Steel & Power Ltd. (supra) and held the order of the Tribunal as reasonable order and confirmed the same. The observations of the Hon’ble High Court as contained in para 43 to 60 of the order are reproduced as under-

44. Thus, the market for supply of electricity is regulated. Thus, to apply the CUP method, it would be necessary to ascertain the comparable transactions that are similar in material aspects and there is no difference between the transactions which has a bearing on the price of the power supplied.

45. The question whether the average IEX rate at which power is traded on IEX, is a comparable uncontrolled transaction, is required to be evaluated by determining whether there are any differences between the specified domestic transaction6 and the uncontrolled transaction of trade on the IEX. 46. The Assessee states - and the same is not controverted - that the availability of power on IEX is unpredictable and the supply of power is unreliable.

4456/Del/2024 47. It is stated that in order for a party to purchase power from IEX, the said party has to participate in the bidding process. The same entails furnishing a bid in advance for supply of fifteen minutes slots. Illustratively, it is stated that if a party requires power supply for a period of four hours, it would be required to submit sixteen bids for fifteen minutes slots. Further, the bidder cannot resile from the bids furnished by it in advance.

49. It is not disputed that IEX is a platform, which is used by power producing units to sell surplus power for short term requirements. IEX is not a platform for sourcing continuous power for power consuming units. It is also pointed out that there is a high level of volatility in the IEX rates as it depends on immediate availability of surplus electricity.

25. Therefore, the expression "market value" in relation to any goods as defined by the Explanation below the proviso to sub-section (8) of section 80 IA would mean the price of such goods determined in an environment of free trade or competition. "Market value" is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply.

27. Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e., Rs. 3.72 per unit.

26. Regarding the adjustment made by the AO/TPO on the transfer of steam from eligible unit to non-eligible unit by taking the cost of production of steam at NIL, in our considered view steam is commercial and viable product and its value cannot be taken at NIL. Since the steam is one of the forms of power and thus can be considered as joint product and not as by-product. Similar issue was came for consideration before the Co-ordinate Bench of the ITAT Delhi bench in the case of DCM Sriram Ltd. in in AY 2014-15 wherein a detailed discussion is made on this issue and thereafter, the Hon’ble Co-ordinate Bench of the Tribunal was of the view that the steam is a valuable source of power and has cost of production. The relevant observations as contained in para 37 to 47 of the order of the Tribunal are under- 37. We have carefully considered the rival contention and perused the orders of the lower authority as well as perused the judicial precedents relied upon by both the sides. The facts shows that assessee has transferred low-pressure steam from eligible business to other business amounting to ₹ 1,028,618,630/–. The rate at which Page | 24 4456/Del/2024 the low-pressure steam is supplied from eligible unit to non eligible unit is at cost. The assessee adopted “other method” as the most appropriate method. The learned transfer pricing officer objected to the same and initially stated that assessee should have adopted the cost plus method for the benchmarking of transfer of steam. However letter on when the assessee contended that if the assessee would have used the cost plus method, the relevant deduction u/s 80 IA would have been much higher. Thereafter, the learned transfer pricing officer changed its stand and directed the assessee to submit a statement of cost of production of steam manufactured during the period 1/4/2013 231/3/2014. Assessee stated that it is submitted original set of corsets of the cost of production of steam transferred certified by the cost accountant. However letter on the learned transfer pricing officer on examining the process of power generation stated that the power plants are not installed for steam production but for power generation and as steam being byproduct do not have any cost. Therefore he rejected the most appropriate method applied by the assessee he further held that activity regarding production of steam shows that steam is produced as a result of burning of fuel in boiler. This steam is used for generation of electricity. Thus the entire cost of electricity absorbs entire cost of production of steam. Thus the resultant cost of excess team is nil. Therefore he made an adjustment of ₹ 1,035,745,275 on this account. The learned dispute resolution panel also agreed with the view of the learned transfer pricing officer.

