Income Tax Archives - Tax Heal

INCOME TAX CASE LAWS 20.08.2026

CA Satbir Singh — Fri, 21 Aug 2026 08:31:28 +0000

INCOME TAX CASE LAWS 20.08.2026

Section	Case Law Title	Brief Summary	Citation	Relevant Act
Section 4	Mumbai Port Authority v. ACIT (Exemption)	Addition of capitalised interest (50% per loan agreement) was not sustainable since the assessee already accounted for the full interest income in its books under the mercantile system.	Click Here	Income-tax Act, 1961
Section 5	Mumbai Port Authority v. ACIT (Exemption)	Infrastructural installations such as docks, sea walls, piers, wharves, railways, and rolling stock of a port are to be treated as plant and machinery eligible for higher depreciation, not as buildings.	Click Here	Income-tax Act, 1961
Section 32	Mumbai Port Authority v. ACIT (Exemption)	Where demolition proceeds were not reduced from the block of assets in the current year but claimed to be reduced in the subsequent year, verification was directed to prevent double adjustment.	Click Here	Income-tax Act, 1961
Section 32	Mumbai Port Authority v. ACIT (Exemption)	Unrecovered billed estate rentals subject to ongoing litigation/disputes cannot be added as accrued income; only real income actually realized is taxable.	Click Here	Income-tax Act, 1961
Section 36(1)(iii)	Arvind Kumar Singhavi v. Income-tax Officer	Disallowance of interest paid at 15% on unsecured loans by benchmarking against a notional 12% rate was deleted; borrowing terms are the assessee’s prerogative and 15% was reasonable.	Click Here	Income-tax Act, 1961
Section 37(1)	Arvind Kumar Singhavi v. Income-tax Officer	Disallowance of expenses corresponding to additions to building and furniture reflected as business assets in the balance sheet was unjustified and deleted.	Click Here	Income-tax Act, 1961
Section 37(1)	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Disallowance of salary paid to expatriate employees made in disregard of binding DRP directions following identical facts in earlier years was unsustainable.	Click Here	Income-tax Act, 1961
Section 37(1)	Mumbai Port Authority v. ACIT (Exemption)	Donations and contributions connected to labour welfare, employee relations, and industry bodies have a direct nexus with business operations and are deductible under Section 37(1).	Click Here	Income-tax Act, 1961
Section 37(1)	Mumbai Port Authority v. ACIT (Exemption)	CSR contributions made under mandatory government guidelines prior to the insertion of Explanation 2 to Section 37(1) are allowable as business expenditure.	Click Here	Income-tax Act, 1961
Section 37(1)	Mumbai Port Authority v. ACIT (Exemption)	Payment made to SBI towards an employee Leave Encashment Scheme with actual fund outflow and liability assumption by the insurer is an allowable business expense, not hit by Section 43B(f).	Click Here	Income-tax Act, 1961
Section 37(1)	Principal Commissioner of Income-tax v. LTI Mindtree Ltd.	SLP dismissed; provision for discount discharged fully in the subsequent assessment year is an allowable business expenditure and raises no substantial question of law.	Click Here	Income-tax Act, 1961
Section 40(a)(ia)	Mumbai Port Authority v. ACIT (Exemption)	Where underlying demand orders under Sections 201(1) and 201(1A) for non-deduction of TDS did not survive, consequential disallowance under Section 40(a)(ia) could not be sustained.	Click Here	Income-tax Act, 1961
Section 68	Mahendra Gumanmalji Lodha v. Assistant Commissioner of Income-tax Circle 5(2)(1)	Reopening under Section 148 without fresh tangible material to re-examine bank entries already scrutinized under Section 143(3) constitutes an impermissible change of opinion.	Click Here	Income-tax Act, 1961
Section 68	Ganesh Prasad Khetan v. Principal Commissioner of Income-tax	Revision order under Section 263 set aside where Pr. CIT failed to conduct independent inquiries or record categorical findings showing how the assessment order was erroneous and prejudicial.	Click Here	Income-tax Act, 1961
Section 68	ACIT v. Maheshwari Coal Benefication and Infrastructure (P.) Ltd.	Cash credit additions and consequential interest disallowance were deleted where unsecured loans from corporate entities were fully repaid prior to completion of the assessment.	Click Here	Income-tax Act, 1961
Section 69A	Pawan Onkardas Chandak v. ACIT	Unexplained cash additions for mother and children were deleted by applying the doctrine of telescoping, recognizing past judicial findings, customary savings, gifts, and pin money.	Click Here	Income-tax Act, 1961
Section 69C	Chandra Mohan v. Office of the ACIT	Additions made on the basis of third-party statements and seized documents without granting cross-examination violate principles of natural justice and cannot be sustained.	Click Here	Income-tax Act, 1961
Section 80G	Shri Sanatan Dharm Venkuth Dhamsewa Samiti v. Commissioner of Income-tax (Exemptions)	Rejection of Section 80G approval purely due to incidental religious activities without evaluating dominant objects or the 5% statutory spending threshold was remanded for de novo adjudication.	Click Here	Income-tax Act, 1961
Section 80-IA	N. R. Agarwal Industries Ltd. v. NFAC, Delhi	Allocation of common costs between electricity and measurable low-pressure steam based on meters and logbooks was upheld; entire costs cannot be loaded onto electricity to deny Section 80-IA deduction.	Click Here	Income-tax Act, 1961

Section 92B	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	AMP expenditure incurred independently for the taxpayer’s own domestic business without an arrangement/obligation for foreign AE brand building is not an international transaction.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Foreign exchange gains arising out of normal business operations must be treated as operating in nature for computing operating margins of both the assessee and comparables.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Transfer pricing adjustments must be restricted proportionately only to transactions with Associated Enterprises (AEs) and cannot be applied to transactions with unrelated third parties.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	An entity owning intangibles, running internal R&D, and manufacturing mobile network repeaters is functionally dissimilar to a licensed manufacturer of consumer electronics/home appliances.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	A company manufacturing washing machines, microwaves, and ACs that satisfies the 75% manufacturing filter is functionally comparable to the assessee’s licensed manufacturing segment.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Under the rule of consistency, a company with an unchanged functional profile accepted as a comparable in the immediately preceding year must be retained in the final set.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Service provider entities cannot be selected as comparables against an assessee deriving revenue predominantly from the trading of telecommunication equipment.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	A low-risk high-sea trader with flash title correctly excludes COGS and uses Berry Ratio under ‘Other Method’; segregated benchmarking cannot be forcibly bundled under TNMM.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	CUP method cannot be applied to benchmark consumer electronics technical royalties using unrelated third-party licensing agreements from the agricultural sector.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	A company whose revenue is substantially driven by air-conditioners is functionally dissimilar to an assessee operating a diversified white-goods manufacturing business.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Operating margins must be recomputed by including all operational items having a direct business nexus and excluding non-operational/financing items.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Working capital adjustments directed by the DRP and consistently allowed in preceding years must be granted under the principle of consistency.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Exclusion on the ground of different FY-end was remanded for factual verification where the comparable had altered its year-end from December to March to align with the assessment year.	Click Here	Income-tax Act, 1961
Section 92C	Samsung India Electronics (P.) Ltd. v. Addl. Commissioner of Income-tax, National E-Assessment Centre, New Delhi	Comparables manufacturing similar consumer electronic goods cannot be rejected solely due to different accounting year-ends if they meet all quantitative filters.	Click Here	Income-tax Act, 1961
Section 145	Arvind Kumar Singhavi v. Income-tax Officer	Rejection of books and ad-hoc estimation of GP at 15% is unjustified when the declared GP of 12.62% falls within the AO’s acknowledged industry range and no specific defects exist.	Click Here	Income-tax Act, 1961
Section 148	Mrunal Santramdas Varma v. Assistant Commissioner of Income-tax	Reassessment notice based on third-party broker loose papers lacking direct reference or a live nexus to the assessee’s transaction is invalid and liable to be quashed.	Click Here	Income-tax Act, 1961
Section 148	Chandra Mohan v. Office of the ACIT	Assumption of jurisdiction under Section 148 is valid where search of a third party reveals digital data indicating unrecorded transactions, following AO’s satisfaction and PCIT approval.	Click Here	Income-tax Act, 1961
Section 148	Chandra Mohan v. Office of the ACIT	Returns filed belatedly without extension in response to a Section 148 notice fall under the 3rd proviso to Section 148; issuance of notice under Section 143(2) is not mandatory before reassessment.	Click Here	Income-tax Act, 1961
Section 149	Chandra Mohan v. Office of the ACIT	For the extended limitation period under Section 149(1)(b), only the embedded profit element of alleged bogus purchases constitutes escaped income, not the gross purchase value.	Click Here	Income-tax Act, 1961
Section 149	Chandra Mohan v. Office of the ACIT	For a non-searched person, the limitation block period runs from the date of handover/action initiation, not the original search date; assessments beyond 6 years are time-barred.	Click Here	Income-tax Act, 1961
Section 149	Chandra Mohan v. Office of the ACIT	Digital data seized from a third party cannot be treated as the assessee’s own books of account to invoke extended limitation under Section 149(1)(b)(iii).	Click Here	Income-tax Act, 1961
Section 151	Assistant Commissioner of Income-tax v. Chetan Gopaldas Cholera	SLP dismissed; for reassessments falling within the four-year window under relaxation provisions, sanction of the JCIT under Section 151(2) is mandatory; approval by PCIT renders notice invalid.	Click Here	Income-tax Act, 1961
Section 151	Income-tax Officer v. Satkar Caterers (P.) Ltd.	Reassessment notice quashed where approval was obtained from PCIT instead of the competent authority (JCIT) under Section 151(2) read with TOLA, 2020.	Click Here	Income-tax Act, 1961
Section 201	State Bank of India v. Deputy Commissioner of Income-tax, TDS	Assessee cannot be treated in default under Section 201(1) or charged interest under Section 201(1A) for non-deduction of TDS on foreign LTC while operating under interim High Court stay orders.	Click Here	Income-tax Act, 1961
Section 201	State Bank of India v. Income-tax Officer, TDS	Non-deduction of TDS on LTC/LFC involving foreign travel under the protection of binding High Court interim directions does not attract default status or interest under Sections 201(1)/201(1A).	Click Here	Income-tax Act, 1961
Section 276C	Dinar Tarcar Resources (India) (P.) Ltd. v. Income-tax Department	Inability to pay tax due to business closure does not constitute wilful tax evasion under Section 276C(2) where payments were made in parts and fully cleared with interest.	Click Here	Income-tax Act, 1961
Section 276CC	Surinder Sabhlok v. Deputy Commissioner of Income-tax	SLP granted against HC order holding that filing a belated return under Section 139(4) does not absolve the assessee from prosecution for failure to file within the due date under Section 139(1).	Click Here	Income-tax Act, 1961
Section 276CC	Surinder Sabhlok v. Deputy Commissioner of Income-tax	SLP granted against HC order holding that wilfulness and the effect of search proceedings are questions of fact to be decided during trial and cannot be adjudicated in writ jurisdiction.	Click Here	Income-tax Act, 1961
Section 276CC	Surinder Sabhlok v. Deputy Commissioner of Income-tax	SLP granted against HC order holding that completion of assessment is not a mandatory prerequisite for launching prosecution under Section 276CC.	Click Here	Income-tax Act, 1961
Section 276CC	Surinder Sabhlok v. Deputy Commissioner of Income-tax	SLP granted against HC order holding that the statutory presumption under Section 278E places the burden on the accused to disprove mens rea, which cannot be decided summarily.	Click Here	Income-tax Act, 1961

Proportionate Cost Allocation to Low-Pressure Steam for Section 80-IA Deduction Is Valid and Cannot Be Treated as Nil

Ashwani Kumar — Fri, 21 Aug 2026 08:24:38 +0000

Proportionate Cost Allocation to Low-Pressure Steam for Section 80-IA Deduction Is Valid and Cannot Be Treated as Nil

Issue

Whether the Revenue can assign a nil cost to low-pressure steam generated by a captive power plant and allocate the entire process cost exclusively to electricity generation to deny a Section 80-IA deduction, despite the steam being measurable, commercially useful, and actually utilized in another unit.

