Usha Martin Limited Vs ACIT (ITAT Ranchi)
Summary: The Ranchi Bench of the Income Tax Appellate Tribunal partly allowed the appeal filed by Usha Martin Limited against the order of the CIT(A), Ranchi dated 04.08.2017 in Appeal No. 468/Ran/Oth/11-12 for Assessment Year 2008-09. During the hearing, the assessee did not press Ground Nos. 3, 4.1, 4.2, 4.3, 5.1 and 5.2, which were accordingly dismissed as not pressed. Ground No. 1 was stated to be general in nature.
In relation to Ground Nos. 2 to 2.4, the dispute concerned international transactions, including the determination of the arm’s length price of a corporate guarantee and the interest rate relating to a loan from Siam Commercial Bank. The Transfer Pricing Officer had determined the arm’s length price of the corporate guarantee at 4% by following his earlier orders, and the CIT(A) had upheld the resulting addition. The assessee relied upon the Tribunal’s coordinate-bench decision in its own case for AY 2007-08 in ITA No. 68/Ran/2017 dated 12.06.2025.
Following that earlier decision, the Tribunal noted that the corporate guarantee issue was squarely covered and directed the Assessing Officer to restrict the adjustment on account of the corporate guarantee to 0.5%. The Tribunal therefore partly allowed the corresponding ground.
The Tribunal also considered the interest rate relating to the loan from Siam Commercial Bank. The assessee submitted that the TPO had assumed the assessee’s average long-term fund cost at 7.5%, added a 4% risk premium and determined the arm’s length interest rate, while the earlier order for AY 2007-08 had considered the appropriate rate to be 9%. Following the coordinate bench’s decision in the assessee’s own case, the Tribunal directed the Assessing Officer to restrict the interest rate to 9% for the impugned assessment year. This ground was accordingly partly allowed.
Ground No. 6 concerned an ad hoc disallowance relating to foreign travel expenditure. The assessee submitted that, for AY 2007-08, the Tribunal had deleted a similar disallowance after considering that the assessee had already made a disallowance under Fringe Benefit Tax (FBT). For the year under consideration, the assessee admitted that it had itself made a disallowance at 20% and offered the same under FBT. Following its earlier decision, the Tribunal deleted the addition made by the Assessing Officer and confirmed by the CIT(A). The ground was therefore allowed.
Ground Nos. 7.1 to 7.5 concerned the tariff rate for determining the deduction under Section 80-IA of the Income-tax Act, 1961. The assessee had applied the tariff rate of the Jharkhand State Electricity Board, whereas the Assessing Officer had applied a cost-plus-2% marked-up rate. The Tribunal noted that the coordinate bench, in the assessee’s own case for AY 2007-08, had followed the principles laid down by the Supreme Court in CIT v. Jindal Steel and Power Ltd. and directed adoption of the rate charged by the State Electricity Board when supplying electricity to consumers in the open market.
Following that approach, the Tribunal directed the Assessing Officer to adopt the tariff rate applied by the State Electricity Board when it supplies power to consumers for computing the deduction under Section 80-IA. Ground Nos. 7.1 to 7.5 were consequently allowed. The Tribunal’s approach is consistent with the principle discussed in CIT v. Jindal Steel & Power Ltd., [2023] 157 taxmann.com 207 (SC), concerning the market value of electricity supplied by a captive power undertaking to industrial units.
Ground Nos. 8.1 and 8.2 concerned the treatment of receipts from the sale of carbon credits. The assessee contended that the receipts were capital receipts and relied upon decisions including Principal Commissioner of Income Tax v. Chemplast Sanmar Ltd., 142 taxmann.com 515 (Mad), and Subhash Kabini Power Corporation Ltd., (2016) 69 taxmann.com 394 (Karnataka). It was also submitted that Section 115BBG, introduced by the Finance Act, 2017 with effect from AY 2018-19, was prospective and therefore did not govern the impugned AY 2008-09.
The Revenue contended that the carbon-credit receipts were revenue receipts because they arose from the assessee’s business activity. The Tribunal, however, noted that the Madras High Court and Karnataka High Court decisions relied upon by the assessee had held that carbon credits could not be treated as goods and that receipts from their sale were capital receipts. No contrary High Court decision was brought on record by the Revenue. Respectfully following those judgments, the Tribunal directed the Assessing Officer to treat the receipts from the sale of carbon credits as capital receipts. The corresponding ground was allowed.
