INDUSTRIAL ENERGY LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH: MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1052/Mum/2026 (Assessment Year: 2022-23)

Industrial Energy Limited Deputy Commissioner of Corporate Center, Block B, 34 Income Tax, Circle 6(1)(2) Sant Tukaram Road, Mumbai, vs. Aayakar Bhavan, MK Road, Maharashtra – 400009. Mumbai - 400020

PAN: AABCI6735N (Appellant) (Respondent) For Assessee : Shri Yogesh Thar & Ms. Ishita Desai For Revenue : Shri Bhagirath Ramawat (Sr.DR) Date of Hearing : 06.04.2026 Date of Pronouncement : 03.07.2026 O R D E R PER VIKRAM SINGH YADAV, A.M :

This is an appeal filed by the Assessee against the order of the Assessing Officer passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 [‘the Act’], dated 21.11.2025, pertaining to Assessment Year (AY) 2022-23, wherein the grounds of appeal reads as under:

“On the facts and circumstances of its case and the law prevailing on the subject, the learned Dispute Resolution Panel -I, Mumbai (“DRP”) has erred in passing directions under section 144C(5) of the Act , confirming the addition of the transfer pricing adjustment as per order u/s 92CA(3) of the Act to the computation of book profit under section 115JB of the Act in the draft assessment order dated 04 March 2025. The Ld.AO has accordingly erred in

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited passing the impugned final assessment order dated 21 November 2025 under section 143(3) r.w.s 144C(13) r.w.s 144B of the Act. Being aggrieved by the assessment order dated 21 November 2025, the Appellant has preferred this appeal. 1. Ground 1 - Addition of downward adjustment of specified domestic transactions as per order u/s 92CA(3) of the Act to the computation of book profit u/s 115JB of the Act – Rs. 15,96,13,662/-. 1.1. On the facts and circumstances of the case and in law, the Ld. AO and learned DRP has erred in adding the downward adjustment of specified domestic transactions in relation to the depreciation recovered by the Assessee from its Associated Enterprise (‘AE’) as per order u/s 92CA(3) amounting to Rs. 15,96,13,662/- while computing the ‘Book Profit’ for the purpose of section 115JB of the Act. 1.2. On the facts and circumstances of the case and in law, the Ld. AO and learned DRP has erred in not considering the fact that there is no specific provision under Explanation to section 115JB(2) of the Act to add back the adjustment of specified domestic transactions as per order u/s 92CA(3) of the Act to the book profit computed as per section 115JB of the Act. 1.3. The Appellant submits that the Ld. AO be directed to delete the addition so made to the book profit u/s. 115JB of the Act and thereafter compute its total income and tax thereon accordingly.” 2. Briefly, the facts of the case are that the assessee filed its return of income declaring total income of Rs. 28,54,56,540/- and book profit of Rs.1,53,13,18,425/-. The return was processed u/s. 143(1). Subsequently, the case was selected for complete scrutiny to examine inter-alia specified domestic transactions and during the course of assessment proceedings, a reference u/s. 92CA(1) was made to the Transfer Pricing Officer (‘TPO’) for determination of Arm's Length Price in respect of specified domestic transactions entered into by the assessee with its associated enterprises as reported in Form 3CEB and the details thereof reads as under:

Sr. No. Nature of Transaction Amount Method 1. Availing of CSA services 12,26,57,883 TNMM and other services 2. Payment of Raw Water 11,96,12,646 TNMM

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited Charges 3. Sale of Power 250,04,93,481 TNMM Total 274,27,64,010

“7.1 After rejecting all the arguments of the assessee in response to the SCN, this office has proceeded to determine the ALP of the said SDT of 'conversion charges' for sale of power to AE on the basis of the material / information / document available on record. It is seen that methods like CUP, RPM, CPM and profit-based method like PSM cannot be reliably applied to establish the arm's length value of these SDTs. Even in assessee's TPSR, they have rejected the applicability of CUP, RPM, CPM, PSM as MAM for the purpose of benchmarking analysis. Further, considering the peculiarity of the power industry and the fact that use of TNMM has already being rejected for reasons mentioned in Para 9.4, TNMM is also not considered as MAM. For power generating units, the regulatory bodies determine the selling price of power. The pricing mechanism mentioned in JSERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 is adopted for benchmarking the transaction using Other Method as required u/s 92C(2) of the Income Tax Act read with Rule 10B(1)(b) of Income Tax Rules. 7.2 As per the regulatory norms specified by JSERC Tariff Regulations, 2015, the depreciation is to be charged at the rate of 5.28%, whereas the Assessee has charged depreciation at the rate of 7.84%. Thus, from the above discussion it can be inferred that you have recovered higher depreciation charge as part of conversion charges from your AE. 7.3 Accordingly, the allowable depreciation recovery as per regulatory norms is calculated as follows: Sr. No. Unit Depreciation Depreciation Difference recovered @ 7.84% allowable @ as seen in the 5.28% invoices) 1. Unit 5 Rs. 49,87,18,788 Rs. 35,20,36,792 Rs. 14,66,81,996 2. Unit 6 Rs. 4,39,67,666 Rs. 3,10,36,000 Rs. 1,29,31,666 Adjustment Rs. 15,96,13,662

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited Therefore, using 'Other method' as MAM, a downward adjustment of Rs. 15,96,13,662 is made to the SDT of Sale of Power to AE for the purpose of claim of deduction.”

