DCM SHRIRAM LIMITED,DELHI vs. ASSESSMENT UNIT, DELHI

Brief facts of the case are that the assessee is a public limited company engaged in the business of manufacturing and trading of chemical, PVC Resins, PVC compounds, UPVC Windows & Door Systems, Cement, Sugar, Fertilizers, seeds, textile yarn, power generation etc. The return of income was filed on 14.03.2022, declaring total income at INR 45,98,71,750/- after claiming deduction under section 80IA of the Act in respect of power generation units. The company has declared book profit u/s 115JB at INR 8,82,86,58,376/- and paid MAT on book profits. The case of the assessee was taken up for scrutiny and a reference under section 92CA of the Act was made to the TPO for determination of ALP in respect of international transactions and specified domestic transactions. Several transfer pricing adjustment as well non-transfer pricing additions were made in the final assessment order, which are agitated by the appellant before us in the following grounds of appeal. “1. That the National Faceless Assessment Centre ("NaFAC")/Ld. Assessing Officer ("AO") has erred in law and on facts and in the circumstances of the assessee's case in making the following additions/ adjustments / disallowances in its final assessment order passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ('the Act'): - a) 2,38,02,26,886/- on account of various additions/disallowances made in intimation under section 143(1)(a) of the Act dated 3

10.2022 which are also in contradiction to the directions of ld. DRP; b) 29,45,91,940/- on account of various transfer pricing adjustments proposed by Id. TPO and upheld by the Id. DRP, c) ₹5,44,84,880/-on account of corporate tax issue upheld by the Id. DRP. d) In considering incorrect amount of capital gains at 77,71,953/- against the capital loss reported by assessee in its ITR at 4,09,10,680/- 2. That the final assessment order passed by the Id. AO under section 143(3) r.w.s. 144C(13) of the Act dated 24th October, 2024 is bad in law. The adjustment/addition/ disallowances are on wholly illegal, unterable and on erroneous grounds. Income computed as per intimation u/s 143(1) of the Act is inaccurate and erroneous 3. That the Id. AO las erred in law and in facts and circumstances of the case in not rectifying the mistakes apparent from the records amounting 2,38,02,26,886/-, inspite of the specific directions of the Id. DRP vide para no. 4.2.2 of its directions with respect to additions/disallowance consisting of:- 3.1 Addition of ₹1,98,59,26,949/- being the deduction under section 80-1A of the Act claimed by the assessee in its income-tax return (ITR) duly supported by foms no. 10CCB e-filed before / along with the return of income.”

The first issue pertains to additions/disallowances made to returned income of assessee in the intimation passed u/s 143(1) of the Act.

During the course of hearing, ld. AR stated that the above issue was also raised before the coordinate bench for AY 2021-22 (ITA No.1496/Del/2024), wherein the coordinate bench has restored the matter back to the file of assessing officer for de novo adjudication. Relevant extract of tribunal order dated 30.07.2025 (ITA No.1496/Del/2024) is reproduced below: “5. we find that the additions were made in the intimation u/s 143(1) of the Act by the ld. CPC without sufficient opportunity to the assessee. The rectification applications were preferred in this regard by the assessee which were not disposed of. Hence, the ld. DRP had directed the ld. AO to determine the final income after due disposal of rectification application of the assessee, which was not carried out by the ld. AO. Hence, in the interest of justice and fair play, we deem it fit and appropriate to restore this appeal against the additions made in the intimation u/s 143(1) of the Act to the file of the ld AO for de novo adjudication in accordance with law. Needless to mention that the assesse be given reasonable opportunity of being 5

The ld. DR did not raise any contention on this issue and agreed with the submission of ld. AR.

Considered the rival submissions and material placed on record. It is seen that this issue has already been restored back to the file of assessing officer for de novo adjudication and assessee has not pressed this ground before us. Accordingly, ground of appeal No.3 raised by the assessee is accordingly, dismissed.

The next issue raised by the assessee is that income and tax computed as per computation sheet forming part of final order u/s 143(3) of the Act is inaccurate and erroneous.

During the course of hearing, ld. AR stated that the assessing officer while computing the total income in the computation sheet attached with the final order inadvertently considered a long term capital gain amounting Rs. 77,71,953/- (P. no. 928 of PB), while in the income tax computation, the assessee had long term capital loss of Rs. 4,09,10,680/- (P. no. 88 of PB) and same was reported and carried forward in its ITR for the relevant year. The ld. AR also pointed out that the aforesaid carry forward of the long-term capital loss was duly accepted by the ld. CPC in the intimation issued u/s 143(1) of the Act dated 25.10.2022. To summarize its contentions, ld. AR relied upon the following table: -

Ld. DR also agreed for remitting back of the above issue to the assessing officer for verification.

Considered the rival submissions and the material available on record. It is seen that the intimation order u/s 143(1) clearly reflects the capital loss carried forward for the current year. Accordingly, we direct the AO to verify the facts on record and rectify the mistake apparent from record. Ground of appeal No.4 raised by the assessee is accordingly, allowed for statistical purposes. 8

The assessee in its transfer pricing study has benchmarked the prices charged for captive supply of electricity by applying internal CUP in the form of prices at which power was purchased from respective State Electricity Board. The TPO accepted the transaction of electricity at other eligible and non-eligible units such as Ajbapur, Uttar Pradesh be at ALP other than transactions between eligible and non-eligible units situated at Bharuch, Gujarat.

The TPO obtained information from the tariff order of the state electricity board (SEB) viz. DGVCL (Gujarat) to compute a rate without taking into effect of cross-subsidization cost. The TPO derived the rate of Rs.6.92 per unit 9

During the course of hearing, Ld.AR for the assessee, Sh. Pradeep Dinodia pointed out that the issue is fully covered by the various judicial precedents in assessee’s own case. He drew our attention to the decision of Co-ordinate Bench of Tribunal in assessee’s own case for AY 2014-15 in ITA No.7362/Del/2018 where the Coordinate Bench vide order dated 28.10.2021 upheld the assessee’s benchmarking of transfer of electricity from eligible units to non-eligible units. The Tribunal has accepted the assessee’s benchmarking upholding the rate of power purchased from the respective State Electricity Boards which in the instant case is from Dakshin Gujarat Vij Company Limited (‘DGVCL’) at ALP.

Ld. AR further submitted that order of Co-ordinate Bench was confirmed by the Hon’ble Juri ictional High Court vide its order dated 21.01.2025 in ITA 10

The ld. DR on the other hand submitted that the facts w.r.t issue in hand are not identical with the previous years, thus the matter cannot be said as fully covered and need to be adjudicated afresh. He submitted that in the instance year the TPO has changed its approach from the earlier approach. He strongly contended that the TPO has used the tariff rates from annual tariff order issued 11

Ld. AR in rebuttal to the ld. DR’s submission stated that there is no change in the facts from earlier years, in as much as the assessee has been adopting same benchmarking approach of using SEB rates since inception. Moreover, as regard the change in TPO’s approach in the year under consideration, he submitted that TPO has adopted the same approach in the immediately preceding year viz. AY 2020-21 which has been reversed by the coordinate bench of this Tribunal while upholding the asssessee’s benchmarking approach which has been consistent since inception. The ld. AR filed the order passed by the TPO u/s 92CA of the Act and grounds of appeal filed AY 2020- 21 to establish that same approach similar to year under consideration has been adopted by the TPO in the immediately preceding year of adopting the tariff rate from annual tariff order of state electricity regulatory board. The ld. AR has further, submitted that Tribunal has in the immediately preceding year ie. AY 2020-21 has rejected the TPO approach and upheld the assessee’s approach vide order dated 30.06.2025 (ITA no 4328/Del/2024). The ld. AR also emphasised that TPO approach of adopting the tariff rate is also not in accordance with the law. He submitted that tariff rates give the general rates 12

Ld. DR however, on a different note submitted that the order of Hon’ble Supreme Court in Jindal Steel and Power case is not applicable to assessee’s case as the matter therein corresponds to AY 2001-02 i.e. before amendment of section 92BA. To substantiate his contention, he placed reliance on Para 33 of the order which read as under: - 13

The ld. DR further submitted that even though the assessee’s comparable being internal CUP in the form of power purchased from the SEB was accepted by the coordinate bench of Tribunal in AY 2020-21, the basis for such acceptance was reliance on the judgment delivered for AY 2015-16 which in turn was based upon the ruling of Hon’ble ITAT in AY 2014-15. He stressed on the department’s approach in AY 2014-15 stating that tax department’s approach was different in those years as it took average of IEX rates with the assessee’s rates. The similar approach was used by the department in AY 2015-16 for making addition on this issue being averaging of IEX with asseessee’s rates, which was completely different from year under consideration and hence earlier tribunal order cannot be relied upon by the assessee.

Ld. DR also pointed out that the amendment in the explanation to section 80IA(8) of the act was made to expand the scope of the provision, which 14

The ld. AR in rebuttal submitted that Hon’ble Juri ictional High Court assessee’s case for AY 2014-15 (ITA no 566/2023) has dealt with the explanation to section 80-IA(8) in para 51 of the order on page no 510 and 514 of paper book and therefore, it is not correct to state that High Court has not dealt with the post amendment provisions of section 80-IA. Further, the High Court’s judgment in assessee’s case pertains to AY 2014-15 which is anyway the year post amendment made in 2012. 23. The ld. AR further contented that once the Hon’ble Apex Court along with Hon’ble Juri ictional High court and juri ictional Tribunal have held that in case of captive transfer of power, purchase price from SEBs is appropriate benchmark, then the revenue cannot go beyond this position. The aforesaid orders are binding on the tax authorities as well as on assessee. He further added that in case revenue has any issue with any of order of the appellate authorities, then they should have challenged the order rather than attempting 15

Considered the rival submissions and material available on record. In the instant case, the assessee has produced electricity on various locations which were transferred for captive purposes from eligible units to non-eligible units. The TPO in its order passed under section 92CA has accepted all the transactions from eligible units to non-eligible units at arm length price except with regard to the electricity produced at Bharuch. The assessee has benchmarked the transfer of electricity at a price of INR 7.28 per KWH rate i.e. with reference to the rate at which the electricity was actually purchased from DGVCL in Gujarat region. The TPO on the other hand disregarded the assessee’s benchmark rate and instead obtained the rates from tariff orders tor eliminate effect of the cross subsidization effect which in our view is without any basis and contrary to the position taken by the Hon’ble High Court and Tribunal in assessee’s own case for various preceding years. It is noteworthy 16

In the assessee’s own case for AY 2014-15 in ITA No.7362/Del/2018, the Co- ordinate Bench of the Tribunal has deleted the additions made on account of adjustment in the price and transfer of power between eligible units to non- eligible units by making following observations- “32. There is no doubt that the rates at which the SEBs supplies power to the assessee is an perfect external cup. Such rates are ₹ 8.35 per kilowatt. Rates of Indian energy exchange shown at Rs 2 .55 per kilowatt. If the rates of SEB compared with the rates of Indian energy exchange clearly shows that there is a wide disparity between the two rates. It is not in dispute that SEB in Rajasthan is supplying power to majority of the consumer using electricity. Therefore, much sanctity is attached to the rates adopted by SEBs. However, the learned transfer pricing officer has failed to show the reason of such a wide disparity between the rates of Indian energy exchange which is a spot exchange compared with the rates at which the energy is actually consumed in that geographical region. This does not mean that the quoted price cannot be used for the comparability analysis in cup method. But if the prices are so divergent and the difference between the two external cup becomes irreconcilable, the external cup price which is more reliable should be used. Therefore, in our view, IEX rates for these reasons cannot be said to be an external cup available for invoking the provisions of first proviso to Section 92C (2) of the act.

Further in case of the assessee for assessment year 2015 – 16 , external corporate of purchase price of power from SEB is used as a 17

In view of the above facts we do not find any infirmity in the benchmarking analysis of the assessee wherein the assessee has considered rate of ₹ 6.30 per kilowatt against the rate of power purchase paid by the assessee to Jaipur Vidyiut Vitran Nigam Limited at the rate of ₹ 8.35 per kilowatt, using the external cup for comparability. Accordingly, the ground number 2 of the appeal of the assessee is allowed and the transfer pricing adjustment of ₹ 265,298,490/– is deleted.”

Further, the Hon’ble Juri ictional High Court in ITA No.566/2023 vide order dated 21.01.2025 upheld the tribunal order in assessee’s case. The observations of the Hon’ble High Court as contained in para 43 to 60 are reproduced as under- “43. In the present case, the question is to determine the market value or the ALP of power supplied by power plants established by the Assessee to its other units. Supplying of electricity is governed by the Electricity (Supply) Act, 1948 and Electricity Act, 2003. The transmission of electricity is also governed by the Electricity Rules, 2005. 44. Thus, the market for supply of electricity is regulated. Thus, to apply the CUP method, it would be necessary to ascertain the comparable transactions that are similar in material aspects and there is no 18

Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P. Ramanatha Aiyer's Advanced Law Lexicon has also defined the expression "open market" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression "market value" in relation to any goods as defined by the Explanation below the proviso to sub- section (8) of section 80 IA would mean the price of such goods determined in an environment of free trade or competition. "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. Such pricing is unfettered by any control or regulation; rather, it is determined by the economics of demand and supply. 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time, the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the 22

Thus, by respectfully following the decision of Hon’ble High Court and Co- ordinate Bench of the Tribunal in the case of assessee itself and also by respectfully following the judgement of Hon’ble Supreme court in the case of Jindal Steel & Power ltd. (supra), we hereby delete the transfer pricing addition of Rs 28,00,16,724/-. Ground of appeal No. 5 raised by the assessee is accordingly, allowed.

The next issue is with respect to interest income on loans denominated in foreign currency. The assessee has challenged the action of the AO/TPO in 24

During the course of hearing, the ld. AR submitted that this issue is covered by assessee’s own case for AY 2020-21 (ITA No. 4328/Del/2024) wherein on identical issue, the addition has been deleted by the ITAT.

The ld. AR further relied upon plethora of judgements wherein the methodology to benchmark the transaction using ‘LIBOR’ only as an appropriate benchmark was upheld. Few of the judgements are cited herewith:- (a) SRF Ltd. for AY 2010-11 (ITA No.356/Del/2015) (b) SRF Ltd. for 2014-15 (ITA No.6620/Del/2018) (c) Vaibhav Gems Ltd. [TS-1079-SC-2018] [TS-851-HC-2017(RAJ)] - SLP Dismissed (d) Cotton Naturals (I) Pvt. Ltd [TS-117-HC-2015(DEL)-TP] e) Tecnimont Pvt. Ltd. [TS-880-HC-2018(BOM)] f) Torrent Pharmaceuticals Ltd [TS-101-ITAT-2022(Ahd)-TP] g) Indian Oil Adani Ventures Ltd [TS-668-ITAT-2023(Mum)-TP] h) In addition to above, ld. AR relied upon the second proviso to the Section 92C(2) of the Act stating that the amount of addition is only 2.002% of total transaction amounting Rs 87,52,236/-, thus falling 25

The Ld. DR for the Revenue supported the order of the lower authorities and submitted that the DRP has already upheld the order of ld. TPO. He also stated that this is not a covered matter as the judgment delivered by the coordinate Bench in AY 2020-21 relied upon their judgement in AY 2018-19 in which the addition was ‘NIL’ and the respective ground of the assessee was dismissed. He also pointed out that there is discrepancy in the submission of ld. AR on interest charged on foreign loans provided to assessee. He referred page no 116 of appeal set stating that as per TPO, assessee has charged only ‘6 months LIBOR’ as interest on foreign currency loans. Further, he drew our attention on page 142 and 143 of paper book that it cannot be identified from transfer pricing study. Thus, based on above he requested to not consider this as a covered matter and thus he supported the addition made by lower authorities.

The ld. AR of the assessee on rebuttal to the ld. DR’s contentions referred to page no 653 and 323 of paper book to show that assessee has charged ‘LIBOR’ + 200 bps from its associated enterprises (AE) on foreign currency loans. He reiterated its submission with reliance on ITAT’s ruling in the case of SRF Limited for AY 2010-11 (ITA no 356/Del/2015) wherein it was held that 26

Considered the rival submissions and perused the material available on record. By respectfully following the decision of coordinate bench of ITAT in the case of SRF Limited (supra), we hold that LIBOR is an appropriate benchmark with respect to the foreign currency loans and hence adjustment made by TPO is unwarranted in assessee’s case. Moreover, the adjustment is liable to be set aside in terms of second proviso to the Section 92C(2) of the Act the same falls below the tolerance level of +/- 3%. We thus direct to delete the adjustment made on account of interest income on foreign currency loans. Thus, Ground of appeal No. 6 raised by the assessee is allowed. Ground no 7: Sale of Hybrid Seeds – Addition of Rs. 1,44,00,000/- 34. Apropos, ground of appeal No. 7 raised by the assessee is in relation to transfer pricing adjustment on sale of hybrid seeds to AEs. The assessee has benchmarked the transactions by using TNMM as most appropriate method with its Profit lever indicator (PLI) [operating profits / operating cost] at 8.50%. The TPO has rejected the approach of the assessee by observing that the assessee has not used appropriate filters and conducted his own search by modifying the filters and determined the ALP PLI at 19.78% resulting into 27

The ld. CIT DR on the other hand stated that claim of the assessee regarding the comparable need to be examined and this would require study of annual reports of said comparable. However, he heavily relied on the findings of lower authorities. 29

