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

The captioned appeals have been filed by the assessee against the assessment order dated 28.02.2022 passed by Ld. Joint Commissioner of Income Tax (OSD), Central Circle-19, New Delhi u/s 143(3)/144C of the Income Tax Act, 1961 (“the Act”) and against the assessment order dated 26.07.2024 passed by Ld. ACIT, & 4456/Del/2024 Central Circle-19, Delhi u/s 143(3) r.w.s144C of the Act pertaining to Assessment Years 2017-18 and 2020-21 respectively.

Since the issues involved in both the appeals filed by the assessee are common, therefore, both the captioned appeals are taken together and decided through a common order.

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

That the learned AO / DRP has erred both in law and on facts in making an addition of Rs. 1,21,74,168/- representing alleged difference between custom duty as per export-import data received from CBEC and custom duty as reflected in return of income and, erroneously taxed as unexplained expenditure of the assessee company. 6.1. That the learned AO / DRP has erred both in law and on facts in determining that appellant has not placed any evidence or narrative about claim of input credit of Rs. 16,74,685/- on imports and Rs. 79,80,055/- on high sea purchases and balance custom duty of Rs. 28,24,182/- included in purchase cost.

As all above-mentioned grounds are inter-related and inter- connected therefore, these are taken together for consideration.

Brief facts leading to these issues are that the assessee is having Two paper manufacturing units which were set up in the year 1996 and 2008-09 and treated as non-eligible unit whereas the assessee is having Two power generation units, the first wherein unit was installed in the year 2006 with the capacity of 2.5 MW of electricity and second unit was installed in the year 2009 with capacity of production of 12 MW electricity and both are treated as eligible units. The assessee while computing the total income had claimed deduction u/s 80IA at INR 16,40,46,786/- on account of transfer of electricity and steam generated from eligible units to non-eligible unit for captive consumption. The deduction claimed u/s 80IA of the Act is duly backed by the necessary Audit Report duly filed before the lower authorities. The deduction u/s 80IA claimed u/s 16,40,46,786/- was computed as below:-

The TPO has made the adjustments on the price of transfer of electricity by reducing price of electricity from INR 6.36/- per unit to INR 2.58/- per unit which is based on the information provided by the IEX of the average rate for Uttar Pradesh and proposed the adjustments of INR 32,68,31,286/-. The TPO has taken the cost of steam production at NIL by treating it as a by-product and therefore, the adjustments on account of transfer of steam from eligible unit to non-eligible unit of INR 51,63,85,174/- was proposed.

Ld. AR submits that the assessee has taken the price of INR 6.63/- per unit being the price of power charged by MVVNL (“Madhyanchal Vidyut Vitran Nigam Ltd”) from other industrial users and accordingly, in view of the judgement of Hon’ble Supreme Court in the case of Jindal Steel and Power Ltd. (supra), the price charged by the eligible unit from non-eligible unit on account of transfer of electricity is ALP and thus, required no modification on the same. He also placed reliance on the following judgements passed by Various Hon’ble Supreme Court and High Courts and ITAT:-

Ld.AR further submits that in case of assessee itself in AYrs 2008-09 & 2009-10, adjustments were made u/s 80IA which were deleted by the Hon’ble ITAT and Revenue has not preferred any appeal before Hon’ble High Court. It is further submitted that in other AYs, no adjustments were made on this account. Thus, following the principle of consistency, the adjustments made during the year under appeal deserves to be deleted. For this, he placed reliance on the judgement of Hon’ble Supreme Court in the case of CIT vs Excel Industries Ltd. 358 ITR 295 (SC) and CIT vs Berger Paints 266 ITR 99 (SC) and certain other judgements which are placed at page 29 in para 40 of its written submissions filed during the course of hearing.

It is thus, submitted by Ld.AR that the adjustment made of INR 32,68,31,286/- to the sale price of electricity from eligible unit to non-eligible unit deserves to be deleted.

