THE INDIA CEMENTS LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

The assessee is a public limited company engaged in diverse lines of business primarily related to the manufacture of sale of cement. The assessee filed the return of income for A.Y 2021-22 on 15.03.2022 declaring total income of Rs. 375,88,36,854/-. The return was processed u/s. 143 (1) of the Act determining the total income of the assessee at Rs. 404,90,67,630/-. The case was selected for scrutiny and the statutory notices were duly served at the assessee. A reference was made to the Transfer Pricing Officer (TPO) since the assessee had specified domestic transactions as tabulated below: S. No. Name of the AE Nature of the specified Amount MAM domestic transactions (in INR) 1. ICL Cements Plants Sale of power generated at 38,99,17,328 Such Other Sankarnagar, Tamil Nadu method 2. ICL Cementr Plants Sale of power generated at 16,81,29,915 Such Other The India Cements Ltd. :- 3 -:

The Ld. Authorized Representative (AR) of the assessee submitted that the TPO has proposed the TP adjustment by considering the average price at which the eligible unit sells power to TANGEDCO/AVVNL/SPDCTL which is not an uncontrolled transaction. The ld AR further submitted that the assessee has considered the cement unit as the tested party and has bench marked the transaction with an uncontrolled price by applying the rate at which TANGEDCO/AVVNL/SPDCTL supplies power to the cement unit. The Ld. AR submitted that the issue of the rate to be adopted for captive supply of power for the purpose of Section 80IA has been considered by the Co-ordinate Bench in assessee's own case for A.Y 2018-19, where it has been held that: “7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for assessment year 201314 in where the Tribunal under identical set of facts and also by following certain judicial precedents, including the decision of Hon’ble High Court of Bombay in the case of CIT vs Reliance Industries Ltd (Supra) held that while computing deduction u/s. 80IA of the Act for power generation companies for captive consumption, the rate charged by electricity distribution companies to its consumers should be considered instead of rate at which the power generating companies supply power to the electricity distribution companies. The relevant findings are as under: 18.5 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for assessment year 2011-12 in dated 12.12.2019, where the Tribunal under identical set of facts by following certain judicial precedents including the decision of Hon’ble Bombay High Court in the case of Reliance Industries Ltd., and the decision of Hon’ble Chhattisgarh High Court in the case of M/s.Godavari Power and Ispat Ltd., supra held that while computing deduction u/s.80IA for generation of power for captive consumption, the rate at which electricity board supply power to its consumers should be considered instead of the rate at which the power The India Cements Ltd. :- 6 -: generating companies supply its power to the electricity board. The relevant findings of the Tribunal are as under:- “31. We have considered the rival submission and perused the materials available on record.

The Ld. AR further submitted that the Hon'ble Supreme Court in the case of CIT vs. Jindal Steel and Power Ltd. [2024] 460 ITR 162 (SC), has held a similar view while considering identical issue Accordingly, the ld. AR argued that the impugned issued is covered by the decisions of the Hon'ble Supreme Court and the Co-ordinate Bench.

The Ld. Departmental Representative (DR), on the other hand, argued that the issue under consideration does not pertain to the quantum of deduction u/s. 80IA of the Act, but with regard to ALP adopted by the The India Cements Ltd. :- 8 -: assessee for supply of power to the capital unit. Therefore, the ld. DR argued that the decision of the Hon'ble Supreme Court cannot be directly applied in assessee's case. The Ld. DR further submitted that the Hyderabad Bench of the Tribunal in the case of Sanghi Industries Ltd. vs. DCIT [ITA No.104/Hyd/2022 dated 23.01.2025] has considered an identical issue and held that the rate at which the power is supplied by the power generating unit to electricity board should be the rate considered as ALP.

The Ld. AR in rebuttal submitted that the Coordinate Bench in the case of ACIT vs. Prabhu Spinning Mills Pvt. Ltd. [ITA No.433 & 435/Chny/2025 dated 13.08.2025] has considered the decision relied on by the ld. DR and has distinguished the same with regard to the rate to be adopted for the purpose of Section 80IA.

We have heard the parities, perused the material available on record. The thermal power generation unit of the assessee which is eligible for deduction u/s.80IA supplies power towards captive consumption to Cement unit. The impugned transaction is benchmarked by the assessee using CUP where by the rate at which the Cement Unit purchases power from TANGEDCO/AVVNL/SPDCTL is considered for the purpose of ALP. The TPO rejected the TP study by the assessee and held that the bench marking should be done using the rate at which the thermal power unit sells power to TANGEDCO/AVVNL/SPDCTL and accordingly made a TP adjustment. We in this regard notice that the impugned issue of rate to be adopted for benchmarking the captive supply of power by eligible unit is considered by the coordinate bench in the case of Prabhu Spinning Mills Pvt. Ltd (supra) where it has been held that – The India Cements Ltd. :- 9 -:

Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity The India Cements Ltd. :- 10 -:

Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under section 80-IA of the Act.

