CHETTINAD CEMENT CORPN. PVT. LTD.,CHENNAI vs. ACIT, CENTRAL CIRCLE-3(2), CHENNAI

आदेश / O R D E R

PER PADMAVATHY.S, A.M: These appeals by the assessee are against the final order of assessment passed by the Assistant Commissioner of Income Tax, Central Circle 3(2), Chennai (in short "AO") passed u/s.153A r.w.s.143(3) r.w.s.144C(13) of the Income Tax Act 1961 (the Act) dated 31.01.2024 for Assessment Year (AY) 2017-18. The only issue contended in both these appeals pertain to the average cost per unit recomputed by the TPO for the purpose of ALP pursuant to the directions of the DRP with respect to the inter unit transfer of power by the unit eligible for deduction u/s.80IA.

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 2 -: 2. The assessee is a private limited company engaged in the business of manufacture of cement and generation of power. The assessee filed the return of income for AY 2017-18 on 27.11.2017 declaring total income of Rs.496,17.65,370. The AO made a reference to the TPO to determine the arm's length price of the Specified Domestic Transactions as declared by the assessee in Form 3CEB towards supply of power by the captive power unit that is eligible for deduction u/s.80IA(4) to the cement unit. There was a search and seizure action u/s.132 of the Act conducted on 09.12.2020 in Chettinad group including the assessee. Consequent to the search the pending scrutiny proceedings for AY 2017-18 on the date of search got abated and the reference made to the TPO also got abated. The AO issued a notice u/s.153A requiring the assessee to furnish the return of income and in response the assessee filed the return on 27.01.2022 declaring total income of Rs.488,75,80,380/-. The TPO proposed an adjustment as tabulated below:

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 3 -: 3. The AO passed the draft assessment order reducing the deduction claimed u/s.80IA(4) by the assessee in the return of income by the amount of adjustment proposed by the TPO as per the above table. Aggrieved the assessee raised objections before the DRP. The DRP directed the TPO to re- compute the ALP by placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs Jindal Steel and Power Private Ltd. The relevant observations of the DRP in this regard as extracted below – “2.23 In view of the above judicial precedents, it is quite clear that the market value of the inter unit power transfer has to be adopted at the rate at which power is available to industrial end user in open market. The Panel has already upheld that the Assessee's selection of the cement unit as tested party is correct, however, we are of the considered opinion that the Assessee's computation of the arm's length price at which power can be purchased by the tested party is incorrect. As discussed in foregone paragraphs, the ALP worked out by the Assessee includes following components; 1) Normal hour charges per tariff determined by state electricity commission 2) Additional Peak Hour Charges over and above normal tariff as determined by the state electricity commission for consumption during defined peak hours 3) Demand Charge which is levied by TENGEDCO/GESCOM as per tariff order by SEC (this is a fix charge levied for consumption commitment in KVA made by the consumer to the TENGEDCO/GESCOM) 4) Electricity tax (levied at the rate of 6% in Tamilnadu and 5% in Karnataka collected by a distribution licensee and paid to the government) 2.24 In this respect, it is pertinent to refer to the statutory provisions under which electricity tax is levied on a consumer of electricity. For the state of Tamilnadu, electricity tax is levied on the consumption or sale of electricity as per the provisions of the Tamil Nadu Tax on Consumption or Sale of Electricity Act 2003. Hence, it is pertinent to refer to the section 3, charging section, of the Tamil Nadu Tax on Consumption or Sale of Electricity Act 2003 reproduced as under;

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 4 -: 3. (1) Save as otherwise provided in this Act, every licensee and every person other than a licensee shall pay every month to the Government in the

prescribed manner, a tax on the electricity sold or consumed during the previous month at the rates specified hereunder:

(a) In the case of licensees other than captive generating plants, the rate shall be not less than 5% and not more than 10% of the net charge, as may be notified by the Government; Provided that no tax shall be paid on sale of electricity for agricultural purposes and hut service connections;

(b) In the case of licensees who are captive generating plants, the rate shall be not less than 10 paise and not more than 20 paise per unit of electricity on the consumption for own use; and shall be not less than 5% und not more than 10% on the net charge on the sale of surplus electricity as may be notified by the Government;

Provided that no tax shall be paid on the sale of electricity to the Board.

(c) In the case of a person other than a licensee, the rate shall be not less than 10 paise and not more than 20 paise per unit of electricity on the consumption for own use as may be notified by the Government

2.25 As seen hereabove, every generating licensee has to pay electricity tax to the government on each unit sold and the consumer has to pay electricity tax to the government on cach unit consumed for own use. In the case of the 'tested party' i.e. the cement unit of the Assessee being a captive consumer is only liable to pay electricity tax at the rate applicable to a consumer which is in the range of 10 paisa and 20 paisa per unit of electricity. Furthermore, in case of purchase of power from TENGEDCO/GESCOM, TENGEDCO/GESCOM being distribution/generation licensee are obliged to pay electricity tax at the rate of 5/6 % in turn they pass on such levy to the end consumer in the bill and such tax recovered by TENGEDCO/GESCOM from the end consumer is ultimately paid to the government exchequer by them. However, in the instant case, the Assessee's captive plants are not eligible to collect tax at the rate of 5% or 6% and not paying anything to the government exchequer. The electricity tax on consumption for a captive generating licensee being somewhere between 10 paise to 20 paisa per unit only is incurred by the Assessee and that is definitely debited as expense to the P&L of the CPPs or Cement Plant.

2.26 In view of the above discussion, it is amply clear that the tested party is not liable to pay any electricity tax at rate of 5% or 6% while buying from captive generating units and no such tax can be charged upon the Assessee company without remitting the same to the government exchequer. In such a scenario, this panel is of the considered opinion that component of electricity tax should be excluded while computing the ALP of inter-unit

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 5 -: power transfer. In this respect, it was observed by the Panel that the electricity tax is collected by a distribution/generating licensee from a consumer and such tax is remitted to the government but the Assessee being a captive consumer was neither liable to collect such tax at the rate of 5% or 6% and nor paid any such tax to the government and hence the component of electricity tax should not have formed part of the ALP of inter unit power transferred. In this respect, justification was sought from the Assessee for including the 5% or 6% electricity tax component in the ALP when the 'tested party' being a captive consumer was not liable to pay any such tax to the government. The Assessee vide response submitted on 27.12.2023 cited various case laws and claimed that this component of electricity tax would have been part of the landed cost to the Assessee in case it had to buy from TENGEDCO/GESCOM. However, the Panel, as discussed here above, is of the firm opinion that this tax being a statutory due could not form part of the ALP of inter unit power transfer purely on notional basis without existence of the levy and payment to government exchequer. In any case, no power generator supplying to a consumer can retain such electricity tax in their profit and loss account as such tax collected is to be paid to the government. But the Assessee has taken undue benefit by keeping this component of electricity tax in 'ALP' and at the same time not paying anything to the government and hence erroneously increasing the profit of the eligible unit which in turn is claimed as deduction. Moreover, the Assessee being a captive consumer might be paying the electricity tax in the range of 10 paise to 20 paise as fixed by the state commission as per the corresponding state legislation and such charges are definitely debited as expense to the P&L of the Assessee and by way of including electricity tax in the ALP for the purpose of computing deduction u/s 801A would lead to doubly debiting such tax component. 2.27 In view of the above, the Panel directs the TPO to recompute the ALP as per the computation by the assessee, taking the manufacturing unit as the tested party, but for the component of electricity tax, out of the four components as mentioned and discussed at para 2.23, while arriving at the ALP. In a nutshell, there will be reduction in the claim of 801A to the extent of electricity tax components. Grounds of the Assessee are partly allowed.”

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 6 -: 5. The Ld. Authorised Representative (AR) of the assessee submitted that the TPO has not correctly understood the directions of the DRP and therefore the recomputed TP adjustment is not correct. The Ld. AR in this regard submitted that the assessee has adopted the average rate of power supplied in the state of Tamil Nadu and Karnataka for the purpose of ALP. The Ld. AR further submitted that while computing the average rate, various elements including the electricity tax have been considered by the assessee. The Ld. AR also submitted that the electricity tax is different in Tamil Nadu and Karnataka and therefore the TPO is not correct in applying the electricity rate on the average rate per unit and that the same should be applied on the rate in the respective state for the purpose re-computing the ALP as per DRP directions. The ld AR in this regard presented the following workings with regard to both the AYs 2017-18 & 2018-19.

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 7 -: the assessee stating that once the final order is passed by the AO/TPO then there is no jurisdiction for the DRP to review the same. Accordingly the Ld. AR submitted that the DRP's order rejecting the claim of the assessee is not based on merits and therefore the TPO's re-computation cannot be taken as correct.

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 8 -:

IT(TP)A Nos.16 & 17/Chny/2025 Chettinad Cement Corporation Pvt. Ltd. :- 9 -: 9. From the perusal of the facts pertaining to AY 2018-19, we notice that the TPO while re-computing the ALP as per the directions of the DRP has adopted the same methodology by reducing the electricity tax from the average rate of Tamil Nadu and Karnataka as considered by the assessee. Since the fact is identical to the facts for AY 2017-18, we are of the view that our direction to TPO given in AY 2017-18 is mutatis mutandis applicable to AY 2018-19 also. Accordingly we remit the issue back to the TPO with similar directions to re-compute the ALP.

Order pronounced on 29th day of January, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 29th January, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF