U/s 80-IA (8), the transfer of goods from an eligible business to a non-eligible business is required to be taken at “market value”. The tariff determined by MERC is based on the concepts of ‘clear profits’ and ‘reasonable return’ and does not reflect the “market value” of the electricity. While the ‘clear profits’ are determined by considering the streams of income, the ‘reasonable return’ is determined on the capital base. If the ‘clear profits’ are more than the ‘reasonable return’, the excess is considered while fixing tariffs for the subsequent year and the exercise of adjusting the gap between the reasonable return and clear profits is an on-going process. The tariff is either increased or reduced to adjust the gap between the two. Further, the tariff is fixed for both activities of generation and distribution of power and may not reflect the true rates with regard to only the activity of generation

CBDT Circular No.12 dated 23.8.2001 which provides that “the AO shall not make any adjustment to the arm’s length price determined by the taxpayer if such price is unto 5% less or unto 5% more than the price determined by the AO” was in the context of the proviso to s. 92C (2) inserted by FA 2001 w.e.f. AY 2002-03. Though the proviso provided for only arithmetical mean of the prices to be taken and did not provide for any concession, the Circular was issued considering practical difficulties. The said Proviso was amended by FA 2002 w.e.f AY 2002-03. The effect is that the Proviso in the context of which Circular No. 12 was issued never came into operation and so the Circular No. 12 became otiose and cannot be relied upon

U/s 149(1)(b) a notice u/s 148 cannot be issued after the issue of 6 years from the end of the AY. In Haryana Acrylic vs. CIT 308 ITR 38 it was held that a notice u/s 148 without the communication of the reasons there for is meaningless inasmuch as the AO is bound to furnish the reasons within a reasonable time. It was held that a case where the notice has been issued within the said period of six years but the reasons have not been furnished within that period is hit by the bar of limitation because the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression ‘within a reasonable period of time’ as used in GKN Driveshafts 259 ITR 19 (SC) cannot be stretched to such an extent that it extends even beyond the six years stipulated in s. 149

The TPO rejected the assessee’s contention with regard to inclusion of the three super-normal profit companies without any cogent reason. It is undisputed that the three companies have shown super-normal profits as compared to other comparables. Their exclusion from the list of comparable is quite correct. After excluding the three companies the arithmetic mean of the comparables falls within the +-5% range permitted by s.92(C)(2)