TaxTMI 
TaxTMI 
2019 (5) TMI 2044
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.... Tax Act. 2) On the facts and in the circumstances of the case and in law, the Ld CIT (A) is not justified in deleting the disallowance of deduction u/s 80IA of the Income Tax Act, without considering the fact that every assessment year is different. 3) on the facts and in the circumstances of the case and in law, the Ld CIT(A) is not justified in deleting the disallowance of managerial support service charges of Rs.5,00,73,084/- without considering the fact that assessee was unable to prove benefit arising of the services obtained from the related party. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. The issues raised in ground no. 1 and 2 by the revenue are inter-connected and are against the order of CIT(A) deleting the disallowance of deduction u/s 80IA of the Act of Rs. 42,29,03,244/- by ignoring the fact that provisions of 80IA (10) were clearly attracted and also basing his decision on the fact that similar deduction has been allowed in the preceding three assessment years by ignoring that each year is different year. 4. The facts in brief are that the assessee is engaged in the busines....
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....year, nature of services rendered by Essar Investment with documents, evidence and proof of TDS deducted. h) Name of all Sale parties in Non-80-IA & 80-IA Undertaking and number of units of power generated & sold to group concerns with price justification. i) Facility User Agreement. j) Agreement entered into by the assessee with GujUBNL for power supply. k) Statutory Certificates." Thereafter also the assessee replied the queries raised by the AO in the assessment proceedings from time to time. The AO observed on the basis of the written submissions and replies of the assessee dated 24.08.2012, 29.10.2012, 5.11.2012, 20.12.2012, 11.01.2013, 20.1.2013 & 24.1.2013 and arguments made during the assessment proceedings that the total power produced by all the units of assessee together works out to 2,310 MU only, but the amounts received against corresponding units of power supply were far more than amounts receivable on actual supply of power. Accordingly to the AO, the deduction u/s.80-IA the claim of the assessee u/s 80IA could not be allowed for the following three reasons :- (i) The receipts which are attributable to fixed cost charg....
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....st consisting of the components specified in regulation 14) and energy charge (for recovery of primary fuel cost and limestone cost where applicable). Broadly, on the basis of the above Notification the appellant-company has been recovering fixed cost from its customers which has been booked as revenue. I have also perused the PPA compiled in the paper book by the appellant. On perusal, it transpires that the appellant-company, based on the capacity allocated for each customer, charges - annual fixed charges such as maintenance cost, interest on debt, depreciation etc. The appellant-company recovered fixed charges as well as variable charges depending upon the terms of the PPA from its respective customers. The claim of the appellant, while filing its return of income, was that the income booked in respect of the above recovery charges should be considered as eligible for deduction u/s 801A of the Act. This claim of the appellant was denied by the Assessing Officer on the ground that such income cannot be considered to have been derived by the undertaking from generation of electricity. The question now arises is whether the said recovery charges would be eligible for deduction u/s....
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....agnum Power Generation Ltd. vs. DCIT 16 taxmann.com 75 (Del.). The Hon'ble Tribunal has decided the case in favour of the assessee by observing as under :- "9. We have carefully gone through the aforesaid Tribunal's order dated 'November 27, 2009, and find that the identical issue has been decided by the Tribunal in the assessee's favour in the assessment year 2005-06 by observing and holding as under: "3. We have considered the facts of the case and submissions made before us. Sub-section (1) of section 80-IA grants deduction from the total income of an assessee in respect of any profits and gains derived by an industrial undertaking from the eligible business, mentioned in sub-section (4). Sub- clause (a) of clause (iv) of subsection (4) is in respect of an undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on April 1, 1993 and ending on March 31, 2001. From the assessment order, it is seen that the submissions of the assessee was that the assessee-company commenced operations for power generation in the year 1998. Thus,....
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....ncome by way of sale of power and the income by way of deemed generation of power have proximate nexus with the business of the industrial undertaking. Both components of income are included in the gross total income of the assessee. It can also be said that the agreement in respect of both types of revenues received or receivable by the assessee are on account of poiver supplied to HPGCL, representing a method to determine the sale proceeds, which has a proximate connection with the business of the assessee." (emphasis supplied) It has also been held by the Hon'ble Tribunal that income from deemed generation was allowable u/s.80-IA of the Act. In other words, PPAs have been entered because the appellant has set up an undertaking for generation of power and wanted to ensure committed offtake of electricity. Further the proceeds are directly emanating from the PPAs. The fact that the customers are not in a position to purchase or do not purchase because of commercial reasons cannot make the appellant ineligible for deduction. Because the customers of the appellant company were not in a position to purchase electricity they used to compensate the appellant for f....
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....acts and circumstances the Assessing Officer had allowed deduction U/S.80-IA for earlier three assessment years i.e. A.Ys. 2007-08. 2008-09 and 2009-10. The very issue has been considered and decided consistently in a number of assessment years in a particular manner and the same in subsequent years. Since in the facts of the case the Assessing Officer has not made any adjustments/ deduction u/s.80-IA for A.Ys. 2007-08, 2008- 09 and 2009-10 nor has he undertaken any proceedings u/s.148 or 263, then, following the decision of the Delhi High Court in the case of CIT vs. Allied Finance Fvt Ltd. 289 ITR 318, 1 would hold that on this ground as well any adjustment made u/s,80-IA is not permissible and hence should be deleted. Further, the Assessing Officer has also alleged that the income generated by the appellant-company is not operating income and the entire transaction structured is a colourable and resulting into abusive tax planning. In this regard, A.O. placed reliance on the decision of the Hon'ble Apex Court in the case of McDowell & Co., 154 ITR 148 as well as several other decisions. I have also perused the submissions made by the appellant to justify th....
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....appellant does not arise. Further, the accounts of the undertaking are audited and no adverse comments by the auditor have been made. Accordingly, I hold that this cannot be the reason to reach to a conclusion that the more than ordinary profits have been reflected in an eligible undertaking of the group u/s 80 IA (10). Now we can come to another reasoning that the profits for Phase II and III are less as compared to Phase I of the appellant company. In this respect the appellant has given detailed reasoning and explained the differences by exhaustive reply vide letter dated 20th December 2012, The reply of the appellant has been ignored by the Assessing Officer. On verification of the said reply as well as the detailed explanations given thereunder it is noted that difference was mainly on account of fuel cost which is variable in nature. Phase II and III were recovering variable charges fuel charges which are included both as cost as well as revenues. On the other hand Phase I generated electricity the fuel cost of which was borne by its customers. Accordingly, to make it comparable, the appellant has rightly submitted before the AO that both the fuel cost as well as revenues att....
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....power of 448 M.U. by phase 1 against the payment of Rs. 63,54,37,865/- and cost of fuel was also fully borne by M/s. Essar Steel Ltd. as the said amount was claimed to be paid as fixed cost to the assessee company under PPA. The ld Dr also referred to the table on page no. 9 of the assessment order to reinforce his arguments that the assessee supplied power to only one company M/S Essar Steel Ltd of 448 M.U. against the payment of Rs. 63,54,37,865 which was recovered as fixed cost and shown as sales whereas the balance receipts from 6 companies were Rs.26,10,72,305 recovered as fixed cost and shown as sales without supplying any electricity. The ld DR stated that the AO has rightly rejected the claim of the assessee by invoking the provisions of section 80IA(10) of the Act. The ld DR also referred to the fact that 6 customers from whom the payments of Rs.26,10,72, 035 were received have no approval from Chief Electrical Officer to obtain the electricity from the assessee as is apparent from the letter issued by the Chief Electrical Officer, Gandhinagar addressed to the assessee dated 1.4.2011. In other words the assessee was not having any permission to supply electricity to these ....
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....es as the company M/S Essar Steel Ltd was having huge losses. The ld counsel also stated that the assessee company has been paying tax under MAT every year. The ld counsel, justifying the claim of deduction and the order of CIT(A), contended that books of account of the assessee were duly audited and certified with no adverse comments of the auditors. On the issue of abnormal profits in the phase 1 qua which the deduction u/s 80IA was claimed, ld counsel submitted that the main reason for higher net profits was the fact that under PPA M/s. Essar Steel Ltd. had borne the fuel cost. Thus the plea of the AO that the entire fuel cost incurred for phase 1 of Rs. 99.48 Cr was debited against phase 11 was wrong and fallacious. The ld CIT(A) has duly negated the controversy by recording a finding of facts in this regards. 10. The ld AR also vehemently argued that the same claim of the assessee u/s 80IA was allowed by the revenue in earlier three years and that too in the assessment framed u/s 143(3) of the Act in all these years. The ld Counsel further pointed out that in these years it was only Essar Steel Ltd to whom the power was sold under PPA on fixed unit contract basis. The ld AR....
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....rt in the case of CIT Vs Vegetable Products Ltd 88 ITR 192 (SC), Manish Maheswari Vs ACIT 289 ITR 341(SC) and Pradip J. Mehta Vs CIT 300 ITR 231 (SC). 12. The ld AR while relying heavily on the order of CIT(A) stated that ld CIT(A) passed a very reasoned and speaking order following the decisions of the Hon'ble Apex Court, various Hon'ble High Courts and coordinate benches and therefore the order of CIT(A) may be confirmed on this issue by dismissing the ground raised by the Revenue. 13. We have heard the rival contentions of both the parties and perused carefully the records as placed before us including the impugned decision of the CIT(A) and case laws relied by both the parties. This is undisputed that the assessee's only business activity is electricity generation which commenced in the financial year 2006-07 relevant to the assessment year 2007-08. It is also not disputed that the deduction u/s 80IA of the Act has been allowed in the earlier three years in assessments framed u/s 143(3) of the Act and no action u/s 148 or 263 of the Act is pending against the assessee in respect of these years which has also been admitted by the ld DR when a query was put duri....
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....bserve that the these are distinguishable on facts and rendered on different context and are not applicable in the present case. The Revenue has failed to controvert the findings of the ld CIT(A) and also the arguments of the ld AR and thus we do not find any reason to interfere in the order of CIT(A) on this issue. Accordingly the ground no. 1 and 2 raised by the Revenue are dismissed. 17. The issue raised in the 3rd ground of appeal is against the deletion of Rs. 5,00,73,084/- by ld CIT(A) as made by the AO towards managerial support services without appreciating that the assessee could not prove the benefit arising from the services received from related party. 18. The facts in brief are that assessee has paid Rs. 5,00,73,084/- on account of managerial support services to Essar Investments Ltd. for the services rendered by the said related company. The payment was made pursuant to an agreement entered into by the assessee with Essar Investments Ltd. The Essar Investments have employed professional in various fields to render their services to various group companies including the assessee. The services provided included finance, direct and indirect taxation, insurance and ....
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...., besides transferring existing personnel in various group companies having requisite skills to provide the necessary guidance to businesses on the what's, when's and how's of various activities, for better compliance of regulations and laws and for improving the quality of output service of the group companies, in a timely and cost effective manner. EIL therefore, provided a basket of services to group companies including BPOL, to take advantage of and to avail as and when requited, on an on-going basis. The costs for rendering these services were allocated to group companies who were the beneficiaries of such services. In particular, in the case of BPOL, the following are some of the technical, managerial and administrative services availed for smooth operations and functioning - ● Advising in the areas of finance and treasury functions ● Advising on finance controller matters, accounting standards and audits etc ● Advising legal matters, litigations (both in India and abroad), arbitrations, disputes. ● Advising in identifying leading edge technologies, international bench marking norms and project m....
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....e said receipt of Rs.5,00,73,084 has been assessed. The Assessing Officer is totally unjustified in rejecting the claim of the appellant-company on an assumption that this was an arrangement in the nature of colourable tax planning. The appellant-company relies on the Hon'ble Delhi High Court judgement in the case of Pavankumar Jain vs. CIT, 334 ITR 23 and the Headnote of this case is reproduced below for ready reference :- "The assessee, engaged in the business of manufacture of stainless steel utensils, filed a return for the assessment year 2006-07. The Assessing Officer in the assessment proceedings noticed that the assessee had paid commission to L purportedly, in consideration for standing guarantee for purchases from certain firms/companies. The Assessing Officer was of the view that this transaction was not genuine. The Commissioner (Appeals) as well as the Tribunal confirmed the findings of the Assessing Officer. On appeal : Held, that the assessee had contended that L had filed a return for the assessment year 2006-07 declaring income of Rs. 1,48,50,705 and had paid tax. The Revenue had not suffered any loss, inasmuch as, the taxes were paid by which received....
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....urmises and suspicion and therefore this uncalled for addition may kindly be deleted." 20. The ld CIT(A) after taking into account the various contentions and submissions of the assessee allowed the issue in favour of the assessee by holding and observing as under: "11.3 I have given a careful consideration to all the relevant facts, the case made out by the Assessing Officer in the assessment order and also the written submissions made on behalf of the appellant-company. After duly considering the factual and legal position discussed above, I am of the view that the Assessing Officer has simply disallowed the sums paid to Essar Investment Limited on the ground that no documentation was filed or produced before him and that the said sums were paid to a related party. Copy of the agreement has been placed before me. The detailed scope of services rendered by Essar Investments has been explained at length. It is a settled position that the Assessing Officer cannot challenge why the appellant had not developed in house expertise for rendering such services. Having shared services is very common as the same team can render expert services to the entire group as a whole. The....
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....s group companies along with the details of payments and submitted that in all the cases the payments were accepted by the revenue even in the assessment framed u/s 143(3) of the Act except the assessee. The ld AR submitted that the assessee has not employed any staff in the field of finance, human resources, assurance and cost control, corporate relation, investments and therefore it clear that for all these services, the assessee was depending on the services provided by Essar Investments. The ld AR submitted that it is the assessee who is to decide as to what expenses were necessary for the business of the assessee and the revenue can not dictate to the assessee. The ld AR submitted that all these expenses were incurred out of business consideration and therefore were rightly allowed by the ld CIT(A). The ld A.R. relied on a series of decisions in defence of his arguments: a) CIT Vs Yum Restaurants India Pvt Ltd. 371 ITR 139 (Delhi) b) CIT Vs Discovery Communication India 370 ITR 57 (Delhi) c) S.A Builders Vs CIT 288 ITR 1 (SC) The ld AR submitted that the ld CIT(A) has considered all the above aspects while passing the order and therefore the....