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited fundamentally flawed and should be rejected. It was held by the DRP that the Hon'ble Supreme Court decision in case of Apollo Tyres Ltd. (supra) which the assessee relies heavily is conditional as it holds that the AO must accept the net profit from a profit and loss account that is prepared in accordance with the Accounting Act and a fundamental requirement of the Companies Act and associated Accounting Standards is that the financial statements must present a true and fair view of the company's affairs. In this case, the TPO has given a specific finding that the assessee recovered excess depreciation from its associated enterprises, wherein, the assessee charged 7.84% while the Arm's Length Rate as per the applicable JSERC regulatory norms was 5.28% which has resulted in assessee’s revenue being artificially inflated by a sum of Rs. 15,96,13,662/-. It was held by the DRP that a profit and loss account that reflects inflated Non- Arm's Length Revenue from a related party fails the true and fair view test and therefore, the profit shown in such an account is not the true profit. Therefore, the very starting point for Section 115JB computation is defective and the Hon'ble Supreme Court decision in case of Apollo Tyres Ltd. (supra) does not protect a profit and loss account that is ab initio incorrect and non-compliant with the true and fair principle.

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited determined the correct Arm's Length Revenue that the assessee should have booked and the AO's action following the TPO order is not an addition to a valid profit but a correction of the defective profit to align it with the statutory mandate of Section 92 of the Act.

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited 10. Following the directions of the DRP, the AO passed the final assessment order u/s. 143(3) read with 144C(13) read with 144B vide order dated 21.11.2025, wherein, the assessed book profit u/s. 115JB were determined at Rs. 1,69,09,32,087/- and the against the said order and the findings of the Assessing Officer, pursuant to the directions of the DRP, the assessee is in appeal before us.

a. Owens Corning (India) (P.) Ltd. v. DCIT [2016] 70 taxmann.com 395 (Mumbai - Trib.) b. Himadri Chemicals & Industries Ltd. v. PCIT [ITA No.819/Kol/2017] c. Nomura Research Institute Financial Tech (I)(P.) Ltd. v. DCIT [2019] 101 taxmann.com 4 (Kolkata - Trib.) d. GTS e-Services (P.) Ltd. v. ITO [2019] 108 taxmann.com 604 (Mumbai Trib.) e. SSP India (P) Ltd. v. DCIT [ITA No. 388/Del/2016] f. Normura Research Institute Financial Technologies India (P.) Ltd. v. ACIT [2023] 152 taxmann.com 352 (Kolkata - Trib.) g. Innovative Textiles Ltd. v. DCIT [2025] 178 taxmann.com 669 (Delhi-Trib.)

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited reduced by the transfer pricing addition without affecting the gross total income. In this regard, our reference was drawn to the audited financial statements and it was submitted that the income by way of tolling charges for generation of power charge from the domestic and associated enterprises namely Tata Steel Ltd is Rs. 2,50,04,93,481/- which has also been accepted by the TPO as per its order. It was submitted that it is this income which includes charges towards recovery of depreciation at the rate of 7.84% and which the TPO contends that it should not exceed 5.28%. Consequently, the TPO had made an addition of the differential amount of depreciation which is referred to as downward adjustment, whereby, the deduction u/s. 80-IA has been reduced. It was submitted that as against the aforesaid revenues of Rs. 250.05 crores as per the TPO order, the aggregate revenue credited in the books of accounts amounted to Rs.294.79 crores, for the reason that the balance revenues amounting to Rs. 44.75 crores do not qualify for deduction u/s. 80-IA being the revenues in respect of certain non-eligible power plants. It was accordingly submitted that since these revenues are already included in the declared profit any further addition on account of transfer pricing adjustment would amount to double accounting of the same profit which anyway is not legal. It was accordingly submitted that the addition so made to the book profits u/s. 115JB on account of downward adjustment done by the TPO should be directed to be deleted.

