Shyam Sel and Power Investigative Vacuum Sustained

The dispute arose from revisionary proceedings initiated under Section 263 against Shyam Sel and Power Limited and Shyam Metalics and Energy Limited concerning deductions claimed under Section 80-IA for captive power plants. 

The assessees operated eligible captive power undertakings supplying electricity to their own manufacturing units through specified domestic transactions governed by transfer pricing provisions under Chapter X.

Following search proceedings and assessment under Section 153A, the Transfer Pricing Officer examined arm’s length pricing relating to inter-unit power transfers and accepted the assessees’ “Direct Nexus” methodology under which only expenses directly linked to power generation were allocated to the eligible units while common Head Office expenses remained with non-eligible divisions. The Assessing Officer adopted the TPO findings and completed assessments accordingly.

Subsequently, the Principal Commissioner invoked Section 263 on the ground that the Assessing Officer failed to examine proportionate allocation of common Head Office expenses including finance costs, personnel expenses, and administrative overheads while computing eligible profits under Section 80-IA. The assessees challenged the revision by arguing that the issue stood concluded through transfer pricing proceedings, appellate merger, and acceptance of a plausible view.

Rejecting these arguments, the High Court held that the issue of expense allocation remained distinct and unexamined despite appellate proceedings relating to power valuation. The Court further clarified that the TPO’s mandate under Section 92CA was confined to arm’s length valuation and did not eclipse the Assessing Officer’s independent obligation to scrutinize correctness of net-profit computation. The Court ultimately held that investigative silence on a vital accounting component amounted to a jurisdictional defect justifying revision under Section 263.