AO Cannot Override TPO: ITAT Mumbai Allows Full 80IA Deduction for Captive Power Sales

DCIT Vs Aarti Industries Limited (ITAT Mumbai)

Assessee, engaged in manufacturing of chemicals, fertilizers & intermediates, operated a Captive Power Plant (CPP) for supplying electricity & steam to its own manufacturing unit. For AY 2015-16, it claimed deduction of ₹67.91 Cr u/s 80IA, comprising ₹22.91 Cr from sale of electricity & ₹45 Cr from sale of steam.

AO restricted deduction on electricity transactions, adopting ₹4.35/unit (rate at which GUVNL purchased power from generators) instead of ₹7.52/unit charged by CPP to manufacturing unit. This reduced eligible deduction by ₹39.68 Cr. CIT(A) deleted the disallowance by following earlier year’s Tribunal decisions.

Tribunal noted that transaction between CPP & manufacturing unit is a Specified Domestic Transaction (SDT) covered u/s 92BA. AO himself had referred matter to TPO, who after detailed analysis, accepted all international & SDT transactions as being at Arm’s Length Price (ALP). Hence, AO could not selectively disregard TPO’s finding. Tribunal upheld CIT(A) & allowed full deduction u/s 80IA.

On disallowance u/s 14A, Tribunal confirmed CIT(A)’s direction to apply Rule 8D(2)(iii) only on investments yielding exempt income, following Vireet Investment (SB). It also held that no disallowance u/s 14A can be made while computing book profit u/s 115JB, in line with earlier years.