VESTAS WIND TECHNOLOGY INDIA PVT. LTD.,CHENNAI vs. JCI, CO. RANGE-III, CHENNAI

The case of the Assessing Officer is that the assessee has sold the Wind Turbine Generators (hereinafter referred to as WTG) to the subsidiary companies, i.e., Surajbari and Maharashtra Revangaon, at a price lower than the price at which the WTGs were sold to the unrelated customers. The Assessing Officer observed that the total sale consideration for the 15 WTGs sold to the subsidiary companies amounted to Rs.134.72 Crores. He further noted that the maximum price at which a WTG is sold to the 3rd party customers is Rs.10.96 Crores and the minimum price was Rs.10.41 Crores, thereby working out an average sale price of Rs.10.68 Crores per WTG. On this basis, the Assessing Officer computed that the total sales value for 15 WTGs, if sold at the said average price, would amount to Rs.160.34 Crores, as against the actual sale value of Rs.134.72 Crores. Accordingly, the Assessing Officer treated the difference of Rs.25.60 Crores [i.e., Rs.160.34 Crores – Rs.134.72 Crores] as understatement of sale consideration and added the same to the :-3-: ITA. No.:319 /Chny/2025 assessee’s total income on the ground that the assessee had failed to substantiate the reason for the price differential between the sales made to the subsidiary companies and those made to the 3rd party customers. The Ld.CIT(A) sustained the addition made by the Assessing Officer.

Before us, the ld.AR contended that impugned adjustment made by the Assessing Officer is wholly without jurisdiction and is not supported by any of the provisions of the Act; there exists no section under the Act which empowers the Assessing Officer to disregard the actual consideration received from a sale transaction and substitute it with a notional price of his own. The only analogous provision on the expenditure side is Section 40A(2) of the Act, which empowers the disallowance of expenditure considered excessive or unreasonable having regard to the fair market value. However, that provision is explicitly limited to the expenditure. The present case concerns sales made by the assessee. Thus, even the provisions of Section 40A(2) of the Act has no application whatsoever.

It was further submitted by ld.AR that the domestic transfer pricing provisions under Chapter X of the Act are also inapplicable to the facts of the present case. For the relevant assessment year (i.e., AY 2008-09), transfer pricing provisions were confined only to international transactions. There was no legislative framework to apply transfer pricing principles to domestic transactions. It was only with effect from AY 2013-14 that the legislature, through the insertion of Section 92BA of the Act, introduced the concept of “specified domestic transactions”. Even then, the scope of Section 92BA of the Act was narrowly circumscribed, applying only in cases where deduction under Section 80-IA(8) or Section 10AA of the Act, and other similar provisions were being claimed. The present transaction would still not fall within the scope of Section 92BA of the Act, as it is a case of plain sale of goods with no claim for deduction under any of the provisions (i.e., deduction under section 80-IA(8) or 10AA of the Act etc.) referred to in Section 92BA of the Act.

Per contra, the ld.DR relied on the orders of the authorities below and contended that the assessee had understated its sales, which has resulted in reduced taxable profits and prayed that the appeal may be dismissed.

We have heard the rival contentions of both the parties, perused the orders of the authorities below, paper book and case law book filed by the assessee.

We find force in the arguments made by the assessee. As rightly pointed out by the ld.AR of the assessee, neither section 40A(2) of the Act nor section 92BA of the Act is applicable in the present case. we note that the AO has not specified any provision of the Act under which the impugned addition of ₹25.60 crores has been made. It is an admitted position that Section 40A(2) applies only to expenditure and has no application to sales. Further, for A.Y.2008-09, domestic transfer pricing provisions did not exist. Section 92BA was introduced only from AY 2013-14 and is not applicable to the facts of the present case. In :-5-: ITA. No.:319 /Chny/2025 the absence of any specific statutory provision, the AO could not have substituted the actual sale consideration with a notional market value. Therefore, we are of the considered view that the additions made on account of understatement of sales value cannot be sustained.

Further, it is a trite law that only real income could be taxed, and notional income cannot be taxed. The Hon’ble Supreme Court in CIT v. Calcutta Discount Co. Ltd. (supra) has categorically held that unless the Revenue establishes, on the basis of cogent material, that the assessee has actually earned more than what is disclosed, fictional or notional income cannot be brought to tax. Similarly, it was also held in the very same judgment that in the absence of any evidence to show either the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the income tax department to assess the difference between the market price and the price paid by the purchasers, as profits of the company.

Similarly, in K.P. Varghese v. ITO (supra), the Hon’ble Supreme Court held that the burden is on the Revenue to prove that consideration over and above what is recorded has passed between the parties.

In the present case, there is no evidence whatsoever to indicate that the assessee received any consideration over and above the invoiced amount. Mere comparison with third-party prices, without statutory backing, cannot justify an addition.

We also find that the ld.CIT(A) concurring with the arguments of the assessee that neither section 40A(2) of the Act nor section 80IA of the Act could be pressed into service for the year in question and since there are no specific provisions available to tax the transaction, general provisions shall apply. However, we fail to fathom what that general provision is, which gives the :-6-: ITA. No.:319 /Chny/2025 Assessing Officer the power to tax the impugned transaction. In the absence of either general or specific provision, the power to tax a transaction is void. In taxation law, there can be no levy without authority of law.

In view of the above discussion, we are set aside the order of the ld.CIT(A) and we delete the addition made by the AO on account of understatement of sales made to the related parties by allowing the corresponding grounds raised by the assessee.

In the result, the appeal of the assessee is allowed.