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Facts
The Revenue filed appeals against the CIT(A)'s orders for AYs 2017-18, 2018-19, 2020-21 & 2021-22. The primary issues included a transfer pricing adjustment on captive power sales to Associated Enterprises, disallowance under Section 14A for investments that did not yield exempt income during the year, and the eligibility of Corporate Social Responsibility (CSR) donations for deduction under Section 80G of the Income Tax Act.
Held
The Tribunal dismissed all appeals by the Revenue. For the transfer pricing issue, it upheld the CIT(A)'s decision, affirming that the market value for captive power should be based on the rate at which the State Electricity Board supplies power to consumers, relying on the Supreme Court's decision in Jindal Steel. Regarding Section 14A, the Tribunal confirmed that no disallowance is warranted if no exempt income is earned, and the Finance Act 2022 amendment has prospective application. For CSR expenses, the Tribunal allowed Section 80G deduction for donations to eligible institutions, distinguishing them from disallowable business expenditures under Section 37.
Key Issues
(1) Determination of Arm's Length Price (ALP) for captive power transfers to Associated Enterprises (AEs) and the interpretation of "market value" under Section 80-IA. (2) Applicability of Section 14A disallowance when no exempt income is earned, and the retrospective effect of the Finance Act 2022 amendment. (3) Eligibility of Corporate Social Responsibility (CSR) expenditure, specifically donations to registered institutions, for deduction under Section 80G of the Income Tax Act.
Sections Cited
92CA(3), 80-IA, 92F, 92BA, 14A, 37, 80G
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM
These are appeals preferred by the Revenue against the orders of the CIT (A), Kolkata-22 (hereinafter referred to as the “Ld. CIT(A)”]even dated 24.12.2024 for the AYs2017-18, 2018-19, 2020- 21, 2021-22.
At the outset we note that the appeals of the Revenue are time barred by 81 days. Considering the facts and circumstances of the case, we find that there is plausible and bonafide reasons to condone the delay and the delay of filing the appeals is hereby condoned.
The facts and circumstances in these appeals are identical, hence, for the sake of convenience and brevity, these are decided and disposed A.Y. 2017-18 04. The issue raised by the revenue in ground no. 1 is against the order of ld. CIT deleting the adjustment made by the AO/TPO amounting 44,83,27,538/- in respect of transfer of captive power to its Associated Enterprises (AEs) while the other grounds no. 2 to 13 are in support of ground no.1.
The facts in brief are that the assessee is engaged in the business of manufacturing and sale of Sugar, Molasses, Industrial Alcohol, Ethanol, Organic Manure and Generation & Distribution of Power in the form of steam and electricity. The electricity so generated is partly consumed in the sugar/ distillery plants and partly sold to the State Electricity Board (SEB)/ UPPCL. The assessee is having specified domestic transactions pertaining to the transfer of power to its own undertaking and therefore, case of the assessee was referred to Transfer Pricing Officer (TPO) for determination of the arm's length price of the specified domestic transactions of sale of captive power. The learned TPO passed an order under Section 92CA(3) making adjustment on account of transfer of power to its own undertaking that is captively consumed by other undertakings of the assessee company on the basis of rate charged by generating companies for supply of power to the distribution company. During the instant assessment year, the captive consumption of power was 14,04,31,492 units. The assessee for the purpose of benchmarking these transactions adopted the rate on the basis of State Electricity Board tariff notification which was 8.1525/Kwh, at which the electricity is
In the appellate proceedings, learned CIT (A) allowed the appeal of the assessee after taking into consideration the contentions and submissions of the assessee by following the decision of Hon'ble Apex Court in the case of CIT v. Jindal Steel & Power Limited (Civil Appeal No.13771 or 2015) reported in [2023] 157 taxmann.com 207 (SC) dated 06.12.2023 by observing and holding as under: -
“4.1 The appellant is engaged in generation of electricity and had transferred electricity to its other units at the rate of Rs. 8. 1525 per kwh i.e. at the rate of electricity in an open market fixed by UP Electricity Regulatory Commission. The appellant alsopurchased electricity from UPPCL in two of its non-eligible units namely Maizapur&Tulsipur, where the average annual landed cost of electricity for the FY 2017-18 came to INR 9.65 per unit. The appellanthas benchmarked its transaction adopting CUP by relying on the tariff order issued by the state government electricity board for distribution units by treating it as the market rate at which the power is supplied in the open market. However, the Id. TPO has held that the rate of electricity should be the rate charged by generating companies for supply of power to the distribution companies and determined the rate of electricity at Rs.4.96 per Kwh to be at arm's length. 4.2 The appellant has relied on theorder of the Hon'ble ITAT, Kolkata in its own case in for AY 2016-17 dated 05-05-2021wherein the said issue was decided in its favour. Sub-section (8) of section 80-IA provides that goods or services held by the eligible business should be transferred to any other business at "market value". Explanation to section 801A(8) provides for the definition of market value. The Explanation was amended w.e.f. 1-4-2013 wherein clause (ii) was inserted relating to arm's length price. The hon'ble Kolkata tribunal discussed the applicability of the two clauses in the Explanation in the aforesaid decision and held the following: 8. The issue on hand is determination of the quantum of profit which could be claimed as deduction under Section 801A of the Act for which we have to determine the price at which the electricity is transferred by the Captive Power Plant of the assessee company to the manufacturing unit of the assessee company. 8.1. Explanation to Section 801A(8) inserted by the Finance Act, 2012 w.e.f. 01.04.2013 reads as follows:
4.4 The issue of market value (relevant for clause (i) of the aforesaid Explanation) relating to the rate of supply of power by generating units to its own other units has been settled by the Hon'ble Supreme Court in the case of CIT vs. JINDAL STEEL & POWER LIMITED (CIVIL APPEAL No. 13771 OF 2015) reported in [2023] 157 taxmann.com 207 (SC) [06-12-2023] wherein the court held that market value of power supplied by assessee to its industrial units should be computed by considering rate at which State Electricity Board supplied power to consumers in open market and not comparing it with rate of power when sold by appellantto State Electricity Board. Further, the principle that emanates from the judgement is that the said rate should be considered as arm's length price for the purpose of transfer pricing. The relevant extract of the decision of Jindal Steel (supra) is as 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 & /Kol/2025 A.Y. 2018-19.
The issue raised in this appeal is similar to one as decided by us in A.Y. 2017-18. Therefore, our decision in A.Y. 2017-18 would, mutatis mutandis, apply to this appeal a well. Consequently, the appeal of the revenue is dismissed. for A.Y. 2020-21 09. The first issue raised in ground no. 1 to 12 in this appeal is similar to one as decided by us in for A.Y. 2017-18. Therefore, our decision in the said appeal would, mutatis mutandis, apply to this ground no. 1 to 12 of the revenue’s appeal as well. Accordingly, the ground no. 1 to 12 are dismissed.
The second issue raised by the Revenue in ground no. 13 is against the deletion of addition by the learned CIT (A) of ₹ 1,38,084,438/- as made by the learned AO u/s 14A of the Act. 011. The facts in brief are that during the impugned financial year, the assessee has not earned any exempt income from the investments in shares and securities. The learned AO during the course of assessment proceedings noted that though the assessee has not received any exempt income during the year but that the investments were capable of yielding exempt income in the subsequent years, and accordingly, invoked the provisions of Section 14A of the Act and made an addition of ₹1,38,084,438/-.
3.19 On a perusal of the facts of the case, it is evident that the assessee had not earned any exempt income during the year. It has been contended by the assessee that nodisallowance can be made u/s 14A of the Act in the absence of any exempt income earned during the year it has been held by hon'ble Calcutta High Court in the cases of REI Agro [2022] 140 taxmann.com 71 and GKK Capital Markets Pvt. Ltd. (2017) 392 ITR 192(Cal) that no disallowance can be made u/s 14A in absence of exempt income earned during the year. However, section 14A was amended by Finance Act 2022. Post amendment to section 14A, disallowance u/s 14A can be made even if no exempt income is earned by the assessee. The issue whether the amendment to section 14A of the Act made by Finance Act, 2022 is retrospective or prospective has been settled by the Hon'ble Delhi High Court in the case of PCIT v. Era Infrastructure (India) Ltd [448 ITR 674] wherein the Hon'ble Court held that the amendment made by the Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effect. 3.20 find that the ratio laid down in the case of PCIT v. Era Infrastructure (India) Ltd. (Supra) judgment dt. 20/07/2022, wherein the Hon'ble Court has held that the amendment made in Section 14A of the Act by Finance Act, 2022, will be applicable prospectively and also held that disallowance u/s 14A of the Act should not exceed the exempt income eamed by the assessee during the year, is squarely applicable to the case of the assessee since the assessee had not earned any exempt income during the year. In view of the same, I hold that no disallowance u/s. 14A of the Act is called for in the present case. Hence the disallowance made by the AO u/s 14A of the Act of Rs. 1,38,84,438/- is hereby deleted and this ground of appeal is allowed.
13. After hearing the rival contentions and perusing the materials available on record, we find that the case of the assessee is squarely covered by the various decisions of judicial forums, wherein Hon'ble Courts have held that where there is no exempt income, no disallowance is called for u/s 14A of the Act. We note that the appellate order passed by the learned CIT (A) by following the decision of the Hon'ble Delhi High Court in the case of PCIT v. Era Infrastructure (Supra) and is a very reasoned and speaking order and does not require any interference at our end. Accordingly, we dismiss the ground no. 13 of revenue’s appeal.
The facts in brief are that the assessee during the year had paid ₹10,92,15,222/- for A.Y. 2020-21 to certain eligible funds/ charitable organizations registered under Section 80G of the Act whereas the total expenses incurred under CSR were Rs. 10,92,88,570/-. While computing the total income the amount paid towards CSR expenses (donations) were suo motto added to the income of the assessee and thereafter, claimed the deduction u/s 80G of the Act equal to 50% of the donations thereby claiming deduction of ₹5,46,07,611/- u/s 80G of the Act which was also duly certified by the tax auditor in Form 3CD. The assessee also filed full details before the learned AO including copy receipts and certificates u/s 80G etc.
According to the AO the assessee is not entitled to deduction u/s 80G of the Act in respect of expenditure incurred under head CSR expenses. The assessee submitted that CSR expenses and donations are two distinct and separate issues. The learned Authorized Representative submitted that the assessee had suo motto added these expenses u/s 37 of the Act and rightly claimed deduction u/s 80G of the Act. However, the AO was not in agreement with the assessee and disallowed the deduction claimed by the assessee u/s 80G of the Act.
In the appellate proceedings, the learned CIT (A) allowed the appeal of the assessee by observing and holding as under: -
3.15 Section 80G of the Act specifically mentions two instances viz, sub-clauses (lihk) and (iiihl) of section 80G(2)(a), l.e., contributions towards Swacha Bharat Kosh and Clean Ganga Fund respectively, where CSR expenditure is not allowable as deduction w/s.80G. This implies that such prohibition does not apply to any other CSR expenditure when no such prohibition has been mentioned in section 80G of the Act. Hence, CSR expenditure other than those relating to Swacha Bharat Kosh and Clean Ganga Fund are to be considered as allowable ws 80G of the Act. In the case of Deputy Commissioner of Income Tax vs. M/s. The Peerless General Finance & Investment & Co. Ltd.(Supra), the Jurisdictional Tribunal after considering the provisions of Explanation (2) to Section 37 of the Act and Section 80G of the Act, observed that the Parliament intended restrictions 10 CSR expenditure spent by way of donations to only two funds/trusts i.e. Swachh Bharat Kosh and Clean Ganga Fund. The Tribunal thus held that, the fact that specific prohibition/restriction has been made for CSR contributions only to two eligible charitable organizations, automatically implies that there is no prohibition/restriction in respect of claim of CSR expenses in any other case, which are otherwise eligible under section 80G of the Act. The Kolkata Tribunal has taken the same view in the case of JMS Mining (P.) Ltd. v. Pr. CIT in dated 22 July 2021/[2021] 130 taxmann.com 118/190 ITD 702 (Rs. Trib.) and Acme Chem Ltd. v. DCIT in dated 31-3-2023 and has deleted similar disallowances made by the AO uw/s.80G of the Act in relation to the CSR donations made to registered charitable trusts. 3.16 The assessee has also placed reliance on decisions of the Bangalore Tribunal in several cases wherein CSR paid to the institution registered u/s 80G were allowed as deduction u/80G of the Act. 3.17 In view of the discussion made above, the disallowance made by the AO of Rs.5,46,07,611/- which was claimed by the assessee u/s 80G of the Act is deleted and this ground of appeal is allowed."
18. After hearing the rival conditions and perusing the materials available on record, we find that during the year the assessee has incurred ₹ 10,92,88,570/- on corporate social responsibility which were so-motto for A.Y. 2021-22 019. The first issue raised in ground no. 1 to 12 in this appeal is similar to one as decided by us in for A.Y. 2017-18. Therefore, our decision in the said appeal would, mutatis mutandis, apply to this ground no. 1 to 12 of the revenue’s appeal as well. Accordingly, the ground no. 1 to 12 are dismissed.
20. The second issue raised in ground no. 13 to 16 in revenue appeal is similar to one as decided by us in ground no. 14-17 in for A.Y. 2020-21. Therefore, our decision in the said appeal would, mutatis mutandis, apply to this ground no. 13 to 16 of
In the result all the four appeals of the revenue are dismissed.
Order pronounced in the open court on 26.08.2025.