2015 (6) TMI 216 - HC - Income Tax

Court affirms assessment on windmill depreciation and lease rentals; dismisses collusion claims

Commissioner of Income-tax-4, Mumbai Versus Karma Energy Ltd.

The High Court upheld the decisions of the lower authorities in a case involving the assessment of depreciation on windmills purchased at allegedly ... Depreciation on the inflated cost of windmills - whether Tribunal was right in allowing excess lease rentals on the basis of inflated cost of windmills ? - Held that:- Tribunal considered the statement of comparable cases made by the assessee and concluded that the payment made by the assessee was certainly not inflated. The Tribunal considered the fact that setting up of windmills was a specialized task and came to the conclusion that the Assessing Officer had no evidence on record to establish that the price of windmills paid by the assessee was not the actual price or that the price was inflated. The Tribunal found that the Assessing Officer had proceeded on the basis of a presumption that the cost of each windmill is inflated by ₹ 1 crore and it had not been proved by documentary evidence that such money came back to the assessee from the concern to whom commission was paid, namely M/s. Suhani Traders. The Assessing Officer has not disputed the fact that the assessee paid lease rent of ₹ 5,51,788/- to Weizmann group Ltd. on account of the windmills taken on lease and the contention of the Assessing Officer that lease rents were unreasonable was not based on any cogent material but only based on assumption and presumption. In fact, the lease rents were fixed in accordance with the formula provided by Indian Renewable Energy Development, a Government of India Company which provided support to Electricity Project. The Tribunal found that the CIT (A) was justified in holding that there is nothing on record to prove the excessive amount of lease rent was paid. The said issue is identical in all appeals and the appeals came to be rejected while upholding the orders of the Commissioner of Income Tax (Appeals). The appeals filed for the year 2002-03 and 2005-06 were also dismissed. The cross objections filed by the assessee for the year 2002-03 were also rejected. - Decided against revenue Issues:1. Assessment of depreciation on inflated cost of windmills purchased by the assessee.2. Allowance of excess lease rentals based on inflated cost of windmills.3. Disallowance of payments made for sharing utilities under section 194C of the Income Tax Act.4. Allegations of collusion between companies leading to inflated costs and benefit to group companies.Analysis:1. The case involved questions regarding the assessment of depreciation on windmills purchased by the assessee at an allegedly inflated price. The Assessing Officer disallowed depreciation on 12 windmills, claiming the cost was inflated by Rs. 1 crore per windmill. However, the Commissioner of Income Tax (Appeals) deleted these additions, stating no evidence of complicity was found during the survey. The Tribunal upheld this decision, emphasizing the lack of proof of excessive payment by the assessee.2. Another issue was the allowance of excess lease rentals based on the inflated cost of windmills. The Assessing Officer disallowed the lease rent deduction, alleging the costs were unreasonable. However, the Commissioner of Income Tax (Appeals) overturned this disallowance, noting that the lease rents were fixed according to government guidelines. The Tribunal concurred, finding no evidence of excessive payments and upholding the Commissioner's decision.3. The case also addressed the disallowance of payments for sharing utilities under section 194C of the Income Tax Act. The Revenue contended that these payments attracted section 40(a)(ia) disallowance, but the Respondent argued otherwise. The Tribunal found in favor of the Respondent, stating that the payments were properly accounted for and did not violate the Act, leading to the deletion of the disallowance.4. Allegations of collusion between companies to inflate costs and benefit group companies were raised. The Revenue claimed that funds were routed back to the Weizmann group, implicating the assessee in the scheme. However, the Tribunal examined comparable cases and found the payments made by the assessee were justifiable, considering the specifications and industry standards. The Tribunal dismissed the allegations of collusion, emphasizing the lack of evidence to support the Revenue's claims.In conclusion, the High Court upheld the decisions of the lower authorities, finding no reason to interfere with the assessments. The appeals were rejected, and no substantial questions of law were found to arise from the facts presented in the case.