4456/Del/2024 In paragraph number 5.3.2 it has provided as Under:- “5.3.2 In case of Utilities generated for the purpose of inter unit transfers, the distribution cost incurred for such transfers shall be added to the cost of utilities determined as per paragraph 5.3.1. If utilities generated are transferred to inter units of an entity, the cost of distribution of such utilities will be included in the cost of utility as determined under para 5.3.1. It will comprise cost of generating utility and cost of distribution facility. Distribution may be through a pipe line/transmission line. The cost of maintenance of pipe line/ Transmission line for transfer of utility will be added to the cost of utility. In paragraph number 5.3.1 it is provided however cost of utilities are to be determined. 5.3.1 Cost of self generated utilities for own consumption shall comprise direct material cost, direct employee cost, direct expenses and factory overheads. The cost of generating a utility may comprise water, fuel, power, direct expenses ( such as boiler inspection fee) consumable stores, direct employee cost, repair and maintenance, depreciation, inter– utility transfer and factory overhead. For example: Cost of power generation will include cost of fuel such as furnace oil, coal, salaries and wages, consumable stores, repair and maintenance, deprecation and factory overhead. Unit cost is arrived at on the basis of the net aggregate consumption in different departments after adjusting transmission losses. In case of cogeneration (power and steam) where waste heat from TG (Turbine Generation) is recovered in waste heat recovery unit and used for production of steam, due credit should be given to the Power plant and corresponding charge to SGP(Steam Generation Plant). Charging of power to the consuming cost object is generally done at the weighted average of the cost of power purchased , generated and distribution cost at the consuming point. Steam: A separate statement of cost of steam is prepared indicating the quantity of steam generated, cost of fuel, soft water, power, employee cost for operating staff, sundry supplies, chemical additives, deprecation and other works overhead. Unit cost of steam is arrived at on the basis of units consumed in different departments after Page | 26 4456/Del/2024 adjusting distribution loss. Steam may be of high pressure, low pressure and medium pressure with multiple paths by which the steam pressure is reduced according to the purpose of use. Steam costs are highly dependent on the path that steam follows in the generation and distribution system. Raw water: Raw water is either purchased or obtained from ground wells/canal. The cost of water mainly consists of share of cost of power allocated through inter-utility transfer. The total cost of water should include employee cost, fuel, power, repair and maintenance of tube wells, depreciation, overhead. The total monthly cost of operating this department is divided by the quantity of K Ltr of water pumped during the month to determine the unit cost of water pumped. Cost of Soft Water: Water, if hard, requires treatment. The cost of soft water will include the cost of raw water, chemicals, cost of maintenance of settling tanks, employees cost, depreciation and the like. The cost of demineralised water is also arrived at on the above basis. There is inter–utility transfer cost for a utility. For example water utility may be used in generation of steam and power. Power may be required for pumping water from tubewell. Inter-utility cost is to be determined by the following method: a) repeated distribution method; b) matrix algebra through computer application (a) When Repeated Distribution Method is adopted, the utility costs are repeatedly allocated in the specified percentage until the figures become too small to be significant. Steps to be followed under this method are: I. The proportion at which the cost of a utility is to be distributed to production cost centres and other utilities centre is determined based on usage. II. Cost of first utility is to be apportioned to production cost centres and other utilities in the proportion as determined in step (a) above. III. Similarly cost of other utilities is to be apportioned. IV. This process as stated above is to be continued till the figures remaining undistributed in the utility are too small to be significant. The small amount left with utilities may be distributed to the production cost centres. b) Matrix algebra through computer application: Spread sheet software such as Excel provides facility for inter-division cost ascertainment and reapportionment of inter utility. This application may be used for determining inter-utility transfer cost. Quantitative records of production and distribution should be recorded 4456/Del/2024 for each utility to measure the unit cost of a utility. An illustration of steam cost is at Annexure 2.

40. Therefore, from the above analysis it is apparent that the learned revenue authorities have incorrectly held that there is no cost of production of steam.

42. Further in the case of the assessee sister concern in case of SRF Ltd the learned dispute resolution panel on the identical facts and circumstances has held that steam has a cost and therefore the arm’slength price of steam cannot be determined at nil. It further held that the value of steam can be expressed in terms of equivalent units of electricity that would have been generated and such value is usually higher than the cost of steam.

