SATIA INDUSTRIES LIMITED,MUKTSAR, PUNJAB vs. DCIT, ACIT CIRCLE 1, BATHINDA

आदेश/Order आदेश आदेश आदेश

527-Asr-2024 Satia Industries, Muktsar 2

Per Krinwant Sahay, AM:

Appeal in this case has been filed by the Assessee against the

order of the Transfer Pricing Officer (in short ‘TPO’) dated 5.12.2021

for A.Y. 2020-21.

Dispute Resolution Panel-1, New Delhi [herein referred to as ‘DRP’ ]

dated 24.06.2024 for A.Y. 2020-21 are as under:-

“Profile of the Assessee: Satia Industries Limited (hereinafter referred as 'the Assessee' or 'SIL' or The Company1) is a company incorporated under the Indian Companies Act, 1956. For AY 2018-19, the Assessee filed its Income-Tax Return ('ROI) declaring total income of INR 72,78,05,790 on November 30, 2018. In response to the same, the Assessee received a notice under section 143(2) of the Act. The Assessee, during the course of the assessment proceedings, submitted the relevant information/ documents as called upon by the Ld. AO from time-to-time. The Assessee is acompany incorporated under Companies Act, 1956, it is engaged in the business of manufacturing of paper and paper products. The Assessee is a leading wood and agro based paper manufacturer in India.

527-Asr-2024 Satia Industries, Muktsar 3

The Assessee manufactures paper using wood chips, veneer waste, wheat straw, sarkanda etc. Over the years the Assessee has manifested itself as quality producer of writing/printing paper. The Assessee has a wide product mix with well accepted quality in the market based on non- conventional raw materials. The product profile includes Super Snow White, Snow White, Map litho, Colored Paper, Ledger Paper, Cartridge Paper, Duplicating Paper, Bond Paper with and without watermarks from GSM range 42 to 200 3SM. These products are extensively used in the printing of text books, note books, directories, envelops, diaries, calendars, computer stationery, copy manufacture annual reports and high-class printing segment for domestic as well as export sales”.

which have been challenged before the Tribunal by raising following

grounds of appeal:

527-Asr-2024 Satia Industries, Muktsar 4

1.1 That the assessment order passed u/s 143(3) in consequence of directions of the DRP u/s 144C(5) is bad in law since, the DRP had erred on facts and in law in affirming the draft assessment order by passing a cryptic and non-speaking order, without judiciously considering the entire material and the submissions / objections filed by the assessee.

527-Asr-2024 Satia Industries, Muktsar 5

4.1 That the AO on directions of DRP has erred in ignoring significant charges; electricity duty, cess, cross subsidy, surcharge and grid charges required to be incurred for procuring power from IEX while taking basic rate of IEX at Rs. 3.01 per unit. That AO has ignored that the final landed cost of power procured from IEX is significantly higher than basic rate adopted by TPO at Rs 3.01.

4.2 That the AO on directions of DRP has erred in confirming action of TPO in calculating ^SERC rate of power by reducing transmission losses at 1.24 per unit. That the DRP was misled by observations cum calculations of TPO in working out salerate of power

527-Asr-2024 Satia Industries, Muktsar 6

6.1 That there are two stages at which the steam is transferred from turbine to paper unit and losses in terms energy at these stages is approximately 2.5%, which is part of 20.5% already considered in the working submitted before TPO. That the balance loss of 18% takes place at the third stage when the steam is condensed and after the steam has already been transferred to paper unit up to two stages.

6.2 That AO has erred in confirming the action of TPO in reducing 20.5% as losses from steam transferred to Paper unit holding that the assessee had overbooked the sales of steam by 20.5%.

7.1 That the AO on the directions of DRP has failed to appreciate that the losses are in terms of energy and not quantity and as such has totally been misled in calculating such losses in terms of quantity.

7.2 That the AO on the directions of DRP has erred in confirming the hypothetical calculations made by TPO in respect of losses, sale price of steam, sale price of power, cost of steam, cost of power and has failed to appreciate that such calculations are devoid of

527-Asr-2024 Satia Industries, Muktsar 7

reasoning, industrial norms and norms set by manufacturer of plant purchased from Siemens Ltd.

9.1 That the AO erred in confirming the disallowance of deduction of Rs. 3,97,500 claimed under section 80G of the Act, being 50% of the eligible amount of donations made during the relevant previous year.

10.1 This addition of Rs 12,50,000 has been made without examining the facts that the assessee has written off

527-Asr-2024 Satia Industries, Muktsar 8

the said amount and considered the same as income in subsequent Years.

11.1 That the Assessee craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed of.

Assessee has filed a detailed written submissions which is being

considered and decided as under:-

5.1 Grounds No. 2-4 relate to the addition of Rs. 17,48,29,351

made by the Assessing Officer (AO) concerning the variation in the

arm's length price of power, where the AO, following the directions

of the Dispute Resolution Panel (DRP), reduced the sales value of

power to Rs. 23,72,90,275 from the assessee's reported value of Rs.

41,21,19^626. Ground No. 8 addresses the change in the transfer

pricing method from the Transaction Net Margin Method (TNMM) to

527-Asr-2024 Satia Industries, Muktsar 9

the External Comparable Uncontrolled Price (CUP) method, which

could affect the determination of the arm's length price and,

consequently, the transfer pricing adjustments.

5.2 The assessee has established two captive electricity and steam

generation units (referred to as Co-generation Unit 1 and Co-

generation Unit 2) located in Muktsar, Punjab, for the generation of

electricity and steam. The assessee has sought exemption under

Section 80IA(4)(iv) of the Income Tax Act, 1961, in respect of Co-

generation Unit 1, specifically for the supply of electricity and steam

to its non-specified unit, the Paper Unit.

5.3 The assessee has adopted the Transaction Net Margin Method

(TNMM) for determining the arm's length price for the transfer of

power from the specified Co-generation Unit-1 to the non-specified

Paper Unit. The sale value of the power has been determined by the

assessee at Rs. 41,21,19,626, based on a rate of Rs. 6.73 per KWH

527-Asr-2024 Satia Industries, Muktsar 10

for a total of 61,23,62,000 units of power (calculated as 6.73 per

KWH for a total of Rs. *61,23,62,000 units).

5.4 The Assessing Officer (AO) adopted a rate of Rs. 3.875 per unit

(KVAH), instead of the assessee’s applied rate of Rs. 6.73 per unit

(KWH). The AO derived this rate by averaging the adjusted rate of

Rs. 4.74 per unit (after making adjustments from Rs. 4.74 per unit)

from PSPCL and the rate of Rs. 3.01 per unit from the Indian

Energy Exchange (IEX). Consequently, the AO computed a

difference in the sale price of power and made an addition of Rs.

174,829,351/- as directed by the Dispute Resolution Panel (DRP).

During the hearing, the Authorized Representative (AR) contended

that the AO's approach is inconsistent with the provisions of

Section 92C(1) of the Income Tax Act, 1961, read with Rule 10B of

the Income Tax Rules, 1962, and Section 80IA(8), which govern the

determination of arm's length price and transfer pricing

adjustments.

submissions as follows:

527-Asr-2024 Satia Industries, Muktsar 11

a) That during the year under consideration, company captively consumed power units totalling 6,12,36,200 in KWH (Kilo watt hour) by transferring the same from cogeneration unit I (Eligible Unit) to the non-eligible unit i.e. paper manufacturing unit.

b) That during the year under consideration, the assessee- company captively consumed 6,12,36,200 KWH of electricity by transferring the same from its cogeneration unit I (an eligible unit under Section 80IA of the Income Tax Act, 1961) to its non-eligible paper manufacturing unit.

c) The assessee generates high-pressure steam using boilers fueled by biomass, specifically rice straw and rice husk, at its facility located in Village Rupana, District Muktsar, Punjab. The high-pressure steam is transferred to turbine generators. The power generated from the turbines, along with medium-pressure steam and low-pressure steam, is transferred to and utilized in the main manufacturing unit, namely, the paper manufacturing unit.

d) The assessee has adopted the Transactional Net Margin Method (TNMM) for determining the arm's length price (ALP) for the transfer of power, in accordance with the provisions of

527-Asr-2024 Satia Industries, Muktsar 12

Section 92C(1) of the Income Tax Act, 1961, read with Rule 10B of the Income Tax Rules, 1962. The assessee computed the sale value of power at 741,21,19,626, based on a rate of 76.73 per KWH for the total consumption of 6,12,36,200 units (i.e., 76.73 x 6,12,36,200 units).

e) The rate of 76.73 per KWH adopted by the assessee for the transfer of power is lower than the comparable rate for generating electricity from biomass fuel, as available in the public domain. This issue was brought to the attention of the Dispute Resolution Panel (DRP) through a reply dated 19.10.2023.The AR further drew the attention of the Bench to the generic tariff rate for renewable energy technologies using biomass as fuel, where the applicable tariff rate for FY 2019-20 was 78.75 per KWH. The Assessee explained that it was justified in applying the tariff rate of 76.73 per KWH, as opposed to the rate of 73.875 per KVAH adopted by the Assessing Officer (AO).

f) The Authorized Representative (AR) submitted that the rate adopted by the Transfer Pricing Officer (TPO) of Rs. 5.98 per unit of PSPCL for deriving average was not justified, as the assessee is categorized as a power-intensive unit, and not under the general category. This issue has also been accepted

527-Asr-2024 Satia Industries, Muktsar 13

by the Dispute Resolution Panel (DRP) in its order passed under Section 144C(5) for the subsequent assessment year 2021-22.

g) Furthermore, the AR contended that the TPO erred in making adjustments to the price of Rs. 5.98, which were unnecessary based on the facts and circumstances of the case. Specifically, the TPO wrongly deducted distribution loss, transmission loss, and cross-subsidy from the rate, leading to an incorrect revised adjusted sale rate of Rs. 4.74 per KVAH per unit for power supplied by PSPCL. Particulars Amount Sale rate of Power to Rs. 5.98 per unit PSPCL (A) KVAH Less: Distribution loss (B) 11.54% Less: Transmission loss (C) 2.50% Less: Cross Subsidy 0.40 paisa /unit Surcharge (D) Revise Sale rate of power Rs. 4.74 per unit (E=A-B-C-D)

h) The Authorized Representative (AR) further explained that the TPO failed to apply the appropriate division factor of 0.92 to convert KVAH into KWH. It was clarified that to convert KVAH into KWH, a division factor of 0.92 is necessary. For example, 92 KVAH is equivalent to 100 KWH. During the

527-Asr-2024 Satia Industries, Muktsar 14

hearing, the AR brought to the attention of the bench that the DRP had acknowledged this mistake in subsequent years and provided a copy of the directions issued by the DRP under Section 144C(5) for the assessment year 2021-22.

i) The Authorized Representative (AR) also drew the attention of the bench to the reply submitted before the Transfer Pricing Officer (TPO) dated 27.07.2023. In this reply, the assessee had objected to the adjustments made by the TPO, asserting that no such adjustment was required in the prices. Furthermore, it was explained that the relevant losses should be added in order to calculate the correct rate. As a result, the AR clarified that the correct rate, after removing the infirmities, should be Rs. 7.41 per KWH, rather than the Rs. 4.74 per KWH rate referred to by the TPO in the show-cause notice (SCN).

j) The Authorized Representative (AR) submitted that the Dispute Resolution Panel (DRP) erred in rejecting the Transactional Net Margin Method (TNMM) and instead applied the external Comparable Uncontrolled Price (CUP) method to arrive at the average rate and compute the difference of Rs. 1,74,82,93,51. The AR also provided a comparison between the method adopted by the DRP and the method applied by the assessee, as detailed below:

527-Asr-2024 Satia Industries, Muktsar 15

Particul Units of Rate Rate per Differen Difference ars electricity per unit unit ce (Rs.) produced conside considere (per r-ed by d by DRP unit) the assesse e Sale of 61236200 6.73 3.875 2.855 17,48,29,351 power Method TNMM External CUP

7 The Authorized Representative (AR) submitted that the TNMM

method applied by the assessee was correct, as it was based on the

data of comparable companies, which was submitted along with the

Transfer Pricing (TP) study. The AR further explained that even if

the application of the CUP method is considered correct, it would be

more prudent to apply internal CUP rather than external CUP in

this case.

8 The AR drew the attention of the bench that CUP Method can

be applied where associated enterprises CAEs) buy or sell similar

goods or services in comparable transactions with unrelated

527-Asr-2024 Satia Industries, Muktsar 16

enterprises or when unrelated enterprises buy or sell similar goods

or services, as is being done between the AEs. The CUP Method, can

be broadly classified into two categories

i. Internal CUP Method.

ii. External CUP Method.

INTERNAL CUP

Under the Internal CUP Method, the transaction between the

AEs involving buy or sell of goods & services are comparable to

the transactions conducted by any of the AEs with unrelated

parties for buy or sell of similar goods or services under

similar conditions. However, when such internal data is not

available, then one may apply external CUP which involves

comparison of prices paid/ charged between two unrelated

third parties in uncontrolled conditions with the transaction

conducted between the AEs.

EXTERNAL CUP

This method involves comparing the price charged in a

controlled transaction (i.e., a transaction between related

527-Asr-2024 Satia Industries, Muktsar 17

parties) with the price charged in a comparable uncontrolled

transaction (i.e., a transaction between independent un-

related parties) for identical or similar goods, services, or

assets.

9.1 The Authorized Representative (AR) explained that the non-

eligible unit (the paper manufacturing unit) had procured electricity

from PSPCL for use in its manufacturing plant. The AR contended

that the DRP erred in applying the external CUP method, making

certain adjustments, while ignoring the internal CUP method. It was

further stated that, if the average rate of 34.02 per unit (including

fixed charges of Rs. 240 per KVA) is applied to the total 6,12,36,200

units of electricity transferred to the paper unit, the arm's length

price works out to Rs. 2,08,32,55,524. The AR drew the bench's

attention to the reply submitted before the DRP, where this

objection was raised. Therefore, the AR argued that the DRP erred

in reducing the rate to Rs. 3.875 per unit, instead of the Rs. 6.73

per unit considered by the assessee.

527-Asr-2024 Satia Industries, Muktsar 18

9.2 During the hearing, it was submitted by the AR that the TPO

in Assessment Year 2017-18 and 2018-19 has accepted the price of

electricity based upon rate of PSPCL and without making any

adjustments. The summary of the rate of electricity accepted by the

TPO in earlier years.

9.3 The AR also submitted that the DRP failed to appreciate that

other charges levied by the Indian Energy Exchange are over and

above the basis rate, which are reflected separately in daily

obligation statement. The following charges are additionally charged

over and above the basic rate:

• NLDC Application Fee- Application fee charged by National Load Dispatch Centre

• Transmission charges by Central Transmission utility ('CTU')

• NLDC scheduling and operating charges-Scheduling charges levied by National Load Dispatch Centre

• Transmission charges levied by State Transmission utility ('STU')

• Scheduling and operating charges levied by State Load Dispatch center (SLDC)

527-Asr-2024 Satia Industries, Muktsar 19

9.4 In addition to the above amounts, the customer is also liable

to pay to Punjab state power corporation Ltd. (PSPCL), the following

amounts, which are reflected in the invoice of PSPCL: -

i. FCA surcharge for availing power from open access @ INR 0.11/ Unit of power purchased from open access and

ii. 15% electricity duty (ED) and 5% Infrastructure development fee (IDF) totaling to 20% of the power purchased from open access by applying the tariff rates published by PSPCL multiplied by the units purchased from open access.

9.5 The Authorized Representative (AR) submitted that the price at

which surplus power is supplied by producers to the Indian Energy

Exchange (IEX) is determined by state regulations and contracts

and, therefore, cannot be considered the market value for the

purposes of Section 80-IA(8) of the Income Tax Act, 1961. Instead, it

was argued that the rate at which the State Electricity Board (SEB)

supplies electricity to industrial consumers should be considered

the appropriate market value for computing deductions under

Section 80-IA. Upon reviewing Section 80-IA(8) and the definition of

"market value," it is clear that the price at which electricity is sold

527-Asr-2024 Satia Industries, Muktsar 20

to the Indian Energy Exchange does not reflect the market value as

required by the provision. The assessee maintained separate

accounts for both units, with electricity supplied from captive

plants to manufacturing units recorded at Rs. 6.73 per unit, the

price charged by the State Electricity Board to industrial

consumers, representing the fair market value of electricity for

Section 80-IA purposes. The relevant section 80-IA(8) is reproduced

below fee convenience. The assessee has submitted the following

documents before the DRP and AO:-

a. Computation of profits under section 80-IA with details of captive revenue of the power undertaking;

b. Copy of unit wise profitability of the Cogeneration Unit-I;

c. General tariff rate for electricity supply to the industrial consumers for biomass power projects.

Section 80-1 A (8)

Where any goods [or services] held for the purposes of the

eligible business are transferred to any other business carried

on by the assessee, or where any goods [or services] held for

the purposes of any other business carried on by the assess e

527-Asr-2024 Satia Industries, Muktsar 21

are transferred to the eligible business and, in either case, the

consideration, if any, for such transfer as recorded in the

accounts of the eligible business does not correspond to the

market value of such goods [or services] as on the date of the

transfer, then, for the purposes of the deduction under this

section, the profits and gains of such eligible business shall be

computed as if the transfer, in either case, had been made at

the market value of such goods [or services] as on that date:

Provided that where, in the opinion of the Assessing Officer,

the computation of the profits and gains of the eligible

business in the manner hereinbefore specified presents

exceptional difficulties, the Assessing Officer may compute

such profits and gains on such reasonable basis as he may

deem fit.

[Explanation. —For the purposes of this sub-section, "market value", in relation to any goods or services, means— i. the price that such goods or services would ordinarily fetch in the open market; or ii the arm’s length price as defined in clause (ii) of Section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA.

527-Asr-2024 Satia Industries, Muktsar 22

6.6 The Authorized Representative (AR) has also brought on record

various case laws to support the assessee's arguments, which are

as follows:

(a) Commissioner of Income-tax vs. Jindal Steel & Power Ltd. [2023] 157 taxmann.com 207 (06.12.2023)

I. Section 80-IA of the Income-tax Act, 1961 read with section 43A of the Electricity (Supply) Act, 1948 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment year 2001-02 - Assessee, engaged in electricity generation and industrial activities, established captive power plants due to insufficient supply from State Electricity Board - Surplus electricity was supplied to Board at Rs. 2.32 per unit, whereas Board supplied to industrial consumers at Rs. 3.72 per unit - Assessee computed Section 80-IA deduction at Rs. 3.72 per unit - Assessing officer, acknowledging deduction but disputing inflated profits, deemed Rs. 2.32 per unit as market value and restricted deduction accordingly- Whether since in present case, captive power plants of assessee could sell or supply surplus electricity (after supplying electricity to its industrial units) to State Electricity Board only and not to any other authority or person and therefore, surplus electricity had to be compulsorily supplied by assessee to State Electricity

527-Asr-2024 Satia Industries, Muktsar 23

Board and being in dominant position, State Electricity Board could fix price to which assessee really had little 01 no scope to either oppose or negotiate, therefore, determination of tariff between assessee and State Electricity Board could not be said to be an exercise between a buyer and a seller in a competitive environment or in ordinary course of trade and business i.e., in open market - held, yes- Whether thus, 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 contrary, rate at which State Electricity Board supplied electricity to industrial consumers would have to be taken as market value for computing deduction under section 80-IA - Held, yes [Paras 25, 26, 29 and 30] [In favour of assessee]

b) Similarly, the Hon'ble Delhi High Court in the case of PR. COMMISSIONER OF INCOME TAX -6 VERSUS NALWA STEEL & POWER LIMITED reported in 2024 (1) TMI 1252(refer page no 1-3 of Case Law PB) has held that the rate at which power was supplied to a supplier could not be the market rateof electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board

527-Asr-2024 Satia Industries, Muktsar 24

supplied power to the industrial consumers has to be taken as the market value for computing deduction under Section 80 IA of the Act.

C) Similarly, the Hon'ble Chhattisgarh High Court in the case Commissioner of Income-tax, Raipur vs. Godawari Power & lspat Ltd. [2014] reported in 42 taxmann.com 551 has held that for deduction under Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment years 2004-05 to 2006-07 - Assessee, a manufacturer of iron and steel, had established a Captive Power Plant in State of Chhattisgarh to supply electricity to its steel division - It had sold power to steel division at same rate, which was charged by Chhattisgarh State Electricity Board [Board] for supply of electricity to industrial consumers - Assessee claimed deduction under section 80-IA -Assessing Officer computed market value of power supplied by assessee to steel division by taking into account rate charged by Chhattisgarh Electricity Company Limited, Raipur for supply of electricity to Board - Whether market value of power supplied by assessee to its steel division should be computed considering rate of power charged by Board for supply of electricity to industrial consumers - Held, yes.

527-Asr-2024 Satia Industries, Muktsar 25

d) Similarly, the Hon'ble Bombay High Court in the case of COMMISSIONER OF INCOME TAX- LTU VERSUS RELIANCE INDUSTRIES LTD reported in 2024 (3) TMI 1016 as held that market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market.AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.

The Apex Courtin the case of CIT v Jindal Steel & Power Limited [2023] (12) TMI 417 - SUPREME COURT]as affirmed the aforesaid decision of the Bombay High Court in the assessee's own case. Further, it is not the case of the Revenue that insertion of Section80A(6) of the Act has made any change in law as the AO in coming to its conclusion has himself relied on the assessment order for the earlier years. For the resons given in the said judgment, there is no question of law which arises for consideration.

527-Asr-2024 Satia Industries, Muktsar 26

e) Similarly, reliance is placed upon the following case laws in which the same issued has been dealt by various tribunals and High Courts. The citation of the relevant judgments are as under

i. DCIT, CIRCLE-6 (1), KOLKATA VERSUS M/S IFB AGRO INDUSTRIES LTD. reported in 2024 (2) TMI 696 - ITAT KQLKATA

ii. THE INCOME TAX OFFICER, CORPORATE WARD 6 (1) , CHENNAI VERSUS SJLT TEXTILES reported in 2024 (5) TMI 1013 - ITAT CHENNAI

iii. TATA CHEMICALS LTD. VERSUS DCIT-2 (3) (1), MUMBAI reported in 2024 (6) TMI 870 -ITAT MUMBAI

iv. DCIT, CC-1 (3) VERSUS. RUNGTA MINES LTD KOLKATA reported in 2024 (7) TMI 569 -ITAT KOLKATA

v. THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA-I VERSUS GUJARATFLUOROCHEMICALS LTDreported in 2019 (7) TMI 541 - GUJARAT HIGH COURT

vi. CIT Vs. Gujarat Alkalies and Chemicalsreported in[2017] 395 ITR 247HIGH COURT OFGUJARAT

vii. Tamilnadu Petro Products Ltd. vs. ACIT [2011] 13 taxmann.com 139 (Madras)[2011]202 Taxman 31 (Madras)

527-Asr-2024 Satia Industries, Muktsar 27

viii) PR. COMMISSIONER OF lNCOME TAX -6 VERSUS NALWA STEEL & POWE reported in 2024 (3) TMI 952

on this issue and the submissions filed by the Department, as well

as after hearing the arguments of the Authorized Representative

(AR) of the Assessee and the Department Representative (DR), we

are of the considered view that the method adopted by the Assessee

for determining the arm's length price was correct, and the

adjustments made by the Assessing Officer were not in line with the

applicable provisions of the Income Tax Act. Therefore, in this

situation, and in our opinion, the addition made by the Assessing

Officer on this account cannot be sustained. Accordingly, the

Assessee's appeal on this issue is allowed.

made by the Assessing Officer (AO) concerning the variation in the

arm's length price of steam. The AO, following the directions of the

Dispute Resolution Panel (DRP), reduced the sales value of power to

527-Asr-2024 Satia Industries, Muktsar 28

Rs. 35,68,26,820 from the assessee’s reported value of Rs.

47,97,24,777. Additionally, Ground No. 8 addresses the change in

the transfer pricing method from the Transactional Net Margin

Method (TNMM) to the Cost Plus Method (CPM), which could affect

the determination of the arm's length price and, consequently, the

transfer pricing adjustments.

the Cost-Pius Method (CPM) is the most appropriate method for

determining the arm's length price for the transaction pertaining to

the transfer of steam, as opposed to the Transactional Net Margin

Method (TNMM) adopted by the assessee. The findings of the TPO in

paragraph 5.3 of the TPO order (relevant page 120 of the paper

book) are summarized as follows:

i. Steam is not a tradable commodity in the market.

ii. The steam cannot be stored and it has to be utilized

immediately.

527-Asr-2024 Satia Industries, Muktsar 29

iii. The mark-up in case of steam has only been added with the objective to shift the profit from eligible unit to non-eligible unit and claim higher deduction.

iv. That for calculating steam utilization in turbine, the assessee has taken 20.50% loss due to friction/radiation/convection. Similarly, when High Pressure steam is converted into Medium Pressure and Low-Pressure steam, there are losses and such loss is not accounted by the assessee.

of the Dispute Resolution Panel (DRP), has reduced 20.50% as a

subsequent loss from the conversion of high-pressure steam to

medium-pressure steam and low-pressure steam.

14 The AR of the assessee submitted that the DRP erred in

upholding the TPO's action of further reducing the 20.50% loss

from the input. The AR submitted that high-pressure steam

(ENERGY) is generated from the boiler and fed to turbine from

which medium pressure steam, low-pressure steam, and electricity

is produced. As such, it was contended that the DRP

misapprehended the fundamental fact that the assessee had

527-Asr-2024 Satia Industries, Muktsar 30

already accounted for a 20.50% loss to generate the MP Steam, LP

steam and electricity from the turbine.

S.No Particulars Mkai (as per . assessee) 1 Total energy to turbine @65kg / 43,14,81,330 cm2, 49-0 Deg. 2. Less: Loss due to -84,53,673 i friction/Radiation/Convection (20.50%) 3. Net energy available for MP, 34,30 27,657 LP and electricity generation 4. Medium Pressure & Low- 27,52,57,845 Pressure steam produced 5. 1 kg of 69,28 300 condenser steam 6. Total energy consumed in 6,08,40,912 generation of electricity

The Authorized Representative (AR) further drew the attention of the

bench to the working made by the Assessing Officer (AO),

highlighting how the AO had again reduced the loss at 20.50% from

the medium-pressure (MP) and low-pressure (LP) steam produced.

the calculation made by the TPO is flawed, as the loss has been

deducted twice. The AR brought to our attention the calculation

527-Asr-2024 Satia Industries, Muktsar 31

made by the TPO and submitted by the assessee, as per the

Chartered Engineer's Certificate, which is produced as follows:

Revised Calculation as per TPO (Table B) -Page 121 of PB Particular Mkal (As per Remarks TPO) s Medium 27,52,57,845 The AR submitted that the high- and Low- pressure (HP) steam is transferred to pressure the turbine, which subsequently steam generates medium-pressure steam, produced low-pressure steam, and electricity. As such, it was contended that the TPO erred in considering that medium pressure (MP) steam and low-pressure (LP) steam were transferred to the turbine. Wastage @ -5,64,27,858 The AR also submitted that 20.5% loss 20.5% has already been accounted when high-pressure steam energy (HP) energy is used in turbine to generate MP steam, LP steam and electricity. And as such, the TPO had erred in reducing 20.5% wastage from the finished product, namely Medium and Low-pressure steam which constitutes duplication. MP & 21,88,29,987 The AR further submitted that the ( 3 = 1-2) LP medium transferred pressure (MP) and low-pressure (LP) to Paper steam unit transferred to the paper unit is metered and as such the reduction of units is contrary to the facts and circumstances of the case.

527-Asr-2024 Satia Industries, Muktsar 32 4. 69,28,900 No dispute Condenser steam 5. Generation of 6,08,40,912 No dispute electricity

of the bench to the comparison of the cost ratio as calculated by the

TPO and the one provided by the assessee. The relevant comparison

chart relied upon by the AR is as follows:

Calculation as per As per Assessee TPO Utilization MKCAL Cost MKCAL Cost ratio ratio (Correct) (In %) Electricity 60840912 17.74% 60840912 17.73% Condenser Steam 6928900 2.02% 6928900 2.02% LP & MP Steam 218829987 63.79% 275257845 80.24% transferred to paper unit 56427858 16.45% Losses in transfer of steam @ 20.5% 343027657 100% 34302765 100% 7

the total cost of Cogeneration Unit-1 for energy production is

undisputed at Rs. 55,93,77,363). During the hearing, it was

submitted that the TPO erred in taking the cost as Rs.

527-Asr-2024 Satia Industries, Muktsar 33

35,68,26,820 by applying 63.79% of the total cost of Rs.

55,93,77,363. Furthermore, it was submitted that the action of the

TPO in reducing the loss by 20.5% from the medium-pressure (MP)

and low-pressure (LP) steam produced is contrary to the facts and

circumstances of the case, as the assessee has already accounted

for the 20.5% loss in the energy calculation.

medium-pressure (MP) and low-pressure (LP) steam transferred to

the paper unit is metered, and that the raw material (high-pressure

steam or energy) is used to generate the final products, namely

electricity, MP steam, and LP steam. The AR contended that, even if

the version of the Assessing Officer (AO) was correct, the total cost

ratio should be 82.24%, as opposed to the 63.79% applied by the

TPO.

cost allocated towards steam amounts to Rs. 46,01,43,819

(calculated as Rs. 55,93,77,363 x 82.26%), as compared to the

assessee's reported value of Rs. 47,97,24,777, resulting in a

527-Asr-2024 Satia Industries, Muktsar 34

difference of Rs. 1,95,80,958. The assessee had adopted the

Transactional Net Margin Method (TNMM), while the Dispute

Resolution Panel (DRP) considered the Cost-Pius Method (CPM) as

the most appropriate method (MAM), solely pointing out that steam

is not transferred. The AR contended that the steam captively

consumed was marketable and drew attention to the TPO's order in

the case of "Khanna Paper Mills," where the TPO accepted that the

arm's length price (ALP) of steam must be calculated after adding

margins. Additionally, it was argued that there is no prescribed cost

method in Section 92C for determining the ALP in transfer pricing.

products manufactured / services rendered in a controlled

transaction by comparing the gross profit margin applied to the

direct and indirect costs incurred for production or for rendering

services by the tested party against the margin earned by the party

or by an independent party under uncontrolled similar conditions.

The gross profit mark-up of the third party is adjusted to take into

527-Asr-2024 Satia Industries, Muktsar 35

account the functional and other differences, if any, between the

international transaction and the comparable uncontrolled

transactions, or between the enterprises entering into such

transactions, which could materially affect such profit margin in the

open market.

Cost-Pius Method (CPM), as adopted by the TPO, is considered the

most appropriate method (MAM), the DRP failed to include the gross

profit margin in the computation of the arm's length price (ALP). It

was argued that the DRP failed to adhere to the procedures outlined

in Rule 10B(1)(C) regarding the application of the Cost-Pius Method

for determining the ALP. Additionally, the AR argued that the DRP

failed to add the mark-up, solely on the basis that the eligible and

non-eligible units belong to the same assessee, and therefore, there

is no incentive or mark-up over the cost of steam production.

During the hearing, by the AR it was submitted that profit element

in steam at Rs. 1,95,80,958 based on the working detailed below:

Particulars Amount Sale value of steam 47,97,24,777/-

527-Asr-2024 Satia Industries, Muktsar 36

Cost of Steam as per Table B 46,01,43,819/- (para 15.3) Margin 1,95,80,958/-

TPO in treating the mark-up as zero/nil for the transfer of steam,

without any comparable data and scientific analysis, is based on

conjectures and surmises. The AR further contended that the TPO

failed to fulfill his duty of determining the arm's length price (ALP)

for the transfer- of steam, as mandated under Section 92CA of the

Income Tax Act. The AR pointed out that during the DRP

proceedings, the assessee had submitted that the sale price of

steam works out to Rs. 1712 per ton, as against Rs. 1217 per ton

considered by the assessee. Therefore, the AR argued that the

assessee had correctly adopted the rate of Rs. 1217 per ton.

Moreover, the assessee drew attention to the fact that the Cost-plus

Method had also been accepted in the case of the assessee for AY

2017-18.

Limited" in which the value of steam has been taken as 2160 per

527-Asr-2024 Satia Industries, Muktsar 37

(MT). The said rate has been considered by the coordinate bench of

Chandigarh ITAT and Delhi ITAT vide ITA No. 1497/CHD/2019 and

ITA No. 567/DEL/2019respectively.

Act. The word "Power" should be understood in common parlance

as "Energy". "Energy" can be in any form being mechanical,

electricity, wind or thermal. In such circumstances, the AR

contended that the "steam" produced by the assessee can be termed

as power and the rate calculated by considering the steam used in

electricity is very much appropriate.

product and it is a form of power and therefore it cannot be said

that there is NIL profit as it is captively consumed. It was pointed

out that the assessee had submitted a detailed cost sheet following

the standards issued by the Institute of cost and works accountant

for determining the exact cost of steam, it has also been certified by

the chartered accountant and further a chartered engineer

527-Asr-2024 Satia Industries, Muktsar 38

certificate is also provided. All these cost statement duly certified by

the professionals were rejected by the TPO without any basis.

generated by the captive power plant and consumed in the

manufacture of paper, the assessee is entitled to a deduction under

Section 80-IA of the Income Tax Act. The AR emphasized that the

Department had filed a Special Leave Petition before the Hon'ble

Supreme Court against the judgment of the Hon'ble Madras High

Court in T.C. No. 1773 of 2008. In the judgment dated 6th

November, 2008, the Apex Court dismissed the Department's

appeal. The Madras High Court had dismissed the Department's

appeal against the decision of the Tribunal, which held that the

assessee was entitled to claim a deduction under Section 80-IA on

the value of steam used for captive consumption.

27.1 The AR referred to the case of CIT v. Tanfac Industries Ltd

[S.L.P.(C) No. 18537 of 2009] (319 ITR 8 & 9), which upheld the

position of the assessee. In light of the above discussion, the AR

527-Asr-2024 Satia Industries, Muktsar 39

contended that the steam produced by the assessee in the eligible

unit constitutes a product, and the income derived from the sale of

steam is income derived from an industrial undertaking, thus

qualifying for the deduction under Section 80-IA.

27.2 The Authorized Representative (AR) has also brought on record

different case laws which are as under:-

(a) In the case of DCW Ltd. v. Additional Commissioner of Income-tax, 3(1), Mumbai reported in [2010] 37 SOT 322 (MUM), it has been held by the Mumbai ITAT that income from sale of steam was income derived from industrial undertaking, it was eligible for deduction under section 80-IA. The relevant head notes are reproduced as under:-

Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2003-04 - Assessee claimed deduction under section 80-IA from its captive power plant unit - Assessing Officer allowed assessee's claim - On appeal, Commissioner (Appeals) reduced amount of deduction for following reasons: firstly, assessee had taken into account electricity tax levied by State Government while

527-Asr-2024 Satia Industries, Muktsar 40

working out market price of electricity for purpose of section 80-IA(8), secondly, certain amount of indirect expenses was to be allocated to CP.P. unit for calculating eligible profit under section 80-IA and, thirdly, income from sale of sludge and sale of steam was not eligible for deduction under / section 80-IA - Whether price charged by assessee while transferring manufactured electricity from C.P.P. unit to its other unit including electricity tax levied by State Electricity Board was price ordinarily prevailing in open market, and, therefore, Commissioner (Appeals) was not justified in disallowing assessee's claim on said ground - Held, yes - Whether as regards second ground, incomes and expenditures which were not directly relatable to industrial unit had to be ignored and, therefore, Commissioner (Appeals) was not justified in allocating indirect expenses not directly relatable to industrial unit of assessee for purpose of computation of its income for deduction under section 80-IA - Held, yes - Whether as regards third ground, sale of sludge did not amount to income derived from industrial undertaking and, therefore, it was not eligible for deduction under section 80-IA - Held, yes - Whether, however, in view of fact that steam produced by assessee from eligible unit was a bye-product and income from sale of steam was

527-Asr-2024 Satia Industries, Muktsar 41

income derived from industrial undertaking, it was eligible for deduction under section 80-IA - Held, yes

b) Similarly in the case of M/S. TATA CHEMICALS LIMITED Vs DEPUTY COMMISSIONER OF INCOME TAX-2 (3) MUMBAI reported in 2023 (9) TMI 25 - ITAT MUMBAI. It was held that assessee is entitled for deduction u/s. 80IA of the Act in respect of sale of steam from its power plant to non-eligible units. Assessee was justified in recognizing the sale income of power at the rate of 4.74 power unit. Thus we find that basis on which the deduction u/s. 80IA of the Act has been denied by the Id. AO ' or the year under consideration has no legs to stand in the eyes of law. Hence, we direct the AO to grant deduction u/s. 80IA of the Act in respect of its captive power plant, in accordance with law. Accordingly, ground raised by the assessee is allowed.

(c) That the ITAT in the case of DY COMMISSIONER OF INCOME TAX vs. MAHARAJA SHREEUMAID MILLS LTD. reported in (2009) 29 SOT 278 has held that the stream shall be termed as power and thus, eligible for deduction u/s 80- IA(iv) of Income Tax Act, 1961. The Hon'ble ITAT has pointed out that energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by

527-Asr-2024 Satia Industries, Muktsar 42

the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under s. 80-IA(iv), held the Tribunal.

(d) Similarly, in the case of Asstt. CIT vs Sial SBEC Bioenergy Ltd reported in 4SOT 730(Del) has held that law pressure steam used for sugar plant for production of final sugar is eligible for deduction u/s 80-IA as steam is form of energy. (e) Furthermore reliance is being placed on the following case laws:- (i) VARDHMAN TEXTILES LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX reported in (2024) 38 NYPTTJ 1316 (Chd)

(ii) N.R. AGARWAL INDUSTRIES LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX reported in (2021) 91 ITR_TRIB (Trib) 503 (Surat)

(iii) DCM SHRIRAM LTD. vs. ADDITIONAL COMMISSIONER OF INCOME TAX reported in (2022) 215 TTJ (Del) 299.

(iv) SAF YEAST CO. (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME reported in (2018) 62 ITRTRIB 381 (Mumbai)

(v) WEST COAST PAPER MILLS LTD. vs. Addl. CIT reported in (2014) 33 ITR_TRIB 560 (Mumbai).

527-Asr-2024 Satia Industries, Muktsar 43

on this issue and the submissions filed by the AR. as well as after

hearing the arguments of the Counsel of the Assessee and the DR.

we are of the considered view that the Assessing Officer's approach

to the adjustments regarding the transfer of steam and the arm's

length pricing is not consistent with the facts and circumstances of

the case. Moreover. A.O. erred in reducing the loss @ 20.50% which

have already been considered by Assessee. Therefore, in this

situation, and in our opinion, the addition made by the Assessing

Officer on this account cannot be sustained. Accordingly, the

Assessee's appeal on this issue is allowed.

29.1 The AR contended that the DRP overlooked the fact that

the assessee claimed a deduction under section 80G for CSR

contributions amounting to Rs. 2,47,500, not Rs. 3,47,500 as

stated. The remaining donation was made in the normal course to

[name of the recipient], which is eligible for the 80G deduction. The

assessee has provided the relevant documents in Appendix-Ill of the

527-Asr-2024 Satia Industries, Muktsar 44

corporate tax adjustment, as detailed in Exhibit-13. It was further

highlighted that the AO has not raised any objections or pointed out

any discrepancies in the documents submitted by the assessee.

29.2 The AR explained that the AO failed to recognize that

there is no explicit provision in the law to support the contention

that the assessee should be denied the benefit of a deduction under

Chapter VIA of the Income Tax Act, which is used for calculating

the 'Total Taxable Income”. It is a matter of record that only

donations related to CSR contributions are restricted, and this

limitation applies specifically to those payments. However, the

legislature has not imposed a similar restriction on other types of

donations. Therefore, such a restriction is clearly absent for other

donation entries. In light of this, denying the assessee the benefit of

a deduction simply because the payment is part of CSR would

result in an unjustified double disallowance, which is clearly not

the intention of the legislature.

527-Asr-2024 Satia Industries, Muktsar 45

29.3 We have considered the findings of the Assessing Officer on

this issue in his order. We have also gone through the submissions

filed by the Id. Counsel for the Assessee and we have considered his

arguments.

29.4 The Id. DR relied on the submissions made by the

Department as well as the findings given by the Assessing Officer

on this issue.

29.5 The Id. Counsel has also submitted different case laws.

He pointed out that in the case of SocieteGenerale Securities India

Pvt. Ltd [TS-770-ITAT-2023(Mum)], it was held that Assessee

cannot be denied the benefit of claim under Chapter Vl-A of the Act,

which is considered for computing Total Taxable Income.

29.6 After going through the findings given by the Assessing

Officer on this issue and the submissions filed by the Department

as well as after hearing the arguments of the Counsel of the

527-Asr-2024 Satia Industries, Muktsar 46

Assessee and the DR, we are of the considered view that CSR

contribution / expenditure, if claimed u/s 80G would defeat the

very basic requirement of CSR expenditure (on total amount),

Therefore, claim of 80G on CSR expenditure is not tobe allowed as

per se. Accordingly, A.O’s. action of rejecting the claim of 80G on

CSR expenditure is justified. Hence, Assessee’s appeal on this

Ground is dismissed.

u/s 41(1).

Assessee has filed written submissions on this issue, which is as

under:-

a) That the assessee has shown amount payable to M/S Valmet Technologies and Services Pvt ltd amounting to Rs. 12,50,000 during the A.Y 2020-21. The information was made available on the insight portal that the seller has claimed debts in his books of accounts and the assessee has not shown corresponding deemed income in the profit and loss account u/s 41(1). The AR submitted that the assessee has

527-Asr-2024 Satia Industries, Muktsar 47

nowhere stated that the amount was not payable, and all the documentary evidence were submitted before the AO that the liability was active. As such, it was argued that "he AO erred in applying the provisions of Section 41(1) of the Income Tax Act, 1961

b) The AR further explained that the judgement of CIT-III vs Shri. Vardhman Overseas Ltd. at para no 9.3 relevant page no 53 of PB relied upon by the DRP is in favour of the assessee as the amount was payable as per books of accounts of the assessee.

c) It clearly indicates that the liability of the assessee had not become extinct. It does not make any difference even if M/s Valmet Technologies and Services Pvt ltd. have booked the same as bad debts u/s 36(l)(vii) but it does not mean that the debtor has lost the hope of recovering the outstanding sum.

d) The AR explained that it is not the case where M/s Valmet Technologies and Services Pvt ltd. has not made any efforts to recover the amount and has voluntarily stated that no amount is receivable from the assessee. Therefore, the provisions of Sec 41/1) are not applicable in the present case.

527-Asr-2024 Satia Industries, Muktsar 48

e) It was further submitted that the assessee has deducted this amount in next year’s ITR and considered a sum of Rs. 12,50,000/- on 01.04.2024 in the books of accounts and as such, taxing the same amount in the year under consideration tantamount to double taxation.

which are as under: -

(a) [2023] 157 taxmann.com 547 (Kolkata - Trib.) in the ITAT KOLKATA BENCH 'C Harmuny Entertainment (P.) Ltd. v. Deputy Commissioner of Income-tax.

(b) [2022] 141 taxmann.com 47 (Chennai - Trib.) in the ITAT CHENNAI BENCH 'B' India Cements Capital Ltd. v. ACIT.

on this issue in his appeal order. We have also gone through the

submissions filed by the Id. Counsel for the Assessee and we have

considered his arguments.

Department as well as the findings given by the AO on this issue.

527-Asr-2024 Satia Industries, Muktsar 49 34.1 We find that as the Assessee itself has deducted the same amount in the next years return of income, therefore, disallowing the same in this year would be tantamount to double taxation. Accordingly, Assessee’s appeal on this ground is allowed.

Order pronounced on 28th Feb., 2025

Sd/- Sd/- (UDAYAN DAS GUPTA) (KRINWANT SAHAY) Judicial Member Accountant Member “आर.के.” आदेशक��ितिल*पअ+े*षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Assessee 2. ��यथ�/ The Respondent 3. आयकरआयु,/ CIT 4. *वभागीय�ितिनिध, आयकरअपीलीयआिधकरण, च0ड#गढ़/ DR, ITAT, CHANDIGARH 5. गाड�फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar