M/S. LAXMI ORGANIC INDUSTRIES LIMITED ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(2)(1), MUMBAI

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

2. Grounds taken by the Assessee are reproduced as under:

“General

1. On the facts and in the circumstances of the case, and in law, the learned Assessing Officer erred in assessing your appellant's income at Rs 93,72,50,260/- as against the returned income of Rs 5,83,67,890/-.

Arm's length Price (ALP)/Transfer Pricing (TP) Adjustments - Jurisdictional Issues

2. On the facts and in the circumstances of the case, and in law, the learned Assessing Officer wholly erred in making addition on account of "Arm's length price in relation to international transactions with associated enterprises" amounting to "Rs 83,66,17,206", whereas, on the facts of this case, no additions in respect of "arm's length price adjustments" could, at all, have been made to the income of the assessee.

3. On the facts and in the circumstances of the case, and in law and particularly as the learned Assessing Officer did not tinker with the claim of the assessee under section 80IA in the computation of income, and left it wholly intact, the arm's length price adjustments in respect of the specified domestic transactions could not have affected the computation of income in any other manner whatsoever.

4 On the facts and in the circumstances of the case, and in law (and particularly as the order dated 28th June 2024, purportedly having DIN No. ITBA/COM/F/17/2024-25/1066188560(1), was never served upon the assessee, never uploaded on the portal and was passed without putting assessee to the notice), the learned Assessing Officer thus erred in law in making arm's length price adjustments in respect of alleged international transactions in the computation of income.

Arm's length Price (ALP)/ Transfer Pricing (TP) Adjustments -Without prejudice grounds, on merits of the purported ALP adjustments

5. On the facts and in the circumstances of the case, and in law, the learned Transfer Pricing Officer ("Ld. TPO") erred in making an arm's length price adjustment on the sale price of the electricity produced by the eligible unit [i.e. the unit of the assessee eligible for deduction under section 80IA of the Income Tax Act, 1961 (hereinafter referred to as the Act)] of Rs. 7,79,97,476/-, and the learned Dispute Resolution Panel ("Ld. DRP") erred in further enhancing the said arm's length adjustment to Rs 21,44,93,066/-

In doing so, the learned Transfer Pricing Officer/ the learned Assessing Officer/ the learned Dispute Resolution Panel specifically erred in the following, independently as also taken together but without prejudice to each other, respects

(a) erred in disregarding the binding legal position that, as held by the Hon'ble Supreme Court in the case of CIT vs. Jindal Steel & Power Ltd. ((2024) 460 ITR 162 (SC)] market value of the 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 with 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 could have purchased power in the open market" and the fact that the law so laid down by Their Lordships equally holds for the purpose of determination of arm's length price under rule 10B(1) of the Income Tax Rules 1962 (hereinafter referred to as 'the Rules']- and particularly under rule 10B(1)(a) and rule 10B(1) (f) rwr. 10AB,

(b) in not appreciating that the benchmarking adopted by the assessee was equally valid and sustainable in law under Rule 10B(1) (f) read with rule 10AB, as, under the said method as it "takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non- associated enterprises, under similar circumstances, considering all the relevant facts of electricity, which in plan words is market value of the electricity, and, in the light of the law laid down by the Hon'ble Supreme Court in the case of Jindal Steel and Power (supra), market value of the 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 with 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 could have purchased power in the open market":

(c) in not appreciating that while the Hon'ble Supreme Court, in the case of Jindal Power and Steel (supra) were dealing with the legal position before the insertion of Section 80A(6), there is, in effect, no change in the legal position so far as the transfer price of the electricity from eligible units to ineligible units is concerned since the connotations of 'arm's length price of the electricity inherently include market price of the electricity, and the 'market price of the electricity has been conclusively defined by the Hon'ble Supreme Court which binds everyone under Article 141 of the Constitution of India,

(d) in discarding the perfectly valid, more so in the light of law laid down by the Hon'ble Supreme Court in the case of Jindal Steel and Power (supra), external CUP inputs adopted by the assessee [i.e. sale price of electricity by Reliance Infrastructure Limited (RInfL) to the end consumer), on the wholly irrelevant ground that the assessee does not satisfy FAR analysis with RInfl. in terms of rule 10B(2)(b), and substituting it another CUP inputs adopted by the Transfer Pricing Officer [i.e. the purchase price at which the thermal power plants have sold the electricity to the BEST], but without even identifying such sellers with which the assessee's FAR analysis is to be compared (be the unidentified thermal plants),

(e) in replacing the arm's length price computation mechanism adopted by the assessee, and replacing it with another arm's length price computation mechanism-without fulfilling the necessary precondition of giving categorical and specific findings about how the arm's length price computation mechanism so adopted is more appropriate vis-à-vis the mechanism adopted by the assessee, and in not appreciating that unless the appropriateness of the new mechanism is so demonstrated, the authority is denuded of the powers to tinker with mechanism adopted by the assessee,

(0) in not appreciating that, in any event, the requirements of FAR (functions, assets and risks) analysis under rule 10B(2) (b) of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rule'), is relevant in the CUP analysis only to the extent, as rule 10B(1)(a)(ii) specifically provides, only to the extent "differences... which could materially affect the prices (of the related product or service) in the open market", and, as such, differences, if any, "between the enterprises entering into such transactions" are only required to be adjusted for, as is the specific mandate of Rule 10B(1)(a), only to the extent that such differences "could materially affect the price in the open market":

(g) in not appreciating the FAR analysis, if at all applicable to the CUP transactions, must extend not only to the functions performed, but also to the assets employed and risks assumed, and in thus doing a lopsided FAR analysis only on the basis of functions of the comparables, and thus replacing the external comparable on wholly irrelevant basis, and, in any event, in not appreciating that the CUP inputs furnished by the assessee cannot be substituted by another CUP inputs adopted by the learned Transfer Pricing Officer without putting the comparable uncontrolled transactions to the same FAR test under rule 10B(2)(b) on the basis of which the CUP inputs furnished by the assessee are rejected:

(h) in not appreciating that the scope of FAR analysis under rule 10B(2)(b) is confined to the selection of comparables and does not extend to the adjustments under rule 10B(1)(a)(ii) which is only enabling rule for adjustments in respect of the CUP inputs and which permits adjustments in respect of "differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions. which could materially affect the price in the open market" only;

(1) in not appreciating that the FAR analysis under rule 10(B)(2) is, as specifically stated therein, with respect to comparability analysis, and in a situation in which the comparability is not between the entities or the role they play, but only of the price of the products under the CUP (comparable uncontrolled price) method, then only rule 10B(2)(a),(c) and (d) come into play, whereas, for example, in the case of TNMM (transactional net margin method), only rule 10B(b), (c) and (d) come into play, and in thus not appreciating that all the comparability factors under rule 10B(2) do not come into play in each case, in not appreciating that on account of the inherent nature of the Comparable Uncontrolled Price method, which is solely governed by the prices settled by the market mechanism, for a product where "specific characteristics of the property transferred or services rendered" is materially similar [Rule 10B(2)(a)], where "the contractual terms (whether or not such terms are formal or in writing) of the transactions" are materially similar [Rule 10B(2)(c)], and "conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail" [Rule 10(B)(d)) are materially similar, no other factors, influence the acceptability of the comparable as long as all other conditions, as referred to above, are satisfied;

(k) in not appreciating Rule 10B(3), under which all the tinkering with the CUP inputs furnished by the assessee has been done, does not permit any adjustments in the CUP inputs and that it is only a comparability mechanism, not an adjustment mechanism,

(l) in not appreciating that, as observed by the various Hon'ble judicial authorities including the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications Lid Vs CIT [(2015) 374 ITR 118 (Del)], "transfer pricing is not an exact science but a method of legitimate quantification which requires exercise of judgment on the part of the tax administration and the taxpayer It is method and formula-based and, therefore, is rational and scientific. However, not being perfect or infallible...", and thus proceeding to reject an arm's length price mechanism only because of its, even if there be any, inconsequential limitations which have no impact on the price at which the transaction for sale takes place between the independent enterprise- the critical factor in the CUP analysis, and (m) in not appreciating that the impugned adjustments aggregating to Rs 2.38 per unit in the arm's length price of electricity on account of additional costs for Government Duties, Coal Costs and markups, purportedly made under rule 10B(3), are unsustainable in law not only because rule 10B(3) deals with comparability factors per se and the CUP analysis does not permit any adjustments beyond the scope of rule 10B(1)(a)(ii) but also because in the CUP analysis, no adjustments are permissible in respect of costs incurred by the assessee. The critical factors being the market price and the factors affecting the market price, the cost aspect of a transaction is not germane to the adjustments under the CUP analysis.

6. On the facts and in the circumstances of the case, the learned Assessing Officer erred in adopting the arm's length price of the sale price of steam power supplied by the eligible unit i.e. unit eligible for deduction under section 80IA of the assessee to its other units, as NIL

In doing so, the learned Assessing Officer/ learned Transfer Pricing Officer/learned Dispute Resolution Panel specifically erred in the following, independently as also taken together but without prejudice to each other, respects

(a) erred in not appreciating that there was no direction by the learned DRP to make any adjustments in the arm's length price of the steam supplied by the eligible units to the ineligible units, and, accordingly, the learned Transfer Pricing Officer and the learned Assessing Officer erred in proposing and making the arm's length price adjustment of Rs 62,21,24,140 in respect of the sale of the steam,

(b) erred in not appreciating the apparent fallacy in DRP's holding that as the cost of the steam is more than the ALP (as erroneously computed by the DRP), it was directed that the "the Section 80IA deduction claim emanating from the steam transfer is to be taken as NIL. This is an enhancement of variation undertaken by the Panel" whereas no such variation, with respect to 80IA deduction, was even proposed in the draft assessment order at page 11, no such adjustment was made even in the final assessment order, and that, in the absence of a proposed variation, no enhancement was permissible;

(c) erred in not appreciating that the powers of the Dispute Resolution Panel, under Section 14-4C(8) with respect to enhancement are confined to "the variations proposed in the assessment order", and as the draft assessment order was stated to give effect to the order passed under section 92CA(3) dated 30/11/2011 stating "ALP adjustment of Rs. 9.97.476 is being proposed to be made in the SDT on account of sale of electricity to the eligible units", and that as no specific "variation" was proposed with respect to the sale of steam to the ineligible units, the Dispute Resolution Panel was denuded of the powers to make any enhancement in respect of the sale of steam by the eligible units to the ineligible units:

(d) erred in not appreciating that unlike the powers of enhancement of the CITI(A) under Section 251(1)(a) which, inter alia, extend to "enhance.....the assessment", the powers of the Dispute Resolution Panel, under section 144C(8) enhancing the "variations" proposed in the draft assessment order, and, accordingly, when a specific "variation" in respect of an item is not proposed in the draft assessment order, the Dispute Resolution Panel is denuded of the powers to make any enhancement of "variation" in respect of the same,

(e) erred in not appreciating that the powers of the Dispute Resolution Panel, in view of the scheme of the Section 144C(8), does not extend to picking up and making an enhancement of income in respect of an item in respect of which no variation is proposed in the impugned assessment order, and in the impugned assessment order. the "variation" proposed is with respect to Arm's length price for the sale of electricity only:

(1) erred in being swayed by wholly irrelevant considerations such as the margin earned by the assessee on the production of steam, which is entirely irrelevant in the context of comparison of the price at which similar transactions have taken place between the independent enterprises, and in holding that "the costing (of steam production) provided by the applicant (assessee) is wholly unacceptable", that "there is no question of any mark up/profit in exhaust steam business as it is a transaction with self and there is no ALP/no market value" and that "the large notional profits shown on steam notional sale are unacceptable" as these aspects were not germane in the context of CUP analysis and as it was beyond the DRP's powers to analyse the cost of steam, profits arising from steam or such other unrelated factors, while examining the correctness of the CUP analysis of steam under rule 10B(1)(a):

(g) erred in rejecting the CUP analysis adopted by the assessee for determining the arm's length price, without providing any other method, which in the DRP's opinion, is more appropriate, for ascertaining the arm's length price on the facts of the case

(h) erred in holding that "CUP is an open market price which can be ascertained from the open inquiries" and that "just two instances from one company does not make a CUP", which is not only factually incorrect but also contrary to the scheme of Rule 10B(1)(a) and also contrary to the well settled legal position laid down by the binding judicial precedents;

(1) erred in concluding, even as holding that ALP of the steam for the inter-unit transfer is to be taken as NIL, that the arm's length price of the steam sale is Rs 493.70 per metric tonne on the basis of adjustment in comparable sale prices on the basis of "pressure ratio" and "heat ratio", without identifying any scientific basis for this approach, apparently on the basis of general knowledge of the DRP members or on the basis of their understanding of highly technical nuances of the steam utility and value, without confronting the assessee with this adjustment and scientific basis for the same, and without having regard to the actual facts and technicalities with respect to the steam utility, value and price mechanism, and thus erred in making adjustments to the CUP under rule 10B(1)(a)(ii) without any sound, cogent and legally sustainable basis,

(j) erred in making a large number of sweeping observations on the technicalities with respect to steam production, transmission and its technical specifications, without any scientific basis known to the assessee and without any technical material to support the same,

(k) in not appreciating that to ascertain the arm's length price of the specified domestic transactions under the CUP method, it is incumbent upon the authorities to examine the correctness of such arm's length price under the CUP method, without having regard to the profitability or otherwise of the transaction, and the DRP was thus, in the process of ascertaining such arm's length price determination, swayed by wholly extraneous considerations, and (1) erred in holding that the assessee failed to establish the actual production and sale of steam and, in the process, in disregarding the contemporaneous documentation maintained by the assessee, and the fact that but for the supply of this steam, production would not have been possible for the recipient unit,

7. On the facts and in the circumstances of the case and in law, the learned DRP erred in making enhancement in respect of arm's length price adjustment of steam without confronting your appellant with any relevant or legally sustainable material in support with the same, and by following the procedure settled in law.

Corporate Tax Disallowances 8 On the facts and in the circumstances of the case and in law, the learned Assessing Officer, based on the directions of the learned DRP, erred in making disallowance of claim u/s 35(2AB) amounting to Rs. 3,61,05,919/-

9. Without prejudice to ground no. 8 above, on the facts and in the circumstances of the case and in law, the Ld. DRP erred in not restricting the disallowance u/s 35(2AB) to Rs. 2,60,79,526/- as against the disallowance of Rs. 3,61,05,919/- , as in any case, the appellant is eligible to claim deduction @100% for revenue expenditure u/s 35(1)(i) and @100% for capital expenditure u/s 35(1)(iv).

10. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in completing the assessment without considering the request of the appellant that adjustments were required to be made the returned income before assessing the income of the appellant amounting to Rs. 1,95,07,722/- on account of inadvertent double disallowance of depreciation by the appellant in respect of Right of use asset relating to the leased asset on account of IND AS adjustments.

11 On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in completing the assessment without considering the request of the appellant in respect of adjustment by way of additional claim of expenditure of Rs. 50,00,000/- required to be made to the Returned Income before assessing the income of the appellant on account of processing fees for HDFC Term Loan which inadvertently remained to be claimed in the returned income.

Other Issues 12. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in taking a figure of Rs. 1,71,29,05,360 in the computation sheet as Income from Business or Profession instead of Rs. 87,62,87,150 (after considering the additions made by him to the returned Income from Business or Profession).

13. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in computing tax liability in the computation sheet attached to the assessment order by considering the book profit u/s 115JB as Rs. 1,71,28,15.858/- as against the actual book profit of Rs. 89,43,87,268/- as computed in the returned income as well as in the intimation u/s 143(1).

14. On the facts and in the circumstances of the case and in law, the learned Assessing Office erred in computing tax liability in the computation sheet attached to the assessment order without allowing the MAT credit u/s 115JAA of the taxes paid in the earlier years amounting to Rs. 12,25,49,360/-

15 On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in making additions to the returned income based on the directions of the Ld. DRP as the impugned directions u/s 144C(5) dated 21- 06-2024 have been issued without application of mind and are clearly based on wrong appreciation of facts.

16. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in not allowing credit for Dividend Distribution Tax ("DDT") paid despite specific request being made during the course of assessment proceedings.”

4. Facts as culled out from records are that assessee is engaged in the business of manufacturing of chemicals, having its manufacturing facility in Mahad, Maharashtra. Assessee filed its return of income on 22.01.2021, reporting total income at Rs.5,83,67,890/- under the normal provisions and Rs.89,43,87,268/- u/s. 115JB of the Act. Assessee claimed deduction u/s.80IA(4)(iv) for generation of electric power and steam. Assessee has Captive Power Plant (CPP) which is an eligible unit u/s.80IA, which generates power and is captively consumed by its own manufacturing unit, i.e., non-eligible unit. CPP generates electricity as well as steam. Steam is supplied/transferred to the assessee’s manufacturing plant after being used to rotate turbine for generating of electricity since it is useful in the manufacturing process of chemicals.

4.1. In the course of assessment proceedings, reference was made by ld. Assessing Officer u/s. 92CA(1) to the ld. Transfer Pricing Officer (TPO) in respect of specified domestic transactions (SDT). Assessee has claimed deduction u/s. 80IA of Rs.76,86,75,685/- amongst other deductions under Chapter VI-A. Details of SDT entered into by the assessee which were subjected to transfer pricing assessment are tabulated as under: Sr Name of the person with whom the Description of Total Method No international transaction / specified transaction amount adopted domestic transaction has been paid/received entered into or payable/ receivable in the transaction 1 Laxmi Organics industries Ltd Unit 1 Sale of power 18,24,56,910 CUP

Sale of power from CPP to Unit 1 2 Laxmi Organics Industries Ltd Unit 2 Sale of power 23,95,51,358 CUP

Sale of power from CPP to Unit 2 3 Laxmi Organics industries Ltd Unit 1 Sale of Steam 62,21,24,140 CUP

Sale of steam from CPP to Unit 1 4 Laxmi Organics Industries Ltd Unit 2 Sale of power 12,08,79,000 CUP

Sale of power from Boiler to Unit 2 5 Laxmi Organics Industries Ltd. Unit 2 Sale of power 8,55,48,858 CUP

Sale of power from Cooling Tower to Unit 2

Total 125,05,60,266 4.2. From the above table, it is noted that assessee generates electric power from CPP, as well as from cooling tower which is supplied to its non-eligible units. Assessee claimed deduction u/s.80IA on electricity sales from CPP of Rs.22.860 Crores. In this respect, total revenue reported by the assessee is Rs.42.201 Crores against which total cost reported is Rs.19.341 Crores resulting into profit of Rs.22.860 Crores claimed as deduction u/s.80IA. For transfer of steam power from CPP, total revenue is reported at Rs.62.212 Crores and total cost at Rs.19.242 Crores with profit at Rs.42.970 Crores claimed as deduction u/s 80IA. In respect of power generated from cooling tower, claim of deduction u/s. 80IA amounts to Rs.5.387 Crores which is worked out based on total turnover of Rs.8.555 Crores with total cost of Rs.3.168 Crores. In respect of steam produced from the boiler, claim of deduction u/s.80IA is Rs. 5.307 Crores after reporting total revenue of steam at Rs.12.088 Crores with total cost of Rs.6.781 Crores. Accordingly, total claim of deduction u/s 80IA by the assessee is Rs.76,52,42,895/-.

4.3. For the sale of electricity by the eligible unit to non-eligible unit, assessee bench marked its transaction at the rate of Rs.8.85 per unit with external comparable of Reliance Infrastructure Ltd. (RIL), who had sold power to its customer at the rate of 9.85 per unit. Based on this bench marking, assessee claimed that its sale of transactions from eligible units to non-eligible units is at Arms Length Price (ALP). For the sale of steam from eligible unit to non-eligible unit, assessee bench marked this transaction at the rate of Rs.2.035 per kg of steam with the external comparable of the Dharamsi Morarji Chemicals Co. Ltd., who sold steam to independent party, i.e, Pepsico India Holdings Pvt. Ltd. at Rs.2.04 per kg of steam and Unichem Labs Ltd. Thus, assessee claimed that its sale transaction of steam is at ALP.

Total units of electricity sold by assessee through Cooling Rs. 96,66,538 Tower (B)

Total units of electricity sold by the assessee (A+B=C) (C) Rs. 5,73,51,088 ALP of Sale value as discussed 57351088 X 7.49 Rs.42,95,59,649 (D) ALP Sale value as per assessee through CPP Rs. 42,20,08,268 (E) ALP Sale value as per assessee through Cooling Tower Rs. 8,55,48,858 (F) ALP Sale value as per assessee through CPP (E+F=G) (G) Rs. 50,75,57,126

ALP adjustment (G-D) Rs. 7,79,97,476 5.1. However, on these adjustments, assessee had pointed out that its eligible units are captive power units and pay government duty of Rs.1.2 per unit and also incur production cost of Rs.0.97 per KWH on account of using imported coal since it does not have access to domestic coal. These costs are not incurred by the other power generators and thus affects the profit.

5.2. In respect of bench marking for the steam power, ld. TPO noted in para 6.2.1 that ALP benchmarked by the assessee is accepted.

2. Education Cess 61,07,692

3. Deduction u/s 35(2AB) 3,61,05,919

4. Disallowance u/s 36(1)(va) 50,553

Assessed income u/s 143(3) r.w.s 144C(1) 17,86,30,530 r.w.s 144B 6.1. Against the said draft order, assessee filed objections before the Dispute Resolution Panel-1, Mumbai (DRP). In the DRP proceedings, assessee furnished all the relevant documentary evidences and explanations for the claim of deduction made u/s.80IA as well for the corporate issues. After considering the same, ld. DRP enhanced the ALP adjustment made by the ld. TPO from Rs.7,79,97,476/- to Rs.21,44,93,066/- in respect of electric power. While making this enhancement, ld. DRP held that ld. TPO adopted an erroneous and un- wholesome approach loading the cost on to the comparable rate of BEST tariff by apportioning additional cost of Rs.2.38 per unit to the ALP of BEST of Rs.5.11. It thus, rejected the approach adopted by ld. TPO of loading of additional cost and directed to re-compute the ALP of electricity at Rs.5.11 instead of Rs.7.49. Thus, the direction of DRP as contained in para – 6.3.7 of its order states that “ALP of electricity power would lead to adjustment of Rs.21,44,93,066/- with enhancement of Rs.13,64,95,590/-”.

6.2. Further, ld. DRP sought to make a disallowance of claim made u/s.80IA from transfer of steam by treating it as Nil. The direction of ld. DRP as contained in its order in para – 10.5 states that “The ld. Assessing Officer/TPO are directed to compute the eligible deduction u/s.80IA as per the directions above, and carry out necessary enhancement of variation. The section 80IA deduction claimed emanating from steam transfer is to be treated as “nil”. This is an enhancement of variation undertaken by the panel.”

6.3. Subsequent to the order of ld. DRP and the order giving effect was exercised by ld. Assessing Officer to pass the final assessment order by making additions of Rs. 83,66,17,206/- comprising of transfer pricing adjustment towards sale of electricity for Rs.21,44,93,066/- and for sale of steam at Rs.62,21,24,140/-. Other corporate adjustments, as already listed above were also made to arrive at total assessed income at Rs.93,72,50,260/-. Aggrieved, assessee is in appeal before the Tribunal against the order of ld. DRP.

7. Ground No.1 and 2 are general in nature and will be dealt along with other grounds raised by the assessee which are both on legal as well as merits of the case. Thus, these do not need separate adjudication.

8. Through ground no.4, assessee has contested that order giving effect, passed by ld. TPO pursuant to direction given by ld. DRP is invalid and bad in law. In this respect, it is noted that a computation dated 28.06.2024 was generated through ITBA module which was transmitted internally to the ld. Assessing Officer for implementation which is a standard practice under the post–DRP compliance procedure. Ld. CIT DR has placed on record a delivery status acknowledgment and record of transmission made available from the office of ld. TPO vide communication dated 16.04.2025. Claim of the assessee is that ld. Assessing Officer in his final assessment order has referred to an order dated 28.06.2024 purportedly bearing DIN ITBA/COM/F/17/2024-25/1066188560(1) passed by the ld. TPO. According to the assessee this order was never served to it. Further, it cannot be authenticated on the portal of the Department. Thus, according to the assessee, the order by the ld. TPO complying with the directions of the ld. DRP is invalid and correspondingly the final assessment order passed pursuant to the said TPO order is invalid to the extent adjustments mentioned therein.

8.1. Contention of the revenue is that internal working by ld. TPO is a procedural document, recording computation post DRP directions. Electronic visibility of such internal inter departmental documents on assessee’s login or public portal is not mandated under the law. The said document is not a statutory order requiring service but a computational note prepared to facilitate implementation of the direction given by the DRP to pass a final order by the ld. Assessing Officer, as required u/s.144C(13). Further, such an order is not an appealable order u/s.246A nor an independently executable instrument. Its solely serves to aid the Assessing Officer in implementing the binding directions of the ld. DRP and requires no separate service or statutory issuance. According to section 144C(13), once directions are issued under sub-section (5) by the ld. DRP, ld. Assessing Officer is statutorily obligated to pass a final assessment order without providing any further opportunity of being heard to the assessee. This provision clearly underscores that the final order giving effect is a clerical act of implementation and not a fresh adjudication.

8.2. We have considered the submissions made by both the parties in this respect and given our thoughtful consideration to the provisions of the Act contained in section 144C. In our considered view, the present case involves an internal implementation step following the binding directions issued by the ld. DRP. The impugned document by the ld. TPO as contested by the assessee is not a fresh or an adverse order nor one requiring appeal or compliance by the assessee without having its independent executability. It is a clerical act of implementation and not fresh adjudication, more of a procedural document recording computation post DRP directions. Thus, claim made by the assessee is not tenable both on the facts of the case and applicable provisions contained in section 144C. Ground no.4 raised by the assessee is dismissed.

6.2 Sale of Steam. Sr. No. TP Cost of Enhancement Amount of Adjustment Steam given by DRP Rs. Adjustment made on Rs. after DRP’s account of Order Rs. 1. Sale of Steam Nil 62,21,24,140/- 62,21,24,140/-

6.3 In view of the above. Transfer Pricing Adjustments are revised as per the directions of the Ld. DRP u/s. 144C(5) of the I.T. Act is as under: i. Sale of Electricity - Rs. 21,44,93,066 ii. Sale of Steam - Rs. 62,21,24,140 ================= Total Adjustment - Rs. 83,66,17,206 ================

Hence, in view of the give effect order passed on 28/06/2024 by TPO [DC/ACIT TP-3(1)(1), Mumbai] and after perusal of every point mentioned in the said order, upward adjustment of Rs. 83,66,17,206/- instead of Rs. 7,79,97,476/- is being made to the total income of the assessee. (Addition: Rs. 83,66,17,206/-)”

9.1. In this respect, it is to be noted that total claim of deduction u/s.80IA by the assessee is at Rs.76,86,75,685/- whereas total upward adjustment made is at Rs.83,66,17,206/-. It is also noted that while making an upward transfer pricing adjustment in respect of sale of steam to give effect to the directions of ld. DRP, cost of steam has been taken as nil, so as to arrive at TP adjustment of Rs.62,21,24,140/- which is nothing but the total sales/transfer value of the steam. Contrary to this, the directions given by ld. DRP is to reduce the deduction u/s.80IA pertaining to steam to nil. Assessee furnished a computation to demonstrate the application of the direction given by ld. DRP by making disallowance u/s.80IA which is extracted below: S. No. TP Adjustment Sale of Steam Cost of Steam Profit (i.e., made on deduction account of claimed u/s. 80IA) 1. Sale of Steam – 62,21,24,140 19,24,22,846 42,97,01,294 Unit I 2. Sale of Steam – 12,08,79,000 6,78,10,628 5,30,68,371 Unit II Total 74,30,03,140 26,02,33,474 48,27,69,666 9.2. Thus, by following the direction of the ld. DRP, the disallowance could have been as under: i. Sale of Electricity : INR 21,44,93,066 ii. Sale of Steam : INR 48,27,69,666 Total disallowance as per DRP directions : INR 69,72,62,735 9.3. Ld. CIT DR to this effect submitted that grievance raised by the assessee is not a violation of jurisdictional mandate but an apparent computation inconsistency during the implementation phase of the direction given by ld. DRP. Ld. CIT DR also deliberated on the powers of the ld. DRP to enhance and correct variations under the Transfer Pricing framework, for which reference was made to explanation to section 144C(8) inserted by Finance Act, 2012 with retrospective effect from Assessment Year 2009-10 which unequivocally affirms the authority of DRP to consider and decide any matter arising out of the assessment proceedings relating to the draft assessment order including those not specifically raised by the assessee or proposed by the ld. Assessing Officer. According to the ld. CIT DR, determination of ALP by ld. DRP for steam and electricity leading to reduction or denial of deduction u/s.80IA falls squarely within its domain. On the contention of the assessee that the final assessment order is not in conformity with the directions issues by ld. DRP, it was asserted that the final computation at best can be said to be suffering from coding inconsistency while implementing the directions of ld. DRP. Such discrepancy is in the nature of arithmetical and clerical mistake and is amenable to rectification u/s.154. According to him, such a procedural or computational lapse though inadvertent does not invalidate an otherwise lawful order.

9.4. Having heard both the parties and upon going through the relevant orders on record, along with applicable provisions of the Act, we are in agreement with the submission made by the ld. CIT DR in respect of power to enhance the variation available with ld. DRP which includes matters not specifically raised by the assessee or proposed by the ld. Assessing Officer. It is noted that assessee has not challenged power of enhancement through its ground no.3, rather it is contesting on the non-conformity of the directions given by ld. DRP to pass the final assessment order by ld. Assessing Officer/TPO as required u/s.144C(13).

9.5. From the perusal of section 144C(13), it is clear that ld. Assessing Officer is required to complete the assessment in conformity with the directions of ld. DRP, failing which renders the final assessment order as non est and void ab initio. From the factual position as captured in the above paragraphs, we note that ld. Assessing Officer/TPO has taken the cost of steam as nil to arrive at TP adjustment of Rs.62,21,24,140/- in respect of sale of steam though the direction by ld. DRP as contained in para 10.5 of its order states that “The section 80IA deduction claim emanating from steam transfer is to be treated as ‘Nil’.” The claim of assessee u/s.80IA towards sale of steam is worked out at Rs.48,27,69,666/- as tabulated above, which ought to have been taken at nil rather than making an upward TP adjustment by treating the cost of steam as nil and enhancing it on account of sale price.

9.6. From the computation of the total assessed income arrived at by ld. Assessing Officer in para-4 of the impugned order, the starting point is income as per return filed by the assessee. This returned income is arrived at after claim of deduction u/s.80IA. To this, ld. Assessing Officer has made the additions including ALP adjustment for sale of electricity and steam and other corporate disallowances/additions. This in essence reflects that ld. Assessing Officer in his computation has allowed the claim of deduction u/s.80IA which forms part of the computation of the income by the assessee to which TP adjustments have been added. The table of variation contained in para-4 of the impugned order is reproduced for ready reference: SI. No. Description Amount (in Rs.)

1 Income as per Return of income filed 5,83,67,890 2 Income as computed u/s 143(1)(a) 5,83,67,890

Variation in respect of issue: - 3 Arm's Length Price in relation to 83,66,17,206 international transactions with Associated Enterprises:

4 Deduction from total income under chapter 1,000 VI-A 5 Education Cess 61,07,692 6 Deduction u/s 35(2AB) 3,61,05,919 7 Disallowance u/s. 36(1)(va) 50,553

Assessed Income u/s. 143(3) r.w.s. 93,72,50,260 144C(13) r.w.s. 144B 9.7. From the above computation made by ld. Assessing Officer in the final assessment order, we find that it is not in conformity with the directions so issued by ld. DRP, more specifically, in respect of claim of deduction made u/s.80IA pertaining to steam. A reduction in 80IA claim cannot be beyond what is claimed. However, ALP adjustments are far in excess thereof, i.e. not only no reduction, no denial, but even in negative. This is undoubtedly a "substantial deviation in effect" vis-à- vis the directions of the DRP. The assessment order is thus not in conformity with the order of ld. DRP and is liable to be quashed.

9.8. Coordinate Bench of Mumbai in the case of I.A.R. System Aktiebolag vs. DCIT in and 1850/Mum/2022, dated 02.05.2023, held in para -18 and 19 that the assessment order passed by the ld. Assessing Officer is bad in law and against the direction specified u/s.144(13) of the Act, thereby quashing the assessment order passed by the ld. Assessing Officer. Relevant observations and findings of the Coordinate Bench in this respect, from para-18 and 19 is extracted below” “18. Considered the rival submissions and material placed on record, we observe from the record that assessee has received certain funds by supplying software through intermediaries in India and the various Companies are listed in Para No 3.1 of the Assessment Order. It is also fact on record that assessee has received the receipts as categorized by the Ld. DRP in their order at Page No. 32 as per which assessee has received income from sale of software licence, hardware, support services to those parties who are intended to purchase the latest software from IAR and certain freight charges. Which are part and parcel of the total services rendered by the assessee during the current Assessment Year. The Assessing Officer after considering the detailed submissions of the assessee and after detailed analyses of the issue on record and also relying on various case laws held that the receipts of income by the assessee are taxable under the head “Royalty” and in objection filed by the assessee before Ld. DRP and Ld. DRP has held that the above receipts received by the assessee is involvement of support services to the extent of ₹.36,37,596/- and other portion of the income includes sale of software and hardware. Without going into merits of the findings of the Ld. DRP, we observe that Ld. DRP has come to the conclusion on their own analysis that the case of the assessee falls under FTS. We observe that while passing the final Assessment Order Assessing Officer has not followed the directions of the Ld. DRP and passed his own Assessment Order by merely reproducing his analysis in draft Assessment Order.

19. From the record we observe that the final Assessment Order passed by the Assessing Officer is not as per section 144C(13) of the Act. However, Assessing Officer has filed a note in support of his final Assessment Order in which he has made submissions that the order passed by him is analyzing the various issue which are without prejudice views which Ld. DRP has not rejected. He is of the view that the final Assessment Order passed by him is as per section 144C(13) of the Act. After considering the submissions of both the parties, we are of the view that Assessing Officer has not followed the directions of the Ld. DRP and the directions of the Ld. DRP are very clear and Assessing Officer has not bothered to atleast classify the income earned by the assessee under the head FTS as per the directions of the Ld. DRP and royalty. He proceeded to complete the final Assessment Order based on his own analysis made by him in draft Assessment Order which is clearly a violation of not following the directions of the higher authorities and also the provisions of section 144C(13) of the Act. At the time of hearing, Ld. DR heavily relied on the decision of the ITAT Bangalore in the case of Yokogawa India Ltd., v. ACIT (supra) in which the bench has remitted the issue back to the file of the Assessing Officer/TPO to redo the assessment by following the directions of the Ld.DRP. We observe that in that case there is an issue of determination of arm’s length price of payment towards management fees, global sales and marketing activities fees. We do not intend to follow this decision of the ITAT Bengaluru bench for the simple reason that the Assessing Officer will get extended period of time by passing such orders which are clearly violation of the specific direction specified u/s. 144C(13) of the Act. Therefore, such violation cannot be ignored and in the given case under consideration we observe that Ld. DRP has given clear cut finding that income earned by the assessee will fall under FTS and Assessing Officer by following his own analysis and applied and completed the final Assessment Order under the head Royalty and not even he has bothered to follow the directions of the Ld. DRP and he could have atleast followed the directions of the Ld. DRP to the extent of support services under the head FTS and balance he could have brought to tax under the head Royalty. Further, we observe that the majority of the receipts received by the assessee are for sale of software licence and hardware and portion of the receipt which are received towards support services to the extent of ₹.36,37,596/- out of total receipt of ₹.2,88,87,787/-. In our view, Assessing Officer and Ld. DRP has taken a divergent view and without going into merits of the issues raised, we are inclined to treat the Assessment Order passed by the Assessing Officer as bad in law and against the directions specified u/s.144(13) of the Act. Accordingly, we quash the assessment order passed by the Assessing Officer and grounds raised by the assessee are allowed in this regard.” 9.9. Similar views are taken in various other decisions holding that not following the directions of ld. DRP renders the final assessment order as void, which are as under:

i. PCIT vs Flextronics Technologies (India) Pvt Ltd in (Kar) ii. Home Credit International vs ADIT [2024] 162 taxmann.com 634 (Delhi-Trib) iii. Tavant Technologies India Pvt Ltd vs DCIT in IT(TP)A No. 1582/Bang/2024 iv. Xchanging Solutions Ltd vs DCIT in IT(TP)A No. 2664/Bang/2017 9.10. We draw force from the decision of Hon'ble High Court of Karnataka in the case of Flextronics Technologies (India) Pvt. Ltd. (supra) where the substantial questions of law included “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that final assessment order as bad on the ground that assessing authority has not passed order as per directions of Dispute Resolution Panel?”. While answering this substantial question of law, Hon'ble Court gave the following observations and findings to answer it in favour of assessee and dismissing the appeal of the Revenue which is as under: “6. Shri.Suryanarayana is right in his submission that under Section 144C of the IT Act, the Assessing Officer is bound by the directions issued by the DRP and required to pass the assessment order in conformity with the directions issued within one month from the end of month in which such directions are issued.

11.1. It is noted that CUP method taken by the assessee as the most appropriate method (MAM) was rejected solely on the ground that the Functions, Assets, Risks (FAR) analysis of the assessee was not comparable with that of RIL resulting in rejection of price charged by RIL was rejected as a valid CUP. Ld. TPO resorted to weighted average purchase price of electricity of BEST at Rs. 5.11 per kWh. This is the computed price at which thermal power plants had sold the electricity to BEST. However, while adopting this comparable of BEST, no such FAR comparison was done between that of the assessee and the unknown sellers of electricity to BEST since BEST is not the generator of electricity. Ld. CIT DR justified the adoption of substituted CUP which is the selling price by the thermal power plants to the electricity distribution company (BEST) by stating that "the TPO, in an effort to provide a reasonable benchmark, had adopted the weighted average purchase price of electricity paid by Brihanmumbai Electricity Supply & Transport (BEST) and then applied upward adjustments....”.

11.2. In our understanding, it is only elementary that once a comparable is rejected by the revenue authorities on account of some shortcoming, real or imaginary, relevant or irrelevant, it is for the revenue authorities to demonstrate that the substituted comparable does not suffer from the same shortcoming based on which the comparable of the assessee is rejected. Unless a substituted CUP is established to be 'more appropriate' than the CUP adopted by the assessee, the assessee's CUP cannot be substituted. The substitution of CUP is thus inherently vitiated in law.

11.3. As far as use of CUP method is concerned, FAR analysis is not really a relevant factor except to the extent that it affects the price of the product in the open market under rule 10B(1)(a). Given the specific mandate of rule 10B(1)(a)(ii), the only adjustments which can be made in a CUP input are to the extent of "differences which could materially affect the prices in the open market". This requirement in Rule 10B(1)(a)(ii) has been ignored. In the present case, FAR of the assessee cannot be compared with the FAR of these unidentified vendors supplying electricity to BEST. The very basis on which the comparable is substituted by ld. TPO / DRP is devoid of a legally sustainable foundation.

11.4. Also, ld. DRP has rejected the approach of ld. TPO of making adjustment to the price adopted by him for the comparable of BEST by uploading the costs towards Govt. Duty and Coal along with a mark- up. This demonstrates that ld. TPO at the very point of taking this price was aware of the inherent differences so as to make the adjustment. And these adjustments have been negated by the ld. DRP. While negating the adjustment made towards coal cost, ld. DRP notes on page 56 of its order that “the differences in Cost of Coal is not workable. There is no evidence as to what was the effect rate of coal for the suppliers of BEST. The Transfer Pricing Officer has proceeded on pure assumptions. The computation made by the Transfer Pricing Officer has no factual / information basis. The Transfer Pricing Officer has not undertaken any enquiry u/sub-section 133(6) to arrive at such difference in cost of coal, if any. The Panel does not appreciate the unilateral decision of the Transfer Pricing Officer without any facts or enquiry or verified basis. Same applies to the rates, and duties. The Transfer Pricing Officer has not called for accounts of BEST and has not examined the rates, duties paid by it, and has not computed the Effective Duty rate. The Transfer Pricing Officer has proceeded to grant benefit without any examination or enquiry or verification.” This in itself evidently demonstrates that no comparative FAR analysis was undertaken both by the ld. TPO and the ld. DRP.

11.5. Furthermore, nothing is brought on record by the revenue that even if it is assumed that CUP method is unworkable on the given set of facts, how the same results are not arrived by adopting the “Other Method” under rule 10B(1)(f) r.w.r. 10AB.

11.6. For the interpretation of definition of ‘market value’, contention of the ld. CIT DR is that after 01.04.2013, on account of amendment and overriding effect of the non-obstante statutory provision under section 80A(6), the concept of 'market value' set out in Section 80IA(8) is not good in law and must be substituted by ALP determined under the transfer pricing regulations of the Act.

11.7. It is to be noted that amendment and introduction of Section 92BA vide Finance Act 2012 w.e.f 01.04.2013, wherein the SDT transactions were brought under the purview of Transfer pricing provisions were on the basis of recommendations and suggestions made the Hon'ble Supreme Court in the case of CIT vs Glaxo Smithkline Asia (P) Ltd in Civil Appeal no. 18121 of 2007. In para 7, Hon’ble Court noted that “In order to reduce litigation, we are of the view that certain provisions of the Act, like Section 40A(2) and Section 80IA(10), need to be amended empowering the Assessing Officer to make adjustments to the income declared by the assessee having regard to the fair market value of the transactions between the related parties. The Assessing Officer may thereafter apply any of the generally accepted methods of determination of arm's length price, including the methods provided under Transfer Pricing Regulations.”

11.8. Thus, the objective of Hon'ble Supreme Court on making recommendations for extending the application of transfer pricing provisions to domestic transactions was to ensure that where exemption from tax is provided for income from certain inter unit domestic transactions, the assessee does not inflate the profits attributable to such transactions and the tax authority has a mechanism available under the transfer pricing provisions so as to determine the correct profits of such exempt activity, having regard to the fair market value of the transactions. The intent was to ensure standardisation.

11.9. It is worth noting that entire transfer pricing mechanism is an exercise to find that hypothetical price of the product at which un- associated enterprises would enter into transactions, and rule 10B(1)(a), under CUP Method, and rule 10B(1)(f) r.w.r. 10AB, under Other Method, simulates that exercise. Importantly, the entire thrust of transfer pricing analysis is to eliminate the impact of intra-AE relationships, and that is precisely what an open market price shows. Once provisions relating to SDT apply to a transaction, it extends the scope of prices that can be adopted to include the hypothetical prices computed based on ALP mechanism, rather than restricting it only to the open market price. An open market price can never be excluded from the arm's length price, which is the end product of the entire transfer pricing simulation exercise. Repeated attempts are made to bring out a distinction between 'market price' and the 'arm's length price'. However, the fundamental proposition is that an open market price is the best indication of the arm's length price, and more particularly under rule 10B(1)(a) for ‘CUP Method’, as also under rule 10B(1)(f) for ‘Other Method’. It is correct to state that mention of arm's length price is an expansion of the scope of the market price rather than negation of the concept of market price.

11.10. Claim of the assessee in the present case before us is that the price fetched in open market is the price at which the power distribution company supply electricity to the non-eligible unit of the assessee, and not the price at which the eligible unit of the assessee sold power to the distribution company. Contrary to this, claim of the Revenue is that the market value of electricity transferred by the captive power plant will be the value at which power generators transfer electricity to distribution companies.

12.1. Hon'ble Jurisdictional High Court of Bombay and other Hon’ble High Courts have taken similar view in the following cases: i. CIT vs Reliance Industries Limited [2019] 102 taxmann.com 372 (Bom) ii. CIT vs Reliance Infrastructure Ltd of 2011 (Bom) iii. PCIT vs DCM Shriram Ltd (Del) iv. PCIT vs Gujarat Alkalies & Chemicals Ltd [2017] 88 taxmann.com 722 (Guj) v. CIT vs Godawari Power & Ispat Ltd [2014] 42 taxmann.com 551 (Chhattisgarh)

12.2. In the judgement of Jindal Steel and Power (supra), Hon'ble Supreme Court held that fair market value of the rate of electricity has to be considered at the rate which is provided to the end user and not the rate at which a generator would supply to the distribution company. Relevant para in this respect from the said order is extracted below: “22. Reverting back to sub-section (8) of Section 80-IA, it is seen that if the assessing officer disputes the consideration for supply of any goods by the assessee as recorded in the accounts of the eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under Section 80-IA, the profits and gains of such eligible business shall be computed by adopting arm's length pricing. In other words, if the assessing officer rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price that such goods would ordinarily fetch on sale in the open market. Thus, as per this definition, the market value of any goods would mean the price that such goods would ordinarily fetch on sale in the open market” 12.3. Further, while dealing with the issue, Hon'ble Supreme Court in para 32 of its order distinguished the decision of Hon'ble High Court of Calcutta in the case of CIT Vs. ITC [2016] 236 taxman 612 (Cal) which was relied upon by ld. TPO in his order.

12.4. It was also pointed out that definition of “market value” had undergone a change vide amendment through Finance Act, 2012 by way of a substitution to the explanation to section 80IA(8), according to which it would mean the price such goods or services would ordinarily fetch in the open market or the ALP as defined in clause(ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. Further, clause(ii) of section 92F provides that “arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.

12.5. Ld. CIT DR made a submission to distinguish the order of Hon'ble Supreme Court in the case of Jindal Steel & Power Ltd. (supra) by submitting that this definition of “market value” had undergone change and the decision of Hon'ble Supreme Court deals with the years prior to the year in which the amendment was brought and therefore Hon'ble Court had no occasion to deal with the amended law hence not applicable in the present case. To counter this, reference was made to para-33 and 34 of the order of the Hon'ble Supreme Court where this line of argument by the Revenue was taken into account to hold in favour of the assessee and against the Revenue. The said paragraphs are extracted below: “33. Before parting with this issue, we may mention that reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the definition of the expression "market value" as defined in the explanation below sub-section (6) of Section 80 A of the Act is totally misplaced inasmuch as sub-section (6) was inserted in the statute with effect from 01.04.2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne.

12.6. Assessee has benchmarked its SDT based on CUP under rule 10B(1)(a), which is rejected by the ld. TPO and ld. DRP bringing cogent material on record and supplemented it by the Other Method under rule 10B(1)(f) r.w.r. 10AB, which is exactly the same thing as "market price" as envisaged by the Hon'ble Supreme Court in the case of Jindal Steel & Power (supra).

12.7. The fundamental position is that when the arm's length price under rule 10B(1)(f) read with rule 10AB itself, introduced with effect from 01.04.2012, refers to the market price by way of expression "the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises", connotations of the expression "market price" and the "arm's length price" are the same. In any event, Section 80A(6) overrides only certain specific provisions which are covered by the expression "anything to the contrary contained in (such specific provisions)".

12.8. Hon'ble Supreme Court has in Jindal Steel & Power's case (supra) observed that "Market Value' is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading. There is thus no conflict between the 'market value' and the 'arm's length price'. Section 92C(1) does provide that the arm's length price "shall be determined by any of the following (specified) methods namely (a) comparable uncontrolled price method; (b) resale price method (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) any other method, as prescribed by the Board. One of the methods prescribed by the Board under Rule 10B(1)(f) r.w.r. 10AB prescribes any method for determining the arm's length price "which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts". In effect, this is also the same thing as the 'market value'. Thus, there is no conflict in the provisions of Section 80A(6) Explanation (iii) and Explanation to Section 80IA(8). As there is no conflict, there is no occasion to trigger the overriding effect of Section 80A(6).

12.9. On the contention raised by ld. CIT DR that ALP must be arrived by using one of the prescribed methods and not via hypothetical opportunity cost bench marks, it is noted that assessee had benchmarked it based on external CUP under Rule 10B(1)(a) which was rejected by ld. TPO and ld. DRP to supplemented it by applying the other method under Rule 10B(1)(f) r.w.r. 10AB which is nothing but the market price as envisaged by Hon'ble Supreme Court in Jindal Steel and Power Ltd. (supra).

12.10. Further, Hon'ble High Court of Delhi in the case of PCIT vs. DCM Shriram Ltd. in of 2023, dated 21.01.2025 had dealt with the amended definition and determination of market value having regard to arm’s length price using CUP method. This decision deals with assessment year 2014-15 i.e., after the amendment of Finance Act, 2012. In this decision, reliance was placed on the judgement of Jindal Steel and Power Ltd. (supra), clearly showing that there is no change in legal position despite the amendment made by Finance Act, 2012 as held by Hon'ble Supreme Court. While concluding in para-59, Hon'ble Delhi High Court, by referring to the decision of Hon'ble Supreme Court in Jindal Steel and Power Ltd. (supra) observed that rates at which electricity was supplied by State Electricity Board to industrial consumers was accepted being the market value of the said supplies for the purpose of section 80IA(8). An observation was also made in para 56 to note the degree of similarity between the transaction of supply of electricity by State Electricity Boards to the assessee and the supply of electricity by the eligible units of the assessee. The distinguishing feature of distribution companies who enjoy merely monopoly status was taken note of and thus Hon'ble Court accepted that CUP method is reasonable to determine the ALP for such transaction. There is plethora of decisions of Coordinate Bench dealing with similar issue by following the Hon'ble Supreme Court in Jindal Steel and Power Ltd. (supra) though relating to Assessment Years subsequent to the amendment brought in by Finance Act, 2012, wherein the view taken is that market value of power supplied is to be computed considering the rate of power to a consumer in an open market.

12.11. Accordingly, addition made by the ld. Assessing Officer/TPO in respect of sale of electricity by the eligible units to non-eligible units is uncalled for. The enhancement made by the ld. DRP by resorting to purchase price of electricity by BEST at the weighted average of electricity purchased @ Rs.5.11 per unit is not tenable. Considering the facts on records, provision of law and judicial precedents discussed above in detail, the upward adjustment made by ld. Assessing Officer /TPO as well as enhancement directed by ld. DRP are deleted. Ground no.5 raised by the assessee is allowed.

13.1. Submission by the assessee primarily states as under: 1. The eligible unit of the assessee has sold the steam to the non- eligible manufacturing unit at a rate of Rs. 2.035 per Kg.

3. External CUP has been arrived at using the rate of steam as sold by another independent supplier i.e., M/s The Dharamsi Morarji Chemicals Co Ltd to its independent buyer i.e. Pepsico India Holding Private Ltd.

13.2. According to ld. DRP, 80IA deduction has been created with no real outside sale, no money payment; just based on book entries. Show cause notice was issued on 22.05.2024 seeking various details along with explanations and supporting documentary evidence in support of the claim made by the assessee.

13.3. Assessee furnished its detailed replies dated 04.06.2024 and 18.06.2024 which are reproduced in the order of ld. DRP. It noted on page 100 that “Ld. AR has given exhaustive explanation and has also tendered certain more evidences.”

13.4. Submissions made with regard to documentation states the following:

At the outset, we would like to submit that the entire data of steam from the point of generation by CPP 10 consumption by the non-eligible manufacturing plant is duly documented. The entire process of how documentation of steam is maintained by the Company is enclosed at Annexure 1. Documents Frequency Purpose Remark Submission maintained details Manual Daily report Steam A detailed Copies of all Logbook having hourly Generation record is the logbook for data maintained at the entire year the plant already showing submitted in various the pen drive properties in a along with our manual letter dated 4 logbook. June, 2024.

DCS Software Hourly data Steam The system Generation report in respect of the Steam Production is stored DCS Software (Distributed Control System). However, the data is automatically overwritten after 24 months in the software due to limited data storage capacity Hence, the data for the period April 2019 to March 2020 is not available from the DCS software

Production Monthly report Steam These These Report having day Generation production production wise data reports are reports along and prepared for with copies of Consumption each month in mail are an excel file already and the entries submitted at in these Annexure 2 of reports are our letter made on a dated 4 June, daily basis. It 2024 via email is to be noted as well as that the hardcopy. summary of the generation and consumption data are sent to the Finance department by the CPP department every month through email which amply authenticate the data.

SAP Report Yearly report Steam The details of This SAP having day Consumption steam supplied report is wise data to the non- already eligible submitted at manufacturing Annexure 3 of unit is also our letter maintained in dated 4 June, their ERP 2024 via email software as well as "SAP". Entries hardcopy. in the ERP software are made on a daily basis by the production department. The data is shared over email on a daily basis from CPP department to Production department which amply authenticate the data.

Documents Frequency Purpose Remark Submission maintained details Manual Daily report Steam We would like to This fact was Logbook having Generation and re-iterate that also informed hourly data Consumption there was a flood to Tehsildar in the factory and an situated at Plot acknowledged No.: B2/2, copy from him B3/1/1, is already B3/1/2, B1/2 submitted at and B1/3/2, Annexure 4 of MIDC Industrial our letter Area, Mahad dated 4th June, 402309, District: 2024 Raigad (i.e., Unit II) on 22nd July, 2021 and 23rd July, 2021 due to which records maintained on computers, main server and entire electronic systems along with physical records got destroyed /damaged. There was water upto 15 to 22 feet above plinth level which destroyed various records including logbooks of 8TPH Boiler in Unit II.

13.5. Submissions made with regard to CUP rate adopted for benchmarking states the following: i. The main factor used for deciding the price of steam is the enthalpy of the steam since the main purpose of using the steam is to absorb the latent heat content and use it for heating process in the manufacturing plant. ii. The enthalpy content of heat is measured in Kcal/Kg and is inversely proportional to the pressure of the steam. iii. The latent heat of the comparable cases i.e. Dharamsi Morarji Chemical Co. Ltd is 489 Kcal/Kg whereas in our client's case, it is 514 Kcal/Kg which is higher than the comparable case. iv. The quality of steam supplied by the assessee is therefore better as compared to the quality of steam of the comparable if judged from the parameter of latent heat. v. The comparable cases are within the same district i.e. Raigad where the units are located. vi. It would therefore not be appropriate to state that "if the CUP is adjusted for difference is total heat, pressure and distance, the adjusted CUP comes to below cost price claimed" vii. In addition to the invoices submitted of Dharamsi Morarji Chemicals Co Ltd of its two independent buyers i.c., Pepsico India Holding Private Limited and Unichem Labs Limited, we would like to submit additional data to establish that the price considered for supply to the non eligible unit by the eligible unit is the proper CUP: a. Copy of the invoice of M/s Steamhouse India Limited to its independent buyer M/s Cadila Healthcare Limited is enclosed at Annexure 2 where the rate of steam per MT is Rs. 2000/-. It is noteworthy that the quantity supplied is also significant i.e., around 125MT per day. b. A copy of the invoice of M/s Sanjoo Dying & Printing Mills Private Limited to its independent buyer is enclosed at Annexure 3 where the rate of steam per MT is Rs. 2100/-. c. Quotation received by the assessee (Annexure 4) vide email dated 21" January, 2023 from a reputed supplier M/s

Steamhouse India Limited (Website: www.stcamhousc.in) having turnover of Rs. 328 Crores and profit before tax of Rs. 45 Crores manufacturing and supplying steam of about 6,85,406 MT in FY 2022-23 quoting the rate of steam of Rs. 2225/- per MT based on the coal price of Rs. 5500/-, which is the rate at which the assessee had bought coal during FY 2019-20 is also enclosed.

13.6. On the allegation of ld. DRP that the details regarding units of steam generated and units of steam transferred to the manufacturing units are not given with authenticated independent third-party certificates, but are self-generated reports and figures, assessee submitted the following along with photocopy of the voluminous log register on sample basis which forms part of the Paper Book at pages 331-334, placed on record:

For 50TPH Boiler (Main Boiler - Production of Steam of 3,54,266 MT): A detailed record is maintained at the plant for the boiler. The system report in respect of the Steam Production Reports in DCS Software is stored for S0TPH Boiler. However, the data is automatically overwritten after 24 months in the software. Hence, the data for the period April 2019 to March 2020 is not available from the DCS software but is separately stored by keeping daily records. In addition to the above. Hourly production details of steam including various properties for each day are also maintained in logbook. However, it is impracticable to submit scanned copies over email due to size constraints of the Income Tax Email Ids i.e. the size should not exceed 5 MB. Scanned copies for each month are exceeding 10 MB. To provide legible copies, a document can be compressed only to a certain extent. Beyond such a compression level, the document gets distorted. Considering these difficulties, the assessee is providing the scanned copies of logbooks via Pen drive, which contains hourly steam production as required.

13.7. Ld. DRP rejected the deduction claimed on steam by observing the following: a) Failure to establish the actual production and volume of steam b) The cost parameters and costing of the steam c) Sale rate and CUP comparability (CUP Price is lower, Costing is inadmissible) d) Absence of due Documentation 13.8. Direction by the ld. DRP as contained in para 10.5 states as under: “Ld. Assessing Officer / Transfer Pricing Officer are directed to compute the eligible deduction under section 80-IA as per the directions above, and carry out necessary enhancement of variation. The section 80IA deduction claim emanating from steam transfer is to be treated as "Nil". This is an enhancement of variation undertaken by the Panel.” [emphasis supplied by us by underline] 13.9. Assertions made by the assessee on the above stated observations of ld. DRP includes the following: a) Assessee has been producing steam in the CPP unit since AY 2013-14 and no adverse inference has been taken by the authorities in any of the previous years. The total steam transferred in the three-year period relevant the present AY is as under: (Quantity in MT) Assessment 2019-20 2020-21 2021-22 Year Total Quantity 4,00,821 3,65,112 3,94,303 transferred b) Assessee had produced scanned copies of the daily logbooks duly signed by the Boiler Operator and Shift Engineer for the entire year. The original hard copy of the entire year's logbook was also produced before the Bench during the course of hearing. From these voluminous log books, photocopies of pages on sample basis were produced as already noted above. Ld. DRP had brushed aside the documents as self-generated excel sheets which were prepared for the purpose of reconciliation and understanding of the technical and voluminous data. c) Documentation of steam production maintained by the assessee is already tabulated above which were submitted including monthly production report prepared having day wise data along with supporting e-mails sent during period as well the SAP report generated which also consists of the daily data. d) Assessee demonstrated a factual position for the quantity of steam produced and how it has been used in production of chemicals. e) On the cost apportionment, submission is that it is irrelevant since external CUP method is used. Moreover, in the present facts, it is a case of apportionment between two 100% eligible units that is, Units generating electricity and Units generating steam. In such a scenario, cost apportionment does not matter as the profitability of one goes down, the other would go up thus, resulting in the same amount of deduction available to the assessee on an overall basis. f) Ld. DRP has made an incorrect factual noting while doing analysis of the comparable for the quality of steam by stating that comparable steam is at heat of 662 Kcal/Kg, while that of the assessee is only 514 Kcal/Kg which is factually incorrect. The quality of steam supplied by the assessee is better as compared to the quality of steam of the comparable judged from the parameter of latent heat. Ld. DRP has taken the ‘total heat’ of the comparable instead of taking the ‘latent heat’ which is 489 Kcal/Kg. The latent heat of the assessee’s steam is 514Kcal/Kg which is better than that of the comparable. g) On the technical aspect of attributes of steam quality, an expert opinion dated 21.08.2024 from Institute of Chemical Technology was furnished before the Bench during the course of hearing to demonstrate that the steam of the comparable and steam produced by the assessee are similar in nature. The said expert opinion is extracted below: h) On the submissions made by ld. CIT DR, they are mere reiterations of the stance taken by ld. DRP and nothing on the specific grounds raised by the assessee.

14.1. Steam produced from CPP is a joint product with electricity which is supplied/ transferred to the manufacturing plant. (i.e., the steam after being used to rotate the turbine). According to the assessee, physical bifurcation of cost of production between electricity and steam is not possible as the same steam which is used for the processing of power is further used for running of the plant. However, cost of production for exhaust steam and electricity is calculated based on the following: a. Consumption of coal being the major cost of production for CPP is allocated between steam and electricity based on the technical estimates b. Other expenses are apportioned in the ratio of revenue from steam and electricity.

14.2. It is noted that since the CUP method is applied as the most appropriate method, internal allocation of expenses between electricity and steam has no relevance. It would have been relevant if the cost-plus method was adopted instead of the CUP method.

14.3. Further, it is pertinent to mention that if the entire cost was allocated to production of electricity, in such a case the 80IA deduction on electricity would go down but the 80IA deduction on steam would go up as the income from sale of steam would go up thus, having no bearing on taxability of the assessee since both, sale of steam and sale of electricity are eligible for 80IA deduction on which 100% deduction is allowed during the period under consideration.

