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TMI Blog2023 (3) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... rables as taken by the TPO and DRP, it can be seen that the median range is well within the price shown by the assessee and therefore, we hold that same are at arm s length price and no further TP adjustment was required to be done. There is a slight fallacy in the order of the DRP while constructing the data set of comparables. DRP has added extra landing cost of Rs. 0.57 per unit to the MERC approved rate of all comparables in case of MSEDCL Order for AY 2017-18. DRP has assumed the difference between the MERC approved cost in case of MSPGCL of Rs. 3.51 per unit and the per unit rate of Rs. 4.08 as per the reply received from MSPGCL in response to the notice u/s. 133(6), being Rs. 0.57 (Rs. 4.08 Rs. 3.51) as the landing cost and uniformly applied the same to the cost per unit of all comparables considered as per the MERC order in case of MSEDCL. The average cost per unit of power purchased from MSPGCL of Rs. 3.51 per unit has been considered by the DRP on the basis of MERC order of MSEDCL which includes the cost of thermal, hydro and gas power, whereas MSPGCL in response to the Notice u/s. 133(6) has provided the average cost per unit in case of thermal power only, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the AO in both the assessment years is hereby deleted. Allocation of head office expenses for computing deduction u/s 80IA - Assessee submitted that the head office expenses should not be allocated while computing the profits of the eligible 80IA undertaking - AO has allocated commonly incurred head office expenses to all undertakings on the basis of turnover resulting in reduced profits of eligible 80IA undertaking stating that the head office expenses have been incurred for running and administration of all the units/activities of the assessee company including the activities of the eligible units - HELD THAT:- We find that that this issue is now covered by the decision of Hon ble Bombay High Court in assessee s own case for [ 2012 (10) TMI 1144 - ITAT MUMBAI] , [ 2014 (11) TMI 1236 - ITAT MUMBAI] AY 2006-07 to AY 2009-10 and also by ITAT Mumbai for [ 2012 (10) TMI 1144 - ITAT MUMBAI] , [ 2014 (11) TMI 1236 - ITAT MUMBAI] , [ 2017 (6) TMI 1181 - ITAT MUMBAI] , [ 2017 (12) TMI 1121 - ITAT MUMBAI] , [ 2018 (12) TMI 1882 - ITAT MUMBAI] , [ 2019 (11) TMI 1357 - ITAT MUMBAI] , [ 2021 (5) TMI 351 - ITAT MUMBAI] deceptively AY 2002-03 to AY 2015-16. Thus, we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 154 has been passed till dat - HELD THAT:- Since DRP has given direction the AO to rectify the error by passing a rectification order in the matter, therefore we reiterate the same and direct the AO to rectify the error by passing a rectification order in the matter which has not been passed till dated. Accordingly, this ground is allowed for statistical purposes. - I.T.A. No. 476 And 2106/Mum/2022 - - - Dated:- 23-3-2023 - Shri Amit Shukla, JM And Shri M. Balaganesh, AM For the Appellant : Shri Niraj Sheth/Shri Jitendra Sanghvi/Shri Amit Khatiwala, Ld. ARs For the Respondent : Shri Shyam Prasad, Ld. DR ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: The aforesaid appeals have been filed by the assessee against final assessment order dated 28.01.2022 and 31.07.2022 for the AYs 2017-18 and 2018-19 respectively, passed u/s 143(3) r.w.s. 144C(13) in pursuance of the directions given by the Ld. DRP vide order dated 17.08.2021 for the AY 2017-18; and order dated 25.06.2022 for AY 2018-19. 2. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore the same were heard together and are being disposed of by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the generation undertaking (R-infra G). 5. During the year under consideration, R Infra G, which is non-eligible undertaking at Dahanu, has transferred electricity to R Infra D valued at Rs. 3.24 per unit amounting to Rs. 1079,27,04,708 for sale to ultimate consumers. The electricity has been valued at Rs. 3.24 per unit based on the weighted average cost worked out considering the power purchase prices approved for the power supplied under long term PPAs based on competitive bidding by various states for power purchased from all sources for F.Y. 2016-17 as per the report of the Administrative Staff College of India (ASCI). 6. Similarly for the AY 2018-19, assessee determined the arm s length price for transfer of electricity unit at Rs. 3.03 per unit based on competitive bidding by various states for power purchased from all sources for F.Y. 2017-18 as per the report of the Administrative Staff College of India (ASCI), Hyderabad, which is a Government of India enterprise based on which, R-infra G s revenues and costs of Rinfra D were worked out at Rs. 966,50,95,182/-. The per unit value of Rs. 3.03 was arrived at based on the weighted average cost worked out con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions as per the ASCI Report, transactions of thermal power purchase by independent power generating companies with our subsidiary company BSES Rajdhani Power Ltd., purchase transactions by the assessee from Non Associated Enterprises, transactions given by the TPO in show cause notice and transactions of purchase of thermal power by MSEDCL from various sources as per Tariff Order no. 195 of 2017 dated 12th September 2018. The assessee worked out the percentile range using various permutations and demonstrated that in all the situations, the price adopted for transfer of power from Dahanu unit to Distribution division was within the percentile range. The assessee also provided justification on the ALP adopted by it on the basis of ASCI Report and the price paid by it for purchase of power on the IEX. 9. The TPO rejected the assessee s submission stating that ASCI report was on pan-India basis and the power sector is regulated by each state separately in India through State Power/Electricity Regulatory Commissions /Committees, therefore it is required to compare the prices within a State and more particularly in an around the same area. He further held that adoption of a lower ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has also proposed the transactions with internal CUP, viz., Knowledge Infrastructure System, PTC India Limited, JSW Power Trading Co. Ltd., and Jindal Steel and Power Limited as CUP to be considered. The details of purchase made from these four entities by the assessee are as follows: S. No. Name of the Party Qty in kWh Rate per kWh Amount in INR 1 Knowledge Infrastructure System 133,74,165 3.02 4,03,89,978/ 2 PTC India Limited 3,37,77,620 3.03 10,23,19,993/ 3 JSW Power Trading Co. Ltd. 2,68,94,180 3.15 8,47,26,207/- 4 Jindal Steel and Power Limited 4,36,91,654 4.67 20,41,84,881/- 5 Power transferred from R-Infra G (non-eligible Unit) to R-Infra-D (eligible Unit) 333,10,81,700 3.24 1079,27, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from the Maharashtra State Electricity Board was INR 3.14. The average of three rates comes to INR 4.05 per unit (kWh). However, in the case of the assessee, the power distributor R Infra-D (eligible for 80-1A deduction) purchased thermal power (333,10,81,700 units of electricity) from assessee's generation unit (R Infra-G) to the tune of INR 1079,27,04,708/- at the rate of INR 3.24/- per unit. The ALP of the transaction of purchase of power is INR 4.047/- per unit, as already discussed above. In view of the same, it is evident that the assessee's power distributor unit (eligible unit) purchased power from the assessee's power generation unit (non-80-1A) at a higher rate to the tune of INR 0.807/- per unit and therefore, an adjustment of INR 268,81,82,932/- (3,33,10,81,700 INR 0.807/-) proposed. Therefore, he proposed that the Assessing officer should reduce the claim of deduction u/s 801A to the tune of Rs. 268,81,82,932 for the eligible unit that will simultaneously increase the profit of the non-eligible unit by the same amount. 13. Before the DRP, assessee pleaded that since more than six comparables were available, the TPO/ Assessing Officer oug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maharashtra Units, excluding ASCI and Units having quantum of less than 2000 MU (Only Internal CUP, TPO MSEDCL Order) 6 3.06 to 3.35 3.24 7 2.90 to 3.85 3.0 3 Excluding Maharashtra Unit comparables as per ASCI Report and Maharashtra Units having quantum of less than 2000 MU 3 Considering all Maharashtra Units, excluding ASCI, CGPL and Units having quantum of less than 100 MU (Only Internal CUP, TPO MSEDCL Order) 10 3.06 to 4.07 3.24 11 2.90 to 3.93 3.0 3 Excluding Maharashtra Unit comparables as per ASCI Report, CGPL, and Maharashtra Units having quantum of less than 100 MU 4 Considering all Maharashtra Units, excluding ASCI, CGPL, IEX and Units having quantum of less than 100 MU (Only Internal CUP, TPO MSEDCL Order) 9 3.14 to 4.07 3.24 10 2.90 to 3.93 3.0 3 Excluding Maharashtra Unit compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant vide SCN dated 12.07.2021 following the same approach as adopted by him for AY 2017-18. 20. Assessee vide its reply dated 13.07.2021 in response to the SCN referred to Rule 10CA(4) which provides that where in respect of a specified domestic transaction, the application of the most appropriate method results in determination of more than one price, then the arm s length price shall be computed in accordance with the provisions of this rule. The Assessee provided different datasets considering transactions as per the ASCI Report, transactions of thermal power purchase by independent power generating companies with our subsidiary company BSES Rajdhani Power Ltd., purchase transactions by the Assessee from Non Associated Enterprises, transactions given by the TPO in show cause notice and transactions of purchase of thermal power by MSEDCL from various sources as per Tariff Order no. 322 of 2019 dated 30th March 2020. The Assessee worked out the percentile range using various permutations and demonstrated that in all the situations, the price adopted for transfer of power from Dahanu unit to Distribution division was within the percentile range. The Assessee also provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity at Rs. 5.16 per Kwh to BEST which shows that there is a vide variation between the two rates which may have been determined by the MERC tariff order in the respective company. This shows that the tariff rate approved by MERC is based on the cost incurred by the generator and has nothing to do with the open market price. Even the rate of electricity supplied by TPC from their different units vary which also shows that the MERC only approves the cost of each unit separately. It also may be pointed out that TPC after having high tariff rate approved by MERC has incurred losses. Thus, the cost of generation of electricity by Dahanu Unit is not the correct method for adopting the transfer price of the electricity utilized in Distribution Division. The Appellant by making reference to provisions of section 80A(6), 80IA(8) and 92F of the Act has submitted that all the referred sections require that the price to be adopted has to be what is applied in non-AE transactions which are in uncontrolled conditions. Thus market value denotes a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he act of substituting the transfer value recorded at Rs. 3.03 per Kwh by Rs. 4.60 per Kwh which is not the part of the transfer pricing provisions. 23. The TPO had also provided an analysis of purchase of electricity transaction from R-infra G and five other companies namely Vashpet (Reliance Power Ltd. RPL), DSPPL, VIPL, RIPL and AAASPL. The Assessee has justified in each case that there is no variation in the rate adopted by the Assessee in the transfer pricing study report and the MERC Orders of the respective companies and therefore no adjustment was required. 24. The Assessee made a without prejudice submission that the cost per unit of Rs. 4.12 as determined by MERC in the provisional tariff order no. 34 of 2016 dated 21.10.2016 ought to be considered as against the cost per unit of Rs. 4.60 determined by MERC in the final tariff order no. 325 of 2019 dated 30.03.2020. In this regard the Assessee explains hereunder the process of tariff determination by MERC:- RInfra was engaged in the business of generation, transmission and distribution of electricity. Rinfra has its generation unit at Dahanu having capacity of 500 MW. RInfra s electricity distribution network cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain item of expenses and income. 25. Thus, as per the above tariff determination process, the tariff for a particular year is determined before the commencement of the year on the basis of projected costs for the year. The consumers are charged as per the tariff which is determined on projected basis. After the year end MERC undertakes the truing up of the tariff which is determination of the tariff based on the actual costs incurred by the company. The shortfall or excess recovery from the consumers is adjusted in the tariff of the subsequent year. 26. In light of the above facts, it was submitted that, while approving the ARR and determining the tariff for FY 2017-18 on a provisional basis, MERC vide its order in case no. 34 of 2016 dated 21.10.2016 has determined the per unit cost for R-infra G at Rs. 4.12 per unit. As per the process, MERC had to true up the provisional tariff and decide the final tariff which was done in order no. 325 of 2019 dated 30.03.2020 and the actual cost per unit was determined at Rs. 4.60 per unit. The effect of the variation in tariff is considered in the tariff of next financial year and recovered / reimbursed through the future tariff. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the Assessee in the sales consideration received from AEML. Thus, the TPO confirmed an adjustment of Rs. 1.57 per unit (Rs. 4.60 Rs. 3.03) i.e. Rs. 500.79 crore to the transaction of purchase of power by Rinfra D from Rinfr a G. 30. Ld. DRP while analyzing the transaction has referred to the benchmarking done by the TPO and directions of the DRP for the same transaction in AY 2017-18, stating that the Assessee is generating power at a higher cost but for the purpose of deduction, benchmarking the transaction at a lower cost taking shelter of TP mechanism has adopted other method instead of CUP. The DRP has accepted the TPO s contention that the provisions of S. 92(3) are applicable to the Assessee s case as the deduction is getting enhanced and the profits chargeable to tax is getting reduced on account of the ALP adopted by the Assessee. The DRP also noted that if the same approach as adopted for AY 2017-18 is followed, the ALP would work out to Rs. 3.71 per unit and would result in confirmation of adjustment of Rs. 216.91 crore as against Rs. 500.79 crore adjustment made by TPO. After stating the above facts, the DRP has confirmed the adjustment made by the TPO statin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates clearly reflect the value of power in the open market and cannot be disregarded merely because there is a regulated price determined for the power transferred. Our attention was also invited to Rule 7 of the Income Tax Rules, 1962 which provides that the market price shall be the price at which the goods are sold during the relevant previous year. Thus, the price at which the electricity was sold in the open market has to be taken into consideration and not only the regulated price. 34. He further submitted that the TPO has only considered the rate as approved purchase cost in the tariff order for R-Infra - D of Rs. 4.60 per Kwh for benchmarking the transaction of transfer of power from R-Infra - G to R-Infra - D ignoring the other comparables for power purchase. The TPO failed to appreciate the fact that this rate does not represent the comparable rate of electricity following the arm s length principle for the reason that no power generating station / company can or would sell electricity to any industrial consumer at these rates. The rate represents only the cost of generating electricity by R-Infra - G. In section 80IA(8) of the Act, what is required to be ascertained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O rendered for the earlier years should be applied to the year under consideration. Therefore, he submitted that the CUP is the most appropriate method and should be adopted for benchmarking the transaction of transfer of power. 38. Ld. Counsel further submitted that all comparables operating in the state of Maharashtra namely as per the Assessee s internal CUP, comparables as per SCN and comparables as per the MERC order in case of MSEDCL should be considered for working out the data set to determine the ALP as was done for AY 2017-18. 39. During the course of ITAT hearing, the assessee has submitted working of the ALP applying Rule 10CA(4) considering various permutations. The same are summarized as under: Statement No. Particulars AY 2017-18 AY 2018-19 Remarks No. of Comparables Range ALP No. of Comparables Range ALP 1 Considering all Maharashtra Units, excluding ASCI (Only Internal CUP, TPO MSEDCL Order) 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction was recorded in the books of account i.e. during FY 2017-18 and the MERC order in case no. 34 of 2016 dated 21.10.2016 approving the rate of Rs. 4.12 per Kwh was available. The difference in tariff (Rs. 4.60 Rs. 4.12) i.e. Rs 0.48 per Kwh would be recovered in FY 2020-21 when the Appellant was not the licensee on account of sale of business to Adani Electricity Mumbai Ltd. (AEML). Ld. Counsel therefore submitted that the rate of Rs. 4.60 per Kwh cannot be considered. 42. On the other hand, Ld. CIT DR after referring to the various observations made by the TPO and DRP submitted that TPO has given detail reasons as to why the heavy reliance placed by the assessee on ASCI report, cannot be relied on, whereas on contrary, the AO has taken similar comparables involved in distribution of electricity within the same area. Apart from that, TPO has also relied on the transactions between MSEDCL and BEST which has purchased the power from other companies at a large higher rate which under the facts and circumstances where the best comparables. The TPO has also called for any MERC order in the case of assessee only, wherein power purchase cost was more than as determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO and MSEDCL order) AY 2017-18 AY 2018-19 Sr. No. Name of Unit Quantity (MU) Cost per KwH Source Ref. Sr. No. Name of Unit Quantity (MU) Cost per KwH Source Ref. 1 CGPL 5149 2.40 MSEDCL Order 1 CGPL 4990 2.43 MSEDCL Order 2 NPCIL 4210 2.50 MSEDCL Order 2 Maharashtra State Electricity Distribution co. Ltd. 861 2.64 Internal CUP 3 JSW 1742 2.60 MSEDCL Order 3 Dodson 83 2.65 MSEDCL Order 4 Indian Energy Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 Dhariwal Infrastructure Ltd. 1 4.2 Internal CUP 14 The Brihan Mumbai Electric Supply Transport Undertaking 2190 4.92 TPO 14 Power Exchange India Ltd. 1 4.83 Internal CUP 15 Rattan India 1701 8.62 MSEDCL Order 15 Rattan India 4347 4.96 MSEDCL Order 16 The Brihan Mumbai Electric Supply Transport Undertaking 2200 5.16 TPO Comparable total 15 Comparable total 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 NPCIL 2591 2.9 MSEDCL Order 4 Adani Power 17294 3.35 MSEDCL Order 4 MSPGCL- Thermal 48843 3.56 MSEDCL Order 5 MSPGCL- Thermal 38445 4.08 TPO 5 Adani Power 17257 3.85 MSEDCL Order 6 The Brihan Mumbai Electric Supply Transport Undertaking 2190 4.92 TPO 6 Rattan India 4347 4.96 MSEDCL Order 7 The Brihan Mumbai Electric Supply Transport Undertakin 2200 5.16 TPO Comparable total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 NTPC 30116 2.75 MSEDCL Order 3 Indian Energy Exchange Ltd 872 2.84 Internal CUP 3 JSW 1899 2.89 MSEDCL Order 4 NTPC 27412 3.06 MSEDCL Order 4 NPCIL 2591 2.9 MSEDCL Order 5 Maharashtra State Electricity Board 820.98 3.14 TPO 5 MSPGCL- Thermal 48843 3.56 MSEDCL Order 6 Adani Power 17294 3.35 MSEDCL Order 6 Indian Energy Exchange Ltd 1628 3.84 Internal CUP 7 EMCO Power 1475 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.90 to 3.93 Reliance Infrastructure Ltd 3.24 Reliance Infrastructure Ltd 3.03 TP Range Computed for Purchase Cost from All Maharashtra Units excluding ASCI list, CGPL, IEX and small quantity (only Internal CUP, TPO and MSEDCL order) AY 2017 - 18 AY 2018-19 Sr. No. Name of Unit Quantity (MU) Cost per KwH Source Ref. Sr. No. Name of Unit Quantity (MU) Cost per KwH Source Ref. 1 NPCIL 4210 2.50 MSEDCL Order 1 Maharashtra State Electricity Distribution co. Ltd. 861 2.64 Internal CUP 2 JSW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable total 10 Particulars Place Range Particulars Place Range 35th Percentile 3.15 4th 3.14 35th Percentile 3.5 4th 2.90 65th Percentile 5.85 6th 4.07 65th Percentile 6.5 7th 3.93 Range 3.14 to 4.07 Range 2.90 to 3.93 Reliance Infrastructure Ltd 3.24 Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered for comparison, We find merit in the submission of the assessee. We have seen the tariff order which is available in the public domain. The MERC is a statutory body. We are of the considered opinion that the information provided in the tariff order can be accepted for comparison. In this regard, we get indicative guidance from Rule 10THC (2)- 'Safe harbour Rules for Specified Domestic Transactions'. We take purchases of thermal power from thermal power producers in Maharashtra. We take for comparison the sources which had sold 1500 million units (MUS) to MSEDCL. Thus, we find that NTPC (Mouda), JSW (Ratnagiri), Adani Power (Dahanu and Tiroda- Gondia) and Rattan India (Nashik) have thermal power plants in Maharashtra and sold more than 1500 MUS to MSEDCL in FY 2016-17. The relevant information provided by MSEDCL to MERC is as under: Sr. no. Source MSEDCL Actual Purchases Cost per unit worked out Quantum (MUs) Cost Rs. (Rs. cr.) 1 MSPGCL 46,796 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCL. The difference in the two rates in case of MSPGCL, i.e., Rs. 3.51 and Rs. 4.08 as per reply of MSPGCL has been explained as under: Station Actual Power Purchase from MSPGCL stations Cost per Unit Remarks Qty in MUs. Cost (Rs. in crore) Paras Unit 3 4 2,679 1,127 Refer Page 217 of MERC Order of MSEDCL in case no. 195 of 2017 dated 12.09.2018 Chandrapur 3 to 7 10,751 3,283 Chandrapur 8 9 2,906 1,164 Nasik 3,4 5 2,973 1,409 GTPS Uran 3,203 742 Parli Replacement 8 22 12 Khaparkheda 1 to 4 3,821 1,479 Khaparkheda 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparable transaction with respect to the transfer of thermal power from Rinfra G to Rinfra D. Thus, the difference as reconciled above is not on account of landing cost and therefore, Rs. 0.57 per unit added to the cost per unit of all comparables was wrongly considered by the DRP. 51. If based on this revised working of arm s length price, even as per the DRP s order is done after correcting the said fallacy, then following weighted average price will be determined:- Revised TP Range Computed as per the DRP order Sr. No. Name of Unit Cost per KwH as per the DRP order Revised Cost per KwH Source Ref. 1 JSW 3.17 2.60 MSEDCL 2 NTPC 3.63 3.06 MSEDCL 3 MSEB TPO 133(6) 3.14 3.14 TPO 133(6) 4 Adani Power 3.92 3.35 MSEDCL 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following: i) Any amount of expenditure which is directly relating to exempt income ii) Amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. 56. During the course of assessment proceedings, the Assessee was asked to furnish details as per the provisions of section 14A and Rule 8D, in response to which the Assessee had made submissions vide its letter dated 03.03.2021. The Assessee also submitted without prejudice computation of disallowance u/s. 14A as per Rule 8D considering all investments capable of earning exempt income. The disallowance accordingly worked out to Rs. 103,84,42,724. Further, without prejudice to above the Assessee had submitted that the disallowance u/s.14A be restricted to exempt income i.e., Rs. 10,62,92,762/-. 57. The AO after considering the Assessee s submissions worked out the disallowance as per Rule 8D at Rs. 103,84,42,724/- considering all investments capable of earning tax free income. After adjusting the disallowance offered by the Assessee of Rs. 2,10,92,321, the AO has disallowed a sum of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h exempt income has been received during the year. Therefore, following the precedence of the earlier order, the disallowance is only restricted for considering the purpose of rule 8D(ii) only on those investments on which exempt income has been received during the year. Accordingly, the disallowance made by the AO and confirmed by the DRP in both the assessment years is hereby deleted. 62. Now coming to the common issue of expenditure on replacement of meters in both the AY 2017-18 2018-19. 63. The facts in brief are that the assessee is engaged in the business of distribution of electricity in the suburbs of Mumbai catering to over 2.9 million consumers. The Assessee has installed separate meters in the premises of each consumer (either residential or commercial or industrial). These meters have to be periodically replaced on account of obsolescence, reading of the meter becoming faulty, meter being burnt etc. Many times on account of manufacturing defects, the entire lot of meters has to be replaced. In the books of account, the Assessee capitalizes the cost of these replaced meters as per the governing provisions of the Electricity Act, however in the computation of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s. 80IA in respect of its distribution division. The Assessee has incurred various expenses at its head office. The Assessee has not allocated the commonly incurred head office expenses to arrive at the profit of the eligible 80IA undertaking since the deduction is allowable in respect of profits derived from the business. The common expenses incurred cannot be allocated to the eligible 80IA undertaking to arrive at the business profits in the absence of direct nexus. 70. The AO has allocated commonly incurred head office expenses to all undertakings on the basis of turnover resulting in reduced profits of eligible 80IA undertaking stating that the head office expenses have been incurred for running and administration of all the units/activities of the assessee company including the activities of the eligible units. As per section 80IA(5), profits of these units are to be computed as if these units are the only source of income and therefore, the expenses of the head office, which controls the business of these units, must be apportioned to arrive at the correct eligible profits 71. The DRP has rejected the same merely relying on the arguments and reasoning provided by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments to the Assessing Officer on the basis of which credit for TDS should be granted. 77. From the above facts and circumstances, we direct the AO after examining; allow this issue in accordance with law in both the assessment years. Accordingly, this ground is allowed. 78. Now coming to issue with regard to disallowance u/s 14A while computing book profit u/s 115JB in AY 2017-18. We find that this issue is covered by the decision of ITAT in assessee s own case for AY 2013-14 to AY 2015-16 wherein it was held that no disallowance u/s. 14A is required to be made for computing book profits u/s. 115JB. Apart from that, reliance was also placed in the case of ACIT vs. Vireet Investments P. Ltd. (ITA No. 502/Del/2012) and C.O. No. 68/Del/2014) (SB) and ACIT, Ward 10(2) v. Geometric Software Solutions Co. Ltd. [2022] 140 taxmann.com 647 (Mum. Trib). Accordingly, this ground is allowed. 79. Now coming to the issue with regard to depreciation allowed on replacement of meters added to the books profit u/s 115JB in AY 2018-19, we find that the AO has failed to appreciate the depreciation allowed by him in the assessment had not been debited to profit and loss account and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP for AY 2018-19 has referred to the said directions of the DRP for AY 2017-18 and relying on it has dismissed the ground instead of directing the Assessing Officer to verify the claim and grant deduction u/s. 80G. 85. Since DRP has given direction the AO to verify the claim and grant deduction u/s 80G, the deduction u/s 80G is to be allowed against the gross total income subject to the limits provided in the section, we do not find any infirmity in such direction. Accordingly, this ground is allowed for statistical purposes. 86. Lastly, coming to the issue with regard to computation of book profit u/s 115JB which is loss as per profit and loss account as raised in AY 2018-19. 87. The facts in brief qua the issue are that, the AO had not computed book profits u/s. 115JB in the draft order proposed to be issued as per the show cause notice dated 17.09.2021. The same was pointed out by the Assessee in its reply dated 20.09.2021. The AO has thereafter computed book profits u/s. 115JB in the draft order u/s. 144C dated 24.09.2021. However while computing the same, the AO has considered the book profit u/s. 115JB as Nil as per the Intimation u/s. 143(1) dated 11.11.2019 as ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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