Shyam Sel And Power Limited Vs PCIT (Calcutta High Court)
In, the Calcutta High Court dealt with appeals filed by Shyam Sel and Power Limited and Shyam Metalics and Energy Limited challenging orders of the Income Tax Appellate Tribunal which had upheld revisionary proceedings initiated by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
The dispute concerned deduction claims under Section 80-IA in respect of captive power plants established by the assessees. The power plants qualified as eligible businesses entitled to deduction of profits for ten consecutive assessment years. Since power generated by these units was transferred internally to manufacturing divisions, the transactions were treated as Specified Domestic Transactions under Chapter X of the Income Tax Act, requiring determination of Arm’s Length Price (ALP).
Following a search and seizure operation conducted on the group on January 17, 2019, the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) under Section 92CA. The TPO examined the transfer pricing study report submitted by the assessees. The assessees followed what they termed the “Direct Nexus” theory, under which only expenses directly connected with power generation were allocated to the captive power plants, while common head office expenses remained allocated to non-eligible units.
