Back
2026 Supreme(Online)(ITAT) 8775
INCOME TAX APPELLATE TRIBUNAL (CHENNAI BENCH)
Aby T. Varkey, Judicial Member, S.R.Raghunatha, Accountant Member
India Cements Ltd. – Appellant
Versus
DCIT, Corporate Circle-1(1), Chennai – Respondent
ITA No.2859/Chny/2025
For the Appellants/Petitioners: R. Vijayaraghavan, Vikram Vijayaraghavan
For the Respondents: Bipin C.N.
For Section 80-IA deduction calculations, captive electricity consumption is valued at the retail rate charged by State Electricity Boards, and disallowances under Section 14A must be restricted to investments yielding exempt income and capped at the actual exempt income earned.
Headnote:(A) Income Tax Act, 1961 - Section 80-IA - Deduction for captive consumption of electricity - Market value for captive consumption should be determined based on the rate at which electricity is supplied to the consuming units by the State Electricity Board (SEB), rather than the rate at which power is sold to third parties or SEBs.
(B) Income Tax Act, 1961 - Section 14A - Disallowance of expenditure - Only those investments that yielded exempt income should be considered for computing disallowance, restricted to the actual amount of exempt income earned during the year.
Facts of the case:
The assessee, engaged in manufacturing, claimed deduction under Section 80-IA for captive electricity consumption. The Assessing Officer and CIT(A) made downward adjustments to the transfer pricing of power and disallowed expenditures under Section 14A, including amounts related to non-exempt items like sales tax incentives and notional valuation gains.
Findings of Court:
Following the doctrine of consistency and previous tribunal orders in the assessee's own case, the ITAT held that the transfer pricing adjustment was unjustified in light of established precedents. Regarding Section 14A, the tribunal directed the re-computation of disallowance to be restricted to 1% of the monthly average of exempt income-yielding investments and capped at the amount of exempt income actually earned.
Issues: 1. Determining the market value for captive consumption of electricity under Section 80-IA. 2. Whether the disallowance under Section 14A should be restricted to the actual exempt income earned and based only on investments yielding such income.
Ratio Decidendi: The market value for Section 80-IA deduction purposes must be the retail rate charged by SEBs to consumers, not the wholesale supply rate. Disallowance under Section 14A must be limited to actual exempt income and specifically attributable only to investments that produced such income.
Result: Appeal filed by the assessee partially allowed.
ORDER
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 25.08.2025 for the Assessment Year (hereinafter referred to as ‘AY‘) 2020-21.
The assessee has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the order passed by the learned CIT(A), NFAC, is contrary to the facts on record and the applicable legal provisions, and therefore deserves to be set aside.
2. On the facts and in the circumstances of the case and in law, the NFAC /CIT(Appeals) has erred in confirming the disallowance of deduction claimed under Section 80-IA for an amount of Rs.49,61,60,892, being the market value of electricity generated and supplied from various units of the undertaking for captive consumption. The NFAC / CIT(Appeals) failed to appreciate that the market value for captive consumption should be determined based on the rate at which electricity is supplied to the consuming units by the State Electricity Board (SEB), and not the rate at which excess electricity is sold to third parties or SEBS.
2.1 On the facts and in the circumstances of the case and in law, the NFAC /CIT(Appeals) has further erred in confirming the downward adjustment of Rs. 126,68,65,505, by adopting ALP of the inter unit transfer of power at Rs.2,84,66,09,006/- instead of Rs.4,11,34,74,512/- as claimed in the return of income. The disallowance is therefore unjustified and liable to be deleted as decided by the Coordinate Bench of the ITAT in assessee's own case for past years.
3. On the facts and in the circumstances of the case and in law, the NFAC/CIT(A) erred in confirming the disallowance u/s.14A of the Act of Rs.7,15,78,435/-.
3.1 On the facts and in the circumstances of the case and in law, the NFAC/CIT(A) failed to appreciate that the appellant earned dividend income of only Rs.14,23,000/- during FY 2019-20 from strategic investments, and had sufficient own funds in the form of share capital and reserves to make such investments without using borrowed funds.
3.2 On the facts and in the circumstances of the case and in law, the NFAC/CIT(A) failed to consider that the Assessing Officer did not record any dissatisfaction with the appellant's claim regarding expenditure incurred in relation to exempt income, which is a mandatory requirement under Section 14A (2) and Rule 8D .
3.3 On the facts and in the circumstances of the case and in law, the NFAC/CIT(A) erred in not restricting the disallowance to the extent of amount of exempt income earned by the assessee.
3.4 On the facts and in the circumstances of the case and in law, the NFAC/CIT(A) further erred in not restricting the computation of disallowance under Section 14A to only those investments which actually earned exempt income earned during the year under consideration.
The Appellant craves leave to add, alter, amend or delete the aforesaid grounds of appeal from time to time as it may be advised up to the date of hearings.
:: 2 ::
Ground No. 1 of the appeal is general in nature which doesn’t require any adjudication and is therefore dismissed.
Ground No.2 raised by the assessee is against the disallowance of deduction u/s. 80IA of the Income Tax Act 1961 (hereinafter ‘the Act’). The facts concerning this issue are that, the assessee owns and operates thermal power plants Shankarnagar Tamilnadu, Banswara Rajasthan and Vishnupuram Telangana, all of which generates electricity for captive consumption by assessee’s cement units. These power generating units qualified as 'eligible unit' engaged in the business of generation of power under section 80-IA(4)(iv) of the Act. The transfer of power by these eligible units to the cement manufacturing units was benchmarked at the annual average of the landed cost at which power was being supplied by the State Electricity Boards to the manufacturing unit(s). The TPO in the tr
