ACIT-6(1)(1), MUMBAI, MUMBAI vs. CG POWER AND INDUSTRIAL SOLUTIONS LIMITED (FORMERLY KNOWN AS CROMPTON GREAVES LIMITED), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No.5214/Mum/2025 (Assessment year: 2012-13) CO No.283/Mum/2025 (Assessment year: 2011-12) CO No.284/Mum/2025 (Assessment year: 2014-15) CO No.285/Mum/2025 (Assessment year: 2013-14)

CG Power And Industrial vs ACIT -6(1)(1), Mumbai Solutions Ltd. (Formerly Room No.504, 5th Floor, Aayakar Known as Crompton Greaves Bhavan, M.K. Road, Mumbai- Ltd) 400020 6th Floor, CG House, Dr. Annie Besant Road Worli, Mumbai- 400030 PAN:AAACC3840K APPELLANT RESPONDENT ITA No.5416/Mum/2025 (Assessment year: 2011-12) ITA No.5417/Mum/2025 (Assessment year: 2012-13) ITA No.5461/Mum/2025 (Assessment year: 2013-14) ITA No.5462/Mum/2025 (Assessment year: 2014-15)

ACIT -6(1)(1), Mumbai vs CG Power And Industrial Solutions Room No.504, 5th Floor, Ltd. (Formerly Known as Aayakar Bhavan, M.K. Road, Crompton Greaves Ltd) Mumbai-400020 6th Floor, CG House, Dr. Annie Besant Road Worli, Mumbai- 400030 PAN: AAACC3840K APPELLANT RESPONDENT

2 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. Assessee by :Shri Dhanesh Bafna / Shri Hardik Nirmal /Ms. Hinal Shah Revenue by : Shri R.A. Dhyani, (CIT DR)

Date of hearing : 12/05/2026 Date of pronouncement : 04/06/2026 O R D E R Per Bench: The instant appeals of the revenue and cross appeal & cross objections of the assessee filed by the assessee against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Years 2011-12 to 2014-15, date of orders 09.06.2025. The impugned orders emanated from the order of the Ld. Deputy Commissioner Income Tax/Assistant Commissioner of Income Tax C.C.-6(1)(1) (for brevity the ‘Ld. AO’) order passed under section 143(3) of the Act date of order 30.03.2015, 22.03.2016, 26.12.2016 and 28.12.2016 for A.Y. 2011-12, A.Y. 2012- 13 A.Y. 2013-14 and A.Y. 2014-15 respectively.

3 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 3. ITA No. 5416/Mum/2025, A.Y. 2011-12 The revenue has taken the following grounds: “1) Whether, on the facts and in the circumstances of this case and in law, the learned CITIA) erred in reducing the disallowance made under Section 14A from Rs. 4,93,97,255 to Rs. 3,04,72,187. The CIT(A) failed to appreciate that the AO had correctly recorded dissatisfaction with the assessee's suomotu disallowance and was therefore mandated by law to apply the provisions of Rule 8D to compute the disallowance. 2) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) erred in accepting the assessee's revised disallowance calculation of Rs. 2,93,11,481. This calculation was not based on the statutory formula prescribed under Rule 8D, which is the only valid method for computing disallowance once the AO has recorded dissatisfaction. The CIT(A) failed to verify the reasonableness of the assessee's computation. 3) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) failed to appreciate that the assessee did not establish a one-to-one nexus between borrowed funds and their use for business purposes. Therefore, the AO's Invocation of Rule 8D(2)(ii) for indirect interest disallowance was justified and in accordance with established judicial precedents, including the Bombay High Court's ruling in Godrej & Boyce Mfg. Co. Ltd., which upheld the constitutional validity of Rule 8D. 4) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) failed to consider that disallowance under Section 14A is applicable even if no exempt income is earned in the year. The CITIA) overlooked the legislative intent clarified by the Finance Act, 2022, and CBDT Circulars, which state that Section 14A shall be deemed to have always applied, irrespective of whether exempt income has arisen. 5) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) erred in deleting the disallowance of Rs. 6,92,26,032 made under Section 80IC. The CITIA) failed to appreciate that the assessee claimed an excessive deduction by showing an abnormally high profit margin (28.04%) in its eligible units at Baddi, Himachal Pradesh, compared to its non- eligible units (14.66%) engaged in similar manufacturing activities. 6) Whether on facts the facts and in the circumstances of this case and in law, the learned CIT(A) failed to appreciate that the assessee did not allocate proportionate common corporate and R&D expenses to its eligible units. These expenses, incurred for the overall business, had a direct bearing on the profitability of all units. By not allocating these expenses, the assessee

4 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. artificially inflated the profits of the eligible units, leading to a higher deduction claim under Section 80IC. 7) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) erred by relying on the remand report without a critical examination of the facts. While the AO's remand report may not have contained adverse remarks on all explanations, it did not constitute an outright confirmation or acceptance of the assessee's unsubstantiated claims regarding the profitability difference. The CIT(A) should have independently assessed the veracity of the explanations furnished. 8) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) failed to appreciate that the assessee did not provide verifiable data to support its generalized explanations such as lower freight, excise exemption, and cheaper manpower in Himachal Pradesh. The burden of proving the correctness of the deduction claim rested with the assessee, which it failed to discharge.” 4. CO No.283/Mum/2025, AY 2011-12 The assessee has taken the following grounds: “Ground No. 1

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. Assessing Officer ('Ld. AO') in disallowing an amount of INR 3,04,72,187 under section 14A of the Income-tax Act, 1961 ('the Act') read with rules 8D of the Income-tax Rules, 1962 ('the Rules').

The Cross-objector prays that the disallowance under section 14A of the Act may be deleted or appropriately reduced.

The Cross-objector craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

5 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 5. ITA No.5417/Mum/2025, AY 2012-13 The revenue has taken the following grounds: “a) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) erred in reducing the disallowance under Section 14A read with Rule 8D from Rs. 5,72,25,874 to Rs. 3,53,51,651, as the Assessing Officer had correctly invoked Rule 8D after demonstrating his dissatisfaction with the assessee's own disallowance. The CIT(A) failed to appreciate that once the conditions for applying Rule 8D are met, the computation of disallowance must strictly follow the prescribed formula, not the assessee's revised calculation.

b) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) erred in deleting the disallowance of Rs. 9,34,68,996/- without considering the fact that the assessee claimed an excessive deduction by reporting an abnormally high profit margin in its eligible units. The CIT(A) did not address the AO's finding that the assessee failed to allocate a proportionate share of common corporate and R&D expenses to the eligible units, thereby inflating their profits and violating the arm's length principle required under the Act.

c) Whether, on the facts and in the circumstances of this case and in law, the learned CIT(A) erred in deleting the disallowance of Rs. 3,22,32, 195/-, overlooking the statutory requirement that a claim for weighted deduction under Section 35(2AB) is solely determined by the amount approved by the Department of Scientific and Industrial Research (DSIR) in Form 3CL. The AO was justified in restricting the deduction to the approved amount, and the CIT(A)'s finding regarding the effective date of the amendment is legally incorrect.”

6 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. Ground No.3: Disallowance under section 14A of the Act 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of the Ld. AO in disallowing an amount of INR 3,53,51,651 undersection 14A of the Act read with Rules 8D of the Income Tax Rules, 1962 ('the Rules'). Without prejudice to the above, the Ld. CIT(A) and the Ld. AO failed to appreciate that only those investments which have yielded dividend income ought to have been considered for the purpose of working disallowance under section 14A read with Rules 8D(2). Ground No.4: Addition of unreconciled income: 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in sustaining the addition of INR 29,14,965 on account of unreconciled receipt/income as reflected in AIR report without appreciating the fact that the said income was duly considered/offered to tax in earlier assessment years Ground No.5 5. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty under section 271(1)(c) of the Act.”

ITA No. 5416/Mum/2025, A.Y. 2011-12 (Revenue’s appeal) CO. 283/Mum/2025, A.Y. 2011-12 (Assessee’s CO) 7. The brief facts of the case are that the company Crompton Greaves Limited officially renamed itself from Crompton Greaves Limited to CG Power and Industrial Solutions Limited effective from 27-02-2017. The assessee filed original return of income for A.Y.2011-12 by declaring a total income of Rs.732,12,24,306/-. The assessee filed the revised return of income u/s 139(5) on wherein the total income was declared at Rs.695,04,26,486/-. The revised return was processed U/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice U/s. 143(2) was issued to the assessee. A reference was made to TPO for computation of Arm's Length Price (ALP) in relation to international transactions of the appellant. An order U/s. 92CA(3) was passed by the TPO, wherein no adjustment to ALP was suggested. The scrutiny assessment was

7 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. completed and order U/s. 143(3) dated 30.03.2015 was passed by Ld. AO assessing the total income at Rs.726,24,83,820/- by making following additions/disallowances Sr. No. Particulars Amount (Rs.) 1 Disallowance u/sec. 14A 4,93,97,255 2 Disallowance u/sec. 80IC(7) r.w.s. 80IA(8) 6,92,26,032 3 Disallowance of write back of liquidated damages 9,09,00,000 4 Addition for reversal of MTM loss of A.Y. 2010-11 claimed 10,25,34,050 as not taxable in revised return of A.Y. 2011-12

Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) partly sustained the disallowance made under section 14A of the Act and deleted the remaining additions. Aggrieved by the impugned appellate order, both the assessee and the revenue have preferred appeals before us. 8. The Ld. DR advanced arguments and filed written submissions on each ground of appeal. The relevant submissions are reproduced below:– “Brief Facts of the case: The company Crompton Greaves Limited officially renamed itself from Crompton Greaves Limited to CG Power and Industrial Solutions Limited effective from 27-02-2017. The assessee filed original return of income for A.Y.2011-12 on 30.9.2011 by declaring a total income of Rs.732, 12,24,306/-. The appellant filed the revised return of income u/s 139(5) on 30.03.2013 wherein the total income was declared at Rs.695,04,26,486/-. The revised return was processed U/s. 143(1) dated 23.10.2013. Subsequently, the case was selected for scrutiny and notice U/s. 143(2) was issued to the appellant. A reference was made to TPO for

8 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. computation of Arm's Length Price (ALP) in relation to international transactions of the appellant. An order U/s. 92CA (3) was passed by the TPO, wherein no adjustment to ALP was suggested. The scrutiny assessment was completed and order U/s. 143(3) dated 30.03.2015 was passed by AO assessing the total income at Rs.726,24,83,820/- by making following additions/disallowances Sr. No. Particulars Amount (Rs.) 1 Disallowance u/sec. 14A 4,93,97,255 2 Disallowance u/sec. 80IC(7) r.w.s. 80IA(8) 6,92,26,032 3 Disallowance of write back of liquidated damages 9,09,00,000 4 Addition for reversal of MTM loss of A.Y. 2010-11 claimed as 10,25,34,050 not taxable in revised return of A.Y. 2011-12 2. Aggrieved by the impugned order passed u/s. 143(3) the assessee preferred appeal before the Ld. CIT(A). 3. Ground no 1:- i. Your appellant company had filed a return of income declaring an income of Rs. 695,04,26,485/- as per the provisions of the Income Tax Act. ii. The Id.AO assessed the total income at Rs.726,24,83,822/-. Decision of the Ld. CITIA): The assessee company overall raised 6 ground of appeal before the Ld. CITIAL. Ground no 1 being general in nature was not adjudicated 4. by the Ld. CITIA). 5. Comments of AO The assessee has raised general grounds challenging the assessment of total income at Rs. 726,24,83,820/- as against the revised returned income of Rs.695,04,26,486/-, disputing the additions/disallowances made amounting to Rs.31,20,57,335/-. This ground is general in nature and pertains to the outcome of various specific additions/disallowances made in the course of assessment. As the specific issues related to the disallowances are addressed in separate grounds of appeal (Ground Nos. 2 to 6), no comments offered on Ground No. 1. The ground is therefore liable to be dismissed as being general and consequential in nature.

9 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 6. Ground No.2 1. During the financial year the Appellant Company has earned dividend income of Rs 1,32,59,580/- which is exempt u/s 10(34) of the Act and Rs. 18,98,07,208/- which is exempt u/s 10(35) of the Act. ii. Total Investments as per Balance Sheet dated 31.03.2011 was Rs.781.64 Crs. All these Investments are long term Investments invested through share capital and free general reserves that aggregated to Rs. 2304.08 Crs. iii. The appellate has made submissions before the Learned A.O. vide letter dated 17th March. 2015 & 27th March 2015. It was also submitted before the Learned AO that the Appellant Company has suo moto made disallowance u/s 14A amounting to Rs. 1,68,85,115/- based on the decision of ITAT in respect of the appellant for AY 1998-99. iv. The learned AO has disallowed Rs.6,62,82,370/- of the Income Tax Act r.w.rule 8D on account of indirect interest and expenses under Rule 8D(2)(ii) and (iii). 7. Decision of the Ld. CIT(A): The CITIA) has partly allowed the assessee's appeal by reducing the disallowance made under Section 14A from Rs.49397255 to Rs.3,04,72,187/The CIT(A) accepted the assessee'sworking of disallowance at Rs.2,93,11,481/-. which the assessee had submitted during the assessment proceedings. Further the CIT (A) added a direct expense of Rs. 11,60,706/- (being salary cost of the Treasury Manager), and made total disallowance u/s 1-4A of Rs. 3,04,72,187/. 8. Comments of A.O 8.1 The assessee has challenged the disallowance of Rs 4,93,97,255/- (Rs.62,82,370-Rs. 1,68,85,115/-) made under section 14A read with Rule 8D of the Income-tax Rules, 1962, against the suomotu disallowance of Rs.1,68,85,115/- made in the revised return of income filed by the assessee. 8.2 During the assessment proceedings, the AO observed that the assessee had earned exempt income of Rs. 20,30,66,788/ as a dividends under sections 10(34) and 10(35). 8.3 In the absence of a clear bifurcation or identification of expenditure directly relatable to exempt income, and having regard to the accounts of the assessee, the AO was not satisfied with the correctness of the assessee's suo moto disallowance of Rs. 1,68,85,115/- made in the revised return of income.

10 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 8.4 Further, the assessee had itself computed a revised disallowance of Rs.2,93,11,481/-during assessment proceedings. 8.5 After examining the assessee's reply and workings, the AO recorded dissatisfaction with the method and quantum of disallowance offered. The AO's working under Rule 8D is justified and in accordance with law as per section 144(2). Accordingly, the AO has made addition as per tabulated below:

8.6 Thus, the AO has correctly made disallowance of Rs. 4,93,97,255/- (Rs.62,82,370 Rs. 1,68,85, 115/-) under section 14A read with Rule 8D of the Income-tax Rules. 1. In this regard The AO relied on several judicial decisions, including:  Godrej & Boyer Mfg. Co. Ltd. (Bom HC) - validating Rule 8D.  Cheminvest Ltd. (Del HC) - disallowance under section 14A is applicable even if no exempt income is earned.  Magganlal Chagganlal Pvt Ltd /236 ITR 456 [Bom)| 8.7 In the case of Godrej & Boyce Mfg. Co. Ltd. Vs ACTI, the Hon'ble Bombay High court has upheld the constitutional validity of Rule 8D. It is observed by the Hon'ble Court that once the

11 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. satisfaction is recorded by the Assessing Officer for making disallowance u/s 14A, then the procedure for computing the said disallowance is to be followed as per Rule 8D. Rule 8D lays down a mathematical formula for the computation of disallowance u/s 14A. 8.8 Further, the Assessing Officer placed reliance on CBDT's clarification vide circular No.5/2014 regarding disallowance of expenses u/s.14A of the I.T. Act in cases where corresponding exempt income has not been earned during the financial year. Further, in the said Circular, it has been held that even if assessee claims that no expenditure in respect of exempted income was made, such disallowance u/s. 14A has to be made. 8.9. This is more so considering the explanation added to section 14A by the Finance Act, 2022 w.e.f. 01.04.2022. The explanation clarifies that the section 14A shall apply and shall be deemed to have always been applied even if income has not arisen during the year. It means disallowance u/s 14A has to be made even if there is no income from the investment during the year. Further the language that 'shall be deemed to have always been applied enables application of this section retrospectively on the issue of 14A disallowance even when no income is earned from the investment during the year. Therefore, in view of the above discussion and the CBDT circular no.9/2024 dated 17th September 2024, the decision of the CIT (A) is not acceptable on this ground and further appeal before Hon'ble ITAT is recommended. Tax Effect :Rs. 1,64,08,533/- 9. Ground No.3. The learned Assessing officer, invoked the provision of section 80-IC(7) rws 80-FA(8)for calculating deduction eligible for section 80IC. He apportioned profits to the eligible unit based on the working as given below Particulars Baddi- Unit No.1 Baddi Unit No.2 Overall as per P&L A/C Amount in Rs. Amount in (Rs.) Amount in Crs. Net sales 94,95,43,425 31,28,18,090 5951.47 Profit before tax and 26,54,61,574 9,13,18,000 1007.9 Depreciation Profit before Tax and 27.96% 29.19% 16.94% Depreciation ratio

12 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. Profit before tax @ 16,08,08,140 5,29,76,719 16.94% for Baddi Unit (1&2) Less: Income Tax 13,36,355 14,17,383 Depreciation Profit before tax 159471785 51559336 Baddi Units Deduction 30% 100% Deduction admissible 4,78,41,536 5,15,59,336 u/sec. 80IC(7) rws 80IA(8) based on the profit worked above Less: Deduction 7,92,37,566 8,93,89,338 claimed by assessee in RETURN OF INCOME Amount in 3,13,96,030 3,78,30,002 69,2,26,032 Disallowance

13 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. Depreciation Profit before Tax and 27.96% 29.19% 16.94% Depreciation ratio Profit before tax @ 160808140 52976719 16.94% for Baddi Unit (1&2) Less: Income Tax 1336355 1417383 Depreciation Profit before tax 159471785 51559336 Baddi Units Deduction 30% 100% Deduction admissible 47841536 51559336 u/sec. 80IC(7) rws 80IA(8) based on the profit worked above Less: Deduction 79237566 89389338 claimed by assessee in RETURN OF INCOME Amount in 31396030 37830002 69226032 Disallowance

14 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. submissions and analyzed the issue concerning 80IC deductions. The appellant had further stated that the AO in the remand report had confirmed that he has verified the claims of the appellant made in the appeal as well as in the remand proceedings. The submission of the appellant as well as remand report of the AO has been analyzed with materials available on record. The appellant company is a multi-product company which manufactures both industrial and domestic electrical goods. It is considered that the comparison of profitability of the eligible fan units at Baddi, Himachal Pradesh, with the profitability of the appellant company as a whole, is not appropriate. However, such comparison suffers from a fundamental flaw of comparing two incomparable. The market conditions as the demand- supply position, price elasticity, level of competition, the consumer behavior, the cost structure etc., differ from one product to another and the said factors have a bearing on the profitability of the products. Therefore, the profitability of the eligible unit which is manufacturing the fans cannot be compared with the profitability of unit which is manufacturing other products or with the company-as a whole whose profits are derived from multiple products. The appropriate basis for judging the correctness of the profitability shown in respect of the eligible fan units at Baddi is to compare the same with the profitability of the non eligible fan units of the appellant company at Goa. During appellate proceedings, the appellant submitted the explanation in difference in the profit ratio between the eligible and non-eligible fan units. As already stated above, the same was forwarded to the AO for examination and submission of remand report thereof. The AO during the remand proceedings has examined the explanation furnished by the appellant along with supporting evidences and has not drawn any adverse remarks in the remand report. Hence, the substantial portion of the difference in the profitability between the eligible fan unit and non eligible fan unit has been satisfactorily explained by the appellant". 11. Comments of AO The decision of the learned CIT(A) directing the AD to delete the disallowance of Rs.6,92,26,032/ made under section 801C(7) read with section 801A(8) of the Incometax Act, 1961 is not acceptable as the disallowance was correctly made by the AO in the assessment order dated 31.03.2015 based on the following facts: a. The assessee has claimed significantly higher profit margins in its Baddi units (eligible for deduction) compared to the non-eligible units engaged in similar business (manufacturing fans). b. Profitability of eligible units was 28.04%, whereas non-eligible units had much lower margins at 14.66%, despite engaging in similar manufacturing activities. This differential was not satisfactorily explained.

15 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. c. The assessee failed to allocate proportionate common corporate expenses and FAN division R&D expenses to the Baddi units, despite incurring such expenses for the overall business. d. The AO, relying on the principle laid down by the Hon'ble Madras High Court in TTK Pharma Ltd. and the Hon'ble Delhi High Court in Controls & Switchgear Co. Ltd., rightly held that such expenses having bearing on the business operations of all units must be apportioned. e. The assessee offered generalized explanations such as lower freight, excise exemption, and cheaper manpower in Himachal Pradesh, but did not substantiate these with verifiable data. f. The assessee has not at all allocated the expenses under "After Sale Services including warranties" debited to overall P&L account. g. The assessee did not demonstrate that goods or services were transferred at fair market value or that the eligible unit's profits were computed independently of the benefits derived from the larger corporate ecosystem h. While the AO submitted a remand report without adverse comments on some explanations furnished, it was never a confirmation of full acceptance of the assessee's claims. In view of the above, the decision of the CIT (A) is not acceptable on this ground and further appeal before Hon’ble ITAT is recommended. Tax Effect: Rs. 2,29,95,157/- 12. Ground No.4 During the year the company has claimed deduction on account of Reversal of liquidated damages amounting to Rs.9,09,00,000/- credited to Profit & Loss Account. The reversal of provision was not offered for tax as the provision for liquidated damages was disallowed in the AY 2007-08 by learned AO and the same was pending for adjudication before Appellate Authorities 13.Decision of CIT(A): The CIT Appeal has dismissed the grounds of the assessee stating that "Since the disallowance made during the AY 2007-08 was allowed in the said year itself basedon the order of Hon'ble ITAT Mumbai Bench, the claim of the appellant is not required to be allowed m the current assessment year 2011-12. Accordingly, this ground of appeal in decided against the appellant and dismissed."

16 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 14. Comments of AO: The decision of the CIT (A) is acceptable on this ground as the CIT (A) has dismissed the appeal of the assessee. Hence no further appeal is recommended on this ground. 15. Ground No.5 i. In case of TDS credit has been granted for Rs 3,99,30,027/ as against 4,25,29,177/-Claimed in the Return of Income. ii. The appellant claimed TDS of Rs.4,25,29,177/- as per revised ROI dated 30.03.2013 whereas the learned assessing officer allowed credit for Rs.3,99,30,027 only. The appellant was in receipt of income which was subjected to tax deduction at source by the payer of such income and the amount of TDS so deducted was eligible for tax credit in full in computing the tax liability 16. Decision of CIT(A): The appellant vide Ground No. 5 has stated that, the TDS was allowed by the AO to the extent of Rs.3,99,30,027/ only as against the claim of Rs. 4,25,29,177/- made by the appellant in the revisedROL In this regard, the AO is directed to verify whether the income has been offered to tax to the extent of TDS claimed by the appellant and allow the applicable TDS credit as per law. 17. Comments of AO: The decision of the CIT (A) is acceptable on this ground as the CIT (A) has directed the AO to verify whether the income has been offered to tax to the extent of TDS claimed by the appellant and allow the applicable TDS credit as per law. Hence по further appeal is recommended on this ground. 18. Ground no.6 The assessing officer has charged interest u/s 234D for Rs.86,34,801/-without charging the same in the assessment order passed u/s 143(3) of the Income Tax Act 1961. 19. Decision of CIT(A): The appellant vide Ground No. 6 has denied any liability to payment of interest U/s. 234D. The interest chargeable U/s. 234D is consequential in nature and the AO is directed to verify the same and compute the interest if applicable, as per law

17 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 20. Comments of AO: The decision of the CIT (A) is acceptable on this ground as the CIT (A) has stated that interest chargeable U/s. 234D is consequential in nature and the AO is directed to verify the same and compute the interest if applicable, as per law. Hence no further appeal is recommended on this ground. Further CIT (A) has stated that during the appellate proceedings, the appellant did not press upon the addition made for reversal of MTM loss of AY 2010-11 claimed as not taxable in revised return of AY 2011 12 to the extent of Rs. 10,25,34,050/- and hence the same is not adjudicated. 21. It is submitted that considering the above-mentioned facts further appeal to Hon'ble ITAT is recommended on the above mentioned issues. Further, Overall tax effect involved in above mentioned issues are Rs. 39,403,690/- Which is above the prescribed monetary limits as specified vide CBDT circular no. 9/2024 dated 17.09.2024.” Ground No. (1) to (3) :- disallowance u/sec. 14A of revenu’s appeal 9. The assessee had earned dividend income amount to Rs.1,32,59,580/- and Rs.18,98,07,208/- & claimed exemption in Return of Income u/sec. 10(34) and section 10(35) of the Act respectively. The assessee’s share capital and reserve amount to Rs.2304crore and investment in share and unit amount to Rs.782crores. The assessee suo moto disallowed the expenses for earning the exempted income in Return of Income (ROI) amount to Rs.1,68,85,115/-. During the assessment proceeding the Ld. AO computed the interest disallowance to the extent of Rs.3,46,29,296/- under Rule 8D(2)(ii) of the Income Tax Rule, 1962 read with section 14A of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) rejected the disallowance made by the Ld. AO under Rule 8D(2)(ii) but recomputed the disallowance u/sec. 14A read with Rule 8D(2)(iii) which comes amount to Rs.3,04,72,187/-. Since the assessee has already disallowed Rs.1,68,85,115/- in the ROI the balance amount of Rs.1,35,87,072/- is

18 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. added back with the total income and the appeal of the assessee is partly allowed. Being aggrieved the revenue filed an appeal and the assessee filed the cross objection before us.

19 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. i) [2024] 164 taxmann.com 708 (SC) in the case of Pr. CIT vs. Shapoorji Pallonji and Co. Ltd wherein it was held that...where both interest-free and interest-bearing funds were available with assessee, it was to be presumed that investments were made out of interest-free fund and, thus, disallowance made under Section 14A was to be deleted ii) [2021] 130 taxmann.com 178 (SC) in the case of South Indian Bank Ltd vs. CIT -wherein it was held that - Scheduled banks earned income from investments made in tax-free securities - Assessing Officer made proportionate disallowance of interest attributable to funds invested to earn tax free income U/s. 14A on grounds that separate accounts were not maintained for investment in tax-free securities Whether since interest free own funds available with assessee exceeded their investments; investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted U/s. 14A on ground that separate accounts were not maintained by assessee for investments and other expenditure incurred for earning tax-free income. From the above discussion, it is clear that the appellant has sufficient reserves to invest in mutual funds which earned exempted income. Hence, respectfully following the case laws discussed above, the AO is directed to allow the interest disallowance made under Rule 8D(2)(ii).”

20 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 12. We heard the rival submissions and considered the material available on record. On perusal of the balance sheet of the assessee, we find that the share capital and reserves stood at approximately Rs. 2,304crores, whereas the investments in shares and units aggregated to Rs. 782crores. Thus, the investments made by the assessee were substantially lower than its own interest- free funds. In such circumstances, a presumption arises that the investments were made out of the assessee’s own funds and not from borrowed funds. Further, we respectfully follow the decision of the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case on an identical issue. Accordingly, we find no infirmity in, nor any reason to interfere with, the impugned appellate order on this issue. Therefore, the grounds raised by the revenue stand dismissed.

Ground No. (4) of the revenue’s appeal & Ground no. 1 of the assessee’s CO 13. Related to re-computation of disallowance u/sec. 14A read with Rule 8D(2)(iii) the Ld. CIT(A) had made the following observations in paragraph no.6.6 which is reproduced as below: “6.6. Further, the AO has computed disallowance to the extent of Rs.3,16,53,074/- by applying Rule 8D(2)(iii). The AO has considered the average value of total investments to arrive at the above disallowance. In this regard, the appellant during the scrutiny proceedings has submitted before the AO that, in its own case for the AY 2008-09 the Hon'ble ITAT, Mumbai Bench, upheld the disallowance in respect of Rule 8(2)(iii) being 0.5% of the average value of investments excluding investment in subsidiary companies from which exempt income can be earned. During the assessment proceedings, the appellant submitted revised computation by applying Rule 8D(2)(iii) and disallowed a sum of Rs.2,93,11,481/-. The copy of recomputed statement is scanned below;

21 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd.

Therefore, keeping in view of the above decision of the Hon'ble ITAT, Mumbai Bench, an amount of Rs.2,93,11,481/- as submitted by the appellant during the course of assessment proceedings shall be taken for computing disallowance U/s. 14A r.w.r. 8D(2)(iii). As discussed above, the total disallowance U/s.14A is computed at Rs.3,04,72,187/-. Since the appellant has already disallowed Rs.1,68,85,115/- in the return of income, the balance of Rs.1,35,87,072/- is to be added to the total income and this ground of appeal is partly allowed.”

22 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 9. However we noticed that the facts are different in this year. We notice from the assessment order that the assessing officer has discussed in detail with regard to the contentions of the assessee that it did not incur any expenditure in earning exempt income. Though the AO has not specifically stated that he was not satisfied with the contentions of the assessee, yet his dissatisfaction is discernible from the discussions made by him in the assessment order. Hence the AO has proceeded to make disallowance under rule 8D of IT rules. Accordingly, we are of the view that the dissatisfaction of the AO is discernible from the discussions made by him in the assessment order. Accordingly we reject this contention of the assessee. 10. The assessee, in its written argument, has submitted that some of the dividend income received by it is taxable and the AO has not excluded the same. We noticed that the Learned CIT (A) has directed the AO to consider only those investments which have yielded exempt income for the purpose of computing average value of investments. Accordingly, if any income is taxable (not exempt), it will not enter computation of average value of investments. Hence this grievance of the assessee would automatically be addressed while computing average value of investments as per directions given by learned CIT(A) as per the decision rendered by the special bench in the case of Vireet Investments. 11. Accordingly, in principle, we are of the view that the decision rendered by Learned CIT(A) on this issue does not call for any interference. However, since the assessee has raised certain factual aspects relating to exempt income, for the purpose of verification of those facts vis-a-vis the decision rendered above, we restore this issue to the file of the AO for examining the factual aspects.”

23 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. considered. Investments which have not yielded any exempt income during the year are liable to be excluded from such computation. Accordingly, we restore this issue to the file of the Ld. AO with a direction to recompute the disallowance under section 14A read with Rule 8D(2)(iii) by considering only those investments which have yielded exempt income, after duly taking into account the decision of the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case for A.Y. 2010-11 (supra). The Ld. AO shall afford a reasonable opportunity of being heard to the assessee before passing the consequential order. Accordingly, the grounds raised by both the assessee and the revenue are allowed for statistical purposes. Accordingly, Ground no.1 to 3 of revenue’s appeal is dismissed, Ground No. 4 of revenue’s appeal and Ground no.1 of assessee’s CO is allowed for statistical purpose.

Revenue’s Ground No.5 to 8:-Section 80IC Amount to Rs.6,92,26,032/- 16. The Ld. AR contended that the Ld. AO erred for disallowing deduction u/sec. 80IC of the Act amount to Rs.6,92,26,032/- out of total deduction claimed amount to Rs.16,86,26,904/- and also erred in law and on facts by invoking provision 80IA(8) without appreciating that the assessee’s case is no such condition for invoking provision u/sec. 80IA(8) of the Act. The Ld. AO only restricted the deduction u/sec. 80IC amount to Rs.9,94,00,872/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). and the Ld. CIT(A) has called the remand report and the assessee had submitted all the relevant supporting evidence in the said remand proceedings. Finally, the remand report submitted by

24 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. the Ld. AO which is duly adopted in the impugned appellate order. The relevant part of the remand report containing APB page 235 to 238 is reproduced: “To, The Commissioner of Income Tax (Appeals)-12, 3rd Floor, B Wing, Mittal Court, Nariman Point, Mumbai.

(Through Proper Channel) Sir, Sub: Remand report in the case of M/s CG Power and Industrial Solutions Limited (formerly known as M/s Crompton GreavesLimited) for AY 2011-12, PAN: AADCC9080C reg.- Ref: Letter No.CIT(A)-12/Remand Report/2018-19 dated 10/05/2018

Kindly refer to the above. 2. As directed, the case records of the assessee company have been perused. The assessee is having section 80-IC eligible unit being FAN Division at Baddi, Himachal Pradesh wherein it has shown NP ratio @28.04%. The assessee has non-eligible units as well in which NP ratio is shown @ 16.94%. Under the FAN division the assesee company has 2 types of Fan Units viz (i) Section 801C eligible Unit Situated at Baddi, Himachal Pradesh and (ii) Section 801C non eligible 2 units situated at Kundaim&Bethora respectively in GOA. The NP margins for 80IC eligible Fan unit is 28.04% as compared with 19.17% non eligible Fan Units. 2.1 It is seen from your office remand letter 10/05/2018 that assessee has submitted the P&L A/c of the total Fan Division alongwith unit wise break up of section 80IC eligible units and non eligible units. The total turnover of Fan Division has been submitted by assessee as under –

Total Fan (Rs. 80IC Non- % 80IC Eligible % Cr) eligible unit Unit (Rs.Cr.) (Rs. Cr) Sales 888.90 762.67 126.24 Excise Duty 36.99 36.99 Nil Paid Material 598.92 519.62 71.61 79.29 62.81 Staff & 12.18 10.80 1.49 1.37 1.09 Welfare Mfg Selling 64.32 55.30 7.62 9.02 7.15

25 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. &Admn Diff of excise 1.98 1.98 0.27 0 0 duty paid and recovered Interest & 0.75 0.64 0.09 0.11 0.09 Commitment Charges Depreciation 1.21 0.97 0.13 0.28 0.22

2.2 With regard to the high margin for the 80-IC eligible unit it is submitted by assessee at para no 7 on page no 5 to 9 &13 of the additional submissions filed before your goodself that the assessee company is (i) Lower material cost due easy access to material in the nearby area (ii) Lower Labour/staff cost compared to the non eligible unit (iii) majority of the production of eligible unit is dispatched to nearby depots in North India thereby saving freight cost. (iv) Statutory auditors have confirmed that assessee company has internal control system of accounting. Further to this, assessee also submitted that the expenditure that had any connection with the working of the eligible unit was absorbed.

It is seen from your office remand letter 10/05/2018 that assessee has submitted a chart vide Annx. 4 that its Corporate Office related expenses during the year under consideration amounted to Rs.64,85,19,592/- break up of which is given under different sub-heads which are inclusive of other Divisions and Fan Division which includes section 80IC eligible and 80-IC non eligible units. Further to this, in the submission vide letter dt 14/05/2019 filed by the assessee during the remand proceedings it is submitted by assessee as in respect of Corporate expenses of Rs.64,85,19,592/, these are extracted out of audited financial statements by the statutory auditors of the company for the FY 2010-11.

2.3 Further the assessee has filed following justification for non-allocation of Corporate Expenses, extracted as (i) Eligible Baddi Unit is geographically far flung and it works with minimum support from Corporate Office (ii) eligible unit works on standalone basis which works under Unit Head who is authorised to take decisions. (iii) the Corporate Function formulates in the policies in the light of framework decided by the Board of Directors and regulatory framework. They give support to all the units/divisions/regions throughout the organisation and not specifically to eligible units. (iv) interest on loans for eligible units is charged to the eligible units for arriving the profits eligible for deduction. (v) as per para no 6 on page 21, it is submitted by assessee company that, it has accounted for the expenditure by following the absorption costing wherein expenditure directly attributed to the concerned unit is solely

26 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. absorbed by the respective units expenditure unrelated to the functioning of the unit in any manner and of corporate nature are absorbed by the company directly; such absorbed expenditure by company amounted to Rs. 64,85,19,592/-. This amount of absorbed expenditure has been verified from submission which has been attached to the remand submission as Annx 4 and may be relied upon. 2.4 During the remand proceedings, the assessee has submitted vide that certain expenses were "at actual" which instead were stated as allocated "on the basis of sales " at the assessment stage. These expenses are as under - (i) Packing (ii) Carriage Outwards (iii) Repairs Building, Plant & Machinery (iv) Printing & Stationery (v) Postage (vi) Conveyance (vii) Travelling (viii) Foreign Travel (ix) UPKeep& Conservatory (x) Lunch Tiffin (Xi) Entertainment and (xii) Testing Feest is a fact that the assesee company has not allocated/apportioned any of the common expenses incurred by the company as a whole being termed as Corporate Expenses which includes the Head Office Expenses. As per the Hon'ble Delhi High Court in its decision in case of Controls & Switchgear Co. Ltd. v/s DCIT, 66 DTR 161 (Del.) wherein it is held that if certain expenses incurred by head office lead to benefit to the eligible business also, the expenses will have to be apportioned to it. The Hon'ble High Court further held that common expenses have to be allocated to the eligible business in the ratio of turnover of the eligible business to the total turnover.

2.5 AS regards "After Sales Services" claimed at Rs. 43.97Crs it is submitted by assesee in the additional submissions filed during appellate proceedings that -it is incurred on 'after sales service' to global sales that no expenditure was attributable to the sales made by the said qualifying unit in as much as the product that is the fans manufactured by the company at the said unit do not require any after sale services during the warranty period, a fact that is based on the past experience of the company. In any case, the said expenditure incurred by the company has been in respect of its manufacturing and sale of transformers and such heavy engineering products do not have any relation to the manufacturing & sale of Fans; further that, without prejudice it is submitted that the sales of the qualifying unit constituted just about 2.00% of the total sales of the company and even where the expenditure was to be apportioned on the basis of sales it could not have been more than Rs. 3 Cr. The claim is verified from the P&L A/c.

2.6 As regards R & D Expenses, the assessee has submitted that for Fan Division, it has incurred Rs. 71.16 Lacs comprising of Capital Expenditure of Rs. 0.14 lakhs and Revenue Expenditure of Rs.0.57 lakhs. (Enclosed Annx-A) That the revenue expenditure comprises of salary of employee in R&D activity. Further, it is stated that the R&D expenses were not allocated to 80-IC Eligible Fan Unit and that, these were also not allocated to any other division of the company. The

27 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. contention is verified as appearing in this regard in the Auditor Certificate dated 18/07/2011 submitted by the assesee during the remand proceedings enclosed herewith as Annexure -A. The assesee company has shown a total turnover of Rs.5951.47 Crores for the company as a whole for the current year, break-up of it is (1) Section 80-IC Non Eligible unit Rs. 5825.23Crores and 2)Section 80-IC eligible unit Rs. 126.24 Crores. Non allocation of the aforementioned expenses to the 80-IC eligible unit has resulted into inflated profit of the section 80-IC eligible unit. If done so then, the profit of the eligible unit will be lower than what has been shown by the assessee. Accordingly, it is submitted to decide the issue on merits.3. As regards "After Sales Services" claimed at Rs. 43.97 Crs, it is submitted by the assessee in the additional submission filed during appellate proceedings at Page No. 22 which are as -

we may respectfully point out that the Auditor of the company in certifying the profit derived from these units have clubbed the After Sale Service Expenditure together with sales promotion expenses of Rs. 6.65 Crs of FAN Division which together have been placed by him Rs. 12.63 Crore without separately showing Rs.6.65 Crs towards sales promotion expenses and Rs.5.98 Crs towards after sales services. To substantiate the same, we are enclosing ledger accounts of After Sales Service Expenses and SalesPromotion Expenses of the FAN division in ANN 5.1 & ANN 5.2 respectively. The assessee has enclosed a copy of P & LA/C as on 31/03/2011 reflecting the allocation of sales promotion expenses as under – Total Fan Fan other than Baddi Baddi Unit Unit Amt (Rs. Cr.)% Amt (Rs. Cr.)% Amt (Rs. Cr.)% Sales Promotion 12.63 10.79 1.84 Expenses 1.48 1.49 1.46 The assessee company has enclosed ledger copy of After Sales Service - Fan Division giving therein the list of partywise amount break-up totalling to Rs. 5,98,89,644/-for the FY 2010-11 marked as ANNES 5.1. The assessee has also submitted the ledger copy of Sales Promotion expense giving therein the list of party-wise amount break-up totalling to Rs. 6,64,58,578/- for the .F.Y. 2010-11 marked as Annx 5.2. The assessee was also required to submit few of the copies of After Sales Service- Fan Division to substantiate its contention which the assessee has submitted and are verified.

28 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 16. The Ld. CIT(A) had considered this issue in favor of the assessee and made the following observations which is reproduced a below: “6.8. On receipt of the remand report from AO, a rejoinder was called for from the appellant from this office. In response to the same, the appellant had submitted that, it had appeared before the AO during the remand proceedings and have furnished the requisite details called for by the AO from time to time. The AO also had examined the additional evidences and submissions and analyzed the issue concerning 80IC deductions. The appellant had further stated that the AO in the remand report had confirmed that he has verified the claims of the appellant made in the appeal as well as in the remand proceedings.

6.9. The submission of the appellant as well as remand report of the AO has been analyzed with materials available on record. The appellant company is a multi-product company which manufactures both industrial and domestic electrical goods. It is considered that the comparison of profitability of the eligible fan units at Baddi, Himachal Pradesh, with the profitability of the appellant company as a whole, is not appropriate. However, such comparison suffers from a fundamental flaw of comparing two incomparable. The market conditions as the demand- supply position, price elasticity, level of competition, the consumer behavior, the cost structure etc., differ from one product to another and the said factors have a bearing on the profitability of the products. Therefore, the profitability of the eligible unit which is manufacturing the fans cannot be compared with the profitability of unit which is manufacturing other products or with the company as a whole whose profits are derived from multiple products.

6.10. The appropriate basis for judging the correctness of the profitability shown in respect of the eligible fan units at Baddi is to compare the same with the profitability of the non-eligible fan units of the appellant company at Goa. During appellate proceedings, the appellant submitted the explanation in difference in the profit ratio between the eligible and non-eligible fan units. As already stated above, the same was forwarded to the AO for examination and submission of remand report thereof. The AO during the remand proceedings has examined the explanation furnished by the appellant along with supporting evidences and has not drawn any adverse remarks in the remand report. Hence, the substantial portion of the difference in the profitability between the eligible fan unit and non-eligible fan unit has been satisfactorily explained by the appellant. 6.11. Further, it is observed that on similar set of facts for previous years, the claim of the appellant for deduction U/s. 80IC is allowed. Therefore, the AO is directed to delete the disallowance made U/s. 80IC (7) r.w.s. 801A (8) in the assessment order dated 31.03.2015 to the extent of Rs.6,92,26,032/-. The appellant succeeds on these grounds of appeal raised.”

29 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 17. The Ld. DR argued and relied on his written submission. The Ld. DR stands in favour of the order of the Ld. AO.

30 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. the eligible and non-eligible fan manufacturing units. The assessee had satisfactorily explained the difference in profitability between the Baddi Unit and the Goa Units, and the same was examined by the Ld. AO during remand proceedings without recording any adverse conclusion. Mere higher profitability of an eligible unit cannot, by itself, justify invocation of section 80IA(8) in the absence of any material establishing that inter-unit transfers were not at market value or that profits of the eligible unit were artificially inflated. We also note that similar claims of deduction under section 80IC had been accepted in the assessee’s own case in the preceding years on identical facts. The revenue has not brought on record any distinguishing feature warranting a different view in the year under consideration. Accordingly, we find no infirmity in the well-reasoned order of the Ld. CIT(A) directing deletion of the disallowance of Rs.6,92,26,032/- made under section 80IC(7) read with section 80IA(8) of the Act. We therefore uphold the order of the Ld. CIT(A) on this issue and dismiss grounds raised by the revenue. Accordingly, Ground No.5 to 8 raised by the revenue is dismissed.

ITA No.5417/Mum/2025 revenue’s appeal: Ground No.3:- Deleting the disallowance of Rs.3,22,32,195/- related weighted deduction u/sec. 35 (2AB) 19. The assessee had claimed weighted deduction under section 35(2AB) of the Act in respect of expenditure incurred on its in-house Research and Development facilities duly approved by the Department of Scientific and Industrial Research (DSIR). The Ld. AR submitted that the assessee had claimed weighted deduction of Rs.94,43,47,450/- on capital expenditure of Rs.47,21,73,725/- and weighted

31 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. deduction of Rs.70,53,78,390/- on revenue expenditure of Rs.35,26,89,195/-, based on the amounts certified in the R&D Audit Certificates, Tax Audit Report and the approval granted by the DSIR for the relevant R&D facilities. The Ld. AR further submitted that the assessee had subsequently received Form No. 3CL dated 09.03.2015 issued by the DSIR for Assessment Year 2012-13, wherein the prescribed authority quantified the eligible expenditure at Rs.56,06,84,000/- towards capital expenditure and Rs.32,04,57,000/- towards revenue expenditure incurred on the approved in-house research facility. It was contended that while the capital expenditure approved by the DSIR was higher than the amount claimed by the assessee, a difference of Rs.3,22,32,195/- arose in respect of revenue expenditure. The Ld. AR argued that section 35(2AB)(1) of the Act does not mandate that every expenditure eligible for weighted deduction must necessarily be incurred physically within the approved in-house research facility. According to the assessee, certain expenditures such as product testing charges, consultancy charges and expenses incurred in connection with the development of new products are intrinsically related to the approved research and development activities and qualify for weighted deduction, even if such activities are carried out outside the approved facility. It was submitted that denying weighted deduction merely because such expenditure was incurred outside the premises of the in-house research facility would defeat the very object and legislative intent underlying section 35(2AB) of the Act. The Ld. AR further contended that sub-section (1) of section 35(2AB) provides for weighted deduction in respect of expenditure, other than expenditure on acquisition of land and building, incurred on an approved in-house research and development facility. Therefore, the impugned expenditure, being directly connected with the

32 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. approved R&D activities, ought to be considered eligible for weighted deduction under section 35(2AB) of the Act.

33 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. income of the assessee. Penalty proceedings under section 271(1)(c) of the act are separately initiated for concealment of particulars of income/ furnishing inaccurate particulars of income.”

Expenditure on scientific research. 35. (2AB) (1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred: Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred.

Explanation- For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial,

34 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act. 1970 (39 of 1970).

(2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act.

(3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed.

(4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed. (5) [***] (6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008.

35 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. providing for furnishing of reports in the manner to be prescribed. It is, thus, w.e.f. 01.04.2016 that the provision has been made for approval of quantum of expenditure, for the first time. 11. Further still, in Pune ITAT decision in the case of Cummins India Ltd. v. Dy. CIT (2018) 96 Taxmann.com 576 (Pune-Trib.), which is a decision directly on the issue at hand, it has been held, inter alia, to the fact that though the Rules stipulate the filing of audit report before the prescribed authority by availing the deduction u/s. 35(2AB) of the Act. The provision of the Act prescribed or approved to be granted by the prescribed authority vis-à-vis the expenditure from year to year, that the amendment was brought in by the Income Tax amendment Rules w.e.f. 01.04.2016, wherein, a separate part has been inserted for certifying the amount of expenditure from year to year and the amended Form No. 3CL, thus, lays down the procedure to be followed by the prescribed authority: that prior to the said amendment, no such procedure; methodology was prescribed; and that therefore, in the absence of any such procedure or methodology, the A.O. had erred in curtailing the expenditure and consequent weighted deduction claimed u/s. 35(2AB) of the Act on the summon that the prescribed authority had approved the part of the expenditure in Form No. 3CL.

The above also makes it amply clear that prior to the amendment, i.e., upto 30.06.2016, it was not required to quantify the expenditure and it was only w.e.f. 01.07.2016 that this mandate has been put in place.

36 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. This does also take care of a without prejudice contentions raised by the assessee, to the fact that deduction of actual expenditure of Rs.28,34,688/- be allowed to the assessee under the provisions of section 35(1)(i) and 35(1)(iv). These provisions of allowing 100% deduction of expenditure on in-house scientific research, irrespective of the approval of the unit and the certification of the expenditure, where the actual expenditure, as in the case of the assessee is verified by the Statutory Auditor and certified by the Independent Auditor and Tax Auditor. 15. The assessee is found correct in contending that the Id. CIT(A) has observed that the extent of the expenditure was never verified by the A.O. Thus, according to the assessee it goes to confirms that the A.O. disallowed the claim without due application of mind. This contention of the assessee is correct, as evident from the assessment order itself, wherein the ground for the disallowance was the non approval of the expenditure claimed by the DSIR.

37 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. No. 3CL is the sole determinant for allowing deduction under section 35(2AB) of the Act. However, we find that this issue is no longer res integra and stands squarely covered in favour of the assessee by the decision of the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case for A.Y. 2009-10 in ITA Nos. 5295 & 5390/Mum/2017 dated 27.09.2019. The Coordinate Bench, after considering the provisions of section 35(2AB), Rule 6(7A), Form No. 3CL and various judicial precedents, held that prior to the amendment brought in with effect from 01.07.2016, the prescribed authority was only required to approve the in-house R&D facility and not to quantify the eligible expenditure. It was further held that non-approval or lower quantification of expenditure by the DSIR in Form No. 3CL could not be a valid ground for curtailing the deduction otherwise allowable under section 35(2AB) of the Act. Since the year under consideration is prior to the amendment effective from 01.07.2016 and the facts are identical to those considered by the Coordinate Bench in the assessee’s own case, we respectfully follow the said binding precedent. Accordingly, we hold that the Ld. AO was not justified in restricting the weighted deduction under section 35(2AB) merely on the basis of the expenditure quantified in Form No. 3CL. Therefore, the addition of Rs. 3,22,32,195/- made by the Ld. AO is deleted. The order of the Ld. CIT(A) on this issue is upheld and the ground raised by the revenue stands dismissed. The corresponding ground of the assessee, if any, is allowed. Accordingly, the Ground No.3 of revenue’s appeal is dismissed.

38 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. ITA 5214/Mum/2025, AY 2012-13, assessee’s appeal- Ground No.2 :- disallowance of marked to market loss- 23. The Ld. AR contended that the Ld. AO erred in proposing to disallow the loss of Rs.7,99,81,196/- arising on account of mark-to-market valuation of outstanding foreign exchange forward contracts as on 31.03.2012 by treating the same as a contingent liability. The Ld. AR contended that the impugned loss was recognized in accordance with the mandatory requirements of Accounting Standard-11 (AS-11) issued by the Ministry of Corporate Affairs under the Companies (Accounting Standards) Rules, 2006. It was submitted that AS-11 specifically requires exchange differences arising on forward exchange contracts entered into for non-trading and non-speculative purposes to be recognized in the Statement of Profit and Loss in the reporting period in which the exchange rates change. The Ld. AR further submitted that the assessee is a substantial exporter and a net foreign exchange earner, with export turnover ranging between Rs.800 crores and Rs.1,000 crores. During the relevant previous year, the assessee had exported goods amounting to Rs.871.96crores. In order to safeguard itself against adverse fluctuations in foreign currency exchange rates and to hedge its export receivables, the assessee entered into foreign exchange forward contracts with banks. These contracts were entered into purely as hedging instruments against underlying export orders and not for speculative or trading purposes. In support of the same, the assessee furnished sample copies of the forward contracts along with the corresponding export orders. The Ld. AR contended that the loss arising on revaluation of the outstanding forward contracts at the year-end represents an accrued business loss and not a contingent or notional loss. The said accounting treatment has been consistently

39 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. followed by the assessee in accordance with generally accepted accounting principles and recognized accounting standards. It was argued that the liability arising on account of exchange fluctuation as on the balance-sheet date is an ascertained liability and is allowable as a deduction under section 37(1) of the Act. In support of the aforesaid contention, the Ld. AR relied upon the judgment of the Hon’ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. vs CIT reported in 322 ITR 180 (SC), wherein it was held that loss arising on account of foreign exchange fluctuation as on the balance-sheet date is allowable as a business expenditure. Reliance was also placed on the decision of the Hon’ble Supreme Court in CIT v. Woodward Governor India (P.) Ltd. reported at 223 CTR 1 (SC), wherein it was held that exchange loss arising on restatement of foreign currency liabilities at the balance-sheet date is an allowable deduction and that the expression “expenditure” under section 37(1) includes a business loss even though no actual outflow of funds has taken place. The Ld. AR further relied upon the decision of the Hon’ble Gujarat High Court in CIT v. Panchmahal Steel Ltd. reported at 33 taxmann.com 10 (Guj), wherein it was held that loss incurred on foreign exchange contracts entered into as an integral part of export business constitutes a business loss and not a speculative loss. Reliance was also placed on the Special Bench decision of the Mumbai Tribunal in DCIT v. Bank of Bahrain and Kuwait reported at 132 TTJ 505 (Mum) (SB) wherein it was held that loss arising on year-end revaluation of forward contracts entered into for hedging business transactions is allowable as a deduction notwithstanding that the contracts had not matured by the balance-sheet date. Accordingly, the Ld. AR submitted that the mark-to-market loss of Rs.7,99,81,196/- incurred on revaluation of foreign exchange forward contracts as

40 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. on 31.03.2012 is a genuine business loss arising in the ordinary course of business and, therefore, the same ought to be allowed as a deduction while computing the total income of the assessee.

41 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. sale/conclusion/settlement of contract has taken place and the asset continues to be owned by the company. ……In cases where no sale or settlement basket place and the loss on marked to market basis has resulted in reduction of book profits, such a notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income. The same should therefore be added back for the purpose of computing the taxable income of an assessee. 5.11 The AO concluded the assessment on this issue on the grounds that, in the case of the appellant no sale or settlement has actually taken place and the loss on marked to market basis has resulted in reduction of book profits. Such loss on revaluation of outstanding forex forward contract is notional and contingent in nature and cannot be allowed to be set off against the taxable income, within the provisions of the act. The appellant relied on various case laws during the appellate proceedings in respect of its claim of marked to market losses on outstanding forex forward contracts. However, the Board's instruction is binding on the revenue authorities and I, concur with the decision of the AO in disallowing the claim of the appellant as per guidelines in para 2 of Instruction No.03/2010 dated 23.03.2010 issued by the CBDT. The grounds raised by the appellant on this issue is dismissed and the decision of AO is upheld.”

42 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. (supra) and by the Hon’ble Gujarat High Court in Panchmahal Steel Ltd.(supra). In our considered view, the CBDT Instruction No. 03/2010 cannot override the binding judicial precedents of the Hon’ble Supreme Court. Since the forward contracts were entered into for hedging export receivables and the loss has arisen on scientific valuation of existing obligations as on the balance-sheet date, the same constitutes a genuine business loss allowable under section 37(1) of the Act. Accordingly, we set aside the order of the Ld. CIT(A) and direct the Ld. AO to delete the disallowance of Rs.7,99,81,196/-. The ground raised by the assessee is allowed. Accordingly, Ground No. 2 of the assessee’s appeal is allowed.

Ground No.4:- the addition of un-reconciliated income amount to Rs.29,14,965/- 26. The Ld. AR submitted that the Ld. AO noticed a difference of Rs. 29,14,965/- between the income reflected in the AIR/TDS records and the income recorded in the books of account. The Ld. AR contended that the income pertaining to the concerned parties had already been offered to tax in the respective years in which the corresponding invoices were raised. It was further submitted that the receipts reflected during the year also included amounts relating to invoices raised in earlier years, the income from which had already been offered to tax in those years. The Ld. AR pointed out that a detailed reconciliation explaining the difference was furnished before the Ld. AO vide letter dated 14.03.2016. However, without properly considering the reconciliation, the Ld. AO made an addition of Rs. 29,14,965/- on account of the difference between the AIR data and the books of account. Aggrieved by the

43 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. assessment order, the assessee preferred an appeal before the Ld. CIT(A), who upheld the impugned addition.

44 ITA No.5214,5416,5417,5461,5462/Mum/2025 CO No.283 to 285/Mum/2025 C.G.Power and Industries Solutions Ltd. 29. In the result, the appeal of the assessee bearing ITA No.5214/Mum/2025 & CO No.283 to 285/Mum/2025 and the appeal of the revenue bearing ITA No.5416/Mum/2025, 5417/Mum/2025, 5461/Mum/2025 and 5462/Mum/2025 are partly allowed for statistical purpose. Order pronounced in the open court on 04th day of June 2026. Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 04/06/2026 SAUMYASr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI