DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. TAMILNADU NEWS PRINT & PAPERS LIMITED, CHENNAI

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ITA 1280/CHNY/2026Status: DisposedITAT Chennai21 July 20268 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, stating that no transfer pricing adjustment was warranted as no Section 80-IA deduction was claimed. The disallowance for foreign commission was also deleted as the services were rendered outside India and not taxable in India.

What were the facts?

The Department appealed against the CIT(A)'s order deleting a transfer pricing adjustment on inter-unit power transfer and a disallowance for non-deduction of tax on foreign commission. The assessee had returned a loss and claimed no deduction under Section 80-IA.

What were the issues?

Whether transfer pricing adjustment is valid when no deduction under Section 80-IA is claimed, and whether foreign commission payments are taxable in India requiring TDS.

Which sections of the Income-tax Act were involved?

Section 80-IA,Section 40(a)(i),Section 195,Section 9(1)(i),Section 115JB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: MS. PADMAVATHY S & SHRI MANU KUMAR GIRI

Hearing: 21.07.2026

आदेश / O R D E R PER MANU KUMAR GIRI, JM:

This appeal by the Department is directed against the order of the Ld. Commissioner of Income Tax (Appeals), Chennai-16, [CIT(A)] dated 10.09.2025 for Assessment Year 2017-18.

2.

In the instant appeal, the registry has noted the delay of 94 days in filing the captioned appeal. We have gone through the condonation petition along with affidavit filed, we find that the

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 2 :: reasons given by the Department/Revenue are sufficient cause for delay in filing the captioned appeal. Hence, we condone the delay and admit the appeal for adjudication. 3. The department/revenue has raised the following grounds of appeal: 1) The order of the Ld. CIT(A) is contrary to the facts and circumstances of the case. 2) The Ld. CIT(A) has erred in law and on facts in deleting the TP adjustment of Rs. 45,98,11,450/- on account of inter-unit transfer of power for captive consumption, without appreciating that though the assessee has not claimed deduction u/s 801A due to current year losses, the TPO rightly proposed an upward adjustment on a protective basis in the event the gross total income requires allowability of such deduction. 3) The Ld. CIT(A) has erred in law and on facts in following the Hon'ble ITAT's decision in the assessee's own case for AY 2016-17 in ITA No. 47/Chny/2022 dated 30-11-2023, without considering that the department has not accepted the said decision and has filed a further appeal against it. 4) The Ld. CIT(A) has erred in law and on facts in relying on the decision of the Hon'ble Supreme Court in CIT v. Jindal Steel & Power Ltd., as the said decision pertains to AY 2001-02. 5) The Ld. CIT(A) has erred in law and on facts in not appreciating that the provision for determination of arm's length price for Specified Domestic Transaction (SDT) and the procedure of reference to the Transfer Pricing Officer for doing so has been inserted in the Income Tax Act by the Finance Act, 2012 w.e.f 01.04.2013 and the Explanation for 'market value' u/s. 80-IA (8) has also been substituted by the same Finance Act 2012. 6) The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that based upon definition of Open Market', in Black's Law Dictionary and P. Ramanatha Aiyer's Law Lexicon, the Hon'ble Apex Court has stated that "Market value' is an expression which denotes the price of goods arrived at between a buyer and seller in the open market ie., where the

