KARMA ENERGY LTD, (SINCE AMALGAMATED WITH WEIZMANN LTD), MUMBAI V. ASST CIT 4(2), MUMBAI

CO 169/MUM/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7711 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 26-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 19-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: J D MISTRY
• Keywords: Bogus purchase; Depreciation; Search and seizure; Additional depreciation; Additional evidence; Cost of acquisition; Accommodation entries; Tax effect; Reassessment proceedings
• Section: 143(3); 133A; 115JB; 194C; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.4330/MUM/2007: ASSESSMENT YEAR: 2002-03 ITA NO.4331/MUM/2007: ASSESSMENT YEAR: 2003-04 ITA NO.7670/MUM/2007: ASSESSMENT YEAR: 2004-05 ITA NO.3684/MUM/2010: ASSESSMENT YEAR: 2005-06 ACIT 4(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 KARMA ENERGY LTD., EMPIRE HOUSE, 214, DR. D.N. ROAD, ENT. A.K.NAYAK MARG, FORT, MUMBAI-01. PA NO.AACCA 6003 E (APPELLANT) VS. (RESPONDENT) ITA NO.226/MUM/2010: ASSESSMENT YEAR: 2006-07 I.T.O. 4(2)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 KARMA ENERGY LTD., EMPIRE HOUSE, 214, DR. D.N. ROAD, ENT. A.K.NAYAK MARG, FORT, MUMBAI-01. PA NO.AACCA 6003 E (APPELLANT) VS. (RESPONDENT) C.O. NO.169/MUM/2011 (ARISING OUT OF I.T.A. NO.4330/MUM/2007) ASSESSMENT YEAR: 2002-03 KARMA ENERGY LTD., EMPIRE HOUSE, 214, DR. D.N. ROAD, ENT. A.K.NAYAK MARG, FORT, MUMBAI-01. PA NO.AACCA 6003 E ACIT 4(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 (APPELLANT) VS. (RESPONDENT) ITA NO.4919/MUM/2008: ASSESSMENT YEAR: 2001-02 ITA NO.5696/MUM/2007: ASSESSMENT YEAR: 2002-03 KARMA ENERGY LTD., M/S. WEIZMANN LTD 2 ACIT 1(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 WEIZMANN LTD., EMPIRE HOUSE, 214, DR. D.N. ROAD, ENT. A.K.NAYAK MARG, FORT, MUMBAI-01. PA NO.AAACW 1260 H (APPELLANT) VS. (RESPONDENT) C.O.NOS. 165 &166/M/2011 (ARISING OUT OF I.T.A. NO.S4919 & 5696/M/2008) ASSESSMENT YEARS: 2001-02 & 2002-03 WEIZMANN LTD., EMPIRE HOUSE, 214, DR. D.N. ROAD, ENT. A.K.NAYAK MARG, FORT, MUMBAI-01. PA NO.AAACW 1260 H VS. ACIT 1(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 ASSESSEE BY : SHRI J.D.MISTRY REVENUE BY: SHRI GOLI SRINIVAS RAO DATE OF HEARING: 26.7.2012 DATE OF PRONOUNCEMENT: 7.9.2012 ORDER PER BENCH: THESE TWO SETS OF APPEALS HAVE BEEN FILED BY THE DEPARTMENT FOR ASSESSMENT YEARS 2002-03 TO 2006-07 AGAINST ORDERS OF LD CIT( A) DATED 26.3.2007, 12.3.2007, 15.10.2007, 8.2.2010 AND 29.10.009, RESPECTIVELY IN THE CASE OF M/S. KARMA ENERGY LTD., AND ORDERS DATED 15.5.2008 AND 6.6.2008 FOR ASSESS MENT YEARS 2001-02 TO 2002-03, RESPECTIVELY IN THE CASE OF AND WEIZMANN LTD. THE ASSESSEE HAS FILED CROSS OBJECTION FOR ASSESSMENT YEAR 2002-03 BEING CROSS OBJECTION NO.16 9/M/2011 IN THE CASE OF KARMA ENERGY LTD. THE ASSESSEE HAS ALSO FILED CROSS OBJE CTIONS IN THE CASE OF M/S. WEIZMANN LTD., FOR ASSESSMENT YEAR 2001-02 BEING C.O. NO.165 /M/2011 AND FOR ASSESSMENT YEAR 2002-03 BEING C.O. NO.166/M/2011. KARMA ENERGY LTD., M/S. WEIZMANN LTD 3 2. IN ALL THE APPEALS FILED BY DEPARTMENT, THE FACT S AND MOST OF THE GROUNDS ARE SAME AND INTER-CONNECTED. THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE AND BREVITY. 3. IT IS RELEVANT TO STATE THAT IN THE CASE OF KARM A ENERGY LTD., APPEAL FOR ASSESSMENT YEAR 2002-03 IS ARISING OUT OF ASSESSMEN T ORDER U/S.143(3)/147 OF THE ACT AND WHEREAS OTHER APPEALS FROM ASSESSMENT YEARS 200 3-04 TO 2006-07 ARE ARISING OUT OF ASSESSMENT ORDERS UNDER SECTION 143(3) OF THE AC T. 3.1 FURTHER, IN THE CASE OF M/S. WEIZMANN LTD., BO TH THE APPEALS I.E. FOR ASSESSMENT YEARS 2001-02 AND 2002-03 ARE ARISING OUT OF ASSESS MENT ORDER PASSED UNDER SECTION 143(3)/147 OF THE ACT. 4. IN RESPECT OF CROSS OBJECTION(S) FOR ASSESSMENT YEAR 2002-03 IN THE CASE OF KARMA ENERGY LTD., AND IN THE CASE, M/S. WEIZMANN L TD., FOR ASSESSMENT YEARS 2001-02 AND 2002-03, ASSESSEES HAVE DISPUTED THE INITIATIO N OF REASSESSMENT PROCEEDINGS BY THE AO. AT THE TIME OF HEARING, LD A.R. SUBMITTED THAT CROSS OBJECTIONS TAKEN BY THE ASSESSEE ARE NOT PRESSED FOR. HENCE, CROSS OBJECTI ONS FILED BY ASSESSEES ARE REJECTED. 5. FIRSTLY, WE DEAL WITH APPEALS FILED BY DEPARTMEN T IN THE CASE OF M/S. KARMA ENERGY LTD. 6. AS MENTIONED HEREINABOVE THAT FACTS IN RESPECT O F ALL THE APPEALS FILED BY DEPARTMENT ARE IDENTICAL AND ARE INTER-CONNECTED, E XCEPT AMOUNT OF DISALLOWANCE MADE KARMA ENERGY LTD., M/S. WEIZMANN LTD 4 BY THE AO. WE CONSIDER IT APPROPRIATE TO DEAL WITH THE FACTS IN DETAIL FOR ASSESSMENT YEAR 2002-03. 7. GROUNDS OF APPEAL TAKEN FOR ASSESSMENT YEAR 2002 -03 ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF CLAIM OF DEPRECIATION BY THE ASSESSEE ON WINDMILLS PURCHASED BY THE ASSESSEE, THE COST OF WHICH WERE INFLATED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD CIT(A) ERRED IN ALLOWING THE DISALLOWANCES MADE ON ACCOUNT OF LEASE RENTALS ON THE BASIS OF INFLATED COST OF WINDMILLS INSTALLATION. 8. IN RESPECT OF GROUND NO.1 OF APPEAL TAKEN, DEPA RTMENT HAS DISPUTED THE ORDER OF LD CIT(A) TO DELETE THE ADDITION MADE ON ACCOUNT OF CLAIM OF DEPRECIATION OF ASSESSEE ON WINDMILLS, RELEVANT FACTS ARE THAT ASSESSEE FILE D THE RETURN OF INCOME DECLARING LOSS OF RS.37,00,63,369 AND BOOK LOSS U/S.115JB OF RS.31,36 ,426. 9. THE ASSESSING OFFICER HAS STATED THAT A SURVEY U NDER SECTION 133A WAS CONDUCTED AT THE PREMISES OF NEG MICON (INDIA) P. L TD, (HEREINAFTER TO BE REFERRED IN SHORT NEGMIPL ) (FORMERLY KNOWN AS ASIAN WIND TUR BINES P LTD.) AT CHENNAI. NEGMIPL IS ENGAGED IN THE BUSINESS OF MANUFACTURE, ERECTION , AND SALE OF WIND MILLS. AO HAS STATED THAT ON SCRUTINY OF THE MATERIALS IMPOUNDED, IT WAS FOUND THAT NEGMIPL SOLD ABOUT 20 WIND MILLS TO WEIZMANN GROUP, OF WHICH, AS SESSEE COMPANY IS A PART. HE HAS STATED THAT ON ANALYSIS OF SALES PRICE OF THE SAME TYPE OF WIND MILLS TO OTHER BUYERS AND THIS GROUP, IT WAS FOUND THAT THERE WAS A DIFFERENC E BETWEEN RS.1 CRORE PER WIND MILL COMPARED TO NORMAL PRICE OF WIND MILL OF 750/48 OR 750-200/48 SOLD TO OTHERS AT PRICES RANGING BETWEEN RS.2.25 CRORES TO RS.2.5 CRORES AND WHEREAS SALES PRICE TO WEIZMANN GROUP OF WHICH ASSESSEE IS A PART VARIED BETWEEN RS .3.5 CRORES TO RS.3.6 CRORES PER WIND MILL. AO HAS STATED THAT NEGMIPL HAS SHOWN FOLLOWING EXPENSES RELATING TO SALE OF WIND MILL TO WEIZMANN GROUP: KARMA ENERGY