Thus, the appeal for AY 2008-09 was partly allowed. The Tribunal restricted the corporate guarantee adjustment to 0.5%, directed that the interest rate be taken at 9%, deleted the ad hoc foreign-travel disallowance, directed adoption of the applicable State Electricity Board consumer tariff for computing the Section 80-IA deduction, and directed that receipts from sale of carbon credits be treated as capital receipts. The order was dictated and pronounced in the open court on 29.07.2026.
Cases Discussed
- Usha Martin Limited Vs. ACIT, ITA No. 68/Ran/2017, dated 12.06.2025 — the coordinate bench decision in the assessee’s own case for AY 2007-08 was followed for restricting the corporate guarantee adjustment to 0.5%, adopting a 9% interest rate, deleting the ad hoc foreign-travel disallowance, and adopting the State Electricity Board consumer tariff for Section 80-IA purposes.
- Everest Kanto Cylinder Ltd. vs. DCIT, TS 200 HC 2015; TS 960 HC 2018 — considered in the earlier coordinate-bench decision for determining the arm’s length rate of corporate guarantee at 0.5%; the present Tribunal followed the coordinate-bench decision in the assessee’s own case.
- CIT v. Jindal Steel and Power Ltd., [2023] 157 taxmann.com 207 (SC) — relied upon for the principle that, for computing deduction under Section 80-IA, the market value of electricity supplied by a captive power plant to industrial units is to be considered with reference to the rate at which the State Electricity Board supplies power to consumers in the open market.
- Principal Commissioner of Income Tax v. Chemplast Sanmar Ltd., 142 taxmann.com 515 (Mad) — relied upon for the treatment of receipts from sale of carbon credits as capital receipts.
- Subhash Kabini Power Corporation Ltd., (2016) 69 taxmann.com 394 (Karnataka) — relied upon for the proposition that receipts from sale of carbon credits are capital receipts.
FULL TEXT OF THE ORDER OF ITAT RANCHI
This is an appeal filed by the assessee against the order of the Id CIT(A), Ranchi dated 4.8.2017 in Appeal No.468/Ran/Oth/11-12 for the assessment year 2008-09
2. Shri H.Robindro Singh, Ld CIT DR appeared for the revenue and Shri Vishal Jain, Id AR appeared for the assessee.
3. At the time of hearing, Id AR of the assessee has filed a synopsis in regard to grounds, which reads as follows:
4. At the time of hearing, Id AR has submitted that he does not wish to press Ground No.3, 4.1,4.2,4.3,5.1 and 5.2. Ld AR has endorsed in the grounds of appeal to this effect. Hence, Ground Nos.3 to 5.2 stand dismissed as not pressed.
5. It was submitted by Id AR that Ground No.1 is general in nature.
6. In Ground No.2 to 2.4, Id AR submitted that this issue was in regard to international transaction done by the assessee. It was the submission that the TPO had computed the Arm’s length Price (ALP) of Corporate Guarantee at 4% following its earlier orders. It was the submission that the Id CIT(A) had upheld the addition as made by the Assessing Officer. It was fairly agreed by both the sides that the issue is now squarely covered by the decision of the Coordinate Bench of this Tribunal in assessee’s own case for the assessment year 2007-08 in ITA No.68/Ran/2017 dated 12.6.2025, wherein, in paras 19 to 20, the Coordinate Bench has held as follows:
“19. In reply Id CIT DR submitted that as per the citations submitted by the assessee itself the Honble Bombay High Court decision in the cased of . Everest Kanto Cylinder Ltd. vs. DCIT, clearly shows corporate guarantee is at 0.5%. It was the submission that the corporate guarantee may be fixed at 0.5%.
20. We have considered the rival submissions. A perusal of the various case laws submitted by AR clearly shows that Honble Bombay High Court in the case of M/s. Everest Kanto Cylinder Ltd. vs. DCIT. reported at TS 200 HC 2015 as also the decision of Bombay High Court reported in TS 960 HC 2018 has fixed the corporate guarantee at 0.5%. Consequently, respectfully following the decisions of Honble Bombay High Court and as no other decision on the issue has been placed before us, the AO is directed to adopt the corporate guarantee at 0.5%.”
7. It was the submission that the Co-ordinate Bench has restricted the adjustment to 0.5% in respect of Corporate Guarantee.
