K R Pulp & Papers Ltd. Vs DCIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal partly allowed the appeals filed by K R Pulp & Papers Ltd. for AY 2017-18 and AY 2020-21. For AY 2017-18, the Tribunal held that electricity transferred from eligible captive power units to non-eligible units for captive consumption was required to be valued with reference to the market value at which electricity is supplied by the electricity company to consumers. Since the assessee had adopted the rate of Rs. 6.36 per unit charged by Madhyanchal Vidyut Vitran Nigam Ltd. (MVVNL) to industrial consumers, the Tribunal held the transfer to be at arm’s length and deleted the adjustment of Rs. 32,68,31,286/- made by the AO/TPO. The Tribunal also held that steam is a commercial and viable product and its cost could not be taken at nil, treating steam as a joint product rather than a by-product. Relying upon judicial precedents including the Supreme Court decision in Jindal Steel & Power Ltd. and the Delhi High Court decision in DCM Shriram Ltd., it deleted the adjustment of Rs. 51,63,85,174/- made by taking the cost of steam at nil. The Tribunal further remanded the Rs. 18,65,470/- legal, professional and consultancy expense disallowance to the AO to verify TDS compliance in accordance with the DRP’s directions and remanded the Rs. 1,21,74,168/- customs-duty difference issue for verification of the reconciliation and supporting evidence. For AY 2020-21, the Tribunal followed its findings for AY 2017-18 and allowed the grounds relating to the Rs. 89,64,57,563/- Section 80-IA transfer-pricing adjustments concerning electricity and steam. The appeals were consequently partly allowed.
Background and Assessment Proceedings
K R Pulp & Papers Ltd., engaged in manufacturing and trading Kraft paper and white paper, filed its return of income for AY 2017-18 on 29.11.2017 declaring total income of INR 34,49,64,520/-. The case was selected for scrutiny through CASS and notice under Section 143(2) of the Income Tax Act, 1961 was issued on 09.08.2018.