Facts

Operated Unit: The assessee operated a 15 MW captive cogeneration power plant (Unit V) during Assessment Year 2018-19.
Process Mechanism: High-pressure steam passed through an extraction-condensing turbine to generate electricity, after which part of the steam was extracted at lower pressure and transferred to the assessee’s paper division for drying paper.
Cost Allocation: Based on measured quantities, the assessee allocated common input costs between the generated electricity and the low-pressure steam transferred to the paper division, claiming a deduction under Section 80-IA for Unit V.
AO’s Disallowance: The Assessing Officer rejected the cost allocation to low-pressure steam due to the absence of a separate profit and loss account, holding that residual low-pressure steam carried zero cost. Setting off the entire cost against electricity revenue turned Unit V into a loss-making unit, leading to the disallowance of the Section 80-IA deduction.
CIT(A) Stand: The Commissioner (Appeals) upheld the disallowance, treating the low-pressure steam as a mere by-product with nil cost.
Assessee’s Evidence: The allocation method was supported by flow meters, logbooks, and technical certification, with no specific computational defects pointed out by the tax authorities.

Decision

Decided in favor of the assessee.
The tribunal/court held that both high-pressure and low-pressure steam are useful outputs of a single process, and the absence of extra fuel after initial extraction does not negate the embedded cost of low-pressure steam.
Under Section 80-IA(8), the assessee is fully entitled to recognize and attribute a proportionate cost/market value to low-pressure steam that is measurable, commercially useful, and actually transferred to another division.
The Revenue cannot arbitrarily assign a nil cost to useful steam or load entire process costs onto electricity revenue without establishing an alternative market value or demonstrating computational errors; hence, the disallowance was set aside.

KeyTakeaways

Recognition of Cogeneration Outputs: In captive cogeneration units, all useful outputs (including lower-grade steam used in manufacturing processes) carry an embedded cost and cannot be dismissed as zero-value by-products.
Section 80-IA(8) Inter-Unit Transfers: Revenue generated or costs shared via inter-divisional transfers must be recognized based on fair market value and measured consumption, protecting the eligible unit’s profits.
Burden on Revenue to Disprove Allocation: The Assessing Officer cannot reject an assessee’s documented, meter-supported cost allocation method without pointing out specific defects or proving a different market value.

IN THE ITAT MUMBAI BENCH ‘B’

N. R. Agarwal Industries Ltd.

NFAC , Delhi

SAKTIJIT DEY, Vice President
and MAKARAND VASANT MAHADEOKAR, Accountant Member

IT Appeal No. 6582 (Mum) of 2025
[Assessment year 2018-19]

AUGUST 14, 2026

Biren Shah for the Appellant. Yogesh Kamat, CIT DR for the Respondent.

ORDER

Makarand Vasant Mahadeokar, Accountant Member.- This appeal by the assessee is directed against the order dated 01.09.2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”], under section 250 of the Income-tax Act, 1961 [“the Act”], for the assessment year 2018-19. The impugned appellate order arises from the assessment order dated 22.04.2021 passed by the National e-Assessment Centre [“the Assessing Officer”] under section 143(3) read with section 144B of the Act.

2. The assessee has raised the following grounds of appeal:

In law and in the facts and circumstances of the Appellant’s case, the Ld. CIT(A) erred in confirming addition for deduction claimed u/s 80IA(4) for Rs. 32,19,52,570/- when deduction has been rightly claimed by the appellant.

In law and in the facts and circumstances of the Appellant’s case, the Ld. CIT(A) erred in holding that cost of LP Steam shall be considered as Nil when such cost cannot be considered as NIL since production of steam involves incurring of various costs.

The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.

3. Ground Nos. 1 and 2 are interconnected and concern the disallowance of deduction of Rs.32,19,52,570/- claimed by the assessee under section 80-IA(4) of the Act in respect of its captive cogeneration power plant. The central dispute is whether, while computing the profit of the eligible undertaking, the assessee was justified in allocating a part of the total operating cost of the cogeneration plant to low-pressure steam supplied to its papermanufacturing division, or whether such low-pressure steam was generated without any separate cost, as held by the CIT(A).

4. Facts of the case

4.1. The assessee is a company engaged in the business of manufacturing finished paper products by recycling waste paper and marketing such products in the domestic and international markets. It filed its return of income for the assessment year 2018-19 on 08.10.2018, declaring total income of Rs.5,31,39,200/- after claiming deduction of Rs.32,19,52,570/-under Chapter VI-A of the Act. The return was processed under section 143(1) of the Act on 02.02.2020.The case was selected for complete scrutiny under CASS in the E-assessment Scheme, 2019, inter alia, for verification of the deduction claimed in respect of an industrial undertaking under section 80-IA of the Act. Notice under section 143(2) was served upon the assessee on 22.09.2019. Notices under section 142(1) were thereafter issued on 18.12.2020, 09.03.2021 and 12.03.2021. In response thereto, the assessee furnished the details, explanations and supporting documents called for during the assessment proceedings.

4.2. The assessee had claimed deduction under section 80- IA(4) in respect of Unit V, being a 15 MW captive cogeneration power plant situated at Sarigram, Kale Road, Village Angam and Sarigram, Taluka Umbergaon, District Valsad. The profit and loss account of the eligible unit furnished during the assessment proceedings reflected revenue from electricity generation of Rs.69,41,23,907/-. The total cost of the unit was shown at Rs.71,90,11,024/-, comprising the following:

Particulars	Amount
Consumption of coal	Rs.55,36,95,203/-
Cost of electricity charges	Rs.60,64,548/-
Cost of turbine chemicals and stores consumed	Rs.1,13,69,101/-
Cost of water consumption	Rs.2,47,80,453/-
Salaries and wages	Rs.1,75,36,892/-
Other expenses	Rs.5,35,31,962/-
Interest on working capital and term loan	Rs.3,66,81,050/-
Depreciation	Rs.1,53,51,814/-
Total cost	Rs.71,90,11,024/-

4.3. From the aforesaid total cost, the assessee reduced Rs.37,97,84,115/- as the cost attributable to low-pressure steam transferred to and used by its paper-manufacturing division. Consequently, the cost attributable to electricity generation was computed at Rs.33,92,26,909/- and the book profit of the eligible unit was worked out at Rs.35,48,96,998/-. After adding back depreciation of Rs.1,53,51,814/- charged under the Companies Act and reducing depreciation of Rs.4,82,96,242/- allowable under the Income-tax Act, the profit eligible for deduction under section 80-IA was computed at Rs.32,19,52,570/-, as under:

Particulars	Amount
Revenue from electricity generation	Rs.69,41,23,907/-
Total operating cost	Rs.71,90,11,024/-
Less: Cost attributable to low-pressure steam	Rs.37,97,84,115/-
Cost attributable to electricity generation	Rs.33,92,26,909/-
Profit as per books	Rs.35,48,96,998/-
Add: Depreciation under the Companies Act	Rs.1,53,51,814/-
Less: Depreciation under the Income-tax Act	Rs.4,82,96,242/-
Profit eligible for deduction under section 80-IA	Rs.32,19,52,570/-

4.4. The AO observed that if the total cost of Rs.71,90,11,024/- was set off against the revenue from electricity generation of Rs.69,41,23,907/-, the eligible unit would incur a loss of Rs.2,48,87,117/-. The AO, therefore, issued a notice dated 09.03.2021 requiring the assessee to explain, with supporting evidence, the basis on which the cost of low-pressure steam had been excluded from the cost of electricity generation and the profit eligible for deduction had been computed at Rs.32,19,52,570/-.

4.5. In its reply dated 15.03.2021, the assessee explained that Unit V was a captive cogeneration power plant equipped with a 15 MW extraction-condensing turbine. According to the assessee, the plant had been installed to fulfil two requirements of the paper-manufacturing business, namely, generation of electricity and supply of steam for drying paper. It was stated that coal was burnt in the boiler furnace to heat water and generate high-pressure steam. The high-pressure steam was sent to the turbine, where the heat energy of the steam was converted into mechanical energy and thereafter into electrical energy through the generator connected to the turbine shaft. During this process, a part of the steam lost pressure and emerged as low-pressure steam, which was supplied to the paper division for drying paper. The remaining steam was used for heating the feed water in the boiler.The assessee submitted that the total operating cost of the cogeneration plant related to both electricity generation and the production or availability of low-pressure steam used by the paper division. Therefore, the entire cost could not be charged only against the revenue from electricity generation. Since the low-pressure steam was transferred to the paper division at cost and without any mark-up, the proportionate cost attributable to such steam was reduced from the total operating cost of the eligible unit.

4.6. The assessee further explained that the allocation was made on the basis of the quantity of steam generated and used. The total quantity of steam generated during the year was stated to be 5,69,735 metric tonnes. The total operating cost of Rs.71,90,11,024/- was divided by the total quantity of steam, giving a cost of approximately Rs.1,262/- per metric tonne. Out of the total steam generated, 3,00,936 metric tonnes represented low-pressure steam used by the paper division, whereas the balance quantity of 2,68,799 metric tonnes represented high-pressure steam attributable to electricity generation. On this basis, the cost was allocated as follows:

Particulars	Quantity/ amount
Total operating cost of Unit V	Rs.71,90,11,024/-
Total quantity of steam generated	5,69,735 MT
Cost per metric tonne of steam	Rs.1,262/-
Low-pressure steam supplied to the paper division	3,00,936 MT
Cost allocated to low-pressure steam	Rs.37,97,84,115/-
High-pressure steam attributable to electricity generation	2,68,799 MT
Cost attributable to electricity generation	Rs.33,92,26,908/-

4.7. The assessee submitted that the quantity of low-pressure steam was recorded through meters installed in the cogeneration plant and the readings were maintained in a physical logbook. It was further submitted that the working of the eligible profit and the allocation of the cost between high-pressure and low-pressure steam formed part of the report in Form No.10CCB certified by an independent Chartered Accountant. According to the assessee, the total cost of Rs.71,90,11,024/-included the cost incurred in generating both outputs of the cogeneration plant and, therefore, the proportionate cost of Rs.37,97,84,115/- pertaining to low-pressure steam consumed by the paper division was required to be borne by that division.

4.8. The AO did not accept the explanation. He observed that the assessee had reduced the cost attributed to low-pressure steam from the expenses of the power-generation unit, thereby converting the loss of Rs.2,48,87,117/- into a book profit of Rs.35,48,96,998/-. According to the AO, the assessee had not furnished sufficient evidence supporting the cost attributed to low-pressure steam. The AO further observed that no separate profit and loss account in respect of low-pressure steam had been furnished and that the assessee had failed to establish that the residual low-pressure steam, after generation of electricity, was used for drying paper in the non-eligible unit.

5. On the aforesaid basis, the AO held that the cost attributable to low-pressure steam could not be reduced from the total cost of power generation. Upon considering the entire cost of Rs.71,90,11,024/- against the electricity-generation revenue of Rs.69,41,23,907/-, the AO computed a loss of Rs.2,48,87,117/-in the eligible undertaking. He consequently disallowed the deduction of Rs.32,19,52,570/- claimed under section 80-IA(4) and added the same to the total income of the assessee.

6. Aggrieved by the assessment order, the assessee instituted an appeal before the CIT(A). Insofar as the deduction under section 80-IA was concerned, the assessee reiterated that Unit V was a 15 MW captive cogeneration power plant which simultaneously catered to the requirements of electricity and steam for the paper-manufacturing process. It was explained that paper manufacturing was a continuous process requiring uninterrupted electrical power as well as steam for drying paper. The cogeneration plant had, therefore, been installed to obtain both inputs simultaneously and to minimise production and transmission losses.

7. The assessee contended that the cogeneration plant generated high-pressure steam in the boiler. The high-pressure steam was used in the turbine for generation of electricity and, upon losing pressure, emerged as low-pressure steam, which was transferred to the paper division for drying paper. It was submitted that the total cost of the plant was required to be allocated between the electricity-generation activity and the low-pressure steam supplied to the paper division. Since the paper division was charged only the proportionate cost of the low-pressure steam without any mark-up, the assessee reduced such cost from the total expenditure of the eligible undertaking.

8. The assessee placed reliance upon the report in Form No.10CCB and the working certified by the Chartered Accountant. It also referred to the meters installed in the plant, the physical logbook recording the quantity of total steam and low-pressure steam, details available on its website concerning the cogeneration plant, and the cost break-up furnished during the assessment proceedings. It was submitted that the total generation of 5,69,735 metric tonnes of steam and the use of 3,00,936 metric tonnes as low-pressure steam by the paper division were verifiable from the contemporaneous records.

9. The assessee further submitted that even if the cost of low-pressure steam was not reduced from the expenditure of the eligible undertaking but was instead shown as the value of steam transferred to the paper division, there would be no change in the profit of the eligible undertaking. According to the assessee, the accounting presentation could not alter the commercial result because the proportionate value of low-pressure steam was required either to be reduced from the total common cost or to be recognised as the value of the output transferred to the paper division.

10. The assessee also addressed the AO’s observation regarding the absence of a separate profit and loss account for low-pressure steam. It was submitted that separate books were maintained for Unit V and that its accounts contained the entire expenditure incurred by the cogeneration plant. Since electricity and steam arose from the integrated operation of the same plant, no separate profit and loss account for low-pressure steam was required. The assessee maintained that the common cost had been allocated between the two outputs by a reasonable and consistently ascertainable method, supported by the quantity recorded in the meters and logbooks and certified in Form No.10CCB.

11. The CIT(A) examined the process of generation and use of high-pressure and low-pressure steam. He noticed that, at one place, the assessee had stated that coal was burnt in the boiler to generate high-pressure steam, which was used in the turbine for generation of electricity and thereafter lost pressure and became low-pressure steam. At another place, the assessee had stated that the cogeneration plant generated two types of steam, namely, high-pressure steam and low-pressure steam. The CIT(A) considered these statements to be ambiguous regarding whether low-pressure steam was produced separately or represented high-pressure steam which had lost pressure after being used for generation of electricity.

12. The CIT(A) further observed that the assessee had not furnished the details of the manufacturer and the powergeneration machinery used in the steam power-generation plant. He referred to information obtained from the website of Solar Turbines, described in the appellate order as a leading turbine manufacturer, concerning cogeneration solutions for the pulpdrying process. On the basis of that information, the CIT(A) recorded that high-pressure steam generated in the boiler was used for power generation; after such use, it lost pressure and the resulting low-pressure steam was sent to the paper plant through an exhaust pipe; and the low-pressure steam was ultimately condensed into water and reused in the boiler.

13. From the aforesaid process, the CIT(A) concluded that low-pressure steam was a by-product of the cogeneration power plant and was generated without any separate cost. According to him, it was not produced independently or exclusively for the paper division. He, therefore, rejected the assessee’s allocation of Rs.37,97,84,115/- out of the total operating cost to low-pressure steam and held that the scientific process of the cogeneration plant did not support the method adopted by the assessee.

14. The CIT(A) consequently affirmed the AO’s conclusion that, without reducing the cost attributed by the assessee to low-pressure steam, the eligible undertaking had incurred a loss of Rs.2,48,87,117/-. He accordingly upheld the disallowance of deduction of Rs.32,19,52,570/- claimed under section 80-IA(4) and dismissed the grounds raised by the assessee on this issue.

15. Aggrieved by the decision of CIT(A), the assessee is in further appeal before us. The Authorised Representative (AR) of the assessee reiterated the facts and submitted that the issue is covered by the consolidated order dated 05.07.2021 of the Surat Bench of the Tribunal in the assessee’s own case for A.Ys. 200708 to 2013-14 in ITA Nos. 14, 15, 16, 1302 and 1303/Ahd/2016, particularly paragraphs 61 to 63.

16. By way of written submission, the AR contended that high-pressure steam and low-pressure steam represent the same continuous stream at different stages of the integrated cogeneration process. High-pressure steam rotates the turbine and, after surrendering part of its energy for electricity generation, is extracted at a lower pressure and supplied to the paper division.The AR submitted that the official website of the assessee is relied upon to establish that the cogeneration plant was designed to produce both electricity and useful steam for the pulp and paper process. The AR further contended that the section 80-IA report certified by an independent Chartered Accountant is stated to contain month-wise details of:

•

total cost of Rs.71,90,11,024/-;

•

total steam of 5,69,735 MT;

•

low-pressure steam of 3,00,936 MT;

•

cost of Rs.1,262/- per MT; and

•

cost of Rs.37,97,84,115/- attributed to low-pressure steam.

17. The AR also submitted that the computerised totaliser readings, physical shift logbooks and the certified section 80-IA report arereconciled with each other and for June 2017, the records reportedly show total steam of approximately 45,201 MT and low-pressure steam of 22,607 MT.

18. The learned AR contended that reducing the cost attributable to low-pressure steam from the total cost and, alternatively, crediting the same amount as inter-unit revenue produce the identical profit of Rs.35,48,96,998/-.It was submitted that a separate profit and loss account for low-pressure steam was neither required nor appropriate because Unit V, being the complete cogeneration plant, is the eligible undertaking and low-pressure steam is merely one of its integrated outputs.

19. The learned AR further assailed the finding of the CIT(A) that low-pressure steam was generated without any cost. It was submitted that the CIT(A) had conflated the absence of additional fuel consumption after the turbine stage with the absence of an attributable share in the common cost already incurred. According to the learned AR, the low-pressure steam carried a proportionate part of the expenditure incurred on fuel, boiler operations, water treatment, labour, repairs, depreciation, auxiliary consumption and other operating inputs of the integrated cogeneration process. Merely because no further fuel was consumed after extraction of the steam from the turbine, the cost embedded in such steam could not be treated as nil.

20. The learned AR submitted that low-pressure steam was a measurable and commercially useful output which was transferred to the paper division and consumed for drying paper. If such steam were not available, the paper division would have been required to generate or procure equivalent thermal energy separately. Its description as a by-product, therefore, could not render it valueless. Reliance was also placed on section 80-IA(8) of the Act to contend that the transfer of goods or services from an eligible business to another business of the assessee was required to be recognised at market value. The assessee had adopted only the proportionate actual cost of the steam without adding any profit element and had thus followed a conservative method. Neither the AO nor the CIT(A) determined any alternative market value, brought any comparable price on record or demonstrated that the amount adopted by the assessee exceeded the market value.

21. The learned AR placed reliance on the decision of the Hon’ble Gujarat High Court in Pr. CIT v. Jay Chemical Industries Ltd. /422 ITR 449 (Gujarat), for the proposition that the expression “power” in section 80-IA is to be understood as energy in its various forms and that steam constitutes power for the purposes of the deduction under that section. It was submitted that both electricity and useful steam were eligible outputs of Unit V and the cost attributable to low-pressure steam could not be ignored while determining the profit of that undertaking.

22. The learned AR further submitted that the alleged loss of Rs.2,48,87,117/- arose only because the Revenue recognised the revenue from electricity alone while debiting the entire common cost incurred for generating both electricity and useful steam. Once the second output was appropriately recognised, either by reducing the cost attributable to low-pressure steam from the common cost or by crediting its inter-unit transfer value as revenue, the profit under both presentations worked out to Rs.35,48,96,998/-. Thus, according to the learned AR, the assessee had not converted a loss into profit by an accounting adjustment.

23. The reliance placed by the CIT(A) on material obtained from the website of Solar Turbines was also challenged. It was submitted that the cited material concerned a gas-turbine-based pulp-drying configuration involving exhaust gases, a heatrecovery steam generator and a Yankee hood or cylinder, whereas the assessee’s plant comprised its own boiler, steam turbine, extraction system, meters and logbooks. A general illustration concerning a different plant configuration could not displace the plant-specific records furnished by the assessee. It was further submitted that the third-party material had not been confronted to the assessee before being used adversely.

24. The learned AR explained that Unit V employed an extraction-condensing turbine. A part of the steam was extracted before completing its expansion because, at that stage, it retained sufficient thermal energy for use in the paper division, while the balance steam continued through the turbine and was ultimately condensed after further generation of electricity. Consequently, an extraction turbine necessarily generated less electricity than a purely condensing turbine handling the same quantity of steam. The comparatively lower electricity generation of Unit V was therefore stated to be the natural consequence of extracting useful steam for the paper division and not an anomaly in the accounts.

25. The learned AR contended that the adverse technical conclusion recorded by the CIT(A) was unsupported by any expert report, manufacturer’s specification, plant-inspection report, defect in the installed meters or alternative engineering computation. On the contrary, the process explanation, computerized totaliser readings, physical logbooks, monthly statements, separate accounts and the Chartered Accountant’s certification were stated to be contemporaneous and mutually reconcilable. It was thus submitted that the plant-specific evidence could not be rejected on the basis of a general assumption that low-pressure steam had no cost.

26. In support of the contention that steam is a commercially valuable form of power and cannot be assigned nil cost, reliance was also placed on the decisions in DCIT v. DCM Shriram Ltd (Delhi – Trib.), KR Pulp & Papers Ltd. v. Dy. CIT [ITA No.755/Del/2022, dated 4-7-2025], Tata Chemicals Ltd. v. Dy. CIT [ITA No.3093/Mum/2023, dated 28-5-2024] DCIT v. Vishal Fabrics Ltd. [2022] (Ahmedabad – Trib.)(Ahd-Trib.) and ACIT v. Nandan Denim Ltd. Ahmedabad – Trib.). In particular, it was submitted that DCM Shriram Ltd. recognised steam as a valuable source of power having a cost of production and upheld its transfer by the eligible unit to the non-eligible unit at the cost of production. The decisions in Vishal Fabrics Ltd. and Nandan Denim Ltd. were relied upon to submit that electricity and steam generated by a captive power plant and supplied to a manufacturing division are measurable outputs carrying an ascertainable transfer value. According to the learned AR, the dispute could, at the highest, relate to the appropriate method or quantum of valuation, but the steam could not be treated as having no cost or value whatsoever.

27. The learned AR lastly reiterated that the identical exercise of reallocating the cost between high-pressure steam and low-pressure steam had already been rejected by the Co-ordinate Bench in the assessee’s own case for the earlier assessment years. It was accordingly prayed that the separately maintained and audited accounts of the eligible undertaking be accepted and the deduction of Rs.32,19,52,570/- claimed under section 80-IA of the Act be allowed.

28. The learned Departmental Representative relied upon the order of the CIT(A) and submitted that the assessee had not furnished details regarding the manufacturer or the machinery installed in the cogeneration power plant. He submitted that the material furnished by the assessee did not clearly establish whether low-pressure steam was generated separately or whether the high-pressure steam, after being utilised for generation of electricity, lost pressure and was thereafter transferred to the paper division for drying paper. Thus, according to the learned DR, the explanation furnished by the assessee regarding the process of generation and utilisation of steam was ambiguous.

29. The learned DR further referred to the information obtained by the CIT(A) from the website of Solar Turbines, a Caterpillar company, relating to cogeneration solutions for the pulp-drying process. On the basis of the process described therein, he submitted that high-pressure steam generated in the boiler was first utilised for generation of electricity and, after losing pressure, the resulting low-pressure steam was supplied to the paper division and ultimately condensed into water for reuse in the boiler. He accordingly contended that low-pressure steam was merely a by-product of the cogeneration process and did not involve any separate cost of production. The assessee was, therefore, not justified in reducing the amount attributed to low-pressure steam from the total expenditure of the powergeneration undertaking. Such reduction had converted the loss of Rs.2,48,87,117/- into a profit and resulted in the claim of deduction of Rs.32,19,52,570/- under section 80-IA(4) of the Act. The learned DR thus submitted that the scientific process did not support the allocation adopted by the assessee and that the AO had correctly disallowed the deduction, which was rightly upheld by the CIT(A).

30. We have considered the rival submissions and perused the material placed on record, including the orders of the authorities below, the audited accounts of the eligible undertaking, the quantitative records, the certification furnished in support of the deduction under section 80-IA and the judicial precedents relied upon by the learned AR. We have also carefully examined the order dated 05.07.2021 passed by the coordinate bench in the assessee’s own case for assessment years 2007-08 to 2013-14. Since Ground Nos.1 and 2 arise from the same controversy concerning the cost and value of low-pressure steam generated by Unit V, they are adjudicated together.

31. The controversy requires consideration at four levels. First, the actual process carried on in the cogeneration plant has to be ascertained. Secondly, it has to be examined whether low-pressure steam can be regarded as having nil cost merely because no additional fuel is consumed after its extraction from the turbine. Thirdly, the correctness of the computation made by the AO has to be tested in the light of section 80-IA(8). Lastly, it has to be determined whether the issue is governed by the decision of the coordinate bench in the assessee’s own case.

32. Unit V is a 15 MW cogeneration power plant. Coal is burnt in the boiler to convert water into high-pressure steam. The high-pressure steam is supplied to an extraction-condensing turbine. While passing through the turbine, a part of its pressure and thermal energy is converted into mechanical energy and thereafter into electrical energy. A part of the steam is extracted at the required lower pressure and transferred to the paper division, where its residual thermal energy is used for drying paper. The remaining steam continues through the turbine and is ultimately condensed.

33. Thus, high-pressure steam and low-pressure steam are not generated by two separate manufacturing facilities. They represent the same steam at different pressure and energy stages of one continuous process. At the boiler stage, the steam possesses high pressure and higher thermal energy. After performing part of its work in the turbine, the steam extracted for use in the paper division possesses lower pressure but continues to contain commercially useful thermal energy.

34. The expressions “only one steam is generated” and “the cogeneration plant produces electricity and low-pressure steam” are, therefore, not contradictory. The former describes the physical continuity of the steam, whereas the latter identifies the two commercially useful outputs of the integrated cogeneration process.

35. The learned AR has explained that Unit V employs an extraction-condensing turbine. In such a turbine, a part of the steam is withdrawn before completing its full expansion because it retains the pressure and thermal energy required by the paper division. The balance steam is permitted to expand further and is thereafter condensed.If the extracted steam had been permitted to continue its complete expansion through the turbine, it could have generated additional electricity. Its extraction for the paper division necessarily reduces the electricity capable of being generated from the same quantity of high-pressure steam. Therefore, the useful low-pressure steam supplied to the paper division is not merely an accidental residue after electricity generation. It is a useful thermal-energy output obtained by sacrificing part of the electricity that could otherwise have been generated.Consequently, the lower electricity generation of an extraction-condensing turbine, when compared with a purely condensing turbine handling the same quantity of steam, cannot by itself be treated as an accounting anomaly. It is an inherent consequence of simultaneously producing electricity and useful process steam.

36. The principal reasoning adopted by the learned CIT(A) is that once high-pressure steam is used for generating electricity, the resulting low-pressure steam emerges without incurring any further expenditure and is, therefore, a by-product having nil cost. In our considered view, this reasoning confuses the absence of additional or incremental expenditure after extraction with the absence of attributable cost.

37. The cost incurred in producing steam includes, inter alia, the cost of fuel, water and water treatment, boiler operation, labour, repairs and maintenance, depreciation, auxiliary power consumption and other operating expenditure. These costs are incurred before and during the integrated process which produces electricity as well as useful process steam. The absence of fresh fuel consumption after extraction does not extinguish the common cost already incurred and embedded in the extracted steam.

38. This distinction may be stated in the following terms:

Relevant concept	Effect in the present case
Incremental cost after extraction	There may be no further fuel cost after the steam is extracted
Common cost incurred up to extraction	Fuel, boiler, water-treatment and other generation costs have already been incurred
Residual utility	Extracted steam retains thermal energy and is used for drying paper
Cost consequence	Absence of further fuel consumption does not result in nil embedded cost

39. The description of low-pressure steam as a by-product does not determine its cost or value. A by-product may have a lower value than the principal product, but it does not follow that every by-product must necessarily be valued at nil. The decisive considerations are whether the output is identifiable, measurable, commercially useful and capable of being transferred or consumed. In the present case, the low-pressure steam satisfies all these characteristics.

40. The low-pressure steam is separately measured, transferred to the paper division and consumed for drying paper. If it were not available from Unit V, the paper division would have to obtain equivalent thermal energy from another source. A useful energy output which avoids the cost of procuring or separately generating thermal energy cannot be treated as having nil economic value merely because it arises during a cogeneration process.

41. The assessee furnished a certified working containing month-wise particulars of total steam, low-pressure steam, cost per metric tonne and the amount attributable to low-pressure steam transferred to the paper division. According to the said working, the total cost of Unit V was Rs.71,90,11,024/-, the total steam generated was 5,69,735 MT, the low-pressure steam transferred was 3,00,936 MT, the adopted rate was Rs.1,262/-per MT and the cost attributed to low-pressure steam was Rs.37,97,84,115/-.

42. The assessee also relied upon the readings of the installed monitoring and totaliser system, the physical shift logbooks and the reconciliation of these records with the monthly figures reported for the purposes of section 80-IA. The assessee demonstrated, by way of illustration, that for June 2017 the physical records reflected total steam of approximately 45,201 MT and low-pressure steam of approximately 22,607 MT, which substantially corresponded with the figures reported in the certified statement.

43. Neither the AO nor the learned CIT(A) has identified any specific defect in:

the total expenditure of Rs.71,90,11,024/-;

ii.

the quantity of total steam generated;

iii.

the quantity of low-pressure steam transferred;

iv.

the meter or totaliser readings;

the physical logbooks;

vi.

the monthly reconciliation;

vii.

the arithmetical calculation; or

viii.

the professional certification furnished by the assessee.

44. No plant inspection report, manufacturer’s specification, technical expert opinion or alternative engineering computation has been brought on record to demonstrate that the process explained by the assessee or the recorded quantities were incorrect. In the absence of any identified defect, the entire evidentiary basis furnished by the assessee could not be rejected merely on a general assumption that low-pressure steam emerges without cost.

45. The electricity revenue of Unit V amounted to Rs.69,41,23,907/- and its total cost amounted to Rs.71,90,11,024/-. The assessee attributed Rs.37,97,84,115/- to the low-pressure steam supplied to the paper division. Consequently, the net cost attributable to electricity was computed at Rs.33,92,26,909/- and the profit was determined at Rs.35,48,96,998/-. After making the relevant adjustments, the assessee claimed deduction of Rs.32,19,52,570/- under section 80-IA.

46. The transfer of low-pressure steam may be represented in the accounts either by reducing the cost attributable to such steam from the total cost or by retaining the entire cost in Unit V and crediting the value of the steam as inter-unit revenue. The effect of the two methods is as under:

Particulars	Cost-reduction method	Revenue-recognition method
Electricity revenue	Rs.69,41,23,907/-	Rs.69,41,23,907/-
Value of low-pressure steam	Nil	Rs.37,97,84,115/-
Total revenue	Rs.69,41,23,907/-	Rs.1,07,39,08,022/-
Total cost	Rs.71,90,11,024/-	Rs.71,90,11,024/-
Less: Cost attributable to low-pressure steam	Rs.37,97,84,115/-	Nil
Net cost considered	Rs.33,92,26,909/-	Rs.71,90,11,024/-
Profit	Rs.35,48,96,998/-	Rs.35,48,96,998/-

47. Therefore, the profit does not arise merely because the assessee has adopted the cost-reduction method. The same profit results if the value of low-pressure steam is credited as inter-unit revenue while the entire common cost is retained in Unit V.

48. The loss of Rs.2,48,87,117/- determined by the AO results from an incomplete matching exercise. The AO recognised only electricity revenue of Rs.69,41,23,907/- but charged against it the entire common cost of Rs.71,90,11,024/- incurred in producing electricity as well as useful steam. The value of the second output was simultaneously ignored. The alleged conversion of a loss into profit is, therefore, a consequence of the AO’s premise that the useful steam has nil cost and nil value. Once that premise is found to be untenable, the resulting loss also cannot be sustained.

49. Section 80-IA(8) applies where goods or services held for the purposes of an eligible business are transferred to any other business carried on by the assessee. The profits of the eligible business are required to be computed as if the transfer had been made at the market value of such goods or services as on the date of transfer.

50. Low-pressure steam is a measurable and useful form of thermal energy transferred by Unit V to the paper division. The transaction, therefore, falls for examination under section 80-IA(8). The statutory inquiry is not whether the transferred steam can be completely ignored, but whether the consideration recorded in the accounts corresponds to its market value.

51. The assessee adopted only the attributed cost of the steam and did not add any profit element. The AO and the learned CIT(A) did not determine any alternative market value. They did not produce a comparable price, establish that the amount adopted by the assessee exceeded market value or invoke the proviso to section 80-IA(8) for computation of the profit on some other reasonable basis owing to exceptional difficulty in determining market value.

52. Once the statute requires recognition of the inter-unit transfer at market value, assigning nil value to an admittedly useful and measurable transfer cannot be sustained without cogent material. The authorities below could not bypass the statutory inquiry regarding market value and recast the eligible undertaking’s accounts merely by describing the steam as a byproduct.

53. The controversy is substantially covered by the order dated 05.07.2021 passed by the coordinate bench in the assessee’s own case for assessment years 2007-08 to 2013-14. In paragraph 62, the coordinate bench recorded the following finding:

“We find that whole basis of additions made by the revenue is that Assessee is producing 2 kinds of steam namely high pressure steam (HP) and low pressure steam (LP) and separate cost of each kind of steam is required to be found out is fundamentally erroneous. After considering the factual matrix of the case and the diagram shown to us, we are in agreement with the learned senior counsel for the assessee that the assessee is not producing 2 different kinds of steam. It is fact that from the boiler steam is generated, it is of high pressure which is used to rotate the turbine, further once the turbine is rotated the steam released becomes low pressure. Therefore, there is only one steam; before it is put into turbine it is having high pressure and post the turbine stage it is low pressure.”

54. The coordinate bench further held:

“Accordingly, the whole attempt to allocate costs to these 2 kinds of steam is fundamentally not correct. We are also convinced with the submissions that once, the assessee has claimed relevant cost of power plant and recognized revenue for generation of power and steam at specific value and AO has not brought any evidences that steam value charged from other unit is not at market value, the AO is not empowered to re-compute profit and loss account of eligible unit.”

55. The operative conclusion of the coordinate bench reads as under:

“Therefore, considering these facts, there is no need to prepare re-casted Profit & loss account or compute excess LP cost recovered from Paper units as made by AO as well as by Ld. CIT(A). Accordingly we set aside the method of cost re-allocation for HP steam and LP steam initially worked out by AO and further method of allocation of cost made by ld. CIT(A).”

56. The earlier decision concerned Unit I, which was stated to be a 5 MW extraction-condensing turbine, whereas the present appeal concerns Unit V, a 15 MW cogeneration plant. However, the difference in generating capacity does not distinguish the principle decided. The material process remains the same. In both units, high-pressure steam is generated in the boiler, supplied to an extraction-condensing turbine for generation of electricity and thereafter extracted or released at a lower pressure for use in the paper division.

57. The Revenue has not demonstrated any material change in the cogeneration process, the relevant accounting principle or the governing statutory provision. The dispute also remains substantially identical, namely, whether the accounts of the eligible undertaking can be recast by disregarding the cost or value attributable to useful low-pressure steam.

58. In fact, the order under appeal proceeds on a footing more adverse than the method rejected in the earlier proceedings. In the earlier years, the controversy concerned the appropriate allocation or reallocation of cost between electricity and low-pressure steam. In the present year, the learned CIT(A) has assigned nil cost to the steam and loaded the entire common cost upon electricity. Once the earlier order has rejected the Revenue’s authority to recast the eligible unit’s accounts without establishing that the value assigned to steam was not its market value, the present nil-cost treatment cannot be sustained.

59. Judicial discipline requires that the decision of a coordinate bench in the assessee’s own case on the same issue and materially similar facts be followed unless there is a material change in facts, an amendment in the governing provision or a contrary decision of a higher judicial forum. No such distinguishing circumstance has been brought to our notice. We, therefore, respectfully follow the aforesaid decision.

60. In Jay Chemical Industries Ltd. (supra), the Hon’ble Gujarat High Court held:

“22. The word ‘Power’ should be understood in common parlance as ‘Energy’. ‘Energy’ can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the ‘steam’ produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act.”

61. The aforesaid decision establishes that steam, being thermal energy, constitutes “power” for the purposes of section 80-IA(4). It does not prescribe a universal method of cost allocation, but it does negate the premise that useful steam is an irrelevant output lying outside the eligible activity.

62. In DCM Shriram Ltd.(supra), the Co-ordinate Bench examined the contention that steam was a by-product whose cost had already been absorbed in the manufacturing activity. After considering the applicable cost-accounting standards and certified cost statements, the Co-ordinate Bench held:

“40. Therefore, from the above analysis it is apparent that the learned revenue authorities have incorrectly held that there is no cost of production of steam.”

It further observed:

“41. Even otherwise steam is a commercially viable product and it is a form of power and therefore it cannot be said to be produced at nil cost. The assessee has submitted a detailed cost sheet duly certified by the cost accountant following the standards issued by the Institute of cost and works accountant for determining the exact cost of steam, it has also been certified by the chartered accountant and further a chartered engineer certificates is also provided. All these cost statement duly certified by the professionals were rejected by the learned revenue authorities without any basis.”

63. The aforesaid decision supports the principle that a commercially useful steam output cannot be assigned nil cost merely by describing it as a by-product. The decision also recognises that there are accepted cost-accounting methods for determining the cost of steam and that the common generation cost does not disappear merely because the steam is transferred after performing part of its function in the generation process.

64. The decisions relied upon in KR Pulp & Papers Ltd., (supra); Vishal Fabrics Ltd. (supra); and Nandan Denim Ltd. (supra), also recognise that electricity and steam generated by a captive or cogeneration plant are measurable outputs capable of carrying an ascertainable transfer value. These decisions reinforce the broader principle that the dispute may concern the method or quantum of valuation, but useful steam cannot be treated as having no cost or value at all.

65. However, the valuation method accepted in another case cannot automatically determine the exact value applicable in the present case. The factual process, pressure parameters, cost records and manner of transfer may differ from one plant to another. We, therefore, rely upon these decisions only for the governing principles and not for importing any numerical valuation from those cases.

66. The decision in Tata Chemicals Ltd. (supra), stands on a different factual footing. In that case, the assessee sought, through an additional ground, to value the transfer of steam at market value instead of cost. The Tribunal admitted the additional claim and restored the question for examination. The said decision does not determine the precise cost or market value of the steam involved in the present appeal and is, therefore, not decisive of the present quantification.

67. The learned CIT(A) relied upon general information obtained from the website of Solar Turbines concerning a gas-turbine based pulp-drying arrangement involving turbine exhaust gases, a heat-recovery steam generator and a Yankee hood or cylinder. Such general information cannot prevail over the plant-specific material produced by the assessee unless it is first demonstrated that the configuration and operating process described on that website are materially identical to Unit V.The assessee’s case is supported by its boiler and extraction-condensing turbine process, installed meters, physical logbooks, audited accounts and certified quantitative records. The authorities below have neither obtained a technical report concerning Unit V nor shown that the records maintained by the assessee are unreliable.Even the website material relied upon by the learned CIT(A) states that the cogeneration system supplies electricity as well as steam or hot air for the pulp-drying process. It supports the existence of useful heat as an output of cogeneration. It does not state that such useful thermal output has nil embedded cost. It was also contended that the third-party material was not confronted to the assessee before being used adversely. In view of our conclusion on the merits and our decision to follow the coordinate bench order in the assessee’s own case, it is not necessary to rest our decision solely on this procedural objection. Nevertheless, third-party technical material should ordinarily be confronted to the affected party before an adverse inference is drawn therefrom.

68. On an overall consideration of the facts, we find that:

high-pressure steam and low-pressure steam constitute the same steam at different stages of an integrated cogeneration process;

ii.

Unit V produces two useful energy outputs, namely, electricity and process steam;

iii.

the absence of additional fuel consumption after extraction does not extinguish the common cost already embedded in the low-pressure steam;

iv.

the low-pressure steam is measurable, commercially useful and actually transferred to the paper division;

the assessee supported the cost and quantity of such steam through meters, logbooks, separate accounts and professional certification;

vi.

no specific defect in those records or computations was identified by the authorities below;

vii.

the AO did not determine an alternative market value or invoke the proviso to section 80-IA(8);

viii.

the loss of Rs.2,48,87,117/- arose because only electricity revenue was recognised while the entire common cost of both outputs was charged against it;

ix.

the nil-cost theory is inconsistent with the cogeneration process, cost-accounting principles and section 80-IA(8); and

the issue is substantially covered in favour of the assessee by the decision of the coordinate bench in its own case.

69. We clarify that our conclusion does not lay down that the rate of Rs.1,262/- per MT adopted by the assessee is the only scientifically permissible method of valuing low-pressure steam in every cogeneration plant. Our decision is confined to the facts and evidence of the present case. The authorities below have not identified any defect in the assessee’s computation, established an alternative market value or otherwise furnished a reasonable basis for rejecting the recorded value and substituting it with nil.

70. In view of the foregoing discussion and respectfully following the order dated 05.07.2021 passed by the coordinate bench in the assessee’s own case, we hold that the AO and the learned CIT(A) were not justified in assigning nil cost to the low-pressure steam and charging the entire common cost of the cogeneration plant exclusively against electricity revenue. The consequent computation of loss of Rs.2,48,87,117/- and disallowance of the deduction claimed under section 80-IA cannot be sustained.

71. We, accordingly, set aside the impugned finding of the learned CIT(A) and direct the AO to accept the profit of the eligible undertaking as disclosed in its separately maintained and audited accounts and allow the deduction of Rs.32,19,52,570/-claimed by the assessee under section 80-IA. Ground Nos.1 and 2 are allowed.

72. Ground No.3 is general in nature and does not require separate adjudication.

73. In the result, the appeal filed by the assessee is allowed.

In incidental religious activities, CIT(E) must examine dominant objects and 5% expenditure cap before denying 80G approval.

Ashwani Kumar — Fri, 21 Aug 2026 08:19:09 +0000

In incidental religious activities, CIT(E) must examine dominant objects and 5% expenditure cap before denying 80G approval.

Issue

Whether CIT(E) can deny approval under Section 80G solely because a charitable trust engages in incidental religious activities, without examining its dominant objects or the 5% expenditure limit under Section 80G(5B).

Facts

Application for Approval: Assessee-trusts applied for approval under Section 80G of the Income-tax Act, 1961.
Rejection by CIT(E): CIT(A)/CIT(E) passed substantively identical orders denying approval on the common ground that the trusts were engaged in religious activities.
Constitutional Meaning of Religion: The trusts contended that “religion” under Section 80G must be interpreted per constitutional jurisprudence, referring to essential beliefs, doctrines, and integral practices rather than every activity undertaken by a religious institution.
Nature of Activities: The trusts argued that charitable and welfare activities retain their independent charitable character even if religiously inspired, and approval cannot be denied unless the institution is established for a particular religious community or exclusively for religious advancement.
Procedural Flaw: The CIT(E) rejected the applications without factually examining the financial statements, without recording findings on the 5% expenditure cap under Section 80G(5B), and without confronting the trusts on this issue.

Decision

Decided in favor of the assessee (matter remanded).
The tribunal/court held that only activities constituting essential or integral manifestations of faith qualify as religious in a strict legal sense; incidental or ancillary religious activities do not automatically disqualify a trust.
The competent authority must examine the dominant objects, real nature of activities, beneficiaries, and application of income rather than isolating individual trust deed expressions.
Approval under Section 80G cannot be denied merely for undertaking incidental religious activities unless the trust is for a specific religious community/caste or operates exclusively for religious advancement.
Since no factual examination of financial statements or Section 80G(5B) expenditure limits was conducted, the impugned orders were set aside and remanded to the CIT(E) for de novo adjudication.

KeyTakeways

Dominant Object Test: Section 80G eligibility depends on the primary purpose and overall activities of the trust, not isolated or incidental religious practices.
Constitutional Scope of Religion: Only core, essential religious rituals and doctrines constitute “religious activities” in the strict legal sense; public welfare or charitable actions retain their charitable status regardless of religious inspiration.
Mandatory Fact-Finding on 5% Cap: CIT(E) cannot summarily reject Section 80G approval without analyzing financial records and determining whether religious expenditure exceeds the 5% threshold specified under Section 80G(5B).

IN THE ITAT CHANDIGARH BENCH ‘B’

Shri Sanatan Dharm Venkuth Dhamsewa Samiti

Commissioner of Income-tax(Exemptions)

Laliet Kumar, Judicial Member
and Manoj Kumar Aggarwal, Accountant Member

IT Appeal Nos.1810, 1811, 1812, 1721 and 1722 (CHANDI) of 2025 and 572, 718 and 833 (CHANDI) of 2026

AUGUST 3, 2026

S.P. Goyal, Ashok Goel, Gaurav Sharma, Arjun Chaturvedi, Akul Aggarwal, Ramneek Kaur, Ms Jyotsana, CA Ld. ARs, Dhruv Goel, Parikshit Aggarwal, CAs, Vishal Mohan, Sr. Adv., Parveen Sharma, Ld. AR, Ms. Isha Sharma, Pranav Jain, Aman Parti, Sanjeev Rana, J.K. Gupta, Rishab Kapoor, Advs., Kunal Verma and Ms. Shruti Khandelwal, Adv. Ld. AR for the Appellant. Smt. Geetinder Mann, CIT – Ld. DR for the Respondent.

ORDER

Manoj Kumar Aggarwal, Accountant Member.- Aforesaid appeals by assessee-trusts were heard as a bunched matter since common issue was involved in all these appeals i.e. denial of approval u/s 80G. These appeals are directed against separate but substantively identical orders of Ld. Commissioner of Income Tax (Exemption), Chandigarh, [CIT(E)] denying approval to these trust u/s 80G on common ground that these trusts were engaged in religious activities.

2. The Ld. CIT(E), by quoting few of the objects of the assessee-trust and by invoking Explanation-3 to Sec. 80G, held that charitable purpose does not include a purpose, the whole or substantially the whole of which is religious in nature. However, no factual examination of financial statements have been carried out and the aforesaid conclusion is not based on actual facts. No doubt, Explanation-3 provides that charitable purpose does not include a purpose which is wholly or substantially wholly of a religious nature. However, subsection (5B), which has non-obstante clause, deems an institution to continue to satisfy the requirement of Section 80G(5) wherein religiousnature expenditure in a previous year does not exceed five per cent of trust’s total income for that year. No such exercise has been carried out in the impugned orders and no such findings have been brought on record. Apparently, the said issue was not confronted to the assessee. This is the first common ground raised by respective representatives.

3. The second substantive ground is that various activities as carried out by the trusts could not be termed as religious in nature and the respective trust activities are not confined to a particular religious community or caste or a particular section of the society. Therefore, these activities would not fall within the mischief of Sec.80G. For the same, reference has been made to various judicial decisions.

4. We have carefully considered the rival submissions, perused the material available on record, and examined the statutory provisions as well as the judicial precedents cited before us. The controversy in the present appeal revolves around the interpretation of Section 80G(5) of the Income-tax Act, 1961, and the extent to which the religious activities carried on by the assessee trusts affect its entitlement to approval under the said provision. Since the determination of the issue necessarily depends upon the meaning of the expression “religion” and the nature of religious activities contemplated by law, it is considered appropriate to first examine the statutory scheme and the legal principles governing the field.

5. We find that the provisions of Sec. 80G were enacted with the object of encouraging philanthropic contributions by granting deduction in respect of donations made to approved institutions and funds. However, such benefit is available only upon satisfaction of the conditions prescribed u/s 80G(5). One of the significant restrictions embodied in the provision is that the institution or fund should not be one expressed to be for the benefit of any particular religious community or caste. Simultaneously, the Legislature has consciously refrained from imposing a blanket prohibition upon institutions which may incidentally undertake certain religious activities. This legislative distinction demonstrates that Parliament intended to differentiate between institutions established predominantly for religious purposes and institutions whose dominant character continues to remain charitable notwithstanding the presence of certain religious elements in their functioning.

6. At this stage, it becomes necessary to understand the scope of the expression “religion”. Admittedly, the Income Tax Act does not define the said expression. The courts have, therefore, consistently relied upon constitutional jurisprudence while interpreting the provision. For this, certain guidance could be obtained from the decision of Hon’ble Supreme Court in the case of Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt 1954 SCR 1005; Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC 282 wherein Hon’ble Court authoritatively held that religion is certainly a matter of faith with individuals or communities and is not confined merely to matters of doctrine or belief. A religion may not only lay down a code of ethical rules for its followers to accept, it might prescribe rituals and observances, ceremonies and modes of worship which are regarded as integral parts of religion, and these forms and observances might extend even to matters of food and dress. In other words, the religion extends to acts done in pursuance of religion and embraces rituals, observances, ceremonies and modes of worship which are regarded by the community as integral parts of its religion. The Court further observed that what constitutes the essential part of a religion is primarily to be ascertained with reference to the doctrines of that religion itself. It illustrated that offerings to the deity, daily recitation of sacred texts, ablations to the sacred fire, and ceremonies prescribed by religious tenets are themselves religious acts notwithstanding that they involve expenditure of money or employment of priests. The court made an equally important distinction by observing that secular activities associated with religion are amenable to State regulation, whereas matters constituting the essential part of religion enjoy constitutional protection.

7. The same principle was reiterated by the Constitution Bench in Ratilal Panachand Gandhi v. State of Bombay AIR 1954 SC 388, wherein the Supreme Court held that freedom of religion protects not merely religious opinion but also acts done in pursuance of religion. Nevertheless, the Court recognized that every activity carried on by a religious institution does not thereby become a religious activity. The Constitution itself, under Article 25(2)(a), preserves the power of the State to regulate economic, financial, political and other secular activities associated with religious practice. The distinction was further refined in Durgah Committee v. Syed Hussain Ali (1961 AIR 1402) wherein the Supreme Court cautioned that constitutional protection is confined to practices which are essential and integral to the religion and not to every custom or observance that has become associated with religion over time. The Court observed that practices which are merely superstitious accretions or incidental additions cannot claim the same constitutional protection as essential religious practices.

8. Similarly, in Seshammal v. State of Tamil Nadu (1972) 2 SCC 1, while examining temple administration, the Supreme Court held that although the performance of worship according to Agamas may constitute an essential religious matter, the appointment of an Archaka is essentially a secular aspect capable of legislative regulation. Thus, the Court distinguished between the religious ritual itself and the machinery by which the ritual is performed.

9. The above principle has consistently been reiterated in subsequent decisions. In S.P. Mittal v. UOI (1983) 1 SCC 51 ], the Hon’ble Supreme Court observed that religion ordinarily comprises a system of beliefs or doctrines regarded by those who profess that religion as conducive to their spiritual well-being, together with external acts in pursuance of such beliefs. Further, a religion is not merely an opinion, doctrine or belief. It has its outward expression in acts as well and religion need not be theistic. In the case of Acharya Jagadishwarananda Avadhuta v. Commissioner of Police (1983) 4 SCC 522 ] dealing with essential religious practices, the Court emphasized that only those practices which are regarded as fundamental and indispensable to a religion acquire constitutional protection as essential religious practices, whereas activities that are merely secular, administrative or optional do not assume the character of religion merely because they are associated with a religious institution. These are broad principles laid down by Hon’ble Apex Court while interpreting the term ‘religion’.

10. In the above background, it could be derived that the doctrine of essential religious practices has an important bearing while interpreting Section 80G(5). Every activity undertaken by an institution having religious affiliations could not automatically be characterized as a religious activity for the purposes of the Income-tax Act. The true test is whether the activity in question constitutes an essential and integral manifestation of religious faith or whether it is essentially charitable, educational, medical, social or philanthropic in character. Distribution of food to the poor, medical relief, educational activities, preservation of cultural heritage, relief during natural calamities and similar welfare measures do not cease to be charitable merely because they are inspired by religious philosophy or are carried out by a religious denomination. Conversely, activities exclusively intended for propagation of a particular religion, performance of rituals exclusively for adherents of a particular faith, or advancement of the interests of a specified religious community may assume the character of religious activities depending upon the facts and circumstances of each case.

11. The distinction between charitable and religious purposes under the Income-tax Act has also been considered by the Hon’ble Supreme Court in CIT v. Dawoodi Bohra Jamat 364 ITR 31 (SC). The Hon’ble Supreme Court held that the Income-tax Act recognizes that a trust may simultaneously possess charitable as well as religious objects. The Court further observed that merely because a trust carries on certain religious activities, it does not necessarily lose its charitable character. Unless the trust is established exclusively for the benefit of a particular religious community or caste in a manner prohibited by the statute, the benefit contemplated by the Act cannot be denied solely on account of incidental religious activities. The emphasis, therefore, is upon the dominant purpose, the primary objects of the institution, and the actual manner in which its activities are conducted.

12. The legislative intent behind Section 80G(5) also supports the above interpretation. As could be seen that the extant provision does not require complete absence of every religious element. Rather, it seeks to deny approval only where the institution is established for the benefit of a particular religious community or where its predominant activities are directed towards advancing the interests of such community. Consequently, the inquiry before the competent authority is not whether some religious activities are carried on, but whether such activities dominate the objects and functioning of the institution so as to alter its essential charitable character. In fact, the provisions of sub-section (5B), which has non-obstante clause, deems an institution to continue to satisfy the requirement of Section 80G(5) wherein religious-nature expenditure in a previous year does not exceed five per cent of trust’s total income for that year.

13. In the light of the aforesaid statutory provisions and judicial pronouncements, the legal position could be summarized thus. First, the expression “religion” under Section 80G must receive the meaning assigned to it by constitutional jurisprudence, namely, a system of faith encompassing beliefs, doctrines, rituals, observances and practices regarded as integral by its followers. Secondly, only those activities which constitute essential or integral manifestations of religious faith qualify as religious activities in the strict legal sense. Thirdly, every activity undertaken by a religious institution cannot automatically be categorized as religious rather charitable and welfare activities retain their independent charitable character notwithstanding their religious inspiration. Fourthly, while considering eligibility under Section 80G(5), the competent authority is required to examine the dominant objects of the institution, the real nature of its activities, the beneficiaries thereof and the application of its income, rather than isolating individual activities or expressions occurring in the trust deed. Finally, unless the institution is found to be established or substantially operated for the benefit of a particular religious community or caste, or its predominant purpose is advancement of religion to the exclusion of charitable purposes, approval under Section 80G cannot be denied merely because certain incidental or ancillary religious activities are undertaken. The following principles clearly emerges:

(i)

A religious purpose is one that is intrinsically connected with the profession, practice and observance of religion itself. Such purposes include worship of the deity, performance of Puja, Archana, Yajna, Havan, Abhishek, recitation of scriptures, teachings of religious textbooks, observance of religious festivals, and other rituals prescribed by the tenets of the religion.

(ii)

The fact that an activity is motivated by religion does not necessarily make the activity itself religious. The origin or inspiration of an activity is different from its legal character.

(iii)

Activities such as providing food to the poor, imparting education, establishing hospitals, constructing dharamshalas, preserving rivers, planting trees, environmental conservation, distribution of clothes, organising marriages of indigent persons, and providing shelter undoubtedly find support in Hindu scriptures and are regarded as acts of Dharma. However, if these activities are examined independently, divorced from any act of worship or religious ritual, they predominantly serve public welfare and society at large. Their beneficiaries are not confined to adherents of any religion, nor are these activities indispensable for the performance of religious worship. Consequently, they cannot, merely because of their religious inspiration, be characterized as religious purposes per se.

(iv)

The proper inquiry is not whether religion encourages the activity, but whether the activity itself constitutes an indispensable and intrinsic manifestation of religion. If the activity can exist independently of religious worship and continues to achieve a secular or charitable objective, it retains its secular or charitable character notwithstanding its religious origin.

This distinction is particularly relevant in the context of Hindu philosophy. The Indian cultural & civilization / history treat protection of rivers, trees, animals, education, hospitality, feeding the poor and service to humanity as acts of Dharma. Yet, these are also universal humanitarian obligations. The religious element lies in the believer’s motivation, whereas the activity itself produces secular and charitable consequences. By contrast, the performance of Puja, Archana, Havan, Abhishek, recitation of Vedic mantras, teachings of religious books, temple worship, or observance of prescribed rituals cannot be divorced from religion itself. These acts derive their very existence from religious doctrine and lose their meaning outside the framework of religious observance. The jurisprudence of the Supreme Court consistently recognizes that the constitutional and legal conception of “religious purpose” is confined to those purposes that are core, essential, integral and inseparable from the observance of religion itself. Activities which merely emanate from religious philosophy, but whose dominant object is social welfare, charity, education, environmental protection or public benefit, cannot, when viewed in isolation, be regarded as religious purposes merely because their inspiration can be traced to religious teachings. This distinction preserves both the sanctity of religion and the autonomy of charitable activities, each within its own legal sphere.

14. Based on above guiding principles, the expression “religious purpose” would generally be understood to include activities such as construction or maintenance of temples, mosques, churches, gurudwaras, or other places of worship; performance of religious rituals, ceremonies and worship; propagation or promotion of a particular religion or its doctrines; reading & teachings of religious books; Activities intended primarily to advance the religious interests of a particular faith or denomination. However, an institution is not necessarily regarded as religious merely because it has some religious elements. Courts have repeatedly held that where the dominant or primary object is charitable such as education, medical relief, relief of poor or other public welfare then incidental religious activities do not automatically make the institution a religious one. Whether an institution is charitable or religious depends on its predominant purpose, as reflected in its founding documents and actual activities. It could be said that religion would mean a system of faith, beliefs, doctrines, and worship, together with the practices and observances regarded by its followers as integral to that faith. In the context of the Income-tax Act, the distinction between religious and charitable purposes is determined by the institution’s primary or dominant object and not merely by the presence of religious practices or symbolism.

15. Finally, on the given facts and circumstances of these appeals and in the light of our above observations, we deem it fit to set aside the respective impugned orders. Accordingly, all the captioned appeals stand restored back to Ld. CIT(E) for de novo adjudication. The assessee is directed to plead and prove their respective cases. The entire bunch of captioned appeals stand allowed for statistical purposes. A copy of this order may be placed in all the respective files.

16. All the appeals stand allowed for statistical purposes.

Reassessment Notice Based on Unrelated Third-Party Broker Register Without Live Nexus Is Invalid

Ashwani Kumar — Fri, 21 Aug 2026 08:16:32 +0000

Reassessment Notice Based on Unrelated Third-Party Broker Register Without Live Nexus Is Invalid

Issue

Whether a reassessment notice under Section 148, alleging unrecorded “on-money” payments on a land purchase, can be sustained when it relies solely on a third-party broker’s market survey register that predates the purchase, mentions unrelated survey numbers and third-party names, and lacks a live nexus to the assessee.

Facts

Assessee’s Transaction: The assessee filed a return of income for AY 2021-22. During the relevant period, the assessee purchased land under specific survey numbers via a registered sale deed.
Search & Seizure: A search operation was conducted on a third-party real estate broker, leading to the seizure of an inquiry register containing a noting dated June 18, 2020.
Discrepancies in Seized Material:
- Timing: The entry predated the actual land purchase by several months, representing only a market inquiry/availability survey rather than an executed transaction.
- Scope: The entry covered a much larger land area and additional survey numbers beyond what was actually bought by the assessee.
- Identity: The entry listed the name of an unconnected individual, from whom no inquiry was made by the Revenue.
- No Direct Reference: Neither the seized register nor the broker’s statement recorded under Section 131 contained any reference to the assessee or co-purchasers.
Revenue’s Stand: The Revenue argued that the register constituted business records attracting the presumption under Section 292C, and because the survey numbers partially overlapped with the assessee’s transaction, the notice was valid.
Assessee’s Challenge: The assessee filed a writ petition challenging the Section 148 reopening as arbitrary, void, and lacking jurisdiction due to the absence of any live link.

Decision

Decided in favor of the assessee.
The High Court held that a market survey register entry in a third-party broker’s records—which predates the transaction, covers a different scope, and names an unconnected party—does not constitute actionable “information” or tangible material.
The court observed that there was no live nexus or direct connection between the seized third-party material and the assessee.
Consequently, the presumption under Section 292C could not be applied against the assessee, and the impugned notice under Section 148 was quashed.

Key Takeaways

Requirement of Live Nexus: Initiating reassessment under Section 148 requires a direct, tangible “live link” between the information in the Revenue’s possession and the alleged escaping income of the specific assessee.
Third-Party Inquiry Registers: Notings in third-party broker registers reflecting mere availability, rate inquiries, or pre-transaction surveys cannot be automatically treated as conclusive evidence of “on-money” payments.
Limits of Section 292C Presumption: The statutory presumption under Section 292C applies primarily to the person from whose possession the records were seized and cannot be mechanically extended to third parties without corroborative material.

HIGH COURT OF GUJARAT

Mrunal Santramdas Varma

Assistant Commissioner of Income-tax

A.S. Supehia and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 2897 of 2026

APRIL 15, 2026

Tushar Hemani, Sr. Adv. and Ms Vaibhavi K Parikh, Adv. for the Petitioner. Aaditya D. Bhatt for the Respondent.

JUDGMENT

A.S. Supehia, J. – RULE returnable forthwith. Learned Senior Standing Counsel Mr. Aaditya D Bhatt waives service of notice of rule on behalf of the respondent.

1. Since a short issue is involved, with consent of learned advocates for the respective parties, the matter is taken up for final hearing.

2. By way of present writ petition, the petitioner is assailing the impugned notice dated 30.03.2025 issued under Section 148 of the Income Tax Act, 1961 (for short “the IT Act”) for the assessment year 2021-22.

BRIEF FACTS:

3. The petitioner filed his return of income for the assessment year 2021-22 on 10.03.2022 declaring total income at Rs. 99,65,040/-. The petitioner, along with joint purchasers Shri Gauravbhai Santarambhai and Shri Tarunbhai Santarambhai, purchased land at Moje Adalaj bearing Survey No. 184 and Survey No. 182 from Shri Shakarbhai Dhulabhai Patel and Shri Manthan Shakarbhai Patel vide registered sale deed dated 01.03.2021 for a consideration of Rs. 93,00,000/- and Rs. 63,00,000/- respectively. A search action under Section 132 of the IT Act was conducted on 28.09.2021 at the premises of B Safal Group and City Estate Management India, a real estate broker providing brokerage services to the B Safal Group. During the course of the search, inquiry registers were found and seized from the premises of City Estate Management India containing details of various lands and plots in and around Ahmedabad along with their survey numbers, area and asking rates. In one of such inquiry registers, a noting dated 18.06.2020 was found in respect of land at Moje Adalaj. On the basis of the said information, the Respondent recorded a satisfaction note on 18.03.2025 which was approved by the Principal Commissioner of Income Tax-3, Ahmedabad on 22.03.2025. Thereafter, the Respondent issued the impugned notice dated 30.03.2025 under Section 148 of the IT Act, alleging that the petitioner had paid on-money of Rs. 3,73,56,434/- on account of purchase of land bearing Survey No. 182 at Moje Adalaj, being the difference between the consideration recorded in the Sale Deed and the price quoted in the inquiry register noting dated 18.06.2020. The petitioner filed detailed objections against the said notice on 28.01.2026 requesting the Respondent to drop the reassessment proceedings. The Respondent has not passed any order disposing of the said objections. Hence, the petitioner has approached this Court by way of the present writ petition.

SUBMISSIONS ON BEHALF OF THE PETITIONER:

4. Learned Senior Advocate Mr. Tushar Hemani has submitted that the Assessing Officer has sought to reopen the assessment only on the basis of a noting found in the seized inquiry register and the statement of Shri Pravin Nagjibhai Bavadiya, the broker and proprietor of City Estate Management India. It is submitted that the relevant noting in the seized inquiry register is dated 18.06.2020, whereas the petitioner along with copurchasers actually purchased the concerned land bearing Survey Nos. 184 and 182 by registered sale deed dated 01.03.2021 – i.e., approximately nine months after the date of the noting. The noting, therefore, predates the actual purchase transaction of the petitioner and, as per the statement of Shri Pravin Nagjibhai Bavadiya himself recorded under Section 131 of the IT Act on 27.12.2021 and 28.12.2021, the inquiry registers merely contain details of “land/plots available for sale at different locations near Ahmedabad” and do not record any concluded transaction or parties thereto.

4.1 It is further submitted that the register entry pertains to Survey Nos. 182, 183, 184, 189 and 190 with a total area of 8.34 bigha, whereas the petitioner along with copurchasers purchased only Survey Nos. 184 and 182 having areas of 2.38 bigha and 1.62 bigha respectively, totalling approximately 4 bigha. The entry in the register thus covers three additional survey numbers (183, 189 and 190) and more than double the area of land actually purchased by the petitioner, rendering any nexus between the seized document and the petitioner’s transaction highly doubtful.

4.2 It is submitted that the name appearing in the seized inquiry register is “Krupeshbhai Gajipara” – a person entirely unconnected to and unknown by the petitioner. Strikingly, no inquiry whatsoever has been conducted by the Department from Krupeshbhai Gajipara, whose name actually appears in the register. Furthermore, neither the seized inquiry register nor the statement of Shri Pravin Nagjibhai Bavadiya recorded under Section 131 of the Act makes any reference to the petitioner or the co-purchasers. The jurisdictional condition that the seized material must “pertain to” or “relate to” the assessee is not satisfied in the present case.

5. In support of the aforesaid submissions, learned advocate has placed reliance on the judgment and order dated 24.11.2025 passed in Sandhya Maulik Patel v. Asstt. CIT (Gujarat),Naliniben Jagdishkumar Gandhi v. ITO (Gujarat) and Deepak Chinubhai Shah v. Dy. CIT (Gujarat)/(Special Civil Application No. 13298 of 2025) and allied matters.

SUBMISSIONS ON BEHALF OF THE RESPONDENT:

6. While opposing the aforesaid submissions, learned Senior Standing Counsel Mr. Aaditya D Bhatt, appearing for respondent-revenue, has contended that from the search conducted on B Safal Group and City Estate Management India on 28.09.2021, inquiry registers were seized from broker Shri Pravin Nagjibhai Bavadiya. These registers are not mere dumb documents but are structured business records of a professional real estate broker, systematically maintained with precise survey numbers, village locations, area measurements and rates. In his statement recorded on oath under Section 131 of the IT Act on 27.12.2021 and 28.12.2021, the broker admitted ownership of these registers and confirmed that they belong to his business, thereby activating the statutory presumption of truthfulness under Sections 132(4A) and 292C of the Act.

6.1 It is further submitted that on verification of revenue records through the Any ROR portal, it was found that the land bearing Survey Nos. 184 and 182 at Moje Adalaj, as recorded in the seized inquiry register, was purchased by the petitioner along with co-purchasers on 01.03.2021. The asset-based nexus between the seized document and the petitioner’s transaction is thus established. Under Explanation 2(iv) to Section 148 of the IT Act, when documents seized from any other person “pertain to” or information contained therein “relates to” the assessee, the Assessing Officer shall be deemed to have information suggesting escapement of income. The exact match between the survey numbers in the seized register and the registered sale deed of the petitioner constitutes sufficient material for invoking jurisdiction under Section 148.

6.2 It is submitted that the discrepancies in dates, area, and names are all matters relating to the merits of the proposed addition and are to be adjudicated during the course of the assessment proceedings. The Assessing Officer is not required to conclusively prove escapement of income at the stage of issuing the notice; the threshold is merely “information suggesting escapement” and the same has been met in the present case. The deletion of an addition in the hands of the broker by the Tribunal does not obliterate the information against the actual buyer. It is, therefore, urged that the present writ petition may be dismissed.

6.3 It is further submitted on behalf of the respondent that the action of reopening is well-supported by the pronouncements of the Hon’ble Supreme Court. Reliance is placed on Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), wherein it was held that at the stage of issuance of notice under Section 148, the Court is not required to go into the merits of the matter, and whether income had or had not escaped assessment is not the relevant consideration at that stage. Reliance is also placed on Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd 291 ITR 500 (SC) and Anshul Jain v. Pr. CIT 449 ITR 256 (SC). It is further submitted that the expression ‘pertains to’ or ‘relates to’ as employed in Explanation 2(iv) to Section 148 is wider in amplitude than the expression ‘belongs to’ as used in Section 153C; therefore, the seized document need not directly belong to the assessee a mere relation to or pertaining to the assessee’s income is sufficient to invoke the reopening jurisdiction.

ANALYSIS AND OPINION:

7. We have heard the learned advocates appearing for the respective parties at length and have also perused the documents placed on record. The action of reopening of assessment against the petitioner is premised on a search conducted at the office premises of City Estate Management India on 28.09.2021. During the search, inquiry registers of broker Shri Pravin Nagjibhai Bavadiya were seized. The relevant extract of the seized inquiry register which forms the sole basis for the impugned notice reads as under:

18.6.20 | Moje:- Adalaj | B/H, Suramya -1 | S. No.

182, 183, 184, 189, 190 | 8.34 – bigha |

Rate – 2.70 Q | Krupeshbhai Gajipara

8. On the basis of the aforesaid entry in the seized inquiry register, the Assessing Officer formed the opinion that the petitioner had paid on-money on the purchase of land bearing Survey No. 182 at Moje Adalaj and accordingly sought to reopen the assessment year 2021-22 alleging escaped income of Rs. 3,73,56,434/- in the hands of the petitioner.

9. The first and foremost aspect which strikes us on a perusal of the seized material is the date of the noting in the inquiry register. The date of the noting is 18.06.2020, whereas the petitioner along with co-purchasers Shri Gauravbhai Santarambhai and Shri Tarunbhai Santarambhai purchased the concerned land bearing Survey Nos. 184 and 182 from the joint sellers by registered sale deed dated 01.03.2021 – i.e., approximately nine months after the date of the noting. The entry in the register, therefore, predates the actual purchase transaction of the petitioner by a considerable period. In this background, the entry dated 18.06.2020 can, at best, be viewed as a market survey reflecting the asking rate for land available for sale in the area of Moje Adalaj as on that date. Notably, the statement of Shri Pravin Nagjibhai Bavadiya recorded under Section 131 of the IT Act himself confirms that the inquiry registers contain details of “land/plots available for sale at different locations near Ahmedabad”. Since the purchase transaction by the petitioner was executed approximately nine months after the date of the register entry, and since the register is admittedly only a record of land “available for sale”, the noting cannot be treated as a record of any transaction executed by the petitioner.

9.1 We find that, even on the question of the evidentiary weight to be attached to the seized inquiry register, the revenue’s case is materially weakened by the admissions made by Shri Bavadiya himself during his statement recorded in the course of the search. At Question No. 14, Shri Bavadiya candidly admitted that sometimes clients come with land documents or title deeds and these belonged to the clients and not to him. This admission directly and significantly undermines the blanket presumption under Section 292C that all entries in the inquiry register necessarily record actual financial transactions carried out by or through Shri Bavadiya. Further, at Question No. 26, it emerges that the ‘owner of the land’ is typically the person whose name is entered in the register—confirming that the name reflected therein is that of the owner or broker who listed the property, and not necessarily a party who paid or received any undisclosed consideration. These specific admissions by the searched person himself effectively negate the foundation upon which the revenue has sought to invoke a generalised presumption under Section 292C to treat the inquiry register entries as conclusive evidence of on-money transactions involving the petitioner.

10. We further note that the register entry pertains to five survey numbers, viz., Survey Nos. 182, 183, 184, 189 and 190, with a total area of 8.34 bigha. However, the petitioner along with co-purchasers purchased only Survey Nos. 184 and 182, having areas of 2.38 bigha and 1.62 bigha respectively, i.e., a combined area of approximately 4 bigha. The register entry, therefore, covers three additional survey numbers (183, 189 and 190) and refers to more than double the area of land actually purchased by the petitioner. This significant discrepancy in both the number of survey numbers and the total area further militates against any connection between the seized register entry and the transaction of the petitioner.

11. The name “Krupeshbhai Gajipara” appearing in the seized inquiry register is of a person who is entirely unconnected to and unknown by the petitioner. The petitioner has specifically pointed out that no inquiry whatsoever has been conducted by the Department from Krupeshbhai Gajipara, whose name actually appears in the register. The Assessing Officer has drawn satisfaction in the case of the petitioner based on the same register entry while completely ignoring the person whose name appears therein, without making any inquiry from said person. Furthermore, the statement of Shri Pravin Nagjibhai Bavadiya recorded under the provisions of Section 131 of the IT Act does not in any manner mention the name of the petitioner or the co-purchasers. Thus, we do not find any direct or indirect link between the petitioner and the seized document. The revenue has attempted to reopen the assessment year 2021-22 only on the basis of some vague information allegedly connected from the seized document, which does not in any manner relate to the present petitioner.

12. Even otherwise, this issue is no more res integra as the same is covered in favour of the assessee by the judgement of this Court in the case of Naliniben Jagdishkumar Gandhi (supra). This Court has, after considering similar entry in the same customer inquiry register seized in the same search, thus:

“10. Except the seized documents as mentioned hereinabove, and the statements of the searched person Shri Bavadiya, there is no material recorded by the Assessing Officer which would reveal the name of the petitioner. It is true that cash transactions operate in very clandestine manner, and the re-assessment cannot be quashed, but the revenue has to prove a live link connecting the assessee. The only link is the survey number of the petitioner. It is pertinent to note that the date of the seized document referred is of 11.08.2017 and it is the case of the Assessing Officer that the entire plot of land was sought to be sold at the rate of Rs.17,000/- per square yard in the year 2017 as per the entry made in the register (seized document). “

The aforesaid principle applies with equal, if not greater, force to the present case, where not only is there no live link between the seized register entry and the petitioner’s transaction, but the entry itself suffers from the multiple infirmities and internal contradictions noticed hereinabove.

We find further support in two recent decisions of this Court arising from the very same search. In Trupti Aakash Desai v. ITO (Gujarat)/[Special Civil Application No. 985 of 2026, decided on 08.04.2026], this Court, dealing with the search at B Safal Group conducted on 28.09.2021 and the very same seized inquiry register, held that the entries therein ‘cannot be used in vacuum’ and that a live and direct nexus between the seized material and the assessee sought to be reopened is a sine qua non. In Kantilal Parsotamdas Patel v. ITO (Gujarat)/[Special Civil Application No. 3676 of 2026, decided on 08.04.2026], this Court, following the aforesaid line of reasoning and dealing with a similar set of facts arising from the same search, quashed the reassessment proceedings. The present case, on its facts and in law, is indistinguishable from both these decisions and deserves to succeed on this additional ground as well.

FINAL ORDER

13. Hence, we are of the opinion that the assessment has been sought to be reopened on the basis of conjectures and surmises. The seized inquiry register entry does not establish any live nexus with the petitioner. There is no direct or indirect link between the seized document and the present petitioner. The invocation of the proceedings under Section 148 of the IT Act is ill-conceived and unsustainable. Accordingly, the captioned writ petition stands allowed. The impugned Notice dated 30.03.2025 issued under Section 148 of the IT Act is hereby quashed and set aside.

Supreme Court Grants SLP Against High Court Refusal to Quash Prosecution for Belated Return Filing

Ashwani Kumar — Fri, 21 Aug 2026 08:10:55 +0000

Supreme Court Grants SLP Against High Court Refusal to Quash Prosecution for Belated Return Filing

Issue

Whether a Special Leave Petition (SLP) should be granted against a High Court judgment that refused to quash Section 276CC criminal prosecution complaints initiated for failing to file a return under Section 139(1), despite the assessee having filed a belated return under Section 139(4) before detection.

Facts

Return Filing: For AY 2011-12, the assessee failed to furnish the return of income within the original due date prescribed under Section 139(1), but subsequently filed a belated return of income under Section 139(4).
Initiation of Prosecution: The Income Tax Department launched criminal prosecution under Section 276CC against the assessee for deliberate failure to file the return within the Section 139(1) due date.
Assessee’s Defense: The assessee filed a writ petition under Section 482 Cr.P.C. seeking to quash the prosecution, contending that:
- Filing a voluntary belated return under Section 139(4) prior to detection cured the default.
- Absence of a completed regular assessment precluded prosecution under clause (b) of sub-clause (ii) to the proviso of Section 276CC.
- Subsequent Section 153A search proceedings altered the requirement and status of returns.
- The Revenue failed to discharge its primary onus of proving mens rea or willful default.
High Court Order: The High Court dismissed the writ petition, holding that:
- Filing a belated return under Section 139(4) does not automatically confer immunity from prosecution for Section 139(1) defaults.
- Section 278E creates a statutory presumption of culpable mental state (mens rea), shifting the onus to the accused, which must be tested at trial rather than in summary proceedings under Section 482 Cr.P.C.
- Absence of a formal assessment is not a precondition for initiating Section 276CC proceedings.
Appeal to Supreme Court: Aggrieved by the High Court’s refusal to quash the complaint, the assessee filed a Special Leave Petition (SLP) before the Supreme Court.

Decision

Decided in favor of the assessee.
The Supreme Court granted Special Leave to Appeal (SLP) against the High Court’s order, agreeing to examine the legal maintainability of Section 276CC prosecution in cases involving voluntary belated returns filed under Section 139(4).

KeyTakeways

Supreme Court Scrutiny on Section 276CC: The grant of SLP indicates that the Supreme Court considers the maintainability of criminal prosecution following the filing of a belated return under Section 139(4) to be a substantial question of law.
Interplay Between Section 139(4) and Prosecution: Whether filing a voluntary return under Section 139(4) before tax detection insulates an assessee from “willful attempt” prosecution under Section 276CC remains an open, triable issue before the apex court.
Presumption of Culpable Mental State: Under Section 278E, the burden to prove the absence of a culpable mental state rests on the assessee, making the timing and voluntariness of filing a return critical factual evidence.

SUPREME COURT OF INDIA

Surinder Sabhlok

Deputy Commissioner of Income-tax

K.V. Viswanathan and Arun Palli, JJ.

SLP to Appeal (Crl.) No(s). 9416 and 9417 of 2026^†

AUGUST 10, 2026

Ms. Ritika Aggarwal, Akarsh Garg, Rohit Saroj, Ms. Uditie Aggarwal, Advs. and Siddharth Jain, AOR for the Petitioner. Sudarshan Lamba, AOR, Aaditya Aniruddha Pande, Ms. Pallavi Mishra, Ishaan Sharma, Udai Bhatt, Samrat Krishnarao Shinde, Siddharth Dharmadhikari, Shrirang B. Varma, Advs. and Raghavendra P. Shanker, A.S.G. for the Respondent.

ORDER

1. Heard Ms. Ritika Aggarwal, learned counsel for the petitioner/appellant and Mr. Raghavendra P. Shanker, learned Additional Solicitor General appearing for the respondent(s).

2. Leave granted.

3. Interim order to continue.