LTD., M/S. WEIZMANN LTD 5 A) ON ACCOUNT OF COMMISSION @ 8% OF SALE PAYABLE TO M/S. SAMRAT SPINNERS LTD., FOR INTRODUCING CUSTOMERS (WINDIA, WEIZMANN & KARMA), PARTICIPATION IN NEGOTIATIONS & CONCLUSIONS OF CONT RACT. B) ON ACCOUNT OF PROJECT MANAGEMENT FEES @ 7% OF PROJE CT COST PAYABLE TO M/S. KAKATIYA INDUSTRIES LTD., FOR SERVICES RENDERE D IN ASSISTING THE SETTING UP OF 12 WIND FARMS (KARMA) TOTAL EXPENDITURE INCURRED TOWARDS COMMISSION & PRO JECT MANAGEMENT FEES ON THE SALE TO KARMA ENERGY IS AS UNDER: F.Y. 2001-02 SAMRAT SPINNERS 1.15 CRORES KAKATIYA INDUSTRIES 4.53 CRORES (RS.3.03 CR. UNDER THE HEAD FEES RS.1.51 CR. UNDER THE HEAD DIRECT EXP ) 9.1 AO HAS STATED THAT DURING THE COURSE OF INVESTI GATION, NEGMIPL WAS UNABLE TO FURNISH ANY CORROBORATIVE EVIDENCE FOR RENDERING OF SERVICES BY THESE PARTIES, EXCEPT GIVING SOME PARTICULARS VIZ, NAMES OF PERSONS REPRE SENTING THE RESPECTIVE COMPANIES, PLACES OF MEETING, ETC, DESPITE REPEATED QUESTIONIN G. HE HAS FURTHER STATED THAT NO SUCH HUGE COMMISSION PAYMENTS HAD BEEN MADE ON THE SALE OF OTHER WIND MILLS. 9.2 AO HAS STATED THAT M/S. SAMRAT SPINNER & M/S. K AKATIYA INDUSTRIES ARE ASSOCIATED CONCERN AND BELONG TO ONE GROUP NAMELY S UJANA GROUP BASED AT HYDERABAD. ON AN ENQUIRY, IT WAS FOUND THAT THE COMMISSION PAI D BY NEGMIPL WAS NOT RECEIVED DIRECTLY BY M/S. SAMRAT SPINNER & M/S. KAKATIYA IND USTRIES . AT THE REQUEST OF M/S. SAMRAT SPINNER & M/S. KAKATIYA INDUSTRIES, RS.115 L AKHS AND RS.303 LAKHS WAS PAID TO M/S. SUHAMI TRADERS (PRESENTLY KNOWN AS SUHAMI POWE R & FINANCE CORPORATION,) WHOSE ADDRESS IS 26, GOVIND MAHAL, 86, NETAJI SUBHASH ROA D, MUMBAI-400 002. AO HAS STATED THAT THE ADDRESS OF ASSESSEE COMPANY AND WINDIA, PO WER LTD., IS ALSO 26 , GOVIND KARMA ENERGY LTD., M/S. WEIZMANN LTD 6 MAHAL, 86, NETAJI SUBHASH ROAD, MUMBAI-400 002. AO HAS STATED THAT THE PAYMENT OF M/S. SAMRAT SPINNER & M/S. KAKATIYA INDUSTRIES TO S UHAMI TRADERS WAS MADE ON THE BASIS OF LETTERS ISSUED BY THEM REQUESTING NEGMIPL TO DIRECTLY REMIT THE COMMISSION DUE TO THEM AS THEY HAD CERTAIN TRANSACTIONS WITH M/S. SUHAMI TRADERS. 9.3 AO HAS STATED THAT SUHAMI TRADERS, M/S. OM MITR A SECURITIES LTD., M/S. DILSHAD CONSULTANCY SERVICES LTD., AND M/S. CHANAKYA HOLDIN GS LTD., ARE GROUP CONCERNS OF WEIZMANN GROUP. IT IS STATED THAT OM MITRA SECURIT IES, DILSHAD CONSULTANCY SERVICES LTD AND CHANAKYA HOLDINGS LTD., ALLEGEDLY RENDERED SOME SERVICES LIKE SYNDICATING FINANCIAL ASSISTANCE AND QUALITY CHECKING OF GRAY C LOTH TO M/S. SAMRAT SPINNERS OF HYDERABAD AND ITS ASSOCIATED CONCERNS KAKATIYA IND USTRIES LTD. IT IS STATED THAT M/S. OM MITRA SECURITIES LTD., M/S. DILSHAD CONSULTAN CY SERVICES LTD., AND M/S. CHANAKYA HOLDINGS LTD., RAISED DEBIT NOTES ON M/S. SAMRAT SP INNERS, M/S. KAKATIYA INDUSTRIES LTD., AS WELL AS ON PADMINI CORPORATION LTD., OF CHENNAI (WHICH APPEARS TO BE A FRONT ENTITY OF KAKATIYA INDUSTRIES LTD). IT IS STATED THAT M/S. S AMRAT SPINNERS AND KAKATIYA INDUSTRIES LTD., IN TURN ADVISED NEGMIPL TO REMIT THE PAYMEN T DIRECTLY IN FAVOUR OF SUHAMI TRADERS. AO HAS STATED THAT ON RECEIPT OF FUNDS FR OM NEGMIPL, SUHAMI TRADERS PASSED ON THE FUNDS TO VARIOUS DIRECTORS OF WEIZMANN GROU P UNDER THE GUISE OF LOANS AND PASSED A J.V CREDITING THE ACCOUNT OF M/S. OM MITRA SECURITIES LTD., DILSHAD CONSULTANCY SERVICES LTD., AND CHANAKYA HOLDINGS LTD., AND IS REFLECTED IN THE BALANCE SHEET AS UNSECURED LOANS (LIABILITY). AO HAS STATED THAT IN THE ENTIRE CAMOUFLAGED TRANSACTIONS, NO REAL TAX WAS PAID BY ANY OF THE ENTITIES OF WEIZ MANN GROUP. HE HAS STATED THAT M/S. OM MITRA SECURITIES LTD., DILSHAD CONSULTANCY SERVI CES LTD., AND CHANAKYA HOLDINGS LTD. ARE IN THE BUSINESS OF SHARE TRADING AND INCURRED H UGE LOSSES AND ON THE OTHER HAND WEIZMANN GROUP AND ASSESSEE COMPANY CLAIMED 100% DE PRECIATION ON THE INFLATED KARMA ENERGY LTD., M/S. WEIZMANN LTD 7 PURCHASE PRICE OF WIND MILLS. THUS, MONEY FROM M/ S. SAMRAT SPINNERS AND M/S. KAKATIYA INDUSTRIES LTD., WAS REMITTED TO VARIOUS P ROPRIETARY CONCERN OF THE PROMOTERS OF WEIZMANN GROUP IN THE GUISE OF PAYMENT FOR SERVICES RENDERED BY THEM. HE HAS STATED THAT DURING THE COURSE OF SURVEY OPERATION ON 9.8.2 004 AT WEIZMANN GROUP, NO DETAILS, DOCUMENTARY EVIDENCES SUBSTANTIATING THE CLAIM OF R ENDERING SERVICES BY THE ABOVE CONCERNS COULD BE PRODUCED OTHER THAN CERTAIN DEBIT NOTES. 9.4 AO STATED THAT M/S. SHARAN ENTERPRISE, A PROPRI ETARY CONCERN OF SHRI CHETAN D MEHRA, WHO IS ALSO MANAGING DIRECTOR OF M/S. WEIZMA NN LTD., RAISED CERTAIN DEBIT NOTES FOR RENDERING ALLEGED SERVICES OF CONSULTANCY & LIA SONING TO THE FOLLOWING PARTIES OF HYDERABAD: A) M/S. GANGA INDUSTRIAL CORPN. LIMITED. B) M/S. LUMBINI ELECTRICALS (P) LTD., C) M/S. FUTURETECH INDUSTRIES LTD., D) M/S. ENDEAVOUR EXIM (P) LTD E) M/S. JAWAHAR IMPORTS (P) LTD., F) M/S. KAKATIYA INDUSTRIES LTD. 9.5 AO HAS FURTHER STATED THAT SEARCH AND SEIZURE ACTION AT HYDERABAD ON SUJANA GROUP REVEALED THAT VARIOUS GROUP CONCERNS AT HYDE RABAD ARE FLOATED AS PAPER COMPANIES ONLY TO HELP FRAUDULENT TRANSACTIONS.. T HE MODUS OPERANDI OF THE SUJANA GROUP IS TO FLOAT UMPTEEN NUMBERS OF COMPANIES, ONL Y TO FACILITATE CERTAIN NON-EXISTENT BUSINESS TRANSACTIONS AND TO ACCOMMODATE FLOW OF FU NDS. AO AFTER DISCUSSING THE VARIOUS GROUP COMPANIES OF SUJANA GROUP IN PARA 3.5 OF ASSESSMENT ORDER HELD THAT MONEY PAID BY NEGMIPL ULTIMATELY REACHED THE BUYE RS OF WIND MILLS. THEREFORE, THE EXCESS MONEY PAID FOR THE PURCHASE OF WIND MILLS WA S REMITTED BACK TO M/S. WEIZMANN. HE HAS STATED THAT NEGMIPL COLLUDED WITH WEIZMANN GROUP IN ORDER TO DEFRAUD AND KARMA ENERGY LTD., M/S. WEIZMANN LTD 8 EVADE TAX. ON ONE HAND NEGMIPL CLAIMS THAT THE EXPENSES ARE GENUINE AND ON THE OTHER HAND NEGMIPL CLAIMS THAT PURCHASE PRICE OF WIND MILL IS NOT INFLATED. AO HAS STATED THAT INFLATED AMOUNT IS RS.1 CRORE PER WIND MILL. HE HAS STATED THAT NEGMIPL INFLATED PURCHASES BY OBTAINING FICTITIOUS PURCHASE BILLS TO THE EXTENT OF RS.15.31 CRORES FROM M/S.SAMBHAV STEEL DISTRIBUTORS, A PROPRIETARY CONCERN OF SHRI. ABHAY MOHNOT OF CHENNAI, WHO HAD ADMITTED HAVING GIVEN ACCOMMODATIO N ENTRIES TO NEGMIPL. THEREFORE, THERE WAS CIRCUITOUS TRANSACTIONS OF THE INFLATED PRICE AND FUNDS WERE RETURNED TO WEIZMANN GROUP IN CASH (GENERATED OUT OF ACCOMMODATION ENTRIES TAKEN FROM MR ABHAY KUMAR). 9.6 IN VIEW OF ABOVE, AO STATED THAT ASSESEE CLAIM ED 100% DEPRECIATION ON AN INFLATED PRICE OF RS. 1 CRORE PER WIND MILL. THUS, AO ASKED THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO SHOW CAUSE AS T O WHY IN THE LIGHT OF THE ABOVE FINDINGS OF THE DEPARTMENT, THE CLAIM OF DEPRECIATI ON PERTAINING TO INFLATED PRICE SHOULD NOT BE DISALLOWED. ASSESSEE VIDE ITS LETTER DT.27. 12.2006 SUBMITTED AS UNDER : (PARA 3.8 OF AO) (I) THE COST OF THE WIND FARM INVOLVING CIVIL CONS TRUCTION, MANUFACTURE OF EQUIPMENT, INSTALLATION AND COMMISSIONING OF THE EQ UIPMENTS DEPENDS PRIMARILY ON THE SCOPE OF WORK. HENCE A SIMPLE COMP ARISON OF COST BETWEEN ONE WIND MILL TO ANOTHER WIND MILL IS MISLE ADING. THE SCOPE OF WORK IN THIS CASE INCLUDED TOTAL SUPP LY OF ALL COMPONENTS, CIVIL FOUNDATIONS, MANUFACTURE AND ASSEMBLY OF COM PONENTS OF WEGS, ERECTION OF TOWERS, START UP AND COMMISSIONING OF A LL ITEMS OF ALL ITEMS SYNCHRONIZATION OF PROJECT WITH MSEB GRID, 1 YEAR W ARRANTY, ADDITIONAL WARRANTY FOR 5 YEARS FOR GEAR BOXES, LIFE TIME AVAI LABILITY OF SPARES AND BANK GUARANTEE FOR PERFORMANCE & WEGS IN LINE WITH THE STANDARD POWER CURVE (II) AS PER THE AFFIDAVIT FILED BY RENEWABLE ENERGY DEVE LOPERS ASSOCIATION OF MAHARASHTRA (REDAM), THE PROJECT COST ON AN AVERAGE VARIES BETWEEN RS. 5 CRORES TO RS. 6.60 CRORE SPER MW. KARMA ENERGY LTD., M/S. WEIZMANN LTD 9 (III) THE MAHARASHTRA ELECTRICITY REGULATORY COMMISSION ( MERC) HAS, AS PER TARIFF ORDER DT. 24-11-03 DETERMINED THE AVERAGE CO ST AT RS.5.36 CORES PER MW. THE MAHARASHTRA ENERGY DEVELOPMENT AGENCY ( MEDA) FIXED THE PROJECT COST AT RS. 5 CRORE PER MW FOR THEIR FURTHE R ANALYSIS AND WORKING AND DETERMINING THE POWER TARIFF (IV) ON VERIFICATION WITH M/S. SUHAMI TRADERS, IT I S FOUND THAT THEY ARE IN THE BUSINESS OF BORROWING AND LENDING SINCE MANY YEARS. UNDER INDEPENDENT TRANSACTIONS WITH CERTAIN PARTIES AT HYDERABAD, THE AMOUNTS RECEIVED AGAINST SERVICES RENDERED HAVE BEEN UTILIZED FOR RE PAYMENT OF LOANS ALREADY AVAILED BY THE SAID SUHAMI. (V) SHARAN ENTERPRISE, A PROPRIETARY CONCERN OF THE DIRECTOR, MR CHETA MEHRA, HAS NOT RECEIVED FUNDS FROM NEG MICON. IT HAS REND ERED CERTAIN SERVICES IN THE MATTER OF SYNDICATION ETC TO PARTIES WHO HA VE ARRANGED PAYMENTS FOR THE SERVICES RENDERED BY SHARAN ENTERPRISES. S HARAN ENTERPRISES HAS OFFERED THE ENTIRE INCOME RECEIVED AGAINST SERVICES RENDERED IN THEIR RETURN OF INCOME AND FURTHER FUNDS HAVE BEEN RECEIV ED FOR REPAYMENT OF LOAN INCLUDING TO M/S. SUHAMI TRADERS ALREADY AVAIL ED IN EARLIER YEARS. 9.7 AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE AN D STATED THAT THE SCOPE OF WORK WOULD NOT HAVE ANY EFFECT ON THE PRICE AT WHICH WIN DMILL IS BEING SUPPLIED. THAT THE AFFIDAVIT FILED BY RENEWABLE ENERGY DEVELOPERS ASSO CIATION OF MAHARASHTRA (REDAM) IS OF NO HELP TO THE ASSESSEE AS IT GIVES THE FIGURES OF PROJECT COST PER WIND MILL. NO DETAILS ARE GIVEN REGARDING PURCHASE PRICE OF WIND MILLS. THE SPECIFICATIONS MENTIONED IN THE AFFIDAVIT ARE DIFFERENT FROM THE ASSESSEE. FURTHER , THE RELIABILITY OF THE DETAILS CONTAINED IN THE AFFIDAVIT IS DOUBTFUL. THE AVERAGE COST PRI CE DETERMINED BY MERC AT RS.5,36 CRORE PER MW HAS NOT EVEN BEEN ACCEPTED BY MEDA, WHICH HA S FIXED THE PROJECT COST AT RS. 5 CRORE PER MW. AO AFTER SUMMARIZING ITS FINDINGS IN PARA 3.10 OF ASSESSMENT ORDER HELD THAT ASSESSEE IS NOT ENTITLED TO ANY DEPRECIATION O N THE INFLATED AMOUNT OF 12 CRORES, (@ RS.1 CRORE PER WINDMILL). AO HAS STATED THAT AS SESSEE HAS CLAIMED DEPRECIATION OF RS.9 CRORES IN A.Y. 2002-03 AND BALANCE AMOUNT OF R S.3 CRORES HAS BEEN CLAIMED IN A.Y. 2003-04 AND, ACCORDINGLY, HE ADDED TO THE TOTAL INC OME OF THE ASSESSEE BEING DEPRECIATION ON INFLATED PRICE OF WIND MILLS OF RS .9 CRORES IN A.Y. 2002-03. IT IS RELEVANT KARMA ENERGY LTD., M/S. WEIZMANN LTD 10 TO THE STATE THAT AO HAS DISALLOWED THE BALANCE AMO UNT ON ACCOUNT OF DEPRECIATION OF RS.3 CRORES IN A.Y. 2003-04 AND ADDED BACK TO THE T OTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 10. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT TH E COST OF ACQUISITION OF 12 WIND MILLS SHOULD HAVE BEEN TAKEN AT RS.50,72,18,688 AS SHOWN FOR THE PURPOSE OF CALCULATING DEPRECIATION BY THE ASSESSEE. THE DISALLOWANCE OF DEPRECIATION OF RS.9 CRORES ON 12 WIND MILLS ON THE GROUND THAT COST OF WIND MILL WAS INFLATED @ RS.1 CRORE PER WIND MILL IS NOT IN ACCORDANCE WITH PROVISIONS OF THE ACT. IT W AS CONTENDED THAT THE COST OF ACQUISITION COULD NOT BE ALTERED AS PER PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT, IS NOT ATTRACTED IN THE CASE OF THE ASSESS EE. ASSESSEE DURING THE ASSESSMENT YEAR 2002-03 HAD PURCHASED 12 WIND MILLS HAVING CAP ACITY OF 750 KW EACH (9 MW AGGREGATE CAPACITY FOR A TOTAL CONSIDERATION OF RS. 4327.80 LAKHS) FROM NEGMIPL AND THE AVERAGE COST PER WIND MILL WORKED OUT TO RS.36 0.65 LAKHS. ASSESSEE CLAIMED DEPRECIATION @ 100% IN RESPECT OF 6 WIND MILLS AND @ 50% IN RESPECT OF BALANCE 6 WIND MILLS IN THE ASSESSMENT YEAR 2002-03 AS THE SAME WE RE USED LESS THAN 180 DAYS. ASSESSEE FILED THE DEPRECIATION CHART FOR ASSESSMEN T YEAR 2002-03 AND THE SAME HAS BEEN STATE BY LD CIT(A) AT PAGE 2 OF THE IMPUGNED O RDER AS UNDER: 10.1 IT WAS CONTENDED THAT THE PAYMENT MADE TO RESP ECTIVE PARTIES AND SECURING 12 WINDMILLS WERE NOT DISPUTED. NEITHER NEGMIPL NOR ANY OTHER PARTY WHICH HAD RECEIVED KARMA ENERGY LTD., M/S. WEIZMANN LTD 11 PAYMENT OF PURCHASE PRICE AND EXPENDITURE IN COMMI SSIONING THESE WINDMILLS, STATED THAT THEY HAD NOT RECEIVED PAYMENT MADE TO THEM OR STATED THAT THEY HAD NOT SUPPLIED OR SHORT SUPPLIED OR NOT RENDERED ANY SERVICES FOR WHICH PAYMENTS WERE MADE BY THE ASSESSEE. THEREFORE, SO FAR AS THE ASSESSEE WAS CO NCERNED, THEY HAD MADE FULL PAYMENT OF RS.50.72 CRORES AND OBTAINED WIND MILLS AND COMMISSIONED THEM AND CLAIMED DEPRECIATION AS PRESCRIBED. HENCE, NO DISA LLOWANCE OF DEPRECIATION WAS CALLED FOR IN RESPECT OF WING MILLS PURCHASED AND PUT TO U SE BY THE ASSESSEE COMPANY. IT WAS CONTENDED THAT SECTION 43(1) OF THE ACT DEFINING A CTUAL COST HAS APPENDED 10 EXPLANATIONS PROVIDING FOR SPECIAL CIRCUMSTANCES IN WHICH THE AO CAN MAKE EXCEPTION AND RECOMPUTE THE ACTUAL COST. IN THE CASE OF T HE ASSESSEE, NONE OF THOSE 10 EXPLANATIONS WAS APPLICABLE IN VIEW OF THE FACT THA T THE ASSESSEE HAD PURCHASED WINDMILLS WHICH HAD NOT BEEN PREVIOUSLY USED EITHER BY THE ASSESSEE OR BY OTHERS. THEREFORE, NO EXPLANATION TO SECTION 43(1) WAS APPL ICABLE TO THE ASSESSEES CASE. 10.2 IT WAS FURTHER CONTENDED THAT THE EVIDENCE GAT HERED IN THE CASES OF NEGMIPL, SUJANA GROUP AND THE WEIZMANN GROUP WAS RELEVANT TO THEIR RESPECTIVE ASSESSMENTS AND NOT RELEVANT TO THE ASSESSEES CASE, THEREFORE, THE AOS CONTENTION WAS PURELY BASED ON ASSUMPTIONS AND PRESUMPTIONS AND IT HAD NO EVIDENTIAL VALUE SO FAR AS THE ASSESSMENT OF THE ASSESSEE WAS CONCERNED. 10.3 IT WAS FURTHER CONTENDED THAT FINDINGS OF THE SURVEY AT NEGMIPL REVEALED THAT BOGUS PURCHASE BILLS OF RS.15.31 RORES WERE OBTAI NED BY IT AGAINST PAYMENT OF WHICH IT HAD RECEIVED CASH BACK HAS NO RELEVANCE TO THE ASSESSEE AS IT IS PURELY AN INTERNAL MATTER OF NEGMIPL. AO HAS NEVER STATED THAT THE SA ID AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE OR GROUP ENTITIES OF THE ASSESSEE AND BY COMMENTING UPON SUCH KARMA ENERGY LTD., M/S. WEIZMANN LTD 12 OBSERVATION IN THE ASSESSMENT ORDER, HAS GIVEN A MI SLEADING PICTURE AS IF SAID MONEY WAS RECEIVED BACK BY THE ASSESSEE. ON THE OTHER HA ND, NEGMIPL HAD RECEIVED ACTUAL COST OF WIND MILLS FROM THE ASSESSEE COMPANY AND TH E ABOVE PRESUMPTIONS OF THE AO COULD NOT EFFECT THE ACTUAL COST TO THE ASSESSEE CO MPANY AND AS SUCH, IT HAS CLAIMED DEPRECIATION. 10.4 IT WAS CONTENDED THAT SUBMISSIONS WERE MADE BE FORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS JUSTIFYING THE COST PER W IND MILL PAID BY THE ASSESSEE. IT WAS CONTENDED THAT THE COST OF THE PROJECT PRIMARILY DE PEND ON THE SCOPE OF WORK TO BE EXECUTED WHILE INSTALLING THE SAID WIND MILLS. SUC H SCOPE OF WORK WOULD VARY FROM PROJECT TO PROJECT. THAT THE WIND MILLS ARE NOT ST ANDARD OFF THE SHELF COMMODITIES AND BASED ON SCOPE AND SPECIFICATIONS STIPULATED BY THE BUYER, THE COST WOULD VARY. ASSESSEE HAD INSTALLED THE WIND MILLS AT VANKUSAWAS DE, SATARA DISTRICT, MAHARASTHRA. IT WAS SUBMITTED THAT THE INSTALLATION OF THE SAID WIN D MILL WOULD INCLUDE: * CIVIL FOUNDATION TO WITHSTAND THE SEISMIC DISTRIB UTION AS THE WIND FARM IS NEARER TO THE KOYNA DAM WHICH IS PRONE TO EARTHQUAK E; SITE BEING A DIFFICULT ONE VIZ, HILLY AREA NECESSIT ATING CARRYING THE MATERIALS ATOP FLAT PEAKS THROUGH DIFFICULT TERRAIN; THE HEIGHT OF THE TOWERS BEING 55 MTS.; REQUIREMENT OF SPECIFIC TYPE OF EPOXY PAINTING ON T HE TOWERS FOR LONGER PROTECTION AGAINST RUST; 38 KV METERING YARD THE SUB-STATION BEING AT A LONG DISTANCE OF OVER 30 KMS. FROM THE WIND FARM CALLING FOR LAYING OF LONG DISTANCE HT LINES; 5 YEAR WARRANTY ON GEAR BOXES WHICH IS ONE OF THE E SSENTIAL LIFELINE OF THE WEGS; GUARANTEED LIFE TIME SUPPLY OF SPARES; KARMA ENERGY LTD., M/S. WEIZMANN LTD 13 FURNISHING OF BANK GUARANTEE FOR GUARANTEEING THE P ERFORMANCE OF THE WEGS VIS -VIS THE STANDARD POWER CURVE GIVEN; REQUIREMENT OF INSTALLATION OF WIND MAST TO MONITOR THE PERFORMANCE OF THE STIPULATION OF HIGHER PENALTY FOR NON-PERFORMANCE A S PER THE CONTRACT, ETC. 10.5. THAT, IT IS INCORRECT TO COME TO A CONCLUSION BY A SIMPLE COMPARISON OF THE PRICE OF SAME TYPE OF WINDMILLS BUT SUPPLIED TO DIFFERENT CATEGORY OF PARTIES AND ALSO TO DIFFERENT SITES IN DIFFERENT STATES. IT WAS CONTEN DED THAT FOR SUPPLY TO PARTIES LIKE RAJASTHAN STATE ELECTRICITY BOARD (RSEB), NON CONVE NTIONAL ENERGY DEVELOPMENT OF ANDHRA PRADESH LTD (NEDCAP), IT IS THE MARKET PRACT ICE THAT PRIVATE SECTOR DO TAKE PRIDE IN GRABBING ORDERS FROM GOVERNMENT AGENCIES, EVEN I F IT RESULTS IN REDUCED PROFITS OR LESS PROFITS AS IT HELPS THEM IN THEIR FUTURE ENDEA VOURS OF GETTING ORDERS FROM DIFFERENT GOVERNMENT AGENCIES IN DIFFERENT STATES. IT WAS CO NTENDED THAT MENTIONING OF THREE PARTIES FOR COMPARISON OF SUPPLY OF WIND MILLS WITH WIND FARMS IN MAHARASTHRA IS ERRONEOUS. ASSESSEE STATED BEFORE LD CIT(A) A STAT EMENT SHOWING COMPARISON OF THE SCOPE OF WORK AND COMMERCIAL TERMS IN THE PURCHASE ORDER PLACED BY ASSESSEE ON NEGMIPL VIS--VIS CERTAIN SELECTED CUSTOMERS AND SU BMITTED THAT THERE IS A VAST DIFFERENCE BETWEEN THE TERMS OF THE PURCHASE RELATI NG TO THE PURCHASES MADE BY THE ASSESSEE AND THAT OF THE OTHER PARTIES, NAMELY PREC OT MILLS LTD., RAJASTHAN STATE POWER CORPORATION LTD., AND NON-CONVENTIONAL ENERGY DEVEL OPMENT CORPORATION OF ANDHRA PRADESH LTD. (NEDCAP). LD CIT(A) HAS GIVEN COMPARI SON CHART STATING SCOPE OF WORK AND COMMERCIAL TERMS AT PAGES 7-8 OF THE IMPUGNED O RDER AS UNDER: A: COMPARISON OF CONTRACT WITH PRECOT MILLS LTD., PARTICULARS PRECOT MILLS LTD. KARMA SUPPLY 1 NO. WEG OF 750KW 12 NOS. WEGS OF 750 KW EACH CONTRACT VALUE RS.258.00 LACS RS.4327. 77 LACS I.E. RS.360.64 LACS PER WEG KARMA ENERGY LTD., M/S. WEIZMANN LTD 14 HEIGHT OF TOWER 45 MTS. 55 MS. TOWER PAINTING NO SPECIAL EPOXY SPECIAL EPOXY GRID LINES 11 KV 33 KV. INTERNAL LINES TO BE LAID IS FOR LARGE AREAS PLUS DISTANCE FROM SUBSTATION TO THE WIND FARM IS MORE THAN 35 KMS. CENTRALIZED MONITORING AND CONTROL SYSTEM CMCS) WITH OPTIC FIBRE CABLES NO YES WAND MAST NO SUPPLY AND INSTALLATION OF WIND MAST FOR MONITORING THE PERFORMANCE OF THE WIND MILL SUPPLY AND INSTALLATION OF 2 WIND MASTS FOR MONITORING THE PERFORMANCE OF THE WIND MILL SITE SITE IS NOT EARTHQUAKE PRONE SITE IS EARTHQUAKE PRONE BEING NEAR KOYNA DAM AND IS IN ZONE 1 WHICH CALLS FOR STUDIER FOUNDATION WHICH OBVIOUSLY WOULD COST MORE. SITE TERRAIN N.A. HILLY AREA MAKING IT MORE DIFFICULT TO INSTALL WEGS AND ALSO CALLING FOR BETTER INFRASTRUCTURE LIQUIDATED DAMAGES FOR DELAY RS.8.00 LACS RS.17.50 LACS WARRANTY ON SPARE PARTS ONLY FOR ONE YEAR FOR ONE YEAR PLUS ENTIRE GEAR BOX SYSTEM GUARANTEED FOR FIVE YEARS. SPARE PARTS NOT GUARANTEED LIFE TIME SUPPLY OF SPARES GUARANTEED. BANK GUARANTEE NO STIPULATION BANK GUARANTEE BANK GUARANTEES PROVIDED BY SUPPLIER BOTH AGAINST ADVANCE PAYMENTS AS WELL AS FOR PERFORMANCE. MAXIMUM LIABILITY FOR PENALTY, DAMAGES, ETC RS.12.90 LAKHS RS.26.25 LACS PER WEG AGGREGATING TO RS.157.50 LACS B: COMPARISON OF CONT RACT WITH RAJASTHAN STATE POWER CORPORATION LTD ., PARTICULARS RAJASTHAN STATE POWER CORPORATION LTD. KARMA SUPPLY 3 NOS. WEGS OF 750/48 12 NOS WEGS OF 750 KW EACH CONTRACT VALUE RS. 843.65 LACS I.E. RS.281.22 LACS PER WEG RS.4327. 77 LACS I.E. RS.360.64 LACS PER WEG CENTRALIZED MONITORING AND CONTROL SYSTEM NO YES KARMA ENERGY LTD., M/S. WEIZMANN LTD 15 (CMCS) WITH OPTIC FIBRE CABLES WAND MASTS NOT EARTHQUAKE PRONE SITE IS EARTHQUAKE PRONE BEING NEAR KOYNA DAM AND IS IN ZONE 1 CALLING FOR STUDIER FOUNDATION WHICH OBVIOUSLY WOULD COST MORE. SITE TERRAIN N.A. HILLY AREA MAKING IT MORE DIFFICU LT TO INSTALL WEGS AND ALSO CALLING FOR BETTER INFRASTRUCTURE. TOWER PAINTING NO SPECIAL EPOXY SPECIAL EPOXY LIQUIDATED DAMAGES RS.84.36 LACS RS.105.00 LACS WARRANTY 24 MONTHS 12 MONTHS PLUS GEAR BOX SYSTEM GUARANTEED FOR 5 YEARS. LIFE TIME SUPPLY OF SPARES. NOT GUARANTEED GUARANTEED. BANK GUARANTEE GENERATION GUARANTEED BUT NO BANK GUARANTEE BANK GUARANTEE BOTH FOR ADVANCE AS WELL AS FOR PERFORMANCE. MAXIMUM LIABILITY FOR PENALTY, DAMAGES, ETC. RS. 12.90 LACS RS.26.25 LACS PER WEG AGGREGATING TO RS, 157.50 LACS C: COMPARISON OF CONTRACT WITH NEDCAP PARTICULARS NON-CONVENTIONAL ENERGY DEVELOPMENT CORPN. OF ANDHRA PRADESH LTD (NEDCAP) KARMA SUPPLY 3 NOS. WEGS OF 750/48 L2 NOS. WEGS OF 750KW EACH CONTRACT VALUE RS.825.00 LACS I.E. RS.275 LACS PER WEG RS.4327. 77 LACS I.E. RS.360.64 LACS PER WEG HEIGHT OF TOWER 50 MTS. 55 MTS TOWER PAINTING NO SPECIAL EPOXY YES CENTRALIZED MONITORING AND CONTROL SYSTEM (CMCS) WITH OPTIC FIBRE CABLES NO YES SITE NOT EARTHQUAKE PRONE SITE IS EARTHQUAKE PRONE BEING NEAR KOYNA DAM AND IS IN ZONE 1 WHICH KARMA ENERGY LTD., M/S. WEIZMANN LTD 16 OBVIOUSLY WOULD COST MORE SITE TERRAIN N.A. HILLY AREA MAKING IT MORE DIFFICULT TO INSTALL WEGS AND ALSO CALLING FOR BETTER INFRASTRUCTURE SUPPLY OF SPARES 5 YEARS GEAR BOX GUARANTEED FOR 5 YEARS- LIFE TIME SUPPLY OF SPARES ASSURED. LIFE TIME SUPPLY OF SPARES NOT GUARANTEED GUARANTEED 10.6 IT WAS CONTENDED THAT THE COMPARISONS MADE BY AO IN THE ASSESSMENT ORDER HAS NO RELEVANCE AT ALL TO POINT OUT THAT THE ASSES SEE HAD INFLATED PRICE FOR PURCHASE OF EACH WIND MILL AT ALLEGED COST OF RS.1 CRORE EACH W INDMILL. THAT NEGMIPL WAS REQUIRED TO RENDER MUCH MORE SERVICES/COMPONENT ETC. AND INS TALLATION OF WINDMILL WAS ON A HILLY SITE, THE COST PER WINDMILL HAD TO BE MORE THAN COS T TO THE SAID ENTITIES. ASSESSEE ALSO SUBMITTED STATEMENT GIVING COMPARISON OF THE COST O F WINDMILL OF THE SAME MAKE AND SAME CAPACITY PURCHASED BY SAVITA CHEMICALS LTD., WHO HAD INSTALLED IT AT THE SAME AREA WHERE THE ASSESSEE HAD INSTALLED SAID WINDMILL SHOWING THAT THE CONTRACT VALUE OF THE SAME MAKE OF WINDMILL CAME TO RS.405 LACS, WHER EAS IN ASSESSEES CASE, IT CAME TO RS.366.6 LACS. ASSESSEE GAVE COMPARISON BETWEEN WINDMILLS PURCHASED BY THE ASSESSEE VIS-A-VIS PURCHASED BY SAVITA CHEMICALS LT D., TO DRIVE HOME THE POINT THAT THE DIFFERENCES IN SCOPE AND SITUATION OF WINDMILL GOES A LONG WAY IN DETERMINING ITS COST PRICE AND DETAILS OF WHICH ARE GIVEN BY LD CIT(A) A T PARA 2.7 AT PAGE 9 OF THE IMPUGNED ORDER AS UNDER: COMPARISON OF CONTRACT WITH SAVITA CHEMICALS LTD. PARTICULARS SAVITA CHEMICALS LTD KARMA SUPPLY 2 NOS. WEGS OF NM 750/48 12 NOS. WEGS OF NM 750/48 SITE VANKUSAWADE,SATARA DISTRICT, MAHARASHTRA VANKSAWADE,SATARA DISTRICT, MAHARASHTRA. SITE TERRAIN HILLY AREA HILLY AREA KARMA ENERGY LTD., M/S. WEIZMANN LTD 17 H.T.LINES 33KV 33KV CENTRALIZED MONITORING AND CONTROL SYSTEM (CMCS) WITH OPTIC FIBRE CABLES YES YES CONTRACT VALUE RS.405.00 LACS PER WEG (AGGREGATE RS.810/- LACS) RS.360.64 LACS PER WEG (AGGREGATE RS.4327.77 LACS) ADVANCE AGAINST BANK GUARANTEE YES YES BANK GUARANTEE FOR PERFORMANCE YES YES REPLACEMENT REPLACEMENT OF WEGS AT NIL FREE OF COST IF GENERATION @ 85% OF THE POWER CURVE IS NOT ACHIEVED NIL LAND CONTRACTOR TO ARRANGE AND LIAISON FOR LAND FOR SETTING WIND FARM. LAND ARRANGED BY WEIZMANN WAND MASTS NOT AVAILABLE INSTALLATION OF WIND MAST TO VERIFY THE PERFORMANCE OF THE WEGS. 10.7 IT WAS SUBMITTED THAT ASSESSEE HAD NOT PAID AN Y INFLATED PRICE FOR PURCHASE OF WIND MILL AS THE SAME COST HAD BEEN PAID BY SAVITA CHEMICALS LTD. 10.8 ASSESSEE ALSO FILED A COPY OF AFFIDAVIT FILED BY THE RENEWABLE DEVELOPERS ASSOCIATION OF MAHARASHTRA (REDAM), WHEREIN, IT WAS CONFIRMED THAT THE PROJECT COST OF SUCH WIND MILL ON AVERAGE BASIS VARIED BETWEEN RS.5 CRORES TO RS.6.6 CRORES. THAT MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (MERC ) HAS, AS PER TARIFF ORDER DATED 24.11.2003 DETERMINED THE AVERAGE COST AT RS.5.36 C RORES PER MW. IT WAS FURTHER CONTENDED THAT DURING THE ASSESSMENT PROCEEDINGS, A SSESSEE FURNISHED STATEMENT SHOWING 72 COMPARABLE CASES, WHERE-IN THE ENERGY DE VELOPERS ASSOCIATION OF MAHARASHTRA (REDAM) MEMBERS PURCHASES OF WINDMILL WERE GIVEN AND WHICH INCLUDED THE PURCHASES MADE BY THE ASSESSEE AND WEIZMANN LTD AT SR.NO. 45, 46 & 47. KARMA ENERGY LTD., M/S. WEIZMANN LTD 18 THEREFORE, THE EXPLANATION GIVEN BY THE ASSESSEE D URING THE ASSESSMENT PROCEEDINGS MADE IT AMPLY CLEAR THAT THE PAYMENTS MADE BY THE A SSESSEE FOR PURCHASE OF WINDMILLS WERE JUSTIFIED. THAT THE PURCHASE PRICE PAID BY T HE ASSESSEE FOR WINDMILL THUS STOOD PROVED AS COMPARABLE WITH OTHER TRANSACTIONS OF PUR CHASES OF WINDMILLS OF SIMILAR MAKE. 10.9 IT WAS CONTENDED THAT THE CONCLUSIONS OF AO TH AT NEGMIPL COULD NOT FURNISH ANY EVIDENCE TO SERVICES RENDERED FOR WHICH IT MADE PAY MENTS ON ACCOUNT OF COMMISSION, PROJECT MANAGEMENT FEES, TO PARTIES AT HYDERABAD IN RELATION TO SETTING UP OF WIND FARMS HAD NO RELEVANCE TO ASSESSEES CASE, AS ASSES SEE COULD NOT BE HELD AS RESPONSIBLE FOR THE CONDUCT OF NEGMIPL. 10.10 IT WAS ALSO CONTENDED THAT SETTING UP OF WIND FARMS IS A VERY SPECIALIZED JOB. THE OBSERVATIONS OF AO THAT NEGMIPL PAID COMMISSION OR OTHER CHARGES FOR ERECTION, NO DETAILS OF SUB-CONTRACTORS TO WHOM PAYMENTS WERE MA DE WERE FOUND AT THE TIME OF SURVEY/SEARCH, COULD NOT BE EXPLAINED OR PROVED BY ASSESSEE COMPANY, AS IT WAS BEYOND ITS COMPETENCE TO DO SO. AS FAR AS ASSESSEE IS CO NCERNED, NEGMIPL HAS RECEIVED PAYMENT AS PER REQUIREMENTS OF THE AGREEMENT AND IS SUED BILLS ISSUED FOR THE CONSIDERATION RECEIVED. 10.11 IN RESPECT OF OBSERVATION OF AO THAT SURVEY/S EARCH AT HYDERABAD IN RESPECT OF PARTIES RELATING TO TRANSACTIONS WITH WEIZMANN GRO UP REVEALED THAT THEY WERE PAPER COMPANIES ONLY FLOATED BY SUJANA GROUP TO FACILITAT E CERTAIN NON-EXISTENT BUSINESS TRANSACTIONS AND TO ACCOMMODATE FLOW OF FUND, IT WA S CONTENDED THAT ABOVE OBSERVATION WERE RELEVANT TO SUJANA GROUP OF COMPANIES AND ASSE SSEE HAD NO KNOWLEDGE AS TO THEIR EXISTENCE OR NON-EXISTENCE AND IT WAS IRRELEVANT TO THE ASSESSMENT TO ASSESSEES CASE. KARMA ENERGY LTD., M/S. WEIZMANN LTD 19 10.12 IT WAS CONTENDED THAT ASSESSEE HAD CLAIMED 10 0% DEPRECIATION ON THE ACTUAL COST OF WIND MILL AS PER PROVISIONS OF THE ACT APPL ICABLE AND THERE IS NO EVIDENCE TO PROVE ANY COLLUSION BETWEEN NEGMIPL AND ASSESSEE. IT WAS CONTENDED THAT AO IS NOT CORRECT IN STATING THAT ASSESSEE CLAMED ADDITIONAL DEPRECIATION OF RS.9 CRORES IN RESPECT OF 9 WIND MILLS IN ASSESSMENT YEAR 2002-03 AND ON T HE OTHER HAND, ASSESSEE HAD CAPITALIZED ACTUAL COST OF 12 WIND MILLS PURCHASED DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002-03 AT RS.50,72,18,688 AND CLAI MED DEPRECIATION ALLOWABLE @ 100% ON SIX WIND MILLS AND @ 50% IN RESPECT OF ANOT HER SIX WIND MILLS WHICH WERE USED FOR LESS THAN 180 DAYS. THEREFORE, DISALLOWANCE OF DEPRECIATION OF RS.9 CROES BY THE AO IS NOT JUSTIFIED. 11. LD CIT(A) AFTER CONSIDERING ABOVE SUBMISSIONS O F ASSESSEE VIDE PARAS 2.9 TO 2.11 DELETED SAID DISALLOWANCE OF RS.9 CRORES, WHICH REA D AS UNDER: 2.9 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT CAREFULLY AND GONE THROUGH ASSESSMENT ORDER. I HAVE ALSO PERUSED THE P APER BOOKS FILED BY THE A.R. BEFORE ME. THE APPELLANT IS A COMPANY ENGAGED IN WI ND FARM DEVELOPMENT AND GENERATING POWER FROM 18 MW WIND FARM SET UP IN SAT ARA DISTRICT, MAHARASTHRA. THE APPELLANT PURCHASED 12 WINDMILLS HAVING CAPACITY OF 750 KW EACH (9 MW AGGREGATE CAPACITY FOR A TOTAL CONSIDERATION OF RS.4327.80 LA CS). THE AVERAGE COST PER WINDMILL WORKS OUT TO RS.360.65 LACS. THE DEPRECIATION AT TH E PRESCRIBED RATES WAS CLAIMED BY THE APPELLANT IN THE A.Y. 2002-03 AND 2003-04. THE A.O. ALLEGED THAT THERE IS INFLATION BY RS.1 CRORE EACH WIND MILL OF THE PURCH ASE PRICE AND THUS, IN VIEW OF THE A.O., THERE IS EXCESS CLAIM OF DEPRECIATION ON THE 12 WINDMILLS TOTALING TO RS.12 CRORE. THE A.O. DISALLOWED THE CLAIM OF DEPRECIATIO N OF RS.3 CRORE IN AY. 2003-04 AND RS.9 CRORE IN AY. 2002-03. AS REGARDS MERITS OF THE CASE, THE A.O. COMPARED THE PURCHASE PRICE OF THE APPELLANT VIS-A-VIS THE PURCH ASE PRICE PAID BY OTHER ENTITIES. THE PERUSAL OF THE COMPARISON MADE BY THE A.O. IN T HE ASSESSMENT ORDER REVEALS THAT THE COMPARISON IN THE PURCHASE PRICE RELIED UP ON BY THE A.O. HAS NOT LED TO A CONCLUSION THAT THE APPELLANT HAS PAID MORE PURCHAS E PRICE BY RS.1 CRORE PER EACH WINDMILL. IT IS NOTED THAT THERE IS A VAST DIFFEREN CE OF SCOPE OF WORK AS WELL AS COMMERCIAL TERMS IN THE PURCHASE ORDERS PLACED BY T HE APPELLANT WITH NEG MICON (INDIA) PVT. LTD. VIS--VIS OTHER ENTITIES AS DISCU SSED IN THE PRECEDING PARAS OF THIS ORDER. MOREOVER, THERE IS ANOTHER ENTITY KNOWN AS S AVITA CHEMICALS LTD. WHICH HAS PURCHASED THE WINDMILLS OF THE SAME MAKE AND INSTAL LED IN THE SAME AREA WHERE THE APPELLANT HAD INSTALLED ITS 12 WINDMILLS. IN THAT C ASE, THE PURCHASE PRICE WAS MUCH MORE THAN THE PURCHASE PRICE PAID BY THE APPELLANT. THUS IN MY VIEW, THE COMPARISON OF PURCHASE PRICE AS NOTED BY THE A.O. I N THE ASSESSMENT ORDER HAS NO KARMA ENERGY LTD., M/S. WEIZMANN LTD 20 INDICATION THAT THE APPELLANT HAD PAID A HIGHER PRI CE FOR THE PURCHASE OF THE WINDMILLS. THE AFFIDAVIT FILED BY THE RENEWABLE DEV ELOPERS ASSOCIATION OF MAHARASHTRA (REDEM) CERTIFYING THAT THE PROJECT COS T OF SUCH WINDMILLS ON AVERAGE BASIS VARIED BETWEEN RS.5 CRORE TO RS.6 CRORE CAN NOT BE SUMMARILY IGNORED. FURTHER, THE MAHARAHSTRA ELECTRICITY REGULATORY (M ERC) AS PER THEIR TARIFF ORDER DATED 24.11.2003 DETERMINED THE AVERAGE COST OF RS. 36 CRORES PER MW. THE APPELLANT HAS ALSO FURNISHED A LIST OF 72 PROJECTS INSTALLED IN MAHARASHTRA WHERE THE COST OF THE PROJECT VARIES FROM PROJECT TO PROJECT DEPENDING UPON VARIOUS TERMS AND CONDITIONS OF SCOPE OF WORK. THESE EVIDENCES RELIED UPON BY THE AR PROVE BEYOND DOUBT THAT THE APPELLANT PURCHASED THE WIND MILL AT THE PREVAILING MARKET RATE ALSO TAKING INTO ACCOUNT OTHER SERVICES ETC. TO BE REND ERED BY THE SELLER AND THEIR COST IS WITHIN THE PROJECT COST AS CERTIFIED BY THE SAID AU THORITIES WHICH ARE THE STATUTORY AUTHORITIES. THE A.O. HAS NOT CONTROVERTED THESE EV IDENCES IN THE ASSESSMENT ORDER. THUS COMPARISON MADE BY THE A.O. HAS THEREFORE DOES NOT LEAD TO THE CONCLUSION THAT THE APPELLANT HAD ACTUALLY INFLATED THE COST O F WIND MILLS BY RS.1 CRORE EACH. 2.10 ANOTHER OBSERVATION MADE BY THE A.O. IN THE AS SESSMENT ORDER AND RELIED UPON BY HIM IS THAT THE NEC MICON HAD INFLATED ITS PURCHASES BY RS.15.31 CRORE BY MAKING BOGUS PURCHASES AND THEREFORE, THE A.O. HELD THAT CASH SO GENERATED HAD BEEN PASSED ON TO THE GROUP COMPANIES OF THE APPELL ANT. IN THIS REGARD, I FEEL THAT THE APPELLANT HAD NOTHING TO DO WITH THE BOGUS PURC HASES BOOKED BY NEG MICON IN ITS ACCOUNTS. IN CASE SOMETHING WRONG HAD BEEN DONE BY NEC MICON IS FOR FOR THAT PARTY TO FACE THE MUSIC AND NOT A THIRD PARTY. THE A.O. HAS NOWHERE PROVED THAT THE BOGUS PURCHASE BOOKED BY NEG MICON HAD ANY BEARING WORTH THE NAME ON THE APPELLANTS CASE. THE SURVEY OPERATION AT THE PREMI SES OF THE APPELLANT GAVE NO CLUE OF THE APPELLANTS COMPLICITY IN SUCH TRANSACTIONS . THE APPELLANT HAD MADE THE PAYMENT THROUGH CROSSED ACCOUNTS PAYEE CHEQUES AT M ARKET PRICE AND THE SELLER OF THE WINDMILL HAD ACCOUNTED SUCH RECEIPTS IN ITS AC COUNTS. DURING SURVEY AT NEC MOCN (INDIA) PVT.LTD., NOTHING WAS FOUND TO SUGGEST THAT THE SAID COMPANY HAD PASSED ON ANY CASH TO THE APPELLANT. THE A.O.S ANO THER OBSERVATION IN THE ASSESSMENT ORDER THAT COMMISSION HAD BEEN PAID BY T HE SELLER I.E. NEG MICON ONLY IN RESPECT TO SALES TO THE WEIZMANN GROUP AND NOT T O OTHER CONCERNS WHO HAD MADE PURCHASES FROM IT, IT IS TO BE NOTED THAT THE APPEL LANT DID NOT PAY ANY COMMISSION TO ANYBODY. IF NEG MICON HAD DEBITED COMMISSION ETC , IN THE NAME OF 3RD PARTIES THAT WAS BETWEEN NEG MICON AND THE OTHER PARTIES AN D IT WOULD HAVE NO BEARING ON THE APPELLANT. MOREOVER, THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT NEC MICON WAS PAYING COMMISSION ON THE SALES TO WEIZIMANN GROUP ONLY. IT IS NOT KNOWN AS TO HOW THE A.O. COULD GIVE SUCH FINDIN GS THAT NEC MICON HAD NOT PAID ANY COMMISSION TO PURCHASERS OTHER THAN WEIZIMANN G ROUP WITHOUT ANY EVIDENCE ON RECORD. THIS OBSERVATION OF IN THE ASSESSMENT ORDER ALSO DOES NOT SUPPORT HER CONTENTION THAT THERE WAS INFLATION IN THE PURCHASE PRICE MADE BY THE APPELLANT BY RS.1 CRORE PER EACH WINDMILL. 2.11 THE OBSERVATION OF THE AO IN THE ASSESSMENT OR DER THAT THE COMPANIES FLOATED BY SUJANA GROUP AT HYDERABAD WERE PAPER COM PANIES, HOW THE APPELLANT COULD COME TO KNOW THAT THOSE COMPANIES WERE PAPER COMPANIES OR NOT AND FOR THAT MATTER HOW COULD IT PROVE THAT THERE WAS INFLATION OF PURCHASE OF EACH WINDMILL BY THE APPELLANT. AGAIN THE VIEW POINT OF THE AO THA T THERE WAS A COLLUSION BETWEEN KARMA ENERGY LTD., M/S. WEIZMANN LTD 21 NEG MICON AND WEIZMANN WHEREBY ACCOMMODATION ENTRIE S IN THE FORM OF COMMISSION WERE RESORTED TO AND THE AMOUNT OF THE A LLEGED INFLATION OF EACH WINDMILL AT RS.1 CRORE HAD BEEN RECEIVED BACK LACKS CONVICTION AS I FIND THAT THERE WAS NO EVIDENCE TO SHOW THAT THERE WAS COLLUSION BE TWEEN NEG MICON AND THE WEIZMANN. THE APPELLANT COMPANY DID NOT RECEIVE A NY AMOUNT FROM ANYBODY IN THIS REGARD. HOW COULD THE RECEIPT OF AMOUNT BY OTH ER ENTITIES OF THE GROUP WHO ARE ARE INDEPENDENT ASSESSES AND IN THE COURSE OF THEI R INDEPENDENT BUSINESS FOR VARIOUS SERVICES RENDERED TO HYDERABAD COMPANIES ON ACCOUNT OF SYNDICATION, FINANCIAL SERVICES AND QUALITY CHECKING ETC. IMPLIC ATE THE APPELLANT IN ANY COLLUSIVE TRANSACTIONS. THE GROUP COMPANIES RAISED DEBIT NOTE S IN RESPECT OF THE SAID SERVICES RENDERED TO THEM AND ON THE INSTRUCTIONS OF THESE C OMPANIES NEG MICON REMITTED RS.4.18 CRORES TO SOHAMI TRADERS WHO IN TURN PASSED ON THESE AMOUNTS TO THE OTHER GROUP COMPANIES. THE OTHER COMPANIES HAD FULLY DISC LOSED THE SAID RECEIPTS IN THEIR RESPECTIVE RETURNS OF INCOME AND OFFERED FOR TAXAT ION. IN MY VIEW, THESE WERE INDEPENDENT TRANSACTIONS ENTERED INTO BETWEEN THE O THER GROUP COMPANIES AND COMPANIES BELONGING TO SUJANA GROUP. THESE TRANSACT IONS, THEREFORE, CANNOT BE HELD AS CIRCUITOUS TRANSACTIONS SO AS TO SAY THAT ALLEGE D INFLATED COST HAD BEEN RECEIVED BACK. THERE IS NOTHING ON RECORD TO PROVE THAT THE SAID TRANSACTIONS HAD NOT TAKEN PLACE. FOR SERVICES RENDERED DEBIT NOTES HAD BEEN I SSUED. THEREFORE, THE SAID TRANSACTION CANNOT BE A BASIS FOR HOLDING THAT INFL ATION IN PURCHASE PRICE HAD TAKEN PLACE. I HAVE ALSO NOTED THAT DURING SURVEY AND SEA RCH AT NEG MICON (INDIA) PVT. LTD., NO EVIDENCE HAD BEEN GATHERED TO SHOW THAT TH E APPELLANT HAD PURCHASED WINDMILL AT AN INFLATED PRICE. DURING THE SURVEY AT THE APPELLANTS BUSINESS PREMISES, NO EVIDENCE WAS GATHERED ABOUT THE INFLATION IN THE PURCHASE PRICE OF THE WINDMILL. NOBODY EVER ADMITTED THAT INVOICES FOR PURCHASES OF WIND MILLS HAD BEEN INFLATED. THE SEVERAL INSTANCES AND OBSERVATIONS NOTED BY THE A.O. IN THE ASSESSMENT ORDER ALSO DID NOT PROVE THAT THE APPELLANT HAD PURCHASED THE WINDMILL AT INFLATED PRICE. THE SEVERAL INSTANCES AND OBSERVATIONS NOTED BY THE AO IN THE ASSESSMENT ORDER ALSO DID NOT PROVE THAT THE APPELLANT HAD PURCHASED THE WIND MILL AT INFLATED PRICE. THEREFORE, THE DISALLOWANCE OF THE DEPRECIATION OF RS.9 CRORE ON THE PRESUMPTUOUS GROUND THAT THERE WAS INFLATION IN THE PURCHASE PRI CE WAS NOT JUSTIFIED. SUCH AN ACTION ON THE BASIS OF ASSUMPTIONS, SURMISES AND GU ESSWORK AND WITHOUT ANY CONCRETE EVIDENCE CANNOT BE SUSTAINED. ACCORDINGLY, THE DISALLOWANCE OF RS.9 CRORE IS DELETED. 12. HENCE, THIS APPEAL BY THE DEPARTMENT. 13. ON BEHALF OF REVENUE, IT WAS CONTENDED THAT DUR ING THE COURSE OF SURVEY AT THE PREMISES OF NEGMIPL, FROM WHOM ASSESSEE HAD PURCHAS ED 12 WIND MILLS IT WAS FOUND THAT THE NORMAL PRICE OF WIND MILL WAS OF RS.2.25 C RORES TO RS.2.50 CRORES TO OTHER BUYERS AND WHEREAS SALE PRICE TO THE ASSESSEE GROU P WAS BETWEEN RS.3.5 CRORES TO RS.3.6 CRORES AND, THEREFORE, SALE PRICE WAS INFLAT ED @ RS.1 CRORE PER WIND MILL. HE SUBMITTED THAT NEGMIPL PURCHASED BOGUS BILLS OF RS. 15.31 CRORES FROM M/S.SAMBHAV KARMA ENERGY LTD., M/S. WEIZMANN LTD 22 STEEL DISTRIBUTORS, A PROPRIETARY CONCERN OF SHRI. ABHAY MOHNOT OF CHENNAI, AND HE IMMEDIATELY RETURN CASH TO NEGMIPL. LD D.R. SUBM ITTED THAT INFLATED PRICE PAID BY ASSESSEE COMPANY TO NEGMIPL WAS RECEIVED BACK BY WE IZMANN GROUP THROUGH CERTAIN TRANSACTIONS WHICH HAVE BEEN DISCUSSED BY THE AO IN THE ASSESSMENT ORDER. LD D.R. SUBMITTED THAT FROM THE COMPARATIVE COST OF WIND MI LLS SUPPLIED BY NEWGMIPL TO OTHERS AND WIND MILLS PURCHASED BY THE ASSESSEE, IT WAS FOUND THAT ASSESSEE PAID INFLATED PRICE @ RS.1 CRORE PER WIND MILL AND THUS CLAIMED EXCESS DEPRECIATION. HE SUBMITTED THAT THE CIRCUMSTANCES AS BROUGHT OUT BY THE AO CLEARLY SHOW THAT THE AMOUNT PAID BY ASSESSEE TO NEGMIPL WAS NOT THE REAL COST AND IF IT WAS NOT THE REAL PRICE, THE SAME CAN BE CHANGED BY THE AO. TO SUBST ANTIATE HIS SUBMISSION, HE RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF JOGTA COAL CO. LTD VS CIT, 55 ITR 89(CAL), WHEREIN, IT WAS HELD THAT THE ORIGINA L COST OF ANY PARTICULAR ASSET IS ENTIRELY A QUESTION OF FACT, AND IF THE CIRCUMSTANCES SHOW T HAT AN ASSESSEE HAS ARRANGED TO PUT A FICTITIOUS PRICE ON HIS ASSETS, IT IS OPEN TO THE D EPARTMENT TO REFUSE TO ACCEPT THAT PRICE AND TO ASCERTAIN WHAT THE ORIGINAL COST WAS. LD D. R. SUBMITTED THAT HONBLE SUPREME COURT IN THE CASE OF GUZDAR KAJORA COAL MINES LTD V S. CIT, 85 ITR 599(SC) HAS HELD THAT THE DEPARTMENT WAS COMPETENT TO GO BEHIND THE DEED OF CONVEYANCE AND FIXED VALUATION OF ASSETS ON ITS OWN. LD D.R. REFERRED T O PAGE 9 OF THE ORDER OF LD CIT(A) AND SUBMITTED THAT THE COMPARISON OF COST OF WIND MILL PURCHASED BY SAVITA CHEMICALS LTD COULD NOT BE COMPARABLE WITH ASSESSEE HAS IN THAT C ASE IT WAS ONE OF THE PART OF THE CONTRACT OF REPLACEMENT OF PARTS AT FREE OF COST IF GENERATION @ 85% OF THE POWER CURVE IS NOT ACHIEVED UNLIKE SUCH STIPULATION IN THE CAS E OF THE CONTRACT OF ASSESSEE. THEREFORE, BOTH THE CONTRACTS ARE NOT COMPARABLE. HE SUBMITTED THAT AO RIGHTLY COMPARED THE CONTRACT OF RAJASTHAN STATE POWER CORP ORATION LTD.,(RSPC) WITH THE ASSESSEE AND FOUND THAT THE VALUE PER WIND MILL IN THE CASE OF RSPC WAS RS.281.22 KARMA ENERGY LTD., M/S. WEIZMANN LTD 23 LAKHS AS COMPARED TO RS.360.64 LAKHS PER WIND MILL IN THE CASE OF ASSESSEE IN SPITE OF THE FACT THAT THE WARRANTY PERIOD IN THE CASE OF RS PC WAS 24 MONTHS AS AGAINST 12 MONTHS IN THE CASE OF ASSESSEE. HE FURTHER SUBMITT ED THAT EVEN IF THE TERMS OF CONTRACT OF NEDCAP ARE COMPARED WITH THE ASSESSEE, THE PURCH ASE PRICE PER WIND MILL IS RS.275 LAKHS AS AGAINST RS.360.64 LAKHS AND THERE IS NO MA TERIAL DIFFERENCE IN OTHER TERMS AND CONDITIONS EXCEPT THAT SITE IN THE CASE OF THE ASSE SSEE IS EARTHQUAKE PRONE. LD D.R. SUBMITTED THAT LD CIT(A) HAS NOT CONSIDERED FULLY A LL THE EVIDENCE AS DISCUSSED BY THE AO AND, THEREFORE, HE WAS NOT JUSTIFIED TO DELETE T HE DISALLOWANCE OF DEPRECIATION OF RS.9 CRORES MADE BY THE AO. HE SUBMITTED THAT THE ORDER OF LD CIT(A) BE REVERSED AND THE ACTION OF THE AO SHOULD BE CONFIRMED. 14. ON THE OTHER HAND, LD A.R. IN HIS SUBMISSION IN THE PRELIMINARY OBJECTION STATED THAT THE APPEALS FILED BY DEPARTMENT FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004- 05 ARE NOT MAINTAINABLE AS TAX EFFECT IN EACH OF TH E APPEALS IS LESS THAN RS.2 LAKHS. LD A.R. SUBMITTED THAT ASSESSEE FILED LOSS RETURN OF RS.37,00,63,369 FOR ASSESSMENT YEAR 2002-03 AND EVEN AFTER DISALLOWANCE MADE BY THE AO, THE LOSS IS RS.26.03 CRORES. HE SUBMITTED THAT FOR ASSESSMENT YEAR 2003-04, ASSESSE E FILED THE RETURN LOSS OF RS.1,41,37,654. HE SUBMITTED THAT FOR ASSESSMENT Y EAR 2004-05, ASSESSEE FILED RETURN DECLARING NIL INCOME. LD A.R. SUBMITTED THAT AO PA SSED THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2003-04 ON 16.3.2006 I.E. BEFORE AO PASSED ASSESSMENT ORDER FOR ASSESSMENT YEAR 2002-03 AND IF THE LOSS OF ASSESSME NT YEAR 2002-03 IS CARRIED FORWARD TO ASSESSMENT YEAR 2003-04, IT WILL BE MORE. LD A. R. SUBMITTED THAT THE APPEALS FOR ASSESSMENT YEARS 2002-03 TO 2004-05 ARE FILED PRIOR TO ISSUANCE OF INSTRUCTION OF CBDT NO.05/2008 DT.15.5.2008 AND, THEREFORE, EARLIER INS TRUCTION BEING INSTRUCTION NO.2/2005 DT.24.10.2005 IS APPLICABLE. HE SUBMITTED THAT IN THE INSTRUCTION NO.2/2005, THE TAX KARMA ENERGY LTD., M/S. WEIZMANN LTD 24 EFFECT WAS NOT CLARIFIED TO INCLUDE NOTIONAL TAX IN LOSS CASES AND THIS WAS CLARIFIED FOR THE FIRST TIME VIDE INSTRUCTION NO.5/2008 DT.15.5.2008 IN PARA 4 AS UNDER: FOR THIS PURPOSE, TAX EFFECT MEANS THE DIFFERENC E BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HA VE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF INCOME IN RESPECT OF THE ISSUE AGAINST WHICH APPEAL IS INTENDED TO BE FILED (HEREINAFTER REFERRED TO AS DISPUTED ISSUES). HOWEVER, THE TA X WILL NOT INCLUDE ANY INTEREST THEREON. SIMILARLY, IN LOSS CASES NOTIONA L TAX EFFECT SHOULD BE TAKEN INTO ACCOUNT. IN THE CASES OF PENALTY ORDER, THE TAX EFFECT WILL MEAN QUANTUM OF PENALTY DELETED OR REDUCED IN THE O RDER TO BE APPEALED AGAINST. 14.1 LD A.R. SUBMITTED THAT IN RESPECT OF APPEALS F OR ASSESSMENT YEARS 2002-03 AND 2003-04 BEING I.T.A. NOS.3330 & 3331/M/2007 WERE FI LED ON 6.6.2007 AND WHEREAS APPEAL FOR ASSESSMENT YEAR 2004-05 BEING I.T.A. NO. 7670/M/07 WAS FILED ON 28.12.2007 AND, THEREFORE, INSTRUCTION OF CBDT NO.2/2005 DATED 24.10.2005 WOULD BE APPLICABLE AND NOT CBDT INSTRUCTION NO.5/2008 DT.15.5.2008. H E SUBMITTED THAT APPEALS OF DEPARTMENT FOR THESE THREE ASSESSMENT YEARS SHOULD BE DISMISSED IN LIMINE AS THE NET INCOME WAS A LOSS. IN THIS RESPECT, LD A.R. SUBMIT TED THAT THE RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04 IS A LOSS OF RS.1.41 CRORES BEFORE CONSIDERING BROUGHT FORWARD LOSS AND POST ADDITION BY AO OF RS.4.01 CRORES, THE NET INCOME BEFORE SETTING OFF OF BROUGHT FORWARD LOSS IS RS.2.60 CRORES AND POST BR OUGHT FORWARD SET OFF OF BROUGHT FORWARD LOSS, THE INCOME WOULD BE NIL. SIMILARLY F OR ASSESSMENT YEAR 2004-05, RETURN OF INCOME BEFORE SETTING OFF OF BROUGHT FORWARD LOSS I S RS.7.73 CRORES AND AFTER ADDITIONS OF RS.1.57 CRORE BY AO, THE NET INCOME BEFORE SETTING OFF OF BROUGHT FORWARD LOSS IS RS.9.31 CRORES AND POST SETTING OFF OF BROUGHT FORWARD LOSS , THE INCOME WAS REDUCED TO NIL. SINCE THE TAX EFFECT BEING NIL FOR ALL THESE ASSESS MENT YEARS, APPEALS FILED BY DEPARTMENT ARE TO BE DISMISSED AS NOT MAINTAINABLE. TO SUBSTA NTIATE HIS SUBMISSION, LD A.R. REFERRED THE DECISION OF HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS. CONTINENTAL CONSTRUCTION LTD., 336 ITR 394 (DEL), WHEREIN, IT W AS HELD THAT MONETARY CEILING KARMA ENERGY LTD., M/S. WEIZMANN LTD 25 MENTIONED IN INSTRUCTION NO.5/2008 DATED 15.5.2008 FOR NOTIONAL TAX EFFECT WOULD APPLY PROSPECTIVELY IN VIEW OF PARA 11 OF THE SAID CIRCUL AR WHICH SPECIFICALLY PROVIDES THAT INSTRUCTION ISSUED WOULD APPLY TO APPEALS FILED ON OR AFTER 15.5.2008. HE SUBMITTED THAT SAID DECISION OF HONBLE DELHI HIGH COURT WAS FOLLO WED BY ITAT DELHI IN THE CASE OF ITO VS. SPECIALTY COATINGS & LAMINATION LTD., 144 TTJ 5 32 (DEL) AND HELD THAT FOR THE APPEALS FILED BEFORE 15.5.2008, NOTIONAL TAX EFFECT IS NOT TO BE TAKEN INTO CONSIDERATION AND, ACCORDINGLY, APPEAL OF DEPARTMENT WAS DISMISSE D FOR LESS TAX EFFECT. HE SUBMITTED THAT ITAT MUMBAI BENCH IN THE CASE OF DCIT VS. ESSA R STEEL LIMITED (I.T.A. NO.3227/MUM/2005 AND I.T.A. NO.1656/M/2001 FOR A.Y. 2007-08 VIDE ORDER DATED 20.3.2012 BY FOLLOWING THE ABOVE DECISIONS OF HONB LE DELHI HIGH COURT AND ITAT DELHI (SUPRA) ALSO DISMISSED THE APPEALS FILED BY DEPARTM ENT BY HOLDING THAT NO NOTIONAL TAX EFFECT HAS TO BE TAKEN IN TO ACCOUNT WHILE COMPUTIN G THE MONETARY CEILING IN RESPECT OF APPEALS FILED PRIOR TO THE ISSUE OF INSTRUCTION OF 15.5.2008. LD A.R. SUBMITTED THAT ABOVE DECISIONS ARE BINDING TO CO-ORDINATE BENCHES AND, T HEREFORE, APPEALS OF DEPARTMENT FOR THESE THREE ASSESSMENT YEARS I.E. 2002-03, 2003-04 AND 2004-05 BE DISMISSED AS NOT MAINTAINABLE IN VIEW OF MONETARY TAX LIMIT AS PER C BDT INSTRUCTION NO.2/2005 DT.24.10.2005. 14.2 WITHOUT PREJUDICE TO ABOVE, LD A.R. ALSO MADE HIS SUBMISSIONS ON MERITS TO JUSTIFY THE ORDER OF LD CIT(A). LD A.R. MADE HIS S UBMISSIONS AT LENGTH ON MERITS ON THE LINES OF SUBMISSIONS MADE BEFORE LD CIT(A), RELEVAN T PART OF WHICH HAS BEEN MENTIONED HEREINABOVE. LD A.R. SUBMITTED THAT ASSESSEE PURCH ASED 12 WIND MILLS IN A.Y. 2002-03 ON ITS OWN BESIDES TAKING 12 WIND MILLS OF IDENTICA L SPECIFICATIONS ON LEASE WHICH WERE PURCHASED BY ASSESSEES GROUP COMPANY M/S. WEIZMAN N LTD. HE SUBMITTED THAT WIND MILLS PURCHASED BY ASSESSEE WERE BRAND NEW AND HAD NEVER BEEN PUT TO USE PRIOR TO ITS KARMA ENERGY LTD., M/S. WEIZMANN LTD 26 SALES TO ASSESSEE. THEREFORE, EXPLANATION 3 TO SE CTION 43(1) IS NOT ATTRACTED. LD A.R. SUBMITTED THAT IF THE COST OF WIND MILLS IS INFLATE D AND THE SUPPLIERS OF WIND MILLS NAMELY NEGMIPL HAD PAID 15% COMMISSION AND MANAGEMENT FEE TO M/S. SAMRAT SPINNER & M/S. KAKATIYA INDUSTRIES, ASSESSEE IS NOT CONCERNED FOR IT. FURTHER NEGMIPL HAD THE WRITTEN AUTHORIZATION OF THE SAID TWO ENTITIES M/S. SAMRAT SPINNER & M/S. KAKATIYA INDUSTRIES TO REMIT THE AMOUNT TO M/S. SUHAMI TRADE RS AS THEY HAD CERTAIN OBLIGATION TO DISCHARGE TO CERTAIN GROUP ENTITIES OF THE ASