Leased power plant depreciation, section 14A satisfaction, and MAT adjustments under section 115JB were applied on different tests.

Depreciation on a leased captive power plant was treated as allowable where the plant was constructed, covered by a registered lease, supported by board and shareholder approvals, and ready for commissioning in the relevant year; the later acceptance of depreciation in subsequent years also supported the arrangement. Power charges paid to the lessee were not allowed in full because no power was actually generated and no contractual basis justified payment in that situation. A higher disallowance under section 14A in normal computation was reduced because the recorded satisfaction requirement was not met. For book profit under section 115JB, rule 8D could not be imported, but the assessee's own limited disallowance was sustained.

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Issues: (i) whether depreciation was allowable on the leased captive power plant in the year under consideration, (ii) whether the power charges paid to the lessee were allowable in full, (iii) whether the disallowance under section 14A in the normal computation was sustainable, and (iv) whether a corresponding disallowance could be made while computing book profit under section 115JB.

Issue (i): whether depreciation was allowable on the leased captive power plant in the year under consideration.

Analysis: The asset had been constructed, leased out under a registered lease arrangement, and supported by board and shareholder approvals. The regulatory approvals showed that the plant and machinery were ready for commissioning before the close of the year. In a leasing business, the lessor can satisfy the ownership and user requirements where the asset is put to use in the leasing activity and is made available to the lessee. The later departmental acceptance of depreciation in subsequent years also supported the bona fides of the arrangement. The allegation that the transaction was a sham did not survive on the facts as found.

Conclusion: Depreciation on the leased power plant was allowable and the disallowance was deleted in favour of the assessee.

Issue (ii): whether the power charges paid to the lessee were allowable in full.

Analysis: The agreement contemplated minimum power purchase commitments, but the contemporaneous record showed that the lessee had not generated power during the relevant period. The payment was treated as a contractual minimum charge, yet no clause was shown to justify deduction where no power was produced. The mere fact that the recipient offered the amount to tax did not make the expenditure allowable in the hands of the payer.

Conclusion: The full claim for power charges was disallowed and the expenditure was not allowable in favour of the assessee.

Issue (iii): whether the disallowance under section 14A in the normal computation was sustainable.

Analysis: The Assessing Officer applied the disallowance without recording satisfaction as to why the assessee's own disallowance was incorrect. The requirement of recorded satisfaction before making a further disallowance was not met. On that footing, the higher disallowance could not be sustained.

Conclusion: The section 14A disallowance in the normal computation was restricted and the assessee succeeded substantially on this issue.

Issue (iv): whether a corresponding disallowance could be made while computing book profit under section 115JB.

Analysis: The disallowance mechanism under rule 8D could not be imported into section 115JB, but expenditure relatable to exempt income still had to be considered under the relevant adjustment provision. Since the assessee itself had accepted a limited administrative disallowance, that amount was taken into account for book profit computation.

Conclusion: The book profit adjustment was sustained only to the extent of the assessee's own disallowance, and the rest was deleted.

Final Conclusion: The common order granted the assessee relief on depreciation and the section 14A issue in the normal computation, while sustaining the disallowance of power charges and a limited adjustment under section 115JB; the connected appeals were disposed of accordingly.

Ratio Decidendi: In a leasing business, depreciation is allowable where the lessor retains ownership and the asset is ready for use in the leasing activity, whereas a claim for expenditure on power purchases cannot be allowed in the absence of actual generation or a contractual basis for payment; further, section 14A disallowance in normal computation requires recorded dissatisfaction, and MAT adjustments must be made independently of rule 8D.

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