TaxTMI 
TaxTMI 
2021 (8) TMI 422
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....peals are disposed of by this common order. 2. For assessment year 2005 - 06 , history shows that the coordinate bench disposed off vide order dated 27/9/2013 ITA number 5257/del/2010 filed by the assessee and ITA number 5528/del/2010 filed by the revenue against the order of the Commissioner Of Income Tax (Appeals) LTU , New Delhi dated 30 September 2010 wherein the assessee challenged the order of the learned assessing officer passed u/s 143 (3) of The Income Tax Act [ The Act] dated 31 December 2007. The coordinate bench vide its order has set aside the issue with respect to the assessee‟s claim of depreciation on the leased out power plant and claim of power purchase charges back to the file of the learned assessing officer. 3. Therefore the learned assessing officer passed an order on 17th of February 2014 titled as order giving effect to ITATs order u/s 254 (1) of the income tax act 1961. Thus the issue before the learned assessing officer was with respect to the allowability of power charges and depreciation on power plant for which the issue was set aside to the file of the AO with a direction to make the de novo assessment after considering the additional evide....
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.... is not installed before 31st of March 2005, assessee could not have purchased power from M/s Keshav Power Ltd and therefore power charges paid by the assessee to that company were also disallowed. The main reason for holding that assessee has not installed power plant before 31st of March 2005 is that the assessee has submitted the evidence of installation of the power plant in the form of letter of the chief electrical inspector wherein inspection was conducted on 26th of March 2005 and such letter was dated 30th of March 2005 and therefore the AO was of the view that in terms of this letter the assessee company could not have complied with the same by 31st of March 2005 itself and hence depreciation cannot be allowed. 10. He further held that the lease deed represented an agreement between two related parties i.e. assessee as well as Keshav power private limited, hence, presumably it is not at arm‟s-length and further the lease agreement was signed on 24th of March 2005 making it effective from 15th of March 2005. 11. Therefore the learned assessing officer was of the view that the entire decision of leasing out of the power plant was to make a claim of depreciation ....
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....he power plant. Thus the original order passed by the learned assessing officer was also repeated in the second assessment order passed by the learned assessing officer. 15. The assessee aggrieved with the same preferred an appeal before the learned CIT - A. This time the learned CIT - A allowed the claim of the assessee granting the depreciation on the power plant stating that assessee being a lessor of the power plant, has satisfied all the conditions of being the owner of the asset and having put to use the assets by assessee in the leasing business during the financial year 2004 - 05. Thus, he allowed the claim of depreciation on power plant on the ground that assessee is a lessor, carrying on the business of leasing, the asset is owned by the lesser and it has put to use the assets of the power plant in the leasing business during the financial year 2004 - 05. On the allowability of the power charges of Rs. 35 lakhs paid to Keshav Power Limited, he held that the power plant could not have been put to any operation from 15th of March 2005 to 29th of March 2005 and therefore the power charges paid for the period from 15th of March 2005 to 29th of March 2005 paid by the assess....
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....allowance of power charges paid to M/s KPL." 19. The learned authorised representative firstly explained history of the case and thereafter referred to the order of the learned CIT (A). He took us to paragraph number 6.2 of Appellate order and submitted that lease transactions cannot be held to be sham as the learned assessing officer accepted the same nature of the transaction in the subsequent year. He submitted that the lease deed was only for 15 days during the year which was disputed by the learned assessing officer holding it to be a sham and tax avoidance instrument whereas same lease agreement has been accepted by the learned assessing officer in subsequent years. He further submitted that in this assessment year the learned assessing officer has disallowed the depreciation i.e. assessment year 2005 - 06 whereas in subsequent assessment year on the leased assets i.e. power plant, assessing officer has granted depreciation according to the income tax act. He therefore submitted that the action of the learned assessing officer treating the lease agreement is sham is devoid of any merit. 20. He further referred paragraph number 6.3 of Appellate order wherein the learned ....
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....d entered into by the assessee on 24th of March 2005 was made effective from 15th of March 2005 and therefore it cannot be an afterthought. He also referred to the consent of the shareholder to lease out the assets of the company. He further submitted that there is nothing wrong which prevented the assessee in entering a lease agreement subsequently by making it effective retrospectively just by a week‟s time because when lease deed was entered in to the understanding of the parties were already there. 22. He further referred to the provisions of Section 32 Of The Income Tax Act and submitted that assessee is in the leasing business as already stated and the asset was leased out to another party and therefore on these lees doubt assets which is used for the purpose of the leasing business of the assessee is entitled to claim depreciation thereon. He further referred to the decisions of the honourable Supreme Court wherein assets leased out in the leasing business of the assessee are entitled to depreciation. 23. With respect to the use of coal and water for the purposes of production of the power by the lessee he submitted that assessee is a manufacturer of cement with ....
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....peration. v. Merely because lease income shown by the assessee and offered for taxation, it does not entitle the assessee to claim depreciation on the power plant. vi. The whole transaction is a perfect case to apply the ratio laid down by the decision of the Supreme Court in McDowell & Co Ltd versus commercial tax Officer 154 ITR 148. She further relied upon the several judicial precedents mentioned by the learned assessing officer. vii. With respect to the claim of payment of power charges by assessee of Rs. 35 lakhs she referred to the power purchase agreement and submitted that in the financial year ended on 31st of March 2005, that company when did not produce a single unit of power, there are no goods to be supplied by that company to the assessee, therefore any payment made by the assessee to that company cannot be said to be payment for purchase of power. viii. She further submitted that there is no justification for payment of Rs. 35 lakhs by the assessee to that lessee which is also not supported by any clause of the agreement. She submitted that power purchases price was to be paid for minimum commitment, however, when there is no prod....
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....t assessment years. He submitted that the lease agreement has been accepted by the revenue in the subsequent years and the same lease agreement is held to be sham in this assessment year. v. Referred to the power purchase agreement entered into by the assessee, power purchase agreement and the lease agreement are required to be looked into together. vi. Assessee has offered the lease rent of the plant to taxation which has been taxed by the revenue. For this proposition he referred to the profit and loss account of the assessee company wherein in other income the lease rent is shown as income. 28. During the course of hearing the bench raised a query about the annual accounts of Keshav power Ltd for the year ended on 31st of March 2005 and also how the power was produced by That Company. The bench also asked about the use of coal and water and its consumption which is specifically doubted by the LD AO. The coordinate bench also referred to the balance sheet of Keshav power Ltd for the year ended on 31st of March 2006 wherein were held disclosing the details of the previous year, the power income was shown at Rs. 35 lakhs however the units of power generated was....
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....he assessee, payments on account of power generated by Keshav Power Ltd are supplied to the assessee for use in the manufacturing of the cement and assessee is entitled to depreciation on the power plant being the "owner‟ thereof and used it into the leasing business. xi. Relied on several judicial precedents to support his argument. Therefore he submitted that the assessee is entitled to the depreciation and also the claim of the power purchase price of Rs. 35 lakhs in full. 30. We have carefully considered the rival contention and perused the orders of the lower authorities. 31. As per ground number 1 of the appeal of the learned assessing officer the grievances that the learned assessing officer has disallowed depreciation of Rs. 139,738,163/- on the power plant in respect of newly installed building, plant and machinery comprising of a captive thermal power plant which was not put to use in the financial year 2004 - 05 according to the assessee and therefore no depreciation is allowable to the assessee for this year i.e. assessment year 2005 - 06. The basically the fact shows that assessee has constructed a power plant in the financial year 2004 - ....
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....2005 to 31st of March 2005 was determined at Rs. 918,750 which is for 15 days. The details of the power plant are also provided in schedule 1 which shows in nomenclatures of machinery and equipment, quantity and the details of the manufacturer/supplier. Scheduled 2 shows the details of lease rent as well as tenure and the commencement date. The commencement date is stated to be 15th day of March 2005. Further power purchase agreement also entered into between these parties on 24th day of March 2005 where the effective date is 15th day of March 2005 wherein the power purchase price was to be paid at the rate of Rs. 1.75 per KWHP based on the Load factor. Further the minimum commitment to be paid by the assessee to lessee was from 15th of March 2005 to 31st of March 2006 minimum off take commitment of 4 million units per month and thereafter it was 152 million units for fully. Based on this, the amount payable for 15th of March 2005 till 31st of March 2005, by the assessee is Rs. 35 lakhs. This sum is paid by the assessee to the lessee, the lessee has offered this for taxation. Similarly the lease rent of Rs. 918,715 was paid by the lessee to the assessee and same has been offered....
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....d to the assessee. Further with respect to the claim of the assessee that the main object of the assessee is the business of leasing, assessee has leased out its power plant which is backed by the proper resolution of the Board of Directors and also of the shareholders of the company, assessee is a public listed company, therefore there cannot be any afterthought in executed in the lease agreement as well as the power purchase agreement and therefore even in the leasing business when the assets are leased out the assessee is entitled to depreciation thereon. The learned assessing officer brushed aside the passing of the resolution et cetera holding that they are merely statutory formalities. Thus, the depreciation was disallowed by the learned assessing officer on both the counts that the power plant has not commissioned on or before 31st of March 2005 and the claim of the leasing business by the assessee is merely a statutory formality. Further the payment of power purchase price by the assessee to Keshav Power Ltd was also disallowed by the AO amounting to Rs. 35 lakhs Under the pretext that when the power has not been proved produced by Keshav Power Ltd, it could not have been s....
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....ment with M/s KPL as 'sham' and 'after thought'. In order to ascertain the correct facts relating to existence and operation of the captive power plant, which is the subject matter of dispute, commission under Section 131 was issued to CIT, Trichy. The CIT, Trichy got the enquiries conducted by the Income Tax Inspector and forwarded the report in the matter vide letter dated 20.3.2014. The enquiry got conducted by the CIT, Trichy shows that the 27 MW power plants were in operation since FY 2004-05. Further, other evidences in the form of Boiler Test Report and Certificate dated 2nd March 2005 and the letter from the Tamil Nadu Pollution Control Board regarding consent for establishment and consent for operation of new power plant at the time of installation of 27 MW plant were also acknowledged. Further, it was also found out that the KPL maintains electricity generation records, which were found to be in order. Furthermore, it was also ascertained that KPL is raising bills towards cost of electrical energy supplied to DCBL every month and is maintaining separate set of books of accounts, which were found to be regularly audited. Further, KPL has a....
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....nt year, i.e. A.Y.2006-07, the AO had himself allowed depreciation allowance on the power plant. By very nature, the additional evidences are the ones, which are in the public domain as required under the Companies act, 1956. The Ld. AO, while passing the impugned order, has referred to the said evidences in Para 15, 16,17,18,19,20 & 21 of the impugned order. The Ld. AO has held that the Minutes of the Meeting of the Board of Directors dated 28.12.2004 do not prove the allegation as to why the appellant company made the lease deed dated 24.03.2005 effective from 15.03.2005 and as to why the same may not be treated as an 'after thought'. It was also observed by him that such additional evidences are merely statutory requirements, which indicate the consent of the shareholders to lease out the assets, but do not explain as to why the same was leased out w.e.f. 15.03.2005. Regarding the Board's decision to approve and taking into the power purchases agreement with KPL prepared on 24.03.2005, the AO was of the view that in the absence of competitive rates, such lease to the related person, i.e. KPL cannot be held at arm's length basis. 6.5.2 On careful consider....
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....as 'sham' or 'after thought'. This is supported by the fact that in all the subsequent assessment years, on similar facts, depreciation was granted by the AO and the leasing arrangement has been held as bonafide by the Department. 6.6 As per the Section 32 of the Act, there are two essential contentions for allowing depreciation allowance namely; (i) Ownership of the assets; and (ii) The asset having been 'put to use'. The appellant company evidently is the 'owner' (and the lessor) of the plant and machinery and the equipments comprised in the said power plant. It‟s Memorandum of Association and objects clause allows it to enter into the leasing business. The factum of lease of the power plant has been established by the AO in the subsequent assessment years by allowing depreciation allowance on lease of such assets. In the business of an operating lease, the starting point of the business is entering into a contract by the lessor with the lessee, in terms of which it is to make available, in an unconditional and unrestricted manner, access to the said assets to the lessee, upon the lessee making due payments....
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....ch cement production. With a view to keep the cement plant in readiness for operation, the appellant is required to maintain huge stock of coal and water, apart from the main ingredients. Therefore, there is no requirement for the appellant to produce evidence of specific purchase of coal only for the purpose of making supply of coal to the power plant on 30.03.2005. 6.6.3 Keeping in view the above facts, I find that the appellant being a lessor of the power plant has satisfied all the conditions, namely; (i) being the owner of the assets and (ii) having put to use the assets in the leasing business during the F.Y.2004-05. In view of this, I hold that its claim of depreciation allowance was bonafide and allowable as per law. The Ground No.l is accordingly, allowed in favour of the appellant." 33. Thus on the basis of the above finding of the learned CIT - A, the claim of the depreciation of the assessee was allowed. Looking at the report of the inspector who has granted the permission to for commissioning of the power plant, he referred to the conditions of the supplier to be fulfilled, there was no condition which was required to be fulfilled of the inspector. Further ....
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.... gave a finding that plant and machinery commence the operations for the year ended on 31st of March 2005. Now two dispute by the revenue of the report of not of the CIT - A , but of the CIT Trichy, that too without any evidence contrary to that, cannot be accepted. Even against the assessee there is no evidence that plant and machinery i.e. power plant was not commissioned on or before 31st of March 2005 at least was not ready to be used on or before 31st of March 2005. The report of the Inspector did not say that power plant was not ready to be commissioned on or before 31st of March 2005 in fact it certifies that on 30th of March 2005 the power plant is ready to be commissioned. Further, so far as the claim of depreciation is concerned in the hence of the assessee even if the plant is ready to be used on or before 31st of March 2005, assessee is entitled to depreciation on that in assessment year 2005 - 06. Further the assessee has shown that assessee has the business of leasing as one of the main objects of the business, assessee has carried out the leasing business by leasing the plant and machinery i.e. power plant to Keshav Power Ltd. It is not that as on the date of leasing....
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....may be relevant in determining the allowability of the power purchase price paid by the assessee to Keshav Power Ltd, but does not have any impact on the allowability of depreciation to the assessee on leased out assets. In view of this, we find no infirmity in the order of the learned CIT - A in deleting the disallowance of depreciation of Rs. 139,738,163/- to the assessee on power plant which is leased out by the assessee in its business of leasing to Keshav Power Ltd during financial year 2004 - 05 relevant to assessment year 2005 - 06. Accordingly ground number 1 of the appeal of the learned assessing officer is dismissed. 34. The second ground of appeal of the assessing officer and ground number 1 - 2 of the appeal of the assessee with respect to allowability of the power charges paid by the assessee to Keshav Power Ltd. As per the facts stated above, the assessee has paid power charges for the period 15th of March 2005 to 31st of March 2005 amount in all to Rs. 35 lakhs for purchase of power. The learned assessing officer disallowed the same holding that the power plant has not commissioned on or before 31st of March 2005, as the water and coal is not supplied by the asses....
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....tely, may not have made efforts to receive this letter immediately and hence, the company may not have started generation of power on or before 31.03.2005. In any case, there are no adverse facts on record to hold that the power plant was not put to use by the appellant company on or after 30.03.2005 in its leasing business. However, prior to this, for the period 15.03.2005 till 29.03.2005, it cannot be held that the said power plant could have been put to operation. Therefore, the power charges for the period 15.03.2005 to 29.03.2005 paid to M/s KPL are held to be unreasonable and excessive, as no power could have been generated out of the said captive power plant prior to 30.03.2005. In view of the above, the AO is directed to allow the power charges on proportionate basis only for 2 days out of the total period of 16 days, for which such charges were paid. The appellant gets part-relief accordingly. Regarding the other grounds of appeal, in view of the above discussion, no specific adjudication is called for thereon." 36. We have carefully considered the rival contentions and orders of the lower authorities. We find that looking to the annual accounts of Keshav Power Ltd the ....