14.4. On the quality aspect of steam, it is pointed out by the assessee with the support of expert opinion as extracted above that the main factor used for deciding the price of steam is the enthalpy of the steam since the main purpose of using the steam is to absorb the latent heat content and use it for heating process in the manufacturing plant. The enthalpy content of heat is measured in Kcal/Kg and is inversely proportional to the pressure of the steam. The latent heat of the comparable case i.e. Dharamsi Morarji Chemical Co. Ltd is 489 Kcal/Kg whereas in assessee’s case, it is 514 Kcal/Kg which is higher than the comparable, hence better. Table of characteristics of steam of the assessee and that of the comparable is already extracted above to demonstrate this fact.

14.5. It was evidently demonstrated that ld. DRP made a factual mistake while making this comparison by taking ‘total heat’ instead of ‘latent heat’ of the comparable and drew an adverse inference.

14.6. Thus, assessee has explained its case to justify the benchmarking of sale of steam for captive consumption and claim of deduction u/s 80IA on all the four issues raised by the ld. DRP though ld. TPO had accepted the same. Rejecting the comparable of the assessee without bringing anything cogent on record and directing to treat the claim of deduction u/s 80IA as ‘Nil’ is not justifiable. Considering the facts of the case, detailed discussion made above corroborated by documentary evidence on record, the enhancement made by ld. DRP by giving direction to treat the claim of deduction u/s 80IA for steam transfer as ‘Nil’ is set aside. Accordingly, claim of deduction by the assessee is allowed. Ground nos. 6 and 7 are thus allowed.

15.1. Assessee claimed a weighted deduction of Rs. 3,61,05,919/- u/s 35(2AB) by furnishing Form 3CLA as required u/r 6(7A)(c) of the Rules. Approval for the in-house scientific research and development facility was received in Form 3CM from the prescribed authority i.e. Secretary, Department of Scientific and Industrial Research (DSIR) on 30.08.2019 valid up to 31.03.2022.

15.2. Assessee made an application to DSIR for approval of the in-house research and development facility and quantification of the expenditure incurred on in-house research and development facility for weighted deduction under section 35(2AB) vide a letter dated 21.12.2020 which remained pending at the end of DSIR, resulting in non-furnishing of Form 3CL by the assessee though the same is required to be issued within 120 days of submission made by the assessee. However, assessee furnished Form 3CLA, Form 3CM, Auditors Certificate and details of capital and revenue expenditure along with sample supporting documentary evidence during the course of the assessment proceeding. Submission of Form 3CL is required since it quantifies the amount of claim, duly approved by DSIR. Claim of the assessee is that since it had made all the required submissions before the approving authority DSIR and that there has been no communication from the office of DSIR till date, its claim ought to be allowed as there is no lapse on its part. In the alternative, it is submitted that if the disallowance is sustained for the claim of deduction under section 35(2AB) then, deduction available to the extent of 100% of revenue and capital expenditure must be allowed under section 35(a)(i) and 35(1)(iv) of the Act respectively. Assessee provided working for the quantum of deduction for this alternative claim so as to restrict it to Rs. 2,60,79,526/- instead of Rs. 3,61,05,919/-, which is tabulated below: Sr No. Particulars Calculation Amount (in Rs.) A Revenue Expenditure 4,21,32,659 B Capital Expenditure 1,00,26,393 C Total expenditure A+B 5,21,59,052 D Amount claimed u/s 35(2AB) in the C*150% 7,82,38,578 return of income E Variation in the assessment order in D-A 3,61,05,919 respect to deduction u/s. 35 (2AB)

15.3. Department submits that the assessee has not satisfied the statutory conditions of section 35(2AB) read with Rule 6(7A), and that the deduction of Rs. 3,61,05,919/- claimed without the DSIR's quantification is untenable. DSIR's silence or delay in responding to the assessee's application does not create a statutory estoppel against the Department. The legislative scheme is unambiguous: until Part B of Form 3CL is issued, the deduction under section 35(2AB) cannot be crystallised. This is not merely a technicality. The R&D deduction under section 35(2AB) operates outside the normal accounting and audit processes of the Act. It is a specialised area requiring scientific and fiscal validation by a technical body. The Assessing Officer or DRP cannot assume this function by implication. Accordingly, the Department's rejection of the claim is not an assessment of merits but a deferral based on jurisdictional limits.

15.4. We note that the incentive u/s 35(2AB) is conditional. Rule 6(7A) in this respect stipulates a two-fold compliance: (a) approval of the R&D facility by the DSIR (Form 3CM); and (b) certification of the actual eligible expenditure by DSIR (Form 3CL). Form 3CL is a two-part statutory instrument. Part A records the facility's recognition. Part B, however, is determinative; it contains the DSIR's formal quantification of expenditure eligible for deduction. Without Part B, there is no competent basis on which the claim may be entertained. Assessee has submitted Form 3CM and Form 3CLA (auditor's certificate), but has not produced Part B of Form 3CL. Quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016 u/r 6(7A)(b). Rule 6(7A)(b)(ii) expressly mandates that only the prescribed authority, that is, DSIR may determine the eligible expenditure. Accordingly, in absence of Form 3CL brought on record which quantifies the claim of weighted deduction under the approval of DSIR, contentions of the assessee do not merit for its allowance.

15.5. However, on the alternative plea by the assessee for its eligibility to 100% deduction under section 35(1)(i) and 35(1)(iv) of the Act, the said issue has already been decided in favour of the assessee by the Hon'ble Madras High Court in the case of CIT vs Rajapalayam Mills Ltd. 265 Taxman 209 who allowed the alternate claim under section 35(1)(i) and 35(1)(iv) where the spending of amount on Scientific Research by the assessee was not disputed by the revenue. The aforesaid judgment has been followed by the Coordinate Bench of ITAT Chennai in the case of Ashok Leyland Ltd vs ACIT in ITA no. 554/Chny/2023. In view of the above, in the absence of Form 3CL when deduction under section 35(2AB) is denied and there being no dispute on the incurring of expenditure by the assessee, the same is allowable under section 35(1)(i) and 35(1)(iv). Accordingly, the disallowance is restricted to Rs. 2,60,79,526/- instead of Rs. 3,61,05,919/-. Thus, ground no. 8 is dismissed and ground no. 9 is allowed.

16.1. Assessee made its claim in the course of assessment proceedings vide letter dated 11.09.2023, explaining the claim which had the effect of double disallowance. The same was reiterated vide letter dated 21.09.2023 while responding to show cause notice 17.09.2023. However, AO has neither dealt with nor accepted the aforesaid claim made before him. Further, there was no mention of this claim either in the show cause notice or draft order u/s 144C. On receipt of the draft order u/s 144C, assessee raised an objection before the DRP to consider the aforesaid adjustment to the returned income which was declined by observing that it was not raised before the ld. AO.

16.2. We have perused the material referred above and considered the submissions made. Considering the prayer made by the assessee seeking appropriate directions to the ld. AO for the claim made, we find that the claim involves a factual assertion namely, that a particular component of depreciation has been inadvertently added back twice, which requires verification and examination of the computation of income, financial statements, and the workings of the Ind AS adjustments. In light of the above, and in the interest of justice, the matter is remitted back to the file of ld. Assessing Officer for limited purpose of verifying the assessee's claim regarding the alleged double disallowance of depreciation and granting relief, if found factually and legally tenable. Accordingly, ground no. 10 is allowed for statistical purposes.

17.1. According to the ld. AO such a claim was not made in the return filed by the assessee nor a revised return was filed. Hence, assessee did not comply with the requirements to make a claim for such a deduction and therefore not allowable. Assessee states that it made its claim in the course of assessment proceedings vide letter dated 11.09.2023, explaining the details. The same was reiterated vide letter dated 21.09.2023 while responding to show cause notice 17.09.2023. However, AO has neither dealt with nor accepted the aforesaid claim made before him. Further, there was no mention of this claim either in the show cause notice or draft order u/s 144C. On receipt of the draft order u/s 144C, assessee raised an objection before the DRP to consider the aforesaid adjustment to the returned income. Before the ld. DRP, it made an application dated 26.10.2023 for submitting additional evidence including sanction letter and payment receipt, substantiating the claim. However, ld. DRP declined the same by observing that it was not raised before the ld. AO.

17.2. We have perused the material referred above and considered the submissions made. Considering the prayer made by the assessee seeking appropriate directions to the ld. AO for the claim made, we find that the claim involves a factual assertion requiring verification and examination of the additional evidence. In light of the above, and in the interest of justice, the matter is remitted back to the file of ld. Assessing Officer for limited purpose of verifying the assessee's claim and granting relief, if found factually and legally tenable. Accordingly, ground no. 11 is allowed for statistical purposes.