THE RAMCO CEMENTS LIMITED,RAJAPALAYAM vs. ACIT, MADURAI

आयकर अपीलीय अिधकरण, ’डी’ �ायपीठ, चे�ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI �ी एबी टी. वक�, �ाियक सद� एवं �ी अिमताभ शु$ा, लेखा सद� के सम& BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.14/Chny/2024 िनधा(रण वष(/Assessment Year: 2018-19 The Ramco Cements Limited, Vs. The Assistant Commissioner of Ramamandiram, Income Tax, Rajapalayam 626 117. Corporate Circle-2, Madurai. [PAN: AABCM8375L] (अपीलाथ�/Appellant) (+,थ�/Respondent) अपीलाथ� की ओर से/ Appellant by : Shri Muralidharan, CA & Shri J. Prabhakar, CA +,थ� की ओर से /Respondent by : Shri A. Sasikumar, CIT सुनवाईकीतारीख/Date of Hearing : 08.10.2024 घोषणाकीतारीख /Date of Pronouncement : 09.12.2024 आदेश / O R D E R PER ABY T. VARKEY, JM:

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Transfer Pricing), NFAC Delhi (hereinafter in short “CIT(TP)") dated 18.03.2024 for assessment year 2018-19 (hereinafter in short “AY").

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 2 :: 01.07.2021 for AY 2018-19 as not valid, since the final assessment order

for that year dated 29.09.2022 has been quashed by this Tribunal on the

ground of being time-barred and therefore, the impugned action of the Ld.

CIT(TP) seeking to revise a non-existent order is legally unsustainable in

law. Thus, according to the Ld. AR of the assessee the impugned action of

the Ld. CIT(TP) exercising his jurisdiction under section 263 of the Act

against the TPO’s order dated 01.07.2021 passed under section 92CA(3)

of the Act is wholly without jurisdiction and therefore bad in law.

filed its original return of income (RoI) for AY 2018-19 on 26.11.2018 declaring a total income of ₹.577,77,68,240/-. The assessee revised its RoI

on 30.03.2019 declaring the same total income. Later the RoI was selected

for scrutiny. And the AO referred the valuation of the assessee's Specified

Domestic Transactions (SDT), being the captive consumption of electricity

by the cement units of the assessee, to the TPO u/s 92CA for determining

the Arms-Length Price (ALP). The TPO, vide order u/s 92CA(3) dated

01.07.2021 determined the ALP of the SDT in conformity with the Direction

of the DRP of the earlier assessment year, namely AY 2016-17 in the

assessee's own case. Accordingly, the TPO accepted the assessee's

valuation of the SDT (being captive consumption of electricity) at the

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 3 :: adjusted retail rate, being rate at which TANGEDCO supplied power to the

consuming cement unit (hereinafter referred to as "retail rate") less

transmission charges, distribution charges, electricity tax, peak hour

charges and demand charges, as stated in para 6.6 of the TPO's order

(such rate hereinafter referred to as the adjusted retail rate). As the

assessee had not made any adjustment for transmission losses as directed

by the DRP for the earlier year namely AY 2016-17, the TPO made

downward adjustment in the transfer price adopted by the assessee to the

tune of Rs. 5,82,23,432 and forwarded his order to AO for inclusion in the

assessment order.

the AO, proposed various additions, including the valuation determined by

the TPO. Upon filing of objections by the assessee, the Dispute Resolution

Panel (DRP) issued Directions 144C(5) on 29.06.2022 and, based on these

directions, the assessment was completed by AO on 29.09.2022 u/s 143(3)

read with 144C(13) and section 144B of the Act.

before this Tribunal and one of the legal ground raised by the assessee

was that the final assessment order passed on 29.09.2022 was time-

barred. And after hearing the case, the Tribunal, vide order dated

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 4 :: 07.07.2023, upheld the assessee's contention and concluded that the final

assessment order was time-barred, and on this ground, the assessment

was quashed.

(SCN) conveying his desire to exercise the revisional jurisdiction under

section 263 of the Act against the TPO’s order passed under section

92CA(3) of the Act dated 01.07.2021 i.e., in respect of valuation of captive

consumption of electricity by Cement Units of the assessee. Pursuant to

SCN, the assessee objected to the proposed revisional action of TPO’s

order by raising various contention, which were repelled the Ld. CIT(TP) by

passing the impugned order dated 18.03.2024 and held that the order of

the TPO was erroneous as well as prejudicial to the interest of the Revenue

and therefore, he was pleased to set aside the TPO’s order and restored

the matter back to TPO for passing fresh order by ascertaining competitive

market price of electricity available in the market under long term contracts

and adopting the same for computing the revenue of the eligible unit from

sale of power to its associated enterprises being the power consuming unit.

Thus, he directed the TPO to compute the Arms Length Price (ALP)

accordingly. This impugned action of Ld.CIT(TP) is under challenge before

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 5 :: us, wherein the Ld.AR has raised legal issue of lack of jurisdiction of

Ld.CIT(TP) to invoke/pass the impugned order.

the final assessment order passed by the Assessing Officer dated

29.09.2022 under section 143(3) r.w.s. 144C(13) w.r.s. 144B of the Act had

been quashed by this Tribunal being time barred, the action of the Ld.

CIT(TP) to revise the TPO’s order is bad in law based on the principle that

when the foundation goes, super structure falls; and the other ground is

that even if the Ld. CIT(TP) has been empowered to revise the TPO’s order

passed under section 92CA of the Act, still the Ld. CIT(TP) has to satisfy

the essential pre-condition for invoking section 263 of the Act, i.e., the Ld.

CIT(TP) should find the TPO’s order to be erroneous as well as prejudicial

to the interest of the Revenue.

order, we have to first examine the scope of revisional jurisdiction u/s. 263

of the Act. For that, let us take the guidance of judicial precedence as laid

down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000]

243 ITR 83(SC) wherein their Lordship have held that twin conditions

should be satisfied before jurisdiction u/s.263 of the Act is exercised by the

ld. CIT. The twin conditions which need to be satisfied are that (i) the order

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 6 :: of the Assessing Officer must be erroneous and (ii) as a consequence of

passing an erroneous order, prejudice is caused to the interest of the

Revenue. In the following circumstances, the order of the AO can be held

to be erroneous i.e. (i) if the Assessing Officer's order was passed on

assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing

Officer's order is in violation of the principles of natural justice; (iii) if the

AO's order is passed without application of mind; or (iv) if the AO has not

investigated the issue before him. In the circumstances enumerated above

only the order passed by the Assessing Officer can be termed as

erroneous for the purpose of S.263 of the Act. Coming next to the second

limb, the AO's erroneous order can be revised by the Ld. CIT only when it

is shown that the said order is prejudicial to the interest of Revenue. When

this aspect is examined one has to understand what is prejudicial to the

interest of the revenue. The Hon'ble Supreme Court in the case of Malabar

Industries (supra) held that this phrase i.e. "prejudicial to the interest of the

revenue'' has to be read in conjunction with an "erroneous" order passed

by the Assessing Officer. The Hon’ble Supreme Court, held that for

invoking powers conferred by S.263; the CIT should not only show that the

AO's order is erroneous as a result of any of the situations enumerated

above but CIT must also further show that as a result of an erroneous

order, some loss is caused to the interest of the revenue. Their Lordship in

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 7 :: the said judgment held that every loss of revenue as a consequence of an

order of Assessing Officer cannot be treated as prejudicial to the interest of

the revenue. It was further observed that when the Assessing Officer

adopts one of the course permissible in law and it has resulted in loss to

the revenue, or where two views are possible and the Assessing Officer

has taken one view with which the Ld. CIT does not agree, it cannot be

treated as an order prejudicial to the interest of the revenue unless the view

taken by the Assessing Officer is unsustainable in law.

section 263 of the Act by Finance Act, 2022 and by doing so, the PCIT/CIT

in addition to their power to interfere with the assessment orders passed

under their jurisdiction, has been empowered to interfere with the order

passed by the TPO, if they consider any order passed by the TPO as

erroneous as well as prejudicial to the interests of the revenue; and after

hearing the assessee, pass an order enhancing or modifying the order

passed under section 92CA of the Act or directing TPO to pass fresh order.

It would be gainful to reproduce the amended section 263 of the Act which

reads as under:

“263 (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 8 :: Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section.

CIT(TP) to revise TPO's order, if it was found to be erroneous and

prejudicial to the interest of the Revenue. We note that CIT(TP) in this case

has issued notice under section 263 of the Act on 02.03.2023, i.e., post

2022 amendment which action of the CIT(TP) per-se cannot be said to be

without jurisdiction. Having said so, we have to examine whether the

essential condition precedent for invoking section 263 of the Act, i.e.,

whether or not the TPO's order is erroneous as well as prejudicial to the

interest of the Revenue. In order to examine the same, first we have to

examine whether the TPO has examined the issue that has been found

fault by the Ld. CIT(TP) i.e., the Specified Domestic Transaction in

question.

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 9 :: 11. In this regard, it is noted that the TPO had issued notice dated

23.10.2020 (found placed at page No.1 of the supplementary paper-book)

calling for information and documents in respect to 18 matters such as the

complete set of audited accounts, the Transfer Pricing Study report, the

status of the past transfer pricing assessments and litigation including

orders of the appellate authorities, copies of relevant agreements, details

of all specified domestic transactions with segment wise break of the same,

details of shareholding structure and changes if any, details of transactions

with associated enterprises relating to transfer of tangible and intangible

goods or provision of services, details of transactions with third parties in

India or outside India along with their comparability with the domestic

transactions, details of Transfer pricing adjustments, if any, offered in the

Return, fact sheet showing business description, total turnover, Gross,

operating and net profit, method applied value of domestic transactions,

PLI etc of three years including the relevant year, global TP policy and copy

of tax return of AE filed in India. It is noted that the assessee pursuant to

the notice, furnished reply dated 05.11.2020 (found placed at page No.3 of

Ibid paper-book) and on 06.05.2021 wherein it furnished the details called

for, including the Transfer Pricing Study Report (TPSR). The TPSR

contained the details and description of the SDT, the description of the

comparable transaction, namely the purchase of electricity by the cement

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 10 :: unit from TANGEDCO, the basis for arriving at the ALP, namely the

adjusted retail price, the reasons for taking the cement unit as the tested

party etc. Further, in the reply of 06.05.2021, the assessee also brought to

the Notice of the TPO that the DRP had recently passed orders in the

assessee’s own case for AY 2016-17 on 31.03.2021 in which the DRP had

approved the adjusted retail rate adopted by the assessee as the Transfer

Price for the SDT. The assessee further added that in the year under

consideration, namely AY 2018-19 certain adjustments were required to be

made to the value of the SDT in order to fall in line with the directions of the

DRP, namely that transmission and distribution losses not considered

earlier had to be reduced from the gross units of electricity generated and

further, the increase in wheeling charges by three paise per unit with effect

from 11.08.2017 had to be considered. And that the impact of these

adjustments would be a downward adjustment in the value of SDT by Rs.

5,82,23,432/-. And the assessee also furnished the detailed workings for

the adjustment as discussed and after going through the replies, the TPO

issued Show Cause Notice on 24.06.2021 (found placed at page 10 of

supplementary paper-book) wherein he summarized the Specified

Domestic Transaction of the assessee and the transfer price adopted by

the assessee for the specified domestic transaction carried out by each of

the power plants of the assessee and the fact that the assessee had

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 11 :: adopted the cement unit as the tested party, the details of the SDT and the

comparable uncontrolled transaction (being the purchase of electricity by

the power plant from TANGEDCO), relevant extracts from the Transfer

Pricing Study Report and also relevant extracts from the directions of the

DRP in the assessee’s own case for AY 2016-17. Thereafter, the TPO

proposed a downward adjustment of Rs. 5,82,23,432/- to the value of SDT

in order to be consistent with the directions of the DRP referred to above.

The assessee replied to the SCN on 25.06.2021 (found placed at page 17

of supplementary paper-book) stating that it has no objection to the

adjustment of Rs 5,82,23,432/- proposed in the Show Cause Notice. After

considering these replies the TPO passed a detailed order u/s 92CA(3) on

01.07.2021, in which he discussed in detail the facts of the case as

gathered in the course of the TP assessment, the DRP’s order for the

earlier year and concluded by suggesting a downward adjustment of Rs

5,82,23,432/- to the value of SDT. Therefore, we find that in the TP

proceedings detailed inquiries had been made and adjudication made by

TPO and after proper application of mind, the TPO suggested a downward

adjustment of Rs. 5,82,23,432/- to the Transfer Price adopted by the

assessee. From the aforesaid discussion, it is noted that TPO has

discharged his duty to enquire into the issue raised by the Ld. CIT(TP).

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 12 :: 12) Having taken note that TPO has carried out enquiry into the issue,

we need to examine as to whether his view on the issue is a plausible view

or a view unsustainable in law. In this regard, we find that TPO while

determining the arms-length of SDT was inline as taken by the DRP in the

assessee’s own case for an earlier year namely AY 2016-17. It is noted

that in AY 2016-17, the DRP vide its order dated 31-3-2021 had approved

taking the adjusted retail price as the Transfer Price for the captive

consumption of electricity (refer DRP’s order reproduced in para 6.6 of the

TPO’s order for the year under appeal, AY 2018-19). The TPO relied on

this order and approved the assessee’s transfer price for AY 2018-19 (year

under appeal), subject to the downward adjustment of Rs.5,82,23,432/-.

The Ld.AR relying on the decision of the Hon’ble Calcutta High Court in

Philips India Limited (2015) 64 taxmann.com 402 (Cal.) submitted that

where the AO passed orders following the direction of the DRP for an

earlier year, the CIT cannot consider the AO’s order to be erroneous u/s

263 of the Act.

13) In this context, the Ld.AR brought to our notice that the issue

regarding the determination of market value of electricity captively

consumed (being the SDT) has been settled by the Hon’ble Supreme Court

in the case of Jindal Steel and Power Private Limited – 157 taxmann.com

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 13 :: 207 wherein the Supreme Court concluded that “the market value of power

supplied by the assessee to its industrial units should be computed by

considering the rate at which the state electricity board supplied power to

the consumers in the open market and not comparing it if the rate of power

when sold to a supplier i.e sold by the assessee to the state electricity

board as this was not the rate at which an industrial consumer would have

purchased power in the open market”. Thus, the Hon’ble Supreme Court

had held that the retail price of electricity, being the price at which the

Electricity Board supplies electricity to the industrial consumers needs to be

considered as the market value of the electricity captively consumed.

Therefore according to Ld.AR, since, the assessee’s approach was in

conformity with the ratio of the decision of the Hon’ble Supreme Court, the

order passed by the TPO could not be considered as erroneous. The Ld.

AR also brought to the notice that in a recent decision in the assessee’s

own case for AY 2013-14 this Tribunal in its order dated 03.07.2024 (found

placed at page 166 to 193 of paper-book volume-I) had upheld the

assessee’s transfer price methodology following the decision of the Hon’ble

Supreme Court in Jindal Steel and Power Pvt Ltd (supra). And in that year

also the assessee had followed the very same approach in the

determination of transfer price as in AY 2018-19, under appeal. The Ld. AR

also pointed out that in a recent order dated 26-6-2024 in the assessee’s

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 14 :: own case for AY 2020-21, the DRP had approved the assessee’s transfer

price by relying on the Hon’ble Supreme Court decision in Jindal Steel and

Power Pvt Ltd.(supra), and drew our attention to Para 2.2.3 of the DRP’s

order for AY 2020-21 which shows that the assessee has followed the

same approach in arriving at the transfer price for AY 2020-21 as in AY

2018-19, i.e., the year under appeal. Moreover, as noted in Para 2.2.7 of

the DRP’s order the assessee’s transfer price was in line with the Hon’ble

Bombay High Court decision in Reliance Industries Ltd – [2019] 102

taxmann.com 372, Chhattisgarh High Court in the case of Godavari Power

Ltd &Ispat ltd – [2014] 42 taxmann.com 551 and Gujarat High Court in the

case of Gujarat Alkalis and Chemicals Ltd – [2017] 395 ITR 247.

14) Thus, we note that the view taken by the TPO was in conformity with

the several judicial decisions cited above, including the decision of the

Hon’ble Supreme Court in Jindal Steel and Power Pvt Ltd (supra).

Therefore, the TPO’s order is a plausible view and cannot be considered as

unsustainable in law. In the light of the discussions, we rely upon the

decision of the Hon’ble Supreme Court in the case of Max India – [2008]

166 Taxman 188 (SC) wherein it was held that where two views are

possible and the Income Tax Officer has taken one view with which the

Commissioner does not agree, it cannot be treated as an erroneous order

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 15 :: prejudicial to the interest of the revenue. Therefore, we find that

Ld.CIT(TP) erred in holding that TPO’s order is erroneous as well as

prejudicial to the Revenue.

jurisdiction u/s.263 of the Act, we also find considerable force in the other

legal issue raised by the assessee in the facts of this case that since the

final assessment order passed by the AO dated 29.09.2022 was quashed

by this Tribunal being time barred, the action of the Ld. CIT(TP) to exercise

his jurisdiction u/s.263 of the Act only on the ground that the Department

has preferred an appeal against the Tribunal order before the Hon’ble High

Court cannot be accepted, since, if the Hon’ble High Court reverses the

action of this Tribunal dated 07.07.2023, then the consequence is that the

assessment order which includes the specified domestic transaction would

be considered on its merits. Therefore, the reason given by the Ld.CIT(TP)

to exercise revisional jurisdiction is not acceptable. In addition to the same,

we also find that the reference made by the AO to the TPO to compute the

Arm’s Length Price in relation to the international transaction / specified

domestic transaction would trigger the TPO to determine the Arm’s Length

Price in relation to the international transaction / specified domestic

transaction as indicated in section 92CA of the Act. And thereafter, the AO

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 16 :: has to incorporate in the assessment order, the order of TPO u/s.92CA and

pass the draft assessment order u/s.144C(1) of the Act, which can be

assailed before the DRP by filing objections against the proposed draft

assessment, which includes the transfer pricing adjustments which

determine the Arm’s Length Price related to international transaction /

specific domestic transaction. Thereafter, based on the DRP’s direction,

the AO has to pass the final assessment order. Since the final assessment

order in this case has been quashed by this Tribunal by order dated

07.07.2023, being time barred, there is no order which exists in the eyes of

law and therefore, the final assessment order which includes the TPO order

(regarding the Arm’s Length Price determined in relation to international

transactions / specified domestic transactions), is also non-est. Meaning,

there is no TP order / assessment order which exists in the eyes of law

after quashing of the final assessment order. Therefore, in this case, the

legal maxim “sublato Fundmento Credit opus” is attracted, meaning in case

a foundation is removed, the super-structure falls. In Badarinath v. Tamil

Nadu AIR 2000 SC 3243, the Hon’ble Supreme Court held that once the

basis of proceedings is gone, all consequential orders & acts would fall on

the ground automatically which is applicable to judicial and quasi judicial

proceedings. Therefore, it is held that the impugned order of the Ld.

CIT(TP) passed u/s.263 of the Act dated 18.03.2024 is also null / non-est

IT (TP) A No.14/Chny/2024 (AY 2018-19 ) The Ramco Cements Limited :: 17 :: in the eyes of law. Therefore, the assessee succeeds on the legal issue and therefore, we are inclined to quash the impugned order passed by Ld CIT(TP).

Sd/- Sd/- (एबी टी. वक�) (अिमताभ शु�ा) (ABY T. VARKEY) (AMITABH SHUKLA) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated: 09th December, 2024. Vm/- आदेश की +ितिलिप अ0ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.+,थ�/ Respondent, 3. आयकर आयु1/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय +ितिनिध/DR & 5. गाड( फाईल/GF.