That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue.”

From the above decision, it is quite clear that where the price at which surplus power supplied by assessee to State Electricity Board was determined entirely by State Electricity Board in terms of statutory regulations and contract, such a price could not be equated with market value as was understood for purpose of section 80-IA(8) and on the contrary, the rate at which State Electricity Board supplied electricity to industrial consumers would have to be taken as market value for computing deduction u/s.80-IA of the Act.

At this stage, it may also be noted that at Para 22 of the said judgment of the Hon’ble Supreme Court, it was held as under: “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 The India Cements Ltd. :- 11 -: 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.”

On the basis of the above observation of the Hon’ble Supreme Court, one may note that as contended by the Ld.AR, the terms “Market Value” and “Arm’s Length Price” have been used interchangeably. As far as the argument of the Ld.DR in this regard to state that since the said judgement relates to A.Y.2001-02, the term ALP used therein was not in the context of section 92F of the Act is concerned, we are not in agreement of the same because the definition of the term “Arm’s Length Price” that existed before and post the amendment of explanation to section 80-IA(8) is exactly the same except for the fact the amendment of explanation to section 80-IA(8) now brings within its ambit specified domestic transactions.

In other words, but for the mere inclusion of applicability of Arm’s Length Price mechanism for determining market value for specified domestic transactions for determining the deduction u/s.80-IA, to say that the usage of the said term in the judgement of the Hon’ble Supreme Court is not in context of section 92F of the Act would be incorrect. Having said so, we are of the view that the usage of the terms Market Value and Arm’s Length Price interchangeably in its decision and thereafter arriving at the conclusion that the rate at which State Electricity Board supplied electricity to industrial consumers would have to be taken as market value for computing deduction u/s.80-IA of the Act would be appropriate for determination of quantum of deduction u/s.80- IA in the instant case.

Further, at this stage, we find it necessary to refer to the decision of the Mumbai Bench of the Tribunal in the case of Tata Chemicals Ltd. relied upon by the Ld.AR wherein in effect it was held that since clauses (i) or (ii) of explanation to section 80-IA(8) are separated by an “or”, an interpretation that only clause (ii) of explanation to section 80-IA(8) has to be used for determination of specified domestic transaction would render clause (i) of explanation to section 80-IA(8) otiose and redundant which is not a permissible rule of interpretation. It would be relevant to point out that the Tribunal therefore concluded that so long as both clauses exist, one has to see if market value is discernible from the price for such goods which it would ordinarily fetch in the open market and only in a case where such price is not available, the market value has to be determined as per ALP. In doing so, the Mumbai Bench of the Tribunal followed the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd referred to supra as also the decision of the Hon’ble Gujarat High Court in the case of PCIT The India Cements Ltd. :- 12 -: v Gujarat Fluorochemicals Ltd. and the Hon’ble Bombay High Court in CIT v Reliance Industries Ltd. to hold that the selling price of the State Electricity Board to high tension industrial consumers can be taken as market value in accordance with section 80-IA(8) of the Act. Thus, even on this count, we do not find favour with the argument of the Ld.DR that the market value in respect of specified domestic transactions with respect to computation of deduction u/s.80-IA(8) would have to be compulsorily determined by clause (ii) of explanation to section 80-IA(8), i.e., the Arm’s Length Price.

We further state that the decision relied upon by the Ld.DR in the case of Sanghi Industries Ltd. decided by the Hyderabad Bench of the Tribunal is not applicable in the facts of the instant case for the reason that the assessee herein in the instant case has not undertaken any third- party sale of power as was the facts of that case and that the entire quantum of electricity generated by the windmill units is captively consumed by the assessee’s own manufacturing divisions.

We also note that the decisions of the Hon’ble Calcutta High Court relied upon by the Ld.AR in the case of Star Paper Mills Ltd. which has been followed in the case of Birla Corporation Ltd. and also Rungta Mines Ltd. are all binding on us since all of these decisions have been rendered by higher courts and have considered the issue in hand, i.e., the determination of quantum of deduction in respect of inter-unit transfer of electricity, after taking into consideration the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd., the relevant provisions of the Electricity Act and also the amendment in explanation to section 80-IA(8) of the Act.

We may particularly draw reference to the decision of the Hon’ble Calcutta High Court in the case of PCIT v Rungta Mines Ltd. [TS-402-HC-202(CAL)-TP] wherein it was held as under: “14. It is not in dispute that the main business of the assessee is not generating power to sell the same to distribution companies/SEBs. It is also not in dispute that the Captive Power Plants (CPPs) were established by the assessee for its own need, i.e. for supply of uninterrupted power to its manufacturing units as well as to save the cost of power purchased from SEBs. If such be the factual position the Arm’s Length Price cannot be determined by taking the average market rates of power supply units to distribution companies as the assessee is not in the business of selling power to distribution companies. Therefore, the Arm’s Length Price has to be determined bearing in mind the reason behind establishment of the CPPs namely to ensure uninterrupted power and to save on cost of electricity which otherwise has to be paid to the State Electricity Board.” The India Cements Ltd. :- 13 -:

From the above, it is quite clear that the Hon’ble Calcutta High Court has clearly observed that in case of an assessee who is not in the business of selling power to distribution companies or State Electricity Board, the Arm’s Length Price cannot be determined by taking the average market rates of power supply units to distribution companies but by bearing in mind the reason behind establishment of the captive power plants (CPPs) namely to ensure uninterrupted power and to save on cost of electricity which otherwise has to be paid to the State Electricity Board.

It is in this background that the Hon’ble Calcutta High Court after analysing the provisions of the Electricity Act, 2003, the decision in Star Paper Mills Ltd. and the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd. concluded as under: “21. The Hon’ble Supreme Court after taking note of the relevant provisions of the Income Tax Act, and in particular Section 80IA held that the market value of the power supplied by State Electricity Board to the Industrial consumers should be construed to be the market value of electricity and it should not be compared with the rate of power sold to or supply to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. It was further held that the State Electricity Boards rate when it supplies power to the consumer have to be taken as market value for computing the deduction under Section 80IA of the Act. Thus, applying the decision of the Hon’ble Supreme Court in Jindal Steel and Power and in the light of the reasoning given in the preceding paragraphs, we hold that the learned tribunal rightly dismissed the appeals filed by the revenue.”

Thus, in our considered view, we hold that the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd. referred to supra would apply even after the amendment made to Explanation to section 80-IA(8) of the Act. Also, the decision of the Hon’ble Calcutta High Court in Rungta Mines Limited and Star Paper Mills Ltd. referred to supra rendered after considering the decision of the Hon’ble Supreme Court in Jindal Steel & Power Ltd. referred to supra and after taking into account the amendment made to Explanation to section 80-IA(8) of the Act would apply to the facts and circumstances of the instant case. The ALP in the instant case would thus have to be the price at which electricity is supplied by the State Electricity Board (TANGEDCO in the instant case) to end consumers in open market. Therefore, we direct the AO to recompute the ALP considering the rate adopted by the assessee as per the market price.” The India Cements Ltd. :- 14 -:

We notice that in the above decision the coordinate bench has considered the ratio laid down by the Hon'ble Supreme Court and also decision of the Hon'ble Bombay High Court. In assessee's case it is an undisputed fact that the excess power generated by the eligible unit is sold to TANGEDCO/AVVNL/SPDCTL and not to any third party and therefore the facts in the case of Sanghi Industries Ltd (supra) as relied on by the ld DR as has been held in the above case by the coordinate bench. Considering the facts and circumstances of the case and the judicial precedence as enumerated herein above, we hold that the TP adjustment by the TPO is not correct. Accordingly we direct the AO to delete the same.

The next issue is with respect to the direction given by the CIT(A) regarding provision made towards Gratuity and Superannuation Fund which is claimed as deduction by the assessee. The CIT(A) has directed the A.O. to examine whether the payments are made on or before the due dates specified under the Act. The assessee's contention is that the deduction is to be allowed if the payments are made on or before the due date for filing the return of income u/s.139(1) of the Act. The proviso section 43B provides that that nothing contained section 43B shall apply in relation to any sum which is actually paid by the assessee on or before the due date as applicable to the assessee for furnishing the return of income under section 139(1) in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with the return. The exception to the said provisions is with respect to "any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the The India Cements Ltd. :- 15 -: welfare of such employees" as per section 2(24)(x) of the Act. Section 36(1)(va) provides that any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date as specified under the relevant Act. A combined perusal of the above provisions of the Act make it clear that the exception that the deduction is allowable only if payments are made on or before the due date specified under the relevant Act is applicable only to the employees' contribution if any to the PF or superannuation fund or any other fund. In the present case we therefore modify the directions of the CIT(A) and direct the AO to allow claim to the extent of employers' contribution to the impugned funds if the payments are made on or before the due date for filing the return of income u/s.139(1) of the Act and if there are any employees' contribution to the said funds the same shall be allowed only if the payments have been made on or before the due date specified under the relevant Act. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.

In result the appeal of the assessee is allowed.