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

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/-.

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.

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.

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/-

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

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.

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).

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.

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).

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/-

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.”

Assessee has raised both legal issues as well as issues on the merits of the case in the above reproduced grounds. We will deal with them seriatim. Both the parties have extensively argued and made their representation, orally as well as by furnishing written submissions including rejoinders, factual paper book by the assessee containing 402 pages and compilation of judicial precedents relied upon, containing 275 pages. Submissions were also furnished during the course of hearing for various judicial precedents and other documents relied upon. All of these are placed on record and are considered while adjudicating the present appeal.

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.

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 ( T). Assessee has claimed deduction u/s. 80IA of Rs.76,86,75,685/- amongst other deductions under Chapter VI-A. Details of T entered into by the 10 Laxmi Organic Industries Ltd. A.Y. 2020-21

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 11 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

In the transfer pricing assessment proceedings, ld. TPO was of the view to benchmark the T on account of sale of electricity by adopting purchase price of electricity by the Brihanmumbai Electric Supply and Transport Undertaking (BEST) as computed in Assessment Year 2017- 18 considering weighted average of electricity purchased at the rate of Rs.5.11 per unit. Ld. Assessing Officer carried out adjustment by resorting to Rule 10B(3) of Income Tax Rules, 1962 (The Rules) towards additional cost on account of government duty and coal cost with a 12 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

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.

Subsequently, ld. Assessing Officer passed a draft order u/s. 144C(1) proposing an upward adjustment of Rs.7,79,97,476/- to the total income of the assessee. In the same draft assessment order, proposals were also made for other corporate issues, details of which are tabulated below: SI. No.

Deduction from total income under chapter VI A 1,000 2. Education Cess

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 14 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.”

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.

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.

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.

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 16 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

Through ground no.3, assessee contested that ld. Assessing Officer /TPO has failed to follow the directions given by the ld. DRP and thus the final assessment order so passed is not in conformity with the said directions, making the impugned assessment order invalid and bad in law. Directions given by ld. DRP in respect of both, supply of electricity power and steam are already noted in the above paragraphs. According to the directions, it was required to curtail the deduction claimed by the assessee u/s.80IA on sale of electricity by Rs.21,44,93,066/- and disallow the entire amount of deduction claimed

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

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:

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 made on account of Sale of Steam Cost of Steam Profit (i.e., deduction claimed u/s. 80IA) 1. Sale of Steam – Unit I 62,21,24,140 19,24,22,846 42,97,01,294 2. Sale of Steam – Unit II 12,08,79,000 6,78,10,628 5,30,68,371 Total 74,30,03,140 26,02,33,474 48,27,69,666

2. Thus, by following the direction of the ld. DRP, the disallowance could have been as under: i. Sale of Electricity

3. Ld. CIT DR to this effect submitted that grievance raised by the assessee is not a violation of juri ictional 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 19 Laxmi Organic Industries Ltd. A.Y. 2020-21

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).

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 20 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

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.

8. Coordinate Bench of Mumbai in the case of I.A.R. System Aktiebolag vs. DCIT in ITA No.598 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

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 24 Laxmi Organic Industries Ltd. A.Y. 2020-21

Despite allowing the legal ground no. 3 raised by the assessee, for the sake of completeness, we take up the grounds on merits of the case for adjudication.

Ground No.5 challenges the ALP adjustment made on account of sale of electricity where the assessee had charged the price using comparable uncontrolled price method (CUP). Factual position is already narrated on this issue in the above paragraphs. Assessee benchmarked the rate of electricity at Rs.8.85/KWH which is lower than the landed cost of Rs.10.79/KWH using external comparable by placing reliance on the order of Maharashtra Electricity and Regulatory Commission (MERC), dated 21.10.2016 in the case of RIL in case No.34 of 2016. Ld. In the case of claim of deduction u/s.80IA towards sale of electricity, ld. DRP has made an enhancement by increasing the disallowance made by the ld. TPO of Rs. 7,79,97,476/- to Rs.21,44,93,066/-.

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....”.

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.

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 26 Laxmi Organic Industries Ltd. A.Y. 2020-21

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 27 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

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.

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 T 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.”

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.

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 T 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.

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.

Ld. Counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of CIT(A) vs. Jindal Steel & Power Ltd. in Civil Appeal No.13771 of 2015 vide order dated 07.12.2023. It is submitted by the assessee that the present issue is covered by the said decision. In the said judgment Hon'ble Court held that rate of electricity has to be considered at which it is provided to the end user as the fair market value and not the rate at which a generator would supply to the distribution company. In doing so, Hon'ble Supreme Court reversed the decision of Hon'ble Calcutta High Court in the case of CIT vs ITC [2016] 236 taxman 612 on which ld. TPO had placed his reliance.

1. Hon'ble Juri ictional 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 ITA No. 2180 of 2011 (Bom) iii. PCIT vs DCM Shriram Ltd ITA No. 566/2023 (Del) iv. PCIT vs Gujarat Alkalies & Chemicals Ltd [2017] 88 taxmann.com 722 (Guj)

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”

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.

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

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.

That being the position, we have no hesitation in answering this issue in favour of the assessee and against the revenue.”

6. Assessee has benchmarked its T 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).

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 32 Laxmi Organic Industries Ltd. A.Y. 2020-21

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).

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).

10. Further, Hon'ble High Court of Delhi in the case of PCIT vs. DCM Shriram Ltd. in ITA No. 566 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

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.

In regard to ground nos. 6 and 7, ld. DRP observed that ld. TPO did not examine the source of information as to whether the volumes are comparable or not, the nature, characteristics of the transacted steam etc. According to it, ld. TPO failed to discharge the duty for examination of Arm's Length Price of steam sales. Assessee had claimed a deduction of Rs. 62,21,24,140/- u/s 80IA(4) towards sale of steam from eligible unit to its own non eligible units for captive consumption. Details in this respect are already narrated in the above paragraphs while noting facts of the case.

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.

The assessee has benchmarked this transaction by identifying the comparable from industry using the External Comparable Uncontrolled Price (CUP) Method. 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. 4. The formula for quantifying the weight of steam produced or consumed in Kilograms (Kgs) [i.e., its unit of measurement (UoM)] is such that it considers all the properties of the steam such as steam pressure, temperature, mass, volume, etc. The impact of all the variations of the properties of steam is taken into consideration while calculating/converting the steam in Kilograms (Kgs). 5. Therefore, the rate adopted by the assessee for steam using the above rate is arrived at after considering the true comparability.

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.

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.”

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

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.

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:

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

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.”

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

We have given our thoughtful consideration to the submissions made by both the parties along with documentary evidence placed on record and observations of ld. DRP in the impugned order. Ld. Counsel for the assessee had furnished log books and other records before us in the course of hearing to demonstrate production of steam which are also kept in perspective to arrive at the conclusion. It is noted that assessee has adopted external CUP method for benchmarking the transaction relating to steam. Comparable of Dharamsi Morarji Chemicals Co Ltd is taken who had supplied the steam to two companies viz. Pepsico India Holdings Pvt Ltd and Unichem Labs Ltd. Assessee also furnished two more comparable in the course of hearing before ld. DRP since this issue was invoked only by ld. DRP and not the ld. TPO who in fact had accepted the ALP. Detailed documentation has been placed on record by the assessee which has been rejected by ld. DRP for want of third-party evidence. It is important to note that generation of steam power and its utilisation is captive, within the assessee’s units. In fact, transaction of transfer of steam is from one eligible unit to the other eligible unit, both claiming deduction u/s 80IA.

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 47 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

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.

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 48 Laxmi Organic Industries Ltd. A.Y. 2020-21

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.

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.

We now take up ground nos. 8 and 9 together as both are connected relating to claim of deduction u/s 35(2AB) and in the alternative u/s 35(a)(i) and 35(1)(iv) for in-house scientific research and development expenses.

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,

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 juri ictional limits.

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

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.

In respect of ground no. 10, assessee has raised a claim that depreciation of Rs.1,95,07,722/- on the Right of Use (RoU) asset has been inadvertently added back to the income twice, once as part of the overall depreciation debited to the Profit and Loss account, and again while adjusting for the impact of Ind AS. This, according to the assessee, has resulted in an unintended overstatement of income to that extent. Department does not dispute the assessee's contention that a mistake may have occurred in computation of total income. However, the said claim was not part of the original return of income filed under section 139(1), nor was it raised through a revised return under section 139(5). In the absence of such procedural compliance, the Assessing Officer

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.

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.

Ground no. 11 is towards additional claim of Rs. 50,00,000/- made during the course of assessment proceedings towards processing

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.

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

Ground nos. 12 to 16 pertain to computational errors and credit of taxes which essentially needs verification and examination of the relevant records. Assessee had moved rectification application in these regards which have not been acted upon which has led to raising the same as grounds of appeal before the Tribunal. Considering the prayer made by the assessee, in the interest of justice, ld. AO is directed to verify and examine the assessee's claim and grant relief, if found factually and legally tenable by taking into account the application moved u/s 154 which has remained pending. Assessee be given reasonable opportunity to make any further submission to substantiate the factual position for correcting the computational errors and credit for taxes. Issues raised in these grounds are thus remitted back to the file of ld. AO for the limited purpose as aforesaid. Accordingly, ground no. 12 to 16 are allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed. Order is pronounced in the open court on 25 July, 2025 (Pawan Singh) Accountant Member Dated: 25 July, 2025 MP, Sr.P.S. Copy to :