SATIA INDUSTRIES LIMITED,MUKTSAR vs. DCIT/ACIT CIRCLE I, BATHINDA, BATHINDA

Facts

Satia Industries Limited, a paper manufacturer, operates a captive power unit (Cogeneration Unit-1) generating electricity and steam for its manufacturing unit. For Assessment Year 2021-22, the assessee claimed an exemption under Section 80IA(4)(iv) for these specified domestic transactions (SDT), using the Transactional Net Margin Method (TNMM) to determine Arm's Length Price (ALP). The TPO, however, proposed adjustments applying external CUP for electricity and Cost-Plus method for steam, leading to a revised adjustment by the DRP of Rs. 6,66,54,028/-, which resulted in disallowance of Rs. 1,67,11,295/- from 80IA deduction and Rs. 51.74 lakhs from 80G.

Held

The Tribunal upheld the assessee's method for determining ALP of electricity at Rs. 6.07 per unit, finding it reasonable as it was below the general tariff rate of Rs. 8.75 per unit for biomass-based renewable energy projects, and thus allowed the related ground of appeal. It also found an error in the calculation of steam value due to double deduction of losses, rendering the Rs. 1.67 crore addition unsustainable. However, the Tribunal dismissed the appeal regarding the disallowance of CSR expenses under Section 80G, stating they are not allowable deductions as claiming them would defeat the basic requirement of CSR expenditure.

Key Issues

1. Determination of Arm's Length Price (ALP) for electricity and steam transferred from a captive power unit to a non-eligible manufacturing unit for claiming deduction under Section 80IA, including the appropriate transfer pricing method and consideration of distribution/transmission losses and power factor. 2. Validity of the disallowance of excess deduction claimed under Section 80IA due to alleged incorrect ALP and double deduction of losses in steam value. 3. Admissibility of Corporate Social Responsibility (CSR) contributions as a deduction under Section 80G of the Income Tax Act.