DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-20, DELHI vs. JINDAL PIPES LTD, DELHI

5. On the facts and circumstances of the case, the learned CIT(A) has grossly erred both on facts and in law in confirming the abovesaid disallowance by indulging in surmises without bringing on any direct evidence against the assessee, only on the basis of presumption and assumption.”

3. The Revenue has raised following grounds of appeal:-

1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance u/s 37 of the Act, made on account of Power and Fuel Expenses' of Rs. 18,33,27,280/-.

2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance on account of disallowance u/s 14A r.w.r. 8D of Rs. 1,74,10,450/-to Rs. 18,52,306/-.

3. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the CDBT's Circular No. 5/2014 dated 11.02.2014 3. During the proceedings before us, the ld. Counsel for the assessee has filed a written submission and argued on the lines of the submissions.

4. Per contra, the ld. CIT-DR relied upon the order of the ld. CIT(A) for the and relied upon the order of the AO for . A 5.Appeal on different grounds and related facts are produced as under:- Page 3 of 22

1. “These are cross appeals filed by the revenue as well as assessee against the CIT(A) order passed on 17.10.2023. The ld. AO has made the following additions during the year under consideration: Revenue Assessee Issue Addition made CIT(A) Appeal Appeal by AO Ground 1 - Disallowance of “Power and 18,33,27,280 Deleted by CIT(A) Fuel expenses” under section 37 of the Act Ground 2 & Ground 3 Disallowance u/s 14A read with 1,74,10,450 Restricted to 3 Rule 8D Exempt income = 18,52,306 - Ground 2 Disallowance of Fees for 26,79,000 Confirmed by Technical services from Pioneer CIT(A) Inspection Services Gr. No Particul AO CIT(A) Remarks ars Order Order 1 of Disallo Pg. 7 Pg. 40 para Disallowance of “Power and Fuel expenses” under Revenue wance Para 5.1 to pg. 43 section 37 of the Act of Rs. 18,33,27,280/- Ground No. 1 of Revenue appeal is regarding the Appeal of 4.2 to para 5.2 “Power Pg. 14 deletion of disallowance of Rs. 18,33,27,280/- on and account of Power and Fuel expenses. The reasoning Fuel given by the AO is exactly same as given in AY 2016-17 expense and AY 2018-19 as can be seen from the assessment s” order attached at PB pg. 246-252 and PB pg. 253-265 under respectively. The assessee respectfully submits that the section issue is squarely covered by the orders of the Hon’ble 37 of the ITAT in the assessee’s own case for AY 2016-17 and AY Act of 2018-19, where identical disallowances were deleted. Rs. 18,33,27 Issue covered by the ITAT order passed in the assessee ,280 own case for AY 2016-17 and AY 2018-19 2. In the assessee’s own case, the AO has made the similar disallowances in AY 2016-17 and AY 2018- 19 on account of Power and Fuel expenses. The CIT(A) has deleted the said disallowances in both the years and the Revenue has carried the matters in appeal before Hon’ble Tribunal.

3. Recently, the Hon’ble bench vide the order dated 30.05.2025 (ITA No. 3984 & 3895/Del/2023) has held in Para 7 and 8 (PB pg. 270-272) as under- 7. The second issue arises out of the disallowances made on account of power and fuel expenses claimed by the assessee. The issue is common for both the years. The assessee company during the years had incurred power and fuel expenses of Rs.12,79,82,440 in AY 2016-17 and Rs.11,42,04,999/- for AY 2018-19 through its 5 MW captive power plant which was installed at 22 Milestone, Delhi-Hapur Road, P.O. Jindal Nagar, Ghaziabad for the purpose of utilization of generated electricity at its manufacturing plants located at the same address. During the assessment proceedings, the AO, on the basis of segmental Page 4 of 22 information of primary segments reported in financial statements observed that Power-Electricity Division was showing losses of Rs.12,79,82,440/- in AY 2016-17 and, accordingly, required the assessee to submit segregated balance sheet and P&L Account for this segment and to establish that the power has actually been supplied. The necessary evidences were filed. It was submitted that there are no separate segment of Power and Electricity division as the segment was not generating any revenue from selling of electricity. That it is only the requirement of auditor to show Power Electricity Division as a separate segment in the financial statements.

8. The ld.CIT(A) has appreciated that no revenue was generated from these reported segments and the electricity generated was used for manufacturing activities on assessee’s plants only. More so, the necessity arose out of the fact that the captive power plant based on bio mass and major fuel uses rice husk which is considered to be an environment friendly fuel and practically there is no emissions when compared with conventional fuel. The ld. CIT(A) has also appreciated that the captive power plant was established in 2011 and before that the assessee procured electricity supply from UP Electricity Board. However, before FY 2015-16 the AO has never doubted the genuineness of power and fuel expenses as evident from the copies of assessment orders for AYs 2013-14, 2014-15 and 2015-16 relied before us. Thus, there was no substance in the conclusion of the AO that the assessee has failed to establish that captive power plant has actually generated and supplied powers for the manufacturing activities of the assessee and the ld.CIT(A) has rightly deleted the addition.”

4. Thus, the Hon’ble ITAT has already examined and considered the issue of disallowance of Power and Fuel expenses. The ITAT has accepted the contentions of the assessee and dismissed the ground raised

by the Revenue.

5. Therefore, the issue is directly covered and no addition can survive in the present year, where facts are identical.

6. The Hon’ble ITAT has categorically relied on the fact that prior to AY 2015-16, the AO never questioned Power & Fuel expenses despite the same captive power plant being in operation. The assessee has placed the following assessment orders on record: • AY 2013-14 – PB pg. 226–231 • AY 2014-15 – PB pg. 232–238 • AY 2015-16 – PB pg. 239–245

7. These orders confirm that no disallowance on this Page 5 of 22 issue was ever made.

8. In light of the binding ITAT decision for AYs 2016- 17 and 2018-19 (PB pg. 270–272), the consistent acceptance of expenses in earlier assessment years (PB pg. 226–245), and there is no change in facts relating to the present year under consideration, the ₹18,33,27,280/- disallowance of u/s 37 is unsustainable. The order of the CIT(A) deleting the disallowance deserves to be upheld in full. 2 and 3 Addition Pg. Pg. 44 para Disallowance u/s 14A read with Rule 8D of u/s 14A 14 6 to pg. 45 9. The AO has made the disallowance u/s 14A read Revenue read Para para 6.5 with rule 8D of Rs. 1,74,10,450/-, by wrongly Appeal with 4.3 to calculating the amount of disallowance in Rule 8D Pg. 19 assessment order, ignoring the submission of the of Rs. assessee that dividend income and agricultural 1,74,10, income to the extent of Rs. 18,52,306/- was earned 450 by the assessee company during the year under consideration.

INCOME-TAX-III, 2017 (9) TMI 1043 • The SLP in the above decision has been dismissed by Supreme Court in the case of COMMISSIONER OF INCOME TAX – III VERSUS EICHER MOTORS LTD, 2018 (9) TMI 1328 • Supreme Court in the case of GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VERSUS DY. COMMISSIONER OF INCOME-TAX & ANR, 2017 (5) TMI 403 • Delhi High Court in the case of PCIT Vs. DLF UTILITIES LIMITED, 2022 (9) TMI 90 • Delhi High Court in the case ofMAXOPP INVESTMENT LTD., CHEMINVEST & OTHERS VERSUS COMMISSIONER OF INCOME TAX, COMMISSIONER OF INCOME TAX VERSUS ESCORTS FINANCE LTD, 2011 (11) TMI 267 29. In view of the above, it is clear that Rule 8D cannot be invoked unless the AO first records dissatisfaction based on examination of accounts, which is completely absent in the present case. Therefore, the disallowance made by the AO is legally unsustainable.

Ground 2 Disallow Para Para 7.2 to Disallowance of Fees for Technical services from of ance of 4.1 Para 7.4 on Pioneer Inspection Services u/s 37(1) of the Act Fees for 30. The ld. AO has made the disallowance of Rs. Assessee Page 3 Page 48 Technical 26,79,000/- on account of fess for technical Appeal to Page services 7 services which was incurred by assessee company from on account of inspection services obtained from Pioneer M/s. Pioneer Inspection Services w.r.t Rig Jindal Inspectio Star. n Services Background of the services received from Pioneer Inspection Services 31. Apart from pipe business, the assessee is also engaged in providing jack-up rigs such as “Jindal Star” and “Virtue-1” on charter-hire basis to ONGC during the relevant year, as already submitted in the reply dated 15.01.2022 (PB 101).These rigs are DNV-classed Mobile Offshore Drilling Units (MODUs), and their operation requires mandatory technical and underwater inspections prescribed.

Observation of ld. Assessee submission AO The allegation of the AO that Point 1. The invoices the invoices submitted do not submitted by match the ledger of Pioneer assessee do not Inspection Services is match with the factually misplaced. The ledger of Pioneer assessee has already Inspection Service furnished the complete provided by the ledger account of Pioneer assessee. As can be Inspection Services (PB pg. seen from the 126), which fully reconciles ledger there is no with the three invoices such corresponding actually raised during the entry in the ledger year. (PB pg. 127-129). dated 30.4.2019. The AO has also overlooked the fact that the invoices were received late, which is evident from the invoices themselves, and therefore were recorded in the assessee’s books on the date of receipt and thereafter. There is no requirement in law that the accounting entry must match the invoice date. Further, the amount reflected in the assessee’s ledger is the net amount payable to the vendor, i.e., the basic amount plus GST minus the TDS deducted.The breakup of each invoice and the reconciliation between invoice amount, GST, TDS and net amount payable has already been explained in the table above. Therefore, the so-called mismatch relied upon by the AO is only a result of normal accounting treatment and delayed receipt of invoices, and not due to any inconsistency or defect in the assessee’s records. Point 2. The allegation that M/s M/s. Pioneer Pioneer Inspection Services is Inspection services a “non-filer” is wholly is a non-filer. irrelevant for determining the Page 12 of 22

Hence the alleged genuineness of the assessee’s transaction cannot expenditure. The assessee has be linked with a no control over the compliance return of Income. behaviour of an independent third-party vendor, nor does section 37(1) impose any condition that the allowability of expenditure depends on the payee filing its return of income. What is material is whether the assessee actually availed the services, whether payment was made through identifiable banking channels, and whether TDS was duly deducted and deposited — all of which stand fully established in the present case. The assessee has furnished the complete particulars of the payee including PAN AARFP3868Q, registered address B47/1 Bhagyoday Society, Sector-12, Kharghar, Navi Mumbai-410210, and GST registration 27AARFP3868Q1Z1. The assessee has also placed on record the payee’s ITR for AY 2019-20 (PB 144). These details conclusively prove the identity and existence of the service provider. Once the assessee has established identity, genuineness of services and payment through proper channels with TDS deduction, the assessee’s burden under law stands fully discharged. The payee’s subsequent non- filing, if any, cannot be a ground to disallow an otherwise genuine business expenditure. Point 3. The allegation that the The assessee failed assessee failed to establish to discharge the what services were rendered, onus squarely upon or how the payment was it of establishing wholly for business purposes, what service was is contrary to the detailed rendered in lieu of material already furnished fee claimed to be during assessment paid and as to how proceedings. The assessee has the payment was clearly explained the nature of Page 13 of 22 wholly related to its rig-operations business, the business under including providing DNV- section 37(1) of the classed jack-up rigs to ONGC Act. on charter-hire basis, and the mandatory technical inspections required under class rules and insurance conditions. A detailed note explaining the seabed survey, UWILD inspection, underwater NDT/UT testing, and rope-access inspections was submitted (PB 145). Further, each invoice raised by Pioneer Inspection Services corresponds directly to these mandatory offshore inspection activities, and the relevant descriptions, break-ups, dates and amounts are already on record (PB pg. 126-129). These services are indispensable for operating and maintaining a Mobile Offshore Drilling Unit (MODU) and are prerequisite for safety clearance, class compliance, and insurance approval. Point 4. & 5. The allegation of the AO that The AO contends the address of Pioneer that on verification Inspection Services was “a Pioneer Inspection residential property with no Services’ address business activity” is factually was found to be a incorrect. The assessee has residential premise already placed on record (i) and no business the official website printout of activity was going the service provider, and (ii) on there; further, a the third-party listing from notice under IndiaMART, both of which section 133(6) was clearly acknowledge the issued to the existence of Pioneer Inspection Pioneer Inspection Services, its line of business, Services and, reply services offered, and its was received from operating address. These it with a request for independent sources more time, hence corroborate the identity and basic facts about business activity of the vendor. the service could not be verified. Further, the notice issued by the AO under section 133(6) was never brought to the assessee’s knowledge, nor any show cause was issued to the assessee on the alleged non- Page 14 of 22 compliance. In any case, the director of Pioneer Inspection Services did respond to the notice and requested additional time to furnish the details. It is therefore not a case where the party failed to reply. A temporary delay on the part of a third-party vendor cannot be used to draw an adverse inference against the assessee, particularly when the assessee has already produced complete invoices, ledger confirmation, bank payment proofs and TDS evidences, all of which substantiate the genuineness of the transaction. Further reliance is placed on following judicial pronouncement wherein it has been held that no addition can be made on the ground that notices issued u/s 133(6) of the Act were not replied/complied- Supreme Court in the case of CITvs.Orissa Corporation Pvt. Limited, 1986 (3) TMI 3 Bombay High court in the case of CIT Vs. M/S Nikunj Eximp Enterprises Pvt Ltd., 2013 (1) TMI 88 Point 6 to 8 The allegations of the AO in The AO alleges that points 6 to 8 are factually the assessee has not incorrect and contrary to the furnished sufficient material placed on record. supporting The assessee has already documents to justify furnished complete the claim of documentary evidence expenses paid to demonstrating the nature and Pioneer Inspection necessity of the services, Services. According including (i) detailed note to the AO, no explaining why seabed agreement, email survey, UWILD inspection, correspondence, or underwater NDT/UT testing other documentary and rope-access inspection evidence was filed were mandatory for a DNV- to show why these class MODU deployed with services were ONGC (PB 145), (ii) original required, what invoices raised by Pioneer specific work was Inspection Services performed, or describing the specific work performed (PB 127-129), (iii) whether Pioneer ledger confirmation (PB 130), possessed the Page 15 of 22 technical (iv) bank payment proofs (PB competence to 131–138), (v) TDS deduction render such and deposit (PB 139–143), services. The AO and now the (vi) website further contends printouts and third-party that the assessee listings establishing the failed to vendor’s competence and line demonstrate any of business. business necessity The AO’s assertion that the for the expenditure, assessee failed to explain and therefore, in “what prompted the the absence of such requirement of the services” is corroborative incorrect, because the assessee evidence, the has clearly explained that the entries in the books services were mandatory class and payments and insurance requirements through banking for operating and parking a channels are not jack-up rig hired to ONGC. adequate to The competence of the service establish the provider is also established genuineness of the through its website and services. IndiaMARTwebsite (third party), which confirm that Pioneer is an established offshore inspection and engineering company providing precisely the type of NDT, UWILD and rope-access services availed by the assessee. Thus, the assessee has demonstrated what work was done, why it was needed, and how it is wholly connected with the assessee’s rig- operations business. Further, the AO’s comment that “mere book entries” or “payment through banking channels” are not decisive is misplaced, because in the present case the assessee has provided far more than book entries, the assessee has produced invoices, technical explanations, vendor identity proofs, bank records, and TDS evidence, all of which cumulatively establish the genuineness of the expenditure. Once the assessee has discharged its primary onus with complete documentation, the disallowance cannot be sustained merely on conjecture Page 16 of 22 or the AO’s subjective doubts.

“2. Heard and perused the records. The assessee company is engaged in the business of manufacturing of ERW, black and galvanized steel pipes and tubes in different thickness conforming to the various national and international standards. In the relevant years before this Bench, the assessee’s returns were selected for scrutiny leading to certain disallowances Page 17 of 22 which have been deleted by the ld.CIT(A) for which the Revenue is in appeal. The cases were heard together as they have common questions involved and wherever needed, facts for AY 2016-17 in shall be reproduced and considered.

6. Even otherwise, the genuineness of the expense on technical services obtained from JDIL had been accepted by the Assessing Officer during the assessment proceedings for AY 2013-14, AY 2014-15, and AY 2015-16. No additions with respect to the technical fees were made to the income of the assessee for these years, as is evident from the assessment orders placed in the paper book at pages 91-98, 99-109, and 110-117 respectively. Further, the Assessing Officer disallowed the technical know-how fees without pointing out any specific discrepancies or bringing forward any new material facts to warrant such a disallowance. This clearly shows that the disallowance was made merely on account of a change of opinion, which is contrary to the Doctrine of Principle of Consistency as upheld in various judicial pronouncements. Thus the grounds raised

this issue need not interference.

7. The second issue arises out of the disallowances made on account of power and fuel expenses claimed by the Page 19 of 22 assessee. The issue is common for both the years. The assessee company during the years had incurred power and fuel expenses of Rs.12,79,82,440 in AY 2016-17 and Rs.11,42,04,999/- for AY 2018-19 through its 5 MW captive power plant which was installed at 22 Milestone, Delhi-Hapur Road, P.O. Jindal Nagar, Ghaziabad for the purpose of utilization of generated electricity at its manufacturing plants located at the same address. During the assessment proceedings, the AO, on the basis of segmental information of primary segments reported in financial statements observed that Power-Electricity Division was showing losses of Rs.12,79,82,440/- in AY 2016-17 and, accordingly, required the assessee to submit segregated balance sheet and P&L Account for this segment and to establish that the power has actually been supplied. The necessary evidences were filed. It was submitted that there are no separate segment of Power and Electricity division as the segment was not generating any revenue from selling of electricity. That it is only the requirement of auditor to show Power Electricity Division as a separate segment in the financial statements.

8. The ld.CIT(A) has appreciated that no revenue was generated from these reported segments and the electricity generated was used for manufacturing activities on assessee’s plants only. More so, the necessity arose out of the fact that the captive power plant based on bio mass and major fuel uses rice husk which is considered to be an environment friendly fuel and practically there is no emissions when compared with conventional fuel. The ld. CIT(A) has also appreciated that the captive power plant was established in 2011 and before that the assessee procured electricity supply from UP Electricity Board. However, before FY 2015-16 the AO has never doubted the genuineness of power and fuel expenses as evident from the copies of assessment orders for AYs 2013-14, 2014-15 and 2015-16 relied before us. Thus, there was no substance in the conclusion of the AO that the assessee has failed to establish that captive power plant has actually generated and supplied powers for the manufacturing activities of the assessee and the ld.CIT(A) has rightly deleted the addition. Accordingly, the issue with corresponding grounds, in both the years, deserve to be allowed.

10. In the light of the aforesaid discussions, there is no substance in the grounds as raised. The appeals of the Revenue are dismissed.”

Order pronounced in the open court on 16th February, 2026.