Considered the rival submissions and perused the material available on record. In the instant case, the assessee while computing the ALP, followed the TNMM with OP/OC as most appropriate method for ascertaining the ALP of sale of Hybrid seeds and the margin was shown at 8.50 %. It is relevant to state that before us, the main emphasis of the AR is with regard to the exclusion of only one comparable incorporated by the TPO namely KRBL Limited. The DRP has itself held KRBL as non-comparable to the assessee in AY 2022-23, i.e. in the subsequent year. In this regard, Ld. AR drew our attention to page 769 of Paper Book wherein the note pertaining to product dealt by KRBL was given. According to it, the company is prominently engaged in production of basmati rice under the name ‘India Gate’ which is unlikely the case of assessee as assessee is engaged in hybrid seeds. The ld. AR also relied upon the directions of DRP for AY 2022-23 (P.no 64 of written submission) wherein KRBL was excluded on account of dissimilarity from the assessee. The relevant finding of DRP for AY 2022-23 is reproduced hereunder:

In view of these facts, in our considered opinion, this company KRBL Ltd should be excluded in the final set of comparables. Accordingly, we direct to exclude KRBL in the final set of comparables of TPO. We also direct that if after exclusion of above comparable, if assessee’s PLI falls within the range as computed in terms of section 92C rwr.10CA, the AO / TPO shall delete the aforesaid adjustment on sale of hybrid seeds. Therefore, Ground of appeal No. 7 raised by the assessee is allowed for statistical purposes. Ground no 8: Addition on account of notional Interest–Rs. 5,44,84,880/- 39. Ground of appeal No. 8 raised by the assessee is in respect of the addition made of Rs.5,44,84,880/- as notional interest.

Brief facts involved in this issue are that the assessee had given loan to its subsidiary company namely, M/s. Sriram Boiseed Ventures Ltd. in past and no interest was charged on the same. As there was uncertainty towards the recovery of interest therefore, the assessee has only recorded the amount of TDS deducted by the subsidiary on the interest payable to assessee and the principal amount of interest was offered for tax in the year when it was actually received. The objection of the assessee was dismissed by Hon’ble DRP by holding that interest must be accounted for on the accrual basis. 31

Before us, Ld.AR for the assessee submitted that the subsidiary company was incurring heavy losses and short of funds, therefore, the recovery of interest was doubtful. Accordingly, it was decided to account for the amount of TDS as income only which was received in the form of tax credit. It is further submitted that the balance amount of interest was received in FY 2022-23 and offered for taxation in AY 2023-24 relevant to FY 2022-23 and therefore, taxing the same on accrual basis in the year under appeal would tantamount to double taxation of same income and thus, it is requested that the addition made deserves to be deleted. He also drew our attention to the fact that the identical issue was adjudicated by the coordinate bench of Tribunal in assessee own case for AY 2018-19 (ITA no 2587/Del/2022) and AY 2020-21 (ITA no 4328/Del/2024) in which tribunal has remitted back to the file of assessing officer for verification and to decide in accordance with the law. The relevant finding of tribunal is reproduced hereunder for ready reference: - “111. Heard both the parties and perused the material available on record. The main contention of the assessee is that the interest income was offered for tax on receipt basis whereas the Revenue taxed the same on accrual basis. The assessee has duly offered the amount of TDS received by it as tax credit in this year and further stated the balance amount of interest was received in FY 2022-23 and the same was offered for tax in AY 2023-24 therefore, if the same is taxed in the year under appeal, it would be double taxation of income. Looking to these facts, we find force in the arguments of the assessee that an income should not be taxed twice. Once the interest income is offered for tax in the year of 32

On the other hand, Ld. DR for the Revenue did not controvert the submission of AR. 43. Considered the rival submissions and perused the material available on record. The main contention of the assessee is that the interest income was offered for tax on receipt basis whereas the Revenue taxed the same on accrual basis. The assessee has duly offered the amount of TDS received by it as tax credit in this year and further stated the balance amount of interest was received in FY 2022-23 and the same was offered for tax in AY 2023-24 therefore, if the same is again taxed in the year under appeal, it would result into double taxation of same income. Looking to these facts, we find force in the arguments of the assessee that an income should not be taxed twice. Once the interest income is offered for tax in the year of receipt i.e. in AY 2023-24 and has been accepted by the department, same should not be included in the income for the year under appeal on accrual basis. Accordingly, following the finding of 33