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited which the assessee has claimed deduction u/s. 80IA of the Act. The transaction thus qualifies as a specified domestic transaction between two associated enterprises requiring adherence to arm’s length principle. During the course of assessment proceedings, the matter was referred to the TPO to examine the said transaction and on examination/verification, the TPO suggested a downward adjustment of Rs. 15,96,13,662/- in respect of the said transaction for the purposes of claim of deduction u/s 80IA of the Act. In other words, the quantum of deduction claimed by the assessee u/s 80IA was held to be on higher side and the same was brought down by the TPO to the extent of Rs 15,96,13,662/-. The AO thereafter taking into consideration the findings of the TPO passed the draft assessment order wherein addition of Rs. 15,96,13,662/- was made to the income of the assessee computed under the normal provisions of the Act, thus, effectively reducing the quantum of deduction so claimed by the assessee. The same is not disputed by the assessee.

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited is not in consonance with the proposed adjustment so suggested by the TPO. The AO has wrongly made the adjustment to the books profits for the purposes of section 115JB and that too, increasing the quantum of book profits unlike downward adjustment so suggested by TPO. Secondly, the whole of the book profits as per profit/loss account, including the profits eligible for claim of deduction u/s 80IA, are considered as part of the book profits for the purposes of determination of book profits u/s 115JB of the Act. The assessee has not reduced or sought any adjustment to the books profits to the extent of the profits eligible for claim of deduction u/s 80IA and in such a scenario, where the quantum of profits eligible for deduction u/s 80IA underwent a change, the same will have no effect on the overall book profits offered for the purposes of section 115JB of the Act. The financial statements of the assessee company are audited and the auditors in their report have given their opinion that the financial statements give the information required by the Companies Act, 2013, as amended in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the assessee company as at 31/03/2022, its profits including other comprehensive income, its cash flows and the changes in the equity for the year ended on that date. The profit/loss account has thus been prepared in accordance with Schedule III to the Companies Act, 2013 and which has been certified by the statutory auditors of the assessee company and there is no adverse finding recorded by the auditors who have audited the assessee’s financial statements. Further, we find that the adjustment so done by the AO is not falling under any of the specified adjustments so authorized in terms of explanation (1) to sub- section (2) to Section 115JB of the Act.

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited 17. Similar finding has been recorded by the Coordinate Bench in case of Cash Edge India (P) Ltd (supra) and the relevant findings therein read as under:

“36. We have considered the rival submissions and perused the material on record. It is settled law that except for adjustments provided in Explanation 1 Section 115JB(2) of the Act, no other adjustment can be made to book profits under Section 115JB of the Act. We find that that transfer pricing adjustment is not one of the adjustments contemplated under Explanation 1 Section 115JB(2) of the Act and, therefore, could not have been added back to the book profits under Section 115JB. 37. The case-law relied upon by the Ld. Sr. DR i.e. decision of the Special Bench in the case of the Tribunal in Rain Commodities (supra) does not also advance the case of the Revenue. In that case the Special Bench was considering whether the AO can alter the net profits declared by an assessee. The Special Bench has, following the decision the apex Court in Apollo Tyres and HCL Comnet (supra), inter alia, held that the AO cannot travel beyond the net profits declared by the assessee unless (a) it is discovered that profit and loss account is not drawn up in accordance with Part II and Part III of Schedule VI of the Companies Act, or (b) the incorrect accounting policies, accounting standards have been adopted for preparing such accounts and the method/rate of depreciation has been incorrectly adopted for preparation of profit and loss account. 38. In the present case there is no allegation is the assessment order much less any finding that either that profit and loss account has not been drawn up in accordance with Part II and Part III of Schedule VI of the Companies Act, or that any incorrect accounting policies, accounting standards has been adopted for preparing such accounts or that the method/rate of depreciation has been incorrectly adopted for preparation of profit and loss account. 39. In view of aforesaid, we hold that the AO erred in adding back the transfer pricing adjustment of the book profits under Section 115JB of the Act. Accordingly, this ground of the appeal raised by the assessee is allowed and the AO is directed to exclude the transfer pricing adjustment, if such adjustment survives, from the book profits computed under Section 115JB of the Act.” 18. In light of the aforesaid discussion, we are of the considered view that the transfer pricing adjustment, in respect of specified domestic transactions for the purposes of claim of deduction u/s 80IA, cannot be made for the purposes of computation of book profits u/s 115JB of the

ITA No. 1052/Mum/2026; A.Y. 2022-23 Industrial Energy Limited Act. The action of the AO and directions of the DRP in this regard are hereby set-aside and the AO is directly to exclude such adjustment so made by him in computation of book profits u/s 115JB of the Act.

Sd/- Sd/- RAHUL CHAUDHARY VIKRAM SINGH YADAV (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)

Mumbai, Dated: 03.07.2026 Karishma J. Pawar, SR. PS

Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file

By Order

Dy./Asst. Registrar I.T.A.T, Mumbai