M/S. JSW ENERGY(BARMER)LIMITED,MUMBAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE 8(3), MUMBAI, MUMBAI

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ITA 6472/MUM/2024Status: DisposedITAT Mumbai20 July 2026AY 2021-2210 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the AO and Transfer Pricing Officer (TPO) had not properly examined independent transactions and had relied on inappropriate methods. The matter was remitted back to the AO/TPO to re-analyze the transfer pricing adjustment using the Comparable Uncontrolled Price (CUP) method.

What were the facts?

The assessee, engaged in power generation, purchased goods and services from associated enterprises. The Assessing Officer (AO) made an upward transfer pricing adjustment of Rs. 5,54,94,088 on these purchases, disallowing a corresponding deduction claimed under Section 80-IA.

What were the issues?

Whether the transfer pricing adjustment made on purchases from associated enterprises was valid, and if it correctly impacted the deduction under Section 80-IA. The validity of the method used by the TPO for determining the arm's length price was also in question.

Which sections of the Income-tax Act were involved?

Section 80-IA,Section 92CA,Section 143(3),Section 144C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “K” BENCH MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH MUMBAI MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER ITA No. 6472/Mum/2024 (A.Y.2021-22) M/s JSW Energy (Barmer) The Assistant Commissioner of Limited, Income Tax, 2nd Floor, JSW Centre, Central Circle-8(3), Bandra-Kurla Complex, v/s Mumbai Bandra East, Mumbai – 400 051, Maharashtra. PAN: AAGCM3977M Appellant Respondent Shri Gaurav Kabra Assessee by Department by Sh. Bhagirath Ramawat, Sr. DR Date of Hearing 20-04-2026 20-07-2026 Date of Pronouncement ORDER Per Kavitha Rajagopal, J M: This appeal is filed by the assessee challenging the final assessment order passed by the Ld. A.O. u/s 143(3) r.w. 144C (13) of the Income Tax Act, 1961 ('Act' for short) dated 23.10.2024.

2.

The assessee has challenged the present appeal on the following ground:- “On the facts and circumstances of the case as well as in law, the Hon’ble Dispute Resolution Panel, has erred in confirming the action of the Learned Assessing Officer in making an upward adjustment of Rs.5,54,94,088/- on account of alleged transaction of purchase of goods/services from the Associate Enterprises and thereby disallowing the deduction of

2 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT Rs.5,54,94,088/- claimed u/s 80IA of the Income Tax Act, 1961 without considering the facts and circumstances of the case.” 3. The assessee, JSW Energy (Barmer) Limited, is a resident company engaged in the business of generation of power, transmission and sale of power which is an integrated power generation company in India with operations in various States, viz., Karnataka, Maharashtra, Rajasthan and Himachal Pradesh. For the Assessment Year 2021-22, the assessee filed its return of income under section 139(1) dated 23.02.2022, declaring a total income of ₹29,35,68,790 under the normal provisions and book profit of ₹512,24,33,646 under section 115JB. The return was processed under section 143(1) and was subsequently selected for complete scrutiny under CASS. A notice under section 143(2) dated 27.06.2022 was issued, followed by notices under section 142(1) along with questionnaires seeking various details. The assessee furnished the return of income, audit report, financial statements and other information called for during the course of assessment proceeding

4.

It was observed that the assessee had entered into certain specified domestic transaction with its associated enterprises (‘AEs’, for short) and one of the CASS reasons relates to large specified domestic transaction having “TP Risk Parameters.” The Ld. Assessing Officer (‘Ld. AO’, for short) made a reference under section 92CA(1) of the Act to the Transfer Pricing Officer (‘the Ld. TPO’, for short).

3 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT 5. The Ld. TPO, by order dated 29.10.2023 passed under section 92CA(3) of the Act made an upward transfer pricing adjustment of ₹5,54,94,088 in respect of purchases of goods and services from associated enterprises, which adjustment was specifically made for the purpose of computing deductions under Section 80-IA of the Act for the Financial Year 2019-20 relevant to Assessment Year 2020-21. Based on the TPO’s order, the Assessing Officer passed a draft assessment order under sections 143(3) read with 144C(1) of the Act on 22.12.2023, incorporating the transfer pricing adjustment. The assessee filed objections before the Hon’ble Dispute Resolution Panel (‘the Ld. DRP’, in short) on 19.01.2024. The Hon’ble DRP issued directions under section 144C(5) of the Act on 19.09.2024, and thereafter the Ld. TPO/AO passed the final assessment order dated 23.10.2024 giving effect to the DRP directions, wherein no modification was made to the transfer pricing adjustment and the Ld. AO upheld the disallowance of deduction under section 80-IA of the Act amounting to ₹5,54,94,088/-. Consequent to the adjustment, the Ld.AO also initiated penalty proceedings under section 270A of the Act for alleged under-reporting of income.

6.

Aggrieved, the assessee is in appeal before us challenging the impugned order passed by the Ld. AO.

7.

Before us, the assessee submitted that the Ld. TPO erred in disregarding the transfer pricing documentation and benchmarking analysis furnished in respect of

4 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT the specified domestic transactions involving purchase of steel, stores and spares, hand sanitizers, and availing of ash-handling and other services from Associated Enterprises. It was contended that the transactions were undertaken strictly in accordance with the provisions of Chapter X of the Act and were at arm’s length. Further, the assessee explained that the eligible generating units claimed deduction under section 80-IA of the Act and that all procurements were made through a transparent competitive bidding process where quotations were invited from both independent vendors and Associated Enterprises, the bids were evaluated on commercial considerations, negotiations were carried out wherever necessary, and the purchase orders were awarded to the vendor offering the most competitive price. Thus, the assessee contended that the procurement policy was driven solely by commercial expediency and cost efficiency, as would be expected of any prudent businessman.

8.

The Ld. AR for the assessee argued that the TPO’s adjustment was fundamentally misconceived because it was based on the premise that the assessee had procured goods and services from its Associated Enterprises at prices lower than those quoted by independent suppliers. The ld. AR further contended that procurement at a lower price cannot constitute a transfer pricing violation; rather, it demonstrates that the transactions were commercially advantageous and consistent with arm’s length principles. The Ld. AR argued that the TPO had failed to

5 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT identify any instance where the assessee paid an excessive price or conferred any undue benefit upon its Associated Enterprises.

9.

The Ld. AR further contended that section 80-IA(10) of the Act can be invoked only where, owing to the close connection between the parties or the arrangement of the business, the eligible undertaking earns more than ordinary profits and that the Revenue had neither established the existence of any arrangement to inflate profits nor demonstrated that the profits earned by the eligible undertaking exceeded ordinary commercial profits. The ld. AR stated that mere procurement of inputs at competitive or lower prices does not satisfy the statutory requirements of section 80-IA(10). It was also submitted that the Ld. TPO had substituted his own perception of what the purchase price ought to have been without applying any recognized transfer pricing methodology or producing reliable comparable data. Such an approach was contrary to the scheme of Chapter X and ignored the commercial realities of the transactions. The Ld. AR also without prejudice argued that the proposed adjustment was entirely revenue- neutral. Even assuming that the purchase prices were enhanced as suggested by the TPO, the corresponding increase in expenditure would merely reduce the profits of the eligible undertaking, without resulting in any real tax avoidance. In this context, reliance was placed upon the observations of the Hon’ble Apex Court in Glaxo SmithKline Asia (P.) Ltd., SLP (C) No.18121/2007 wherein it was recognized that transfer pricing provisions are intended to address cases involving

6 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT profit shifting and loss of revenue, and that revenue-neutral transactions ordinarily do not warrant transfer pricing adjustments.

10.

The Ld. AR relied on the order of the Coordinate Bench in case of the assessee for AY 2020-21 in ITA No.3713/Mum/2024, order dated 26.03.2025, where on identical facts the matter was remanded back to the Ld. AO/TPO for analysing the Transfer Pricing Adjustment using CUP Method by considering the data of the independent transactions. The Ld. DR, on the other hand, controverted the said fact and stated that in the present facts of the case the assessee has earned more than ordinary profits by purchasing steel at a lower cost from its AEs as compared to those offered by comparable independent third parties where the assessee has increased its profits and had claimed deductions on the said profits as per Section 80-IA of the Act. The ld. DR further contended that the assessee has been enjoying tax holiday and, hence, it shows higher profits and has also been claiming deductions which would amount to double benefits to the assessee. The Ld. DR has also stated that the assessee has benchmarked its transactions by using ‘other methods’ and alternatively it had benchmarked its transactions under TNMM as per its TPSR. The Ld. DR concluded that the assessee has earned higher profits in its tax holiday units and it cannot be claimed that the said transaction is tax neutral. The Ld. DR relied on the order of the lower authorities.

7 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT 11. We have heard the rival submissions and perused the material available on record. It is observed that the assessee operates eight numbers of power plants which comprises of 135 MW each producing 1008 MW power by using lignite as its fuel. The assessee had claimed tax exemption benefits in respect of the eight power generating units under Section 80IA of the Act for which the assessee had purchased steel from its AE for maintenance of these power plants. The assessee had benchmarked the specified domestic transaction by a comparison chart comparing prices of AEs by benchmarking the same using ‘other methods’ using quotations from independent third parties. The assessee’s contention is that it had accepted the lowest quotations from its AEs for purchasing steel instead of purchasing the same from independent parties. The Revenue’s allegation is that the assessee had inflated its profit resulting in higher deduction under Section 80IA of the Act. It is observed that the Tribunal in assessee’s own case for the earlier year relevant to AY 2020-21 had dealt with this issue and held that since the assessee was unable to substantiate why it had purchased goods from its AEs at a price lower than an independent party for which the Ld. TPO has also not examined the price of the independent parties with whom the assessee had also purchased steel, thereby directing the Ld. TPO to apply CUP method for determination of the ALP by not merely relying on the data provided by the assessee using the ‘other method.’ The relevant extract of the said decision is cited hereinunder for ease of reference:-