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....ricity Board. Even then assessee does not purchased power from Keshav Power Ltd is clearly evident because the Keshav Power Ltd has not produced any unit of the power. Therefore, we do not agree with the order of the learned CIT - A in allowing even the proportionate amount of power charges to the assessee wherein there is no production of power by the supplier. Merely because Keshav Power Ltd has a power plant from which no power is produced, and assessee willingly pay something to Keshav Power Ltd, such payment made by the assessee does not become allowable in the hence of the assessee. It is immaterial whether such income is offered to taxation by the Keshav Power Ltd. In the result we reverse the order of the learned CIT - A, restores the order of the learned assessing officer disallowing the power purchase price of Rs. 35 lakhs and allow ground number 2 of the appeal of the AO and dismiss ground number 1 - 3 of the appeal of the assessee. 37. Accordingly for assessment year 2005 - 06, ITA number 1044/del/2015 filed by the assessee is dismissed and appeal of the learned assessing officer in ITA number 1036/ Del/ 2015 is partly allowed. Assessment year 2006 - 07 38. ....
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.... 9,30,557F/- on employees‟ recreation activities, festivals, get-togethers, annual day function, excursion trips at various factories. (c) On the facts and circumstances of the case and in law, the CIT(A) has erred in directing the AO to allow payment of Rs. 30,000/- to Dakshina Bharat Hindi Prachar Sabha for conducting Hindi classes. (d) On the facts and circumstances of the case and in law, the CIT(A) has erred in directing the AO to allow payment of Rs. 92,411/- to Dalmia Animals & Ecological Welfare Association for supply of milk and maintenance of gardens. 3. On the facts and circumstances of the case and in law, the CIT(A) has erred in directing the AO to allow depreciation @ 25% instead of 10% by treating the water works and water installation system as part of building. 4. On the facts and circumstances of the case and in law, the CIT(A) has erred in directing the AO to allow deduction u/s. 80IA of Rs. 6,68,55,000/-. 5. On the facts and circumstances of the case and in law, the CIT(A) has erred in directing the AO to allow depreciation on assets comprising the leased power plant." 41. Facts shows that the assessee filed ....
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....nt of power plant leased out to Keshav Power Ltd has also been executed. As in assessment year 2005 - 06 we have held that there is no infirmity in either the power purchase agreement or in the lease agreement. Further in the set-aside proceedings for assessment year 2005 - 06, the learned CIT - A has allowed the depreciation to the assessee as well as the deduction of proportionate power purchase charges, therefore, the above disallowance made by the lower authorities in this year is now not sustainable. Further now it is an established fact that assessee has purchased power from power plant leased out to Keshav Power Ltd at the competitive rate which are neither excessive not unreasonable, therefore there is no reason that why this power purchase expenditure incurred by the assessee should be disallowed. Accordingly we direct the learned assessing officer to delete the disallowance of Rs. 97,849,164/- being power purchased by the assessee from Keshav Power Ltd. Thus ground number 2 of the appeal is allowed. 45. Ground number 3 is general in nature and same is dismissed. 46. Accordingly appeal filed by the assessee in ITA number 5258/del/2010 for assessment year 2006 - 07 is....
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.... In the result ground number 2 of the appeal of the learned AO is dismissed. 52. Ground number 3 is with respect to the disallowance of depreciation on water works and water installation system is the learned assessing officer held them as part of building and allowed depreciation at the rate of 10% whereas the assessee claimed that this is part of plant and machinery and therefore depreciation should be allowed at the rate of 25%. The learned CIT - A also allowed the depreciation to the water works and water distribution installation at the rate of 25% as the issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee‟s own case for assessment year 1986 - 1987. Therefore we do not find any infirmity in the order of the learned CIT - A. Accordingly ground number 3 of the appeal of the learned assessing officer is dismissed. 53. Ground number 4 is with respect to the direction of the learned CIT - A to allow the deduction u/s 80 IA of the income tax act of Rs. 66,855,000. This issue has this been decided in favour of the assessee by the coordinate bench in assessee‟s own case for assessment year 2003 - 2000 for and 2004 -....
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....lowable as expenditure for the purpose of calculation of disallowance under section 14A of the Income- tax Act, 1961, the amount of salaries relatable to all the employees of the Finance Department ought not to be included inasmuch as the company had clearly intimated salary paid to specific employees placed in the said Department who were exclusively handling the work relating to investments of funds in shares and securities. 4. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has grossly erred in confirming the disallowance of Rs. 51,23,311/- u/s 14A for the purpose of computation of book profit u/s 115JB of the Act. 5. That any relief due to the company in consequence of the foregoing grounds and any other relief, to which it is entitled under the law, may be directed to be granted to it. 6. That the above grounds of appeal are without prejudice to one another." 59. The revenue has raised the following grounds of appeal in ITA No. 4166/Del/2014 for Assessment Year 2007-08:- "1. On the facts and circumstances of the case and in taw Ld. CIT(A) has erred in deleting the addition of Rs. 94,47,701/- made by AO on....
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....he learned departmental representative both agreed that that ground number 1 - 4 of the appeal of the learned assessing officer are covered by the decision of the coordinate bench in assessee‟s own case. On other issues they represented the counter arguments. 62. We first deal with the appeal of the learned assessing officer. Ground number 1 is with respect to the disallowance of Rs. 9,447,701/- of remuneration paid to various field sales organizers. This issue is identical to ground number 1 of the appeal of the learned assessing officer for assessment year 2006 - 07 wherein we have confirmed the order of the learned CIT - A deleting the above disallowances wherein the learned CIT - A relied upon the order of the coordinate bench in assessee‟s own case for earlier years and the learned departmental representative could not point out any major difference in the facts and circumstances of the case. Therefore for the similar reasons we dismiss ground number 1 of the appeal of the learned AO. 63. Ground number 2 and 3 are with respect to the deletion of the disallowance by the learned CIT - A with respect to the temple maintenance and Pooja expenses as well as amo....
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....has also shown that in earlier years the consumption of power purchased from Keshav Power Ltd has resulted into substantial benefit to the assessee. It is also demonstrated that the rates paid to Keshav Power Ltd are comparable and beneficial to the assessee. The issue has been decided in the favour of the assessee for assessment year 2006 - 07 and the learned departmental representative fairly agreed that there is no change in the facts and circumstances of the case. This ground of appeal is identical to ground number two of the appeal of the assessee wherein we have held that the power charges paid by the assessee to Keshav Power Ltd are allowable as deduction to the assessee. In view of this we do not find any reason to deviate from our decision for assessment year 2006 - 07. Accordingly ground number five of the appeal of the learned assessing officer is dismissed. 66. Ground number 6 of the appeal is with respect to the disallowance made by the learned assessing officer u/s 14 A of the income tax act of Rs. 95,600,000 which has been reduced by the learned assessing officer to the extent of Rs. 5,123,311 and therefore the learned assessing officer is aggrieved. The briefly s....
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....onourable Delhi High Court in case of CIT versus Taikisha engineering India Ltd [ supra]. 68. The learned departmental representative vehemently supported the order of the learned assessing officer and CIT - A to that extent that the said assessee has not submitted any working of the Suo Moto disallowance of Rs. 5 lakhs and therefore the disallowance has been made after recording the correct satisfaction. 69. We find that the learned assessing officer at the time of making a disallowance has just stated that the assessee has earned dividend income and long-term capital gain which is exempt and therefore the provisions of Section 14 A read with rule 8D applies and straight away proceeded to make disallowance. At the time of making the final edition, he merely reduced the total addition by Suo Motu disallowance made by the assessee. Therefore it is apparent that the learned assessing officer has not recorded any satisfaction with respect to the correctness of the claim of the assessee of incurring expenditure of Rs. 5 lakhs for earning of exempt income. Such is the mandate of honourable Delhi High Court in case of CIT V Taikisha engineering Co Ltd (supra). In view of this we....
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.... the disallowance regarding the exempted income needs to be made as per clause (f) to explanation 1 of Section 115JB of the act independently. Therefore it is imperative that though the provisions of rule 8D of the IT rules cannot be applied to the provisions of Section 115 JB of the income tax act however disallowance need to be made and to be confirmed with respect to the expenses debited in the profit and loss account with respect to the exempt income earned by the assessee for working out the book profit taxation u/s 115JB of the act. We do not find that there is any mechanism available either in the income tax act or under the income tax rules for working out such disallowance; however that does not deter us as it is merely a fact-finding process on examination of the books of accounts of the assessee. In fact the investment made are out of the own fund and cash surplus generated year-on-year basis. The fact also shows that the accumulated interest free surplus available with the assessee in the form of share capital and free reserve exceeds the investment made in shares and securities and therefore there cannot be any disallowance on account of interest expenditure. Theref....