It is further submitted by Ld.AR that the method of computation of cost of steam was disputed in AY 2008-09 which was settled by the Co-ordinate Bench of the Tribunal in assessee’s own case in for AY 2008-09 and further in for AY 2009-10. He further placed reliance on the following judgement which are as under:-

We have heard the rival contentions and perused the material available on record. In the instant case, the TPO made the adjustments towards the sale price taken for transfer of electricity Page | 14 & 4456/Del/2024 as per the average rate at IEX in Uttar Pradesh. Further the cost of production of Steam from eligible unit to non-eligible unit is taken at NIL by holding the same as By-Product. The appellant had generated electricity from two power plants and the electricity produced is only meant for captive consumption and not otherwise. The appellant did not sell any electricity to the outsiders. The generation of electricity and its supply are controlled by the Electricity Act, 2003 and the Electricity (Supply) Act, 1948. As per the Act, no person without a license can trade in the electricity. The generation companies are different from the distribution companies. The generation companies, as per the statutory mandate, are bound to sell electricity to the distribution companies and the price thereof is determined as per the formula given in the Electricity Act and the contracts as executed between the generation companies and distribution companies. In the open market, none of the generation companies can supply electricity. So, the end consumers always remain served by the electricity supplied by the distribution companies. The eligible units of the appellant are also involved in supply of electricity to the non-eligible units for consumption. The non-eligible units are the end user of the supplies made by the eligible units.

We observed that similar provisions are contained in Section 80IA(8) of the Act where the clause (ii) of Explanation to Section 80IA(8) also states that the market value in relation to any goods transferred means an arm's length price as defined in clause (ii) of Section 92F of the Act where the transfer of such goods is a specified domestic transaction in Section 92BA of the Act. Both clause (iii) of the Explanation to Section 80A(6) as well as clause (i) of the Explanation to Section 801A(8) have been brought to the statute book by the Finance Act, 2012 with effect from 1st April 2013. & 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."

In the present case, the question is to determine the market value or the ALP of power supplied by power plants established by the Assessee to its other units. Supplying of electricity is governed by the Electricity (Supply) Act, 1948 and Electricity Act, 2003. The transmission of electricity is also governed by the Electricity Rules, 2005.

In view of the above, it is contended that power traded on IEX cannot be compared with the power supplied by a SEB.

It is also contended by the Assessee that the rates quoted on IEX are in respect of power supplied and not the power that is consumed and therefore, there is a material difference between the power that is purchased from IEX and the power which is supplied by the SEBs or power distribution companies. The said submission is also not controverted. The Assessee claims that it had on occasions purchased power from IEX.

We find considerable merit in the Assessee's contention that the transactions of sale and purchase of power on the IEX is not comparable to the regular supply of power by the SEB or the power distribution companies. Undisputedly, IEX is not a source for uninterrupted power on the basis of which any power consumer can set up its unit. It is also not disputed that there is a wide fluctuation in the IEX rates. The Revenue has also not controverted the assertion that rates for power quoted on IEX are for power purchased and not for power consumed. Thus, if an entity bids for certain quantity of power on IEX and is successful, it is required to pay for the same. However, the electricity supplied by power distribution companies is charged on the basis of the power consumed, which is recorded in the metering devices.

It is also clear that the said material differences between the electricity supplied by SEBs or power distribution companies and those secured by bidding on IEX would have a significant bearing on the price of power.

As noted above, the CUP method is an appropriate method only in cases where there is sufficient degree of identity between the tested transactions and comparable uncontrolled transactions. The CUP method cannot be applied where there is significant dissimilarity between the & 4456/Del/2024 comparable transactions and it is not feasible to determine an adjustment to eliminate the impact of the said differences on the prices of comparable transactions.

In the present case, the Assessee had supplied excess power to UPPCL in UP region at the rate of ₹4.39 per kWh. Thus, the said transaction was accepted by the learned DRP as well as the learned ITAT as an internal uncontrolled transaction. The rate at which such electricity was supplied by the Assessee being ₹4.39 per kWh, was rightly accepted as an ALP.

As noted above, the learned ITAT also accepted the rates at which electricity was supplied by the SEBs/power distribution companies to the Assessee in Gujarat and Rajasthan regions as the said rates was considered as an external CUP.

Undoubtedly, there is a degree of similarity between the transaction of supply of electricity by SEBs to the Assessee and the supply of electricity by the Assessee's eligible units. However, there is a difference between the transactions being benchmarked, which is supply of electricity by captive units, and the transaction of supply of electricity by distribution companies/corporations. The power distribution companies enjoy a near monopoly status. The tariff charged by such companies are regulated tariffs. However, we accept that there is a sufficient degree of similarity between the said transaction for reasonably determining the ALP by using the CUP method.

We also consider it apposite to refer to the recent decision of the Supreme Court in Commissioner of Income Tax v. Jindal Steel and Power Limited. The principal issue involved in the said decision was the determination of market value of goods and services. In terms of Clause (i) of Explanation to Sub-section (8) of Section 80IA of the Act, the market value in relation to goods and services would mean the price that such goods or services would ordinarily fetch in the open market. In the aforesaid context, the Supreme Court had considered the question of what would constitute an open market in the context of determining the market value of electricity supplied by captive power units of the assessee in that case. In that case, the assessee had entered into an agreement with the SEB of State of Madhya Pradesh to supply surplus electricity at the rate of ₹2.32 per unit. However, the Assessee had (2024) 460 ITR 162 computed the revenue from supply of electricity to its own unit at the rate of ₹3.72 per unit. It was the Assessee's case that the market value of the electricity was ₹3.72 per unit as that was the rate charged by the SEB for supply of electricity to industrial consumers including the Assessee. The learned ITAT had accepted the assessee's stand and had set aside the order passed by the CIT(A) rejecting the assessee's appeal in that regard. The High Court had also rejected the Revenue's appeal by referring to its & 4456/Del/2024 earlier decision where the question of law had been answered against the Revenue and in favour of the Assessee.

The Revenue had approached the Supreme Court assailing the orders passed by the learned ITAT and the High Court. In the aforesaid context, the Supreme Court had held as under: "23. This brings to the fore as to what do we mean by the expression "open market" which is not a defined expression.

Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand.

Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was Page | 21 & 4456/Del/2024 entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition.

Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act." [emphasis added] 59. As is apparent from the above, the Supreme Court had accepted the rates at which electricity was supplied by the SEBs to industrial consumers as being the market value of the said supplies for the purposes of Sub-section (8) of Section 80IA of the Act.

In view of the above, the questions of law are answered in favour of the Assessee and against the Revenue.” Page | 22 & 4456/Del/2024 24. The Co-ordinate Bench of ITAT, Kolkata in the case of DCIT Vs. Philips Cabon Black Ltd. under identical circumstances has dismissed the appeal of the revenue by making following observations: “9. In this regard we have gone through a later judgment of the Hon'ble Calcutta High Court in the case of CIT v. Star Paper Mills Ltd. [2025] 172 taxmann.com 391 filed by the assessee [Page 1-19 of the Judicial PB]. In the decided case the assessee who was engaged in manufacture of paper had set up a captive power plant to supply power to its paper manufacturing units. The assessee had benchmarked the transfer of power from its power unit to its manufacturing unit at the price at which the paper manufacturing unit was procuring power from the State Electricity Board. In this decided case also, the TPO had benchmarked the transfer of power at which the power generating stations was supplying power to the State Electricity Board by following the earlier decision of Hon'ble Calcutta High Court in the case of ITC Ltd (supra). On appeal, the Hon'ble ITAT, Kolkata following their earlier decision rendered for AY 2016-17 in Star Paper Mills Ltd. v. Dy. CIT [2022] 134 taxmann.com 177 upheld the benchmarking methodology adopted by the assessee to value the transfer of power at the rate at which the manufacturing unit was procuring power from the Grid. On further appeal by the Revenue, the Hon'ble Calcutta High Court after taking note of the decision of Jindal Steel & Power Ltd (supra) wherein their earlier decision in the case of ITC Ltd (supra) was reversed, since upheld the decision of the Hon'ble ITAT vide its recent order dated 05.02.2025 passed in ITAT/214/2024. It is also material to mention that the Hon'ble ITAT, Kolkata in ITC Ltd's own case for subsequent AY 2009-10 in & 1267/Kol/2014 read with MA Nos. 17-18/Kol/2019 have also expressed a divergent view as expressed in their own case by Hon'ble Calcutta High Court in FY 2001-02 by holding that the said judgment has since been reversed by Hon'ble Supreme Court and following the ratio decidendi laid down therein, the assessee's benchmarking methodology viz., the price at which the manufacturing units procures power from SEB, was held to be appropriate ALP.”

In view of the above facts, and by respectfully following the judgements of the Hon’ble Supreme Court and of the jurisdictional High Court as relied upon herein above, in our considered opinion, for the purposes of determination of the market value of the Page | 23 & 4456/Del/2024 transfer of electricity from eligible unit to non-eligible unit is to be taken at the market value at which the electricity company charges from consumers as has been requested by Ld.AR. Since in the present case, the assessee has taken the price at the rates at which the electricity is supplied by MVVNL to the industrial consumers i.e. Rs. 6.36 per unit thus, the sale value computed by the assessee for transfer of electricity from eligible unit to non-eligible unit is at Arm length price and accordingly the adjustment made by the AO / TPO at Rs. 32,68,31,286/- is hereby deleted. The grounds of appeal No. 3 to 3.1 are allowed.

We are not in agreement with the findings of the lower authorities for the simple reason that the Institute of cost and works accountants and issued a guidance note “Guidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8))” which provides guidance as to how the cost of utilities such as production of steam can be determined. According to that guidance note in paragraph number 5.1 it is stated that each type of utility shall be treated as a distinct cost object as Under:- “5.1 Each type of utility shall be treated as a distinct cost object. As each utility is a distinct cost object, cost of each utility is to be collected and measured separately. For example power, steam, water, compressed air, oxygen, nitrogen, coke oven gas and the like are distinct utilities, and the cost is collected and measured for each utility separately. The costs are booked to each utility Page 34 of 55 through initial documents such as supplier ‘s bill, if directly identifiable with utility, payroll analysis sheet, stores requisition, etc. A separate cost statement is to be prepared for each utility.”

In the annexure – 2 it is given and examples of the total steam cost to be determined in the manner when it is transferred to other units as Under:- “Examples of Steam cost – Transfer to Other units Steam cost per tonne works out to Rs 471.09 as illustrated under Annexure 2. If steam is transferred to other unit, distribution cost will be in addition to the above cost as illustrated below 1 Steam generation cost as 5.3.1 above Rs 471.09 Per MT 2 Distribution cost : Operation & Maintenance cost of distribution line Depreciation Other Total Distribution cost Per MT Rs 1.00 Rs 0.75 Rs 0.75 Rs 2.50 3. Inter Unit transfer cost Rs. 473.59 Cost of a utility determined as per para 5.3.2 plus share of administrative overhead to be charged.”

Even otherwise steam is a commercially viable product and it is a form of power and therefore it cannot be said to be produced at nil cost. The assessee has submitted a detailed cost sheet duly certified by the cost accountant following the standards issued by the Institute of cost and works accountant for determining the exact cost of steam, it has also been certified by the chartered accountant and further a chartered engineer certificates is also provided. All these cost statement duly certified by the professionals were rejected by the learned revenue authorities without any basis.

The case of the Revenue is that "steam" is only an intermediate raw material for the manufacturing process. In other words, the production of "steam" is only a byproduct, which is used by the assessee for its manufacturing activity.

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."

The Tribunal, concurred with the aforesaid findings recorded by the CIT (A), by taking support of the decision of a Co- ordinate Bench of the ITAT, Mumbai, in the case of West Cost Paper Mills (P.) Ltd. v. CIT, [2014] 52 taxmann.com 268. As regards section 80IA of the Act, strong reliance has been placed on behalf of the Revenue on the decision of this Court in the case of CIT v. Atul Ltd. [2016] 74 taxmann.com 255. In Atul Ltd. (supra), the assessee had established a new power plant by expending a sum of Rs. 14.62 Crore and claimed deduction under section 80IA. The Assessing Officer upon examination of such claim, arrived at the conclusion that the production of power would require boiler and also a turbine since the boiler would manufacture steam which would be a raw material for the production of power with the aid of turbine and such a plant would be a new industrial undertaking capable of generating electricity. The case of the assessee was that in the existing power plant the assessee had excess steam production capacity which was to be utilised by the turbine installed in the new plant. The Assessing Officer ultimately rejected the case of the assessee on the ground that the turbine should be treated as an independent power generating unit and thereby disallowed the claim of deduction under section 80IA of the Act.

The assessee carried the matter in appeal. The CIT (A) held that no industrial undertaking would come into existence within the meaning of the provisions contained in section 80IA of the Act by transferring the boiler or by installing new machinery for the purpose of generation of the power. The appeal came to be dismissed and the assessee carried the matter before the Tribunal. The Tribunal dismissed the appeal.

This Court took notice of the fact that the assessee had installed turbine for power generation which relied on the excess steam production capacity of the plant. This Court ultimately took the view that the installation of turbine for power generation could be said to setting up of a new industrial unit and therefore, the assessee would not be entitled for deduction of sum under section 80IA of the Act.

It is difficult for us to take the view as suggested by the learned standing counsel appearing for the Revenue that "steam" would not amount to power. The word "Power" used in Section 80IA(4) has not been defined under the Income-tax Act.

The word "Power" should be understood in common parlance as "Energy". "Energy" can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the "steam" produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act.”

Further Hon’ble Supreme Court in CIT v. Tanfac Industries Ltd., SLP (C) No. 18537 of 2009 [319 ITR 8 (st)] wherein while applying section 80-IA of the IT Act, the Hon’ble Supreme Court took a view that the value of steam used for captive consumption by the assessee was entitled to be deducted under section 80-IA of the Act.