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 3 :: transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation; rather, it determined by the economics of demand and supply. 7) The Ld. CIT(A) has erred in law and on facts in not considering the factors under Rule 10C(2) for selecting the MAM, including the nature and class of the transaction, functions performed, assets employed, risks assumed, availability and reliability of data, degree of comparability, adjustments for differences, and nature of assumptions. 8) The Ld. CIT(A) has erred in law and on facts in applying the ratio of the Hon'ble Supreme Court in Jindal Steel & Power Ltd., as that decision does not deal with the provisions of applicability of Transfer Pricing guidelines for SDTs i.c., considering the most Appropriate method, FAR Analysis, degree of comparability existing between the specified domestic transaction and the uncontrolled transaction and between the enterprises entering into such transactions etc as per Rule 10C. 9) The Ld. CIT(A) has erred in law and on facts in following the Hon'ble Supreme Court's view that market value should be the rate at which the State Electricity Board supplies power to consumers, without noting that in AY 2001-02, power generating units did not have an option to sell power to third parties until 2003 and hence what can be regarded as market price shall be the price at which the Government electricity generation and distribution unit sells it to a regular customer. However, the assessment year under consideration in the present case is A.Y. 2017- 18 by which date, the power generating units are allowed to sell power in the open market as enabled by Central Electricity Act, 2003. 10) The Ld. CIT(A) has erred in law and on facts in not following the decision of the Hon'ble ITAT, Hyderabad in M/s. Sanghi Industries Ltd., where it was held that section 92BA applicability is independent of the deduction claim u/s 801A, upholding the SDT adjustment proposed by the TPO. 11) The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the Hon'ble ITAT decision in the AY:2016-17 in the assessee's

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 4 :: own case was not accepted by the Department and further appeal was filed. B. Grounds of Appeal on Disallowance u/s 40(a)(i) of Rs. 4,45,31,539/- for Non-Deduction of Tax on Foreign Commission. 12) The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s 40(a)(i) of Rs. 4,45,31,539/- on export commission paid to foreign agents without TDS, by wrongly holding that such payments are not subject to tax in India in the absence of a PE. 13) The Ld. CIT(A) has erred in law and on facts in ignoring the amendments by the Finance Act, 2012 to section 9(1)(i), inserting Explanations 4, 5, and 6 retrospectively from 01-04-1962, which clarify that 'business connection includes activities through agents procuring orders, applicable to the remittances made in FY 2016-17 (prior to which the amendment was in force). 14) The Ld. CIT(A) has erred in law and on facts in deleting the disallowance without noting that the economic nexus with India through order procurement establishes taxability, and TDS is mandatory where income is chargeable. 3. Brief facts of the case: The assessee is engaged in the business of manufacture of paper, power, energy and cement. It filed its return of income for AY 2017-18 declaring a loss of Rs.572.55 crore. The assessment was completed u/s. 143(3) read with sections 144C(3) and 144B of the Income Tax Act on 23.04.2021. The Assessing Officer (AO), following the order of the Transfer Pricing Officer (TPO), made a transfer pricing adjustment of Rs.45,98,11,450/- in respect of inter-unit transfer of power from the assessee's captive power generating units to its paper manufacturing division, treating the arm's length price (ALP) at Rs.5.05 per unit instead of Rs.6.35 per unit adopted by the assessee. Corresponding adjustment was also made while computing book profit u/s. 115JB.

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 5 ::

3.1 The AO further disallowed export commission of Rs.4,45,31,539/- paid to foreign agents u/s. 40(a)(i) on the ground that tax was not deducted at source u/s. 195, and also made a corresponding adjustment u/s. 115JB.

4.

The ld.CIT(A) deleted the TP adjustment holding that no deduction u/s. 80-IA had been claimed due to the returned loss and, on merits, held that the market value should be the rate charged by TANGEDCO to consumers, following the Tribunal's order in the assessee's own case for AY 2016-17 [ITA No.47/Chny/2022 dated 30.11.2023] and the decision of the Hon'ble Supreme Court in CIT v. Jindal Steel & Power Ltd. The ld.CIT(A) also deleted the disallowance u/s. 40(a)(i) following the jurisdictional High Court's decision in the assessee's own case. The Revenue is in appeal before the Tribunal.

5.

The ld. Authorised Representative (AR) submitted that the assessee had not claimed deduction u/s. 80-IA for AY 2017-18 as it had incurred substantial losses therefore, no occasion arose for determining the eligible profits u/s. 80-IA or making any TP adjustment. He further submitted that the TPO himself had observed that the deduction u/s. 80-IA was not allowable in view of the returned loss and had proposed the adjustment only on a protective basis. Without prejudice, he submitted that the correct market value of electricity transferred for captive consumption is the tariff at which TANGEDCO supplies electricity to industrial consumers, namely Rs.6.35 per unit, as held by the Tribunal in the

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 6 :: assessee's own case for AY 2016-17 and affirmed by the Hon'ble Supreme Court in CIT v. Jindal Steel & Power Ltd. The ld.AR submitted that export commission paid to foreign agents was for procuring export orders outside India. The agents had no PE or business connection in India and the services were rendered entirely outside India. Therefore, the payments were not chargeable to tax in India and no tax was deductible u/s. 195. He stated that the issue stood concluded in favour of the assessee by the judgment of the Hon'ble Madras High Court in the assessee's own case. The adjustments made u/s. 115JB had already been rectified by the AO u/s. 154.

6.

The ld. Departmental Representative (DR) supported the assessment order and contended that the ld.CIT(A) erred in deleting the TP adjustment merely because no deduction u/s. 80-IA was claimed, as the TPO had rightly determined the ALP on a protective basis. He further pleaded that the ld.CIT(A) wrongly relied upon the Tribunal's order for AY 2016-17, which had not been accepted by the Department and was under challenge. He also stated that the decision of the Hon'ble Supreme Court in Jindal Steel & Power Ltd. pertained to an earlier assessment year and did not consider the transfer pricing provisions governing specified domestic transactions introduced by the Finance Act, 2012. The open market price should be determined applying Rule 10C and transfer pricing principles, and not merely by adopting the consumer tariff charged by TANGEDCO. He furthermore, stated that the ld.CIT(A) erred in deleting the disallowance u/s.40(a)(i), as the retrospective amendments to section 9(1)(i) introduced by the Finance Act, 2012 brought such commission payments within the ambit of business connection,

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 7 :: making the income chargeable to tax in India and requiring deduction of tax at source.

7.

After considering the rival submissions and examining the material available on record, the we find that the ld.CIT(A) has correctly appreciated both the facts and the applicable legal position. As regards the transfer pricing adjustment, it is an undisputed fact that the assessee had returned substantial losses during the year and had not claimed deduction u/s. 80-IA. The TPO himself recorded that the question of allowability of deduction u/s. 80-IA did not arise in the relevant assessment year and quantified the adjustment only as a protective measure. Once no deduction u/s. 80-IA was claimed, there was no occasion to make any adjustment under the normal provisions. Even otherwise, the issue regarding determination of market value of electricity transferred for captive consumption stands concluded in favour of the assessee by the decision of the Tribunal in the assessee's own case for AY 2016- 17 (supra), which in turn follows the law laid down by the Hon'ble Supreme Court in CIT v. Jindal Steel & Power Ltd. holding that the market value is the rate at which electricity is supplied to consumers by the distribution company. Accordingly, the order of the ld.CIT(A) deleting the TP adjustment of Rs.45,98,11,450/- is upheld.

8.

In respect of the disallowance u/s. 40(a)(i), the we find that the commission was paid to non-resident agents for procuring export orders outside India. The foreign agents had no permanent establishment in India and no part of the services was rendered in India. The issue is squarely covered by the judgment of the Hon'ble Madras High Court in the assessee's own case (Sr.No.8,9 & 10 of

ITA No 1280/Chny/2026 (AY 2017-18) Dy. CIT (v) Tamil Nadu News Print & Papers Ltd :: 8 :: paper book) holding that such commission is not chargeable to tax in India and consequently no tax is deductible u/s. 195. Therefore, the disallowance u/s. 40(a)(i) was rightly deleted by the ld.CIT(A). The grounds relating to adjustments u/s. 115JB do not survive for adjudication in view of the rectification order passed by the AO u/s. 154. Accordingly, finding no infirmity in the order of the ld.CIT(A), the appeal filed by the Revenue is dismissed. 9. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on the 21st day of July 2026 in Chennai.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद)या/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER Digitally signed चे�नई/Chennai, SANDEE *दनांक/Dated: 21st July, 2026. by SANDEEP SNDP, Sr. PS KUMAR P KUMAR आदेश क� �त+ल,प अ-े,षत/Copy to: Date: 2026.07.22 1. अपीलाथ�/Appellant 13:54:03 +05'30' 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

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