43. Further in case of the assessee for assessment year 2015 – 16 the learned CIT – capital has rejected the action of the learned transfer pricing officer of determining the arm’s-length price of steam at nil and upheld the assessee’s approach of benchmarking the transfer price of steam at cost. This order has been accepted by the revenue and no further appeal has been Page | 28 4456/Del/2024 filed. Therefore this issue becomes final with respect to the determination of ALP of transfer of steam at cost by the eligible unit to non eligible unit.

44. Further Honourable Gujarat High court in Principal Commissioner of Income Tax v. Jay Chemical Industries Ltd 2020] 120 taxmann.com 315 (Gujarat)/[2020] 275 Taxman 78 (Gujarat)/[2020] 422 ITR 449 (Gujarat) has held that:- “13. It appears that during the year under consideration, the assessee had claimed deduction of Rs. 32,51,080/- under section 80IA(4) of the Act. This claim was on account of the operation of the Captive Power Plant. The assessee showed income from sale of Power to the tune of Rs. 1,23,10,500/- and the sale of vapour of Rs. 6,59,77,170/-. The Assessing Officer took the view that "Vapour" would not fall within the meaning of "Power". The case of the assessee is that "steam" is also a form of "power".

15. In this regard, the CIT (A) recorded the following findings: "2. The appellant has also claimed deduction under section 80 IA on account of sale of steam to the chemical plant. "The steam was generated by the power plant in the boiler and part of it was also utilised for the chemical process of the non-eligible unit. The AO has held that the appellant was not entitled to the deduction on account of sale of steam to the power plant. It has been held by her that steam does not fall within the meaning of "power". In this reference she has made reliance on the judgment of honourable ITAT Ahmadabad in the case of N R Agrawal Industries Ltd v. DCIT dated 26/07/2013. The appellant on the other hand has submitted that the value of steam should be considered for arriving the profit as the scheme is being gererated for generation of electricity and after utilising the same for electricity generation the balance steam is used for the chemical process. Therefore, it is a byproduct and therefore, the deduction was admissible. On a careful consideration of the facts related to the issue, it is noted that that appellant is generating steam at high-pressure and temperature and the steam is being fed into turbine and the steam which is coming out from turbine is utilised for the chemical process. The details on record to show that the turbine utilised by the appellant for generation of the power is a back pressure Page | 29 4456/Del/2024 turbine. In back pressure turbine the intake is of highpressure steam which is used for generation of power and the exhaust steam is also at certain pressure so that it can utilised for some other purpose. The design of the turbine is done in such a manner so that all energy of the steam is not utilised by the turbine for generation of power but certain part of it is released in the exhaust steam also. Therefore, the design of the turbine used by the appellant is in such a manner that the exhaust steam is at a certain pressure so that it can be utilised for some other work. Accordingly, this steam cannot be consider as a by product but it is intentionally being produced or generated for a specific purpose. Further the intention of the legislature was to provide deduction for generation of electricity and not for generation of steam. The intention is clearly evident from the perusal of the speech of the honourable Finance Minister while introducing the provisions for deduction in the budget. The use of word 'power' is intended for 'electricity' as the other relevant sections clearly mentioned the word 'electricity'. The honourable Bench of ITAT Ahmadabad while deciding the issue in N.R.Agrawal Industries Private Limited has discussed these aspects in detail and accordingly relying on the judgment it is held that the appellant is not entitled for deduction under section 80 I-A on sale of such steam to its chemical plant. Accordingly, the decision of the AO in this regard is upheld.

3. For the purpose of calculation the quantum of deduction and allocation of expenditure incurred for production of steam the appellant had given certain information-related to the heat value of steam (Enthalpy). The details given by the appellant were also forwarded to the AO and she has also given her comments on the same. In order to arrive at a logical conclusion it would be useful to understand the process involved. The appellant has installed a boiler which generates high-pressure steam at a very high temperature. The steam is first fed in the turbine where part of the heat energy of the steam is utilized in generating the electricity and the balance energy available in the steam coming out from the turbine is utilised in the chemical process. The appellant is incurring expenses such as coal consumption, boiler running, depreciation of boiler and other machinery and the building in which the whole generation plant is housed. The expenditure for the steam, which is utilised in generation of power, and the balance steam which is utilised by the chemical plant can be determined by distributing the same in proportion to the heat value (Enthalpy) of the inlet steam and the outlet steam of the turbine. As per the details available on record the heat value of the inlet steam at 65.5 KG/cm2 is 793 kcal per KG whereas the Page | 30 4456/Del/2024 heat value of the output steam at 3.5 KG/cm2 is 653.7 kcal per KG. The quantity of input and output steam remains the same and only the calorific value of the heat value goes down as part of the energy is utilised for generation of power. Accordingly, the expenses can be apportioned in the ratio of enthalpy of the inlet and output steam. The same is worked out as under:— Total enthalpy of the steam coming out of the 793 kcal per KG boiler The enthalpy of the steam coming out of the 653 kcal per KG turbine The enthalpy utilised by the turbine for 139 kcal per KG generation of electricity Percentage of energy utilised in the generation 17.66% of electricity Total expenses for Boiler 1800000 Generation of steam to be allocated on a expenses percentage basis Boiler maint 1 728903 Coal expenses 38733894 Depreciation 10522945 other than turbine Total expenses 52785832 Expenses for steam utilised for 17.66% of 52785832 Generation of electricity 9321977 In addition to above expenses for generation of steam, the expenses of head office of the appellant company which looks after the management or the affairs of-the Company and also the power plant are also to be disallowed on proportionate basis. It is also noted that the appellant has taken loan from financial institutions for installing the power plant. The appellant is also paying huge amount of interest on the loan. Proportionate allocation of the interest expenditure should also be done and added to the cost of generation of steam. Since the details related to the expenses of head office as well as interest expenditures are not available before me, the AO is directed to work out the proportionate allocation of the interest expenditure should also be done and added to the cost of generation of steam. Since the details related to the expenses of head office as well as interest expenditure are not available before me, the AO is directed to work out the proportionate allocation of these expenses by obtaining suitable details from the AO. The details of following expenses are readily available from record:— 4456/Del/2024 Expenses for generation of steam 9321977 Depreciation on turbine 1289189 Electricity duty 787872 The AO is also directed to verity the above figures. Accordingly the AO is directed to rework the deduction under section 80I-A claimed by the appellant as indicated in the preceding discussion."

18. It appears that the assessee preferred an application for rectification before the Tribunal contending that after the judgment was delivered by the Tribunal, the High Court, in the case of Gujarat Alkalines and Chemicals Ltd. v. CIT [2013] 350 ITR 94/[2012] 208 Taxman 31/20 taxmann.com 764 (Guj.) has delivered a judgment which would have a bearing on the issue decided by the Tribunal. The said application was opposed by the Page | 32 4456/Del/2024 Revenue. However, the Tribunal allowed the application for rectification and recalled its earlier judgment. The Revenue came before this Court in appeal. This Court took the view while allowing the appeal of the Revenue that the claim of the assessee for deduction under section 80IA of the Act was not tenable in law.

20. In our view, the facts in the case of Atul Ltd. (supra) are quite different and the ratio, as propounded in the same, will have no applicability to the case on hand, more particularly, the question No. 3 with which we are dealing with.

47. In view of above facts, we are of the view that ld Revenue authorities erred in holding that the steam does not have any cost and therefore steam transferred by assessee’s eligible units to non eligible units at cost, which is determined by Cost accountants and Other professional, has the Arms length price of Rs Nil instead of cost of Rs 103745275/- . Therefore we allow ground number 3 of the appeal and direct the learned transfer-pricing officer to delete the addition of ₹ 1,035,745,275 which was made determining the arm’s- length price of transfer of steam from eligible unit to non-eligible unit by considering the cost of production of the steam at Rs. Nil.”

4456/Del/2024 (i) DCIT, Circle-1(1), Kolkata vs Lexicon Auto Ltd. in (ITAT-Kol.); (ii) TUV India Pvt. Ltd. v. DCIT-15(3)(1) in (iii) DCIT, Circle-2, Gurgaon v. Surinder Kumar Mehta in I.T.A. No. 1661/Del/2014; iv) Biswanath Agarwala v. ACIT, Circle-43 in ITA No.461/Kol/2016; v) Lever India Exports Ltd. vs. CIT reported in 78 taxmann.com 88 (Bombay); vi) D.S. Agencies & Associates v. ACIT reported in 44 ITR(T) 46 (Mum); vii) Det Norske Veritas A/S v. ADIT, International Taxation reported in 67taxmann.com 16 (Mum); viii) Amserve Consultants Ltd. v. ADIT reported in 72 taxmann.com 204 (Del); ix) Firmenich Aromatics (India) (P.) Ltd. v. ACIT reported in 106 taxmann.com 166 (Mum); x) MohitLal Ghosh v. ACIT in ITA No. 868/Kol/2014; xi) ITO vs. Mayur Aggarwal, 2010, ITAT reported in 43 DTR 116 (TM) (Agra); xii) Dinesh Mills Ltd. vs. CIT, 2001, ITAT reproted in 254 ITR 673 (Guj); xiii) Goodyear India Ltd v ITO, 2000, ITAT reported in 73 ITD 189 (Del); xiv) Sunder Mal Sat Pal vs. ITO, 2005, ITAT reported in 94 TTJ 423 (Asr); xv) Coco Cola (India) Ltd. v. JCIT, 2005, ITAT reported in 104 TTJ 254 (Pune)

5.5. “Keeping in view of the above discussion, the DRP directs the AO to allow the expenses if tax has been deducted source and payment made to the Government account. Ground of appeal is accordingly disposed off.”

35. From the perusal of the directions given by Ld.DRP and the final assessment order of AO, we find that AO has not followed the directions given by Ld.DRP in the final assessment order and therefore, we set aside the order of AO and remand back this issue to the file of AO to follow the directions as made by Ld.DRP by making verification of facts whether TDS was deducted and deposited on such payments claimed towards legal, professional and consultancy expenses and if found so, no disallowance is to be made. With these directions, this Ground of appeal is partly allowed for statistical purposes.

36. Ground Nos. 6 to 6.1 is in respect to the addition of INR 1,21,74,168/- made on account of difference between custom duty as per export-import data and is reflected in the return of income.

4456/Del/2024 37. Before us, Ld.AR of the assessee submits that the assessee has paid custom duty of INR 1,21,74,168/- on imports & high sea sales and after reducing the input credit on imports and high sea purchases the balance amount of INR 25,24,182/- was included in the purchase cost for which following details were filed before us:-

(i) Details of custom duty as per IEC data; (ii) Details of custom duty paid on imports alongwith custom duty challan; (iii) Details of custom duty paid on high sea purchases alongwith custom duty challans. 38. Ld.AR further submits that detailed re-conciliation statement according to which, there was no difference and thus, requested for deletion of the addition so made by the AO.

39. On the other hand, Ld.CIT DR submits that details submitted by the assessee needs to be verified at the end of the AO and the matter may be sent to the file of the AO for necessary verification on the facts as contended by Ld.AR of the assessee.

41. Ground No.7 raised by the assessee is with regard to the levy of interest u/s 234B & 234C of the Act. The levy of interest is mandatory however, the amount charged is consequential to the income finally determined and therefore, the AO is directed to charge the interest u/s 234B on the income finally computed after giving effect to the order of the Tribunal.

[Assessment Year : 2020-21] 43. Ground Nos. 1 to 4 raised by the assessee are in respect of the transfer pricing adjustments of INR 89,64,57,563/- made u/s 80IA of the Act in respect to the transfer of electricity and steam to compute the profit for the purpose of deduction u/s 80IA(4) of the Act.

4456/Del/2024 45. Ground No.5 is with respect to the claim of deduction of INR 97,98,021/- on account of health and education cess. During the course of hearing, this Ground is not pressed by Ld.AR thus, the same is hereby, dismissed.

46. Ground No.6 raised by the assessee is with regard to the disallowance of INR 9,82,283/- made by invoking the provision of section 41(1) of the Act, which is not pressed during the course hearing hence, dismissed.

48. Ground No.9 raised by the assessee with regard to the levy of interest of INR 6,57,25,630/- u/s 234B & 234C of the Act. The levy of interest is mandatory however, the amount charged is consequential to the income finally determined and therefore, the AO is directed to charge the interest u/s 234B on the income finally computed after giving effect to the order of the Tribunal.

4456/Del/2024 50. In the final result, both appeals of the assessee in (AY 2017-18) and (AY 2020-21) are partly allowed. Order pronounced in open court on 04.07.2025.