Therefore it is apparent that i. steam is a valuable sources of power ii. it has cost of production, iii. There are methods and Costing Standards for determining the cost of production of steam. iv. Assessee has transferred the steam from eligible units to non- eligible units at cost only. v. Such cost is certified by the Cost Accountant, Chartered Accountant, and Chartered Engineers. vi. It cannot have Nil cost Page | 33

This order of the Tribunal was challenged by the Revenue before the Hon’ble High court in wherein no substantial question of law was admitted on this issue by the Hon’ble High Court. The relevant observations as contained in and CN Application No. 51969/2023 while admitting the substantial question of law in para 5 of the Hon’ble High Court is as follows:

Question C pertains to the transfer of steam from the eligible unit to the non-eligible unit of the assessee. The appellant seeks to contend that since steam was a by-product of the business and would have been included in the cost of power generation, it should not have been taken into account. We, however, find that the aforesaid issue and aspect was concerned with the transfer of steam to the non-eligible unit and for the purposes of which the assessee would have been justified in relying on the cost of production. We therefore, are of the opinion that Question C raises no substantial issue. 28. In view of the above facts and by respectfully following the decision of Co-ordinate Bench and of the Hon’ble jurisdictional high court in the case of DCM Shriram Ltd. (supra) and further relying upon the judgement of Hon'ble High court in the case of CIT vs Cushman & Wakefield 367 ITR 730 (Del.), transfer of steam from eligible unit valued at cost of production for the purpose of claiming Page | 34 & 4456/Del/2024 deduction u/s 80IA is hereby held as reasonable and the adjustment of Rs.51,63,85,174/- made by AO/TPO by taking the cost of production of steam at NIL is deleted. Accordingly, Ground No. 4 to 4.1 taken by the assessee are allowed.

Ground No.5 raised by the assessee with regard to adhoc disallowance @ 10% of INR 18,65,470/- made out of legal, professional and consultancy charges paid.

The AO made the disallowance by observing that the assessee has failed to submit details/documents with respect to the expenses claimed. Though the Ld. DRP gave directions that if the TDS is deducted and deposited, no disallowance is to be made however, in the final assessment order, the AO has not followed these directions of Ld. DRP and by alleging that the assessee has not filed the justification of steep rise in the expenses and made the disallowance.

Before us, Ld. AR submits that the expenses were disallowed on assumption on presumption basis and adhoc disallowance is made out of total expenses claimed without there being any instance of excess claim of expenditure or alleging the same as bogus. Ld.AR further submits that the AO in its final order has failed to follow the specific directions given by Ld.DRP. He further submits that the assessee is a company where adhoc disallowance is not tenable in the eyes of law. For this, reliance is placed on the following judgements:-

He, therefore, requested for the deletion of the disallowance made by the AO.

On the other hand, Ld.CIT DR supports the orders of the AO and submits that the expenses stood increased from INR 95.16 lakhs to INR 1.86 crores in the year under appeal and no proper & 4456/Del/2024 explanation was given for such increase therefore, disallowance was rightly made by the AO which deserves to be upheld.

Heard both the parties and perused the material available on record. From the perusal of the order of AO, it is seen that the AO has made the disallowance for the sole reason that the expenses were increased substantially as compared to previous year however, Ld.DRP after considering the aspects in para 5.5 of the order has given following directions:-

Heard both the parties and perused the material available on record. From the submissions of the assessee and the orders of the lower authorities, we find that the re-conciliation statement as stated to have been submitted before the AO and Ld.DRP was not considered by them in proper perspective and therefore, in the interest of justice, we remand back this issue to the file of the AO with the direction that to verified the difference as explained by the assessee in terms of the re-conciliation statement and other evidences stated above as and decide the issue in accordance with Page | 38 & 4456/Del/2024 law. With these directions, this ground of appeal is partly allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed.

The identical issues have been decided by us in assessee’s own case in (AY 2017-18) herein above. Both the parties agreed that the facts and circumstances are identical to the facts in AY 2017-18. Thus, by following the observations made while deciding Ground Nos. 2 to 4 of the assessee in (AY 2017-18), the Grounds of appeal Nos.1 to 4 taken by the assessee in present appeal are allowed.

Ground Nos. 7 & 8 raised by the assessee wherein the assessee has challenged the order passed u/s 143(3)/144C of the Act on account of limitation and DIN issue. However, during the course of hearing, both these grounds of appeal are not pressed hence, dismissed.

In the result, appeal of the assessee is partly allowed. & 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.