8 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT “21. We have heard rival submissions of the parties and perused the relevant materials on record steel made from the associated enterprises quotation from third party way of reducing purchase which is exempted u/s 80IA of the Act and therefore, upward adjustment had been made on the basis of the data of the quotations received from the other parties. The purpose behind transferring the goods from the related party to the assessee is for increasing the profit in the hands of the entity i.e. the assessee which is tax exempt. The assessee has not able to controvert as why the goods have been transferred quoted by the independent party. not examined the vera should have examined the independent steel purchase transactions actually happened during the relevant period between inde parties and therefore, after applying the CUP price/ adjustment should data provided by the assessee using the other method. Therefore, ITA Nos. 3714 & 3713/MUM/2024 mandate of Section 80-IA (10), the transaction price for an entity enjoying tax holiday should be the arm's length price. Also since only one unit is enjoying tax holiday, any sale by the eligible unit at a price lower than the arm's length price would decrease its profit and consequently its profit. Thus it is not tax neutral. In the considered view of the panel, the Ld. TPO has taken the right recourse in determining the ALP and making the adjustment.” We have heard rival submissions of the parties and perused the relevant materials on record. In the case the purchase of the steel made from the associated enterprises is below the independent quotation from third party. The Ld. AO and TPO observed that purchase price, the assessee has increased which is exempted u/s 80IA of the Act and therefore, upward adjustment had been made on the basis of the data of the quotations received from the other parties. The purpose behind ferring the goods from the related party to the assessee is for increasing the profit in the hands of the entity i.e. the assessee which is tax exempt. The assessee has not able to controvert as why the goods have been transferred at price lower than the p quoted by the independent party. But we find that the not examined the veracity of the independent parties should have examined the independent steel purchase transactions actually happened during the relevant period between inde parties and therefore, after applying the CUP method, arms length adjustment should have worked out rather than relying data provided by the assessee using the other method. Therefore, JSW Energy Ltd56ITA Nos. 3714 & 3713/MUM/2024IA (10), the transaction price for an entity enjoying tax holiday should be the arm's length price. Also since only one unit is enjoying tax holiday, any sale by the ower than the arm's length price would decrease its profit and consequently its profit. Thus it is In the considered view of the panel, the Ld. TPO has taken the right recourse in determining the ALP and making the We have heard rival submissions of the parties and perused . In the case the purchase of the below the independent observed that by price, the assessee has increased profit which is exempted u/s 80IA of the Act and therefore, upward adjustment had been made on the basis of the data of the quotations received from the other parties. The purpose behind ferring the goods from the related party to the assessee is for increasing the profit in the

9 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT hands of the entity i.e. the assessee which is tax exempt. The assessee has not able to controvert as why price lower than the price we find that the ld TPO has city of the independent parties as the TPO should have examined the independent steel purchase transactions actually happened during the relevant period between independent method, arms length have worked out rather than relying on data provided by the assessee using the other method. Therefore the approach of the AO and the TPO which has been uph Ld. DRP is fallacious and not reliable and accordingly the finding of the Assessing Officer and restore the matter back to the AO/TPO for analyzing the transfer pricing adjustment using the CUP method by way of quoting data of the transactions for the sale of steel during relevant period. The ground Nos. 1 and 2 of the appeal of the assessee are accordingly allowed for statistical purposes.

12.

The Tribunal had remitted this issue back to the Ld. AO/TPO for analysing the transfer pricing adjustment using CUP Method by quoting data of the independent transactions for sale of steel. As the facts are identical, with no change in circumstances being brought by either sides, we deem it fit to restore this issue back to the Ld. AO/TPO with similar direction as per the principles of consistency. Needless it is to say, sufficient opportunity of hearing is to be accorded to the assessee. Hence, the ground of appeal raised by the assessee is hereby allowed for statistical purposes.

13.

In the result, the appeal filed by the assessee is allowed for statistical purposes. The following order is pronounced on 20/07/2026 as per Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.

Sd/- Sd/- (JAGADISH) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 20/07/2026

10 ITA No. 6472/mum/ 2024 Ms JSW Energy (Barmer) Limited, Mumbai vs. ACIT dk

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. Dr, ITAT, Mumbai 5. Guard File. BY ORDER, //True COPY// (Assistant Registrar) ITAT, Mumbai

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