8. We have considered the rival submissions. As it is noticed that the issue of Corporate Guarantee is squarely covered by the decision of the Co-ordinate Bench in assessee’s own case for the assessment year 2007-08 (supra), the Assessing Officer is directed to restrict the adjustment to 0.5% on account of Corporate Guarantee. Consequently, this ground is partly allowed.
9. Ground No.2.4 was in regard to interest rate charged by Siam Commercial Bank. It was the submission that the TPO had assumed that the assessee’s average long term fund cost at 7.5% and had added 4% risk premium and determined the ARM interest rate at 7.5%. It was fairly agreed by both the sides that this issue is squarely covered by the decision of Coordinate Bench in assessee’s own case for the assessment year 2007-08, wherein, in para 17, the Tribunal has held as follows:
“17. We have considered the rival submissions. Here, we are live to the fact that the bank in Thailand has granted the funds in the form of loan only subject to the assessee providing equal amount as loan in the setting up of the factory in Thailand. We are also live to the fact that no corporate guarantee has been provided by the assessee on the said loan. Further, it must be accepted that there is a risk involved and the risk is to be considered as a factor. It is mentioned by Id AR that the loan is subordinated loan. Considering the fact that there is risk involved in the said loan, admittedly 7.5% was charged by the bank and which has been accepted by the assessee is comparatively on the lower side, this is because the loans in India itself normally hold the interest 9%, as against 15% adopted by the AO and 7.5% as adopted by the assessee. Consequently, the AO is directed to recompute the interest portion at 9% as against 15% adopted by the AO. Consequently, Ground No.2.3 of the assessee stands partly allowed.”
10. In reply, Id CIT DR vehemently supported the order of the AO and Id CIT(A).
11. We have considered the rival submissions. A perusal of the facts in the present case clearly shows that for the assessment year 2007-08, the Co-ordinate Bench has held that the interest rate is to be tagged at 9%. This being so, respectfully following the decision of the Co-ordinate Bench in assessee’s own case for the assessment year 2007-08 (supra), the Assessing Officer is directed to restrict the addition by taking the interest rate at 9% for the impugned assessment year. This ground stands partly allowed.
12. In regard to Ground No.6, it was submitted by Id AR that this issue was in regard to adhoc disallowance out of general expenses in respect of foreign travel expenses. It was the submission that the Coordinate Bench of this Tribunal in assessee’s case for the assessment year 2007-08 has considered the fact that the assessee itself has made disallowance and had made the addition under fringe benefit tax. It was the submission that consequently, the Coordinate Bench has deleted the addition in respect of adhoc disallowance out of foreign travel expenses. It was the prayer that the disallowance as made by the AO and confirmed by the Id CIT(A) be deleted.
13. In reply, Id CIT DR vehemently supported the order of the AO and Id CIT(A).
14. We have considered the rival submissions. A perusal of paras 23 to 25 of the order of the Tribunal in assessee’s case for the assessment year 2007-08 (supra) shows that the Co-ordinate Bench in respect of issue od adhoc disallowance under the head “foreign travel expenses” has held as under:
“23. In Ground No.5, the assesssee has challenged the disallowance under foreign travel expenses. It was the submission that the assessee has incurred the total travelling expenses of Rs.5 crores and the foreign travel expenses of Rs.2 crores, the AO has disallowed 15% of Rs.2 crores. It was the submission that the assessee itself has disallowed Rs.2.74 crores under FBT. It was the submission that the wife of the Director has accompanied the Director on the foreign during the year. It was the submission that as Rs.2.74 crores have already been disallowed in FBT, under FBT, no disallowance is called for in the hands of the assessee.
24. Ld CIT DR supported the order of the AO and Id CIT(A).
25. As it is noticed that the assessee has already made disallowance under FTP of Rs.2.74 crores, which is far in excess of 15% of Rs.2.74 crores made by the AO, the disallowance stands deleted. Ground No.5 stands allowed.”
15. As it has been admitted by Id AR that the assessee itself has made disallowance at 20% and has offered the same under fringe benefit tax for the impugned assessment year, respectfully following the decision of the Co-ordinate Bench in assessee’s case for the assessment year 2007-08, the addition as made by the AO and confirmed by Id CIT(A) stands deleted. Consequently, this ground stands allowed.
16. In regard to Ground No.7.1 to 7.5 of assessee’s appeal, it was submitted by Id AR that the issue was in regard to tariff rate. It was the submission that the assessee had applied tariff rate of Jharkhand State Electricity Board whereas the Assessing Officer had applied the rate cost plus 2% marked up. It was the submission that consequently, the deduction claimed u/s.80IA by the assessee had been reworked out. It was the submission that this issue is squarely covered by the decision of the Co-ordinate Bench in assessee’s case for the assessment year 2007-08, wherein, in paras 21 to 22, it has been held as follows:
“21 In Ground No. 6.& 7, it was submitted by Id AR these are taxation issue. It was the submission that the issue was in regard to claim of 80IA in respect of applicability of the electricity tariff. It was the submission that the issue is squarely covered by the decision of the Honble Supreme Court in the case of Jindal Steel and Power Ltd., reported in No.13771 of 2015 ( 157 taxmann.com 207 (Del), wherein, in para 30 and 31, the Honble Supreme Court has held as follows:
“30. Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board’s rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act.
31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue.”
22. Respectfully following the principles laid down by the Honble Supreme Court in the case of Jindal Steel and Power Ltd (supra), the AO is directed to adopt the rate at State Electricity Board rates applied when it supplies power to consumer in the open market for computing deduction u/s.80IA of the Act. Ground No.6 & 7 stands allowed.”
17. It was the submission that the Co-ordinate Bench following the principles laid down by the Hon’ble Supreme Court in the case of Jindal Steel and Power Ltd., 157 com 207 (SC) has directed the Assessing Officer to adopt the rate charged by the State Electricity Board when it supplies power to the consumers in the open market for the purpose of computing the deduction u/s.80IA of the Act.
18. In reply, Id CIT DR vehemently supported the order of the AO and Id CIT(A).
19. We have considered the rival submissions. As it is noticed that the issue is now squarely covered by the decision of the Coordinate Bench of this Tribunal in assessee’s own case for the assessment year 2007-08, wherein, the Co-ordinate Bench has followed the principles laid down by the Hon’ble Supreme Court in the case of Jindal Steel and Power Ltd (supra). Following the same, the Assessing Officer is directed to adopt the tariff rate as applied by the State Electricity Board when it supplies power to the consumer for computing the deduction u/s.80IA of the Act. Consequently, Ground Nos.7.1 to 7.5 stands allowed.
20. Ground No.8.1 to 8.2 was in regard to the disallowance made whether the sale of carbon credits should be treated as capital receipts or whether the same should be treated as revenue receipts. It was the submission that this issue is covered by the decision of the various decisions of the Co-ordinate Bench as also various Hon’ble High Courts. It was the submission that Hon’ble Madras High Court in the case of Principal Commissioner of Income Tax v. Chemplast Sanmar Ltd, 142 com 515 (Mad) and Hon’ble Karnataka High Court in the case of Subhash Kabini Power Corporation Ltd (2016) 69 taxmann.com 394 (Karnataka) has categorically held that the receipts on sale of carbon credit is to be treated as capital receipts as carbon credits cannot be qualified as goods. It was the submission that admittedly, the provisions of section 115BBG have been introduced by the Finance Act, 2017 w.e.f. assessment year 2018-19 and same is prospective in nature, wherein, the receipts from carbon credits have been treated as revenue receipts. It was the submission that the impugned assessment year is 2008-09 and said amendment would not come into play in this assessment year.
21. In reply, Id CIT DR submitted that the carbon credits is a revenue receipts insofar as it is generated from the business activity of the assessee and, therefore, same should be treated as revenue receipts.
22. We have considered the rival submissions. A perusal of the facts in the present case clearly shows that Honble Madras High Court as also Honible Karnataka High Court has categorically held that the carbon credits cannot be treated as goods. It has also been held that the receipts on the sale of carbon credits are to be treated as capital receipts. No contrary decisions of any Honble High Court have been brought out on record by the revenue to controvert the above findings. Respectfully following the judgments of Honible Madras High Court in the case of Chemplast Sanmar Ltd and Honible Karnataka High Court in the case of Subhash Kabini Power Corporation Ltd (supra), the Assessing Officer is directed to treat the receipts of the assessee from the sale of carbon credits as capital receipts. Consequently, this ground stands allowed.
23. In the result, appeal of the assessee stands partly allowed.
Order dictated and pronounced in the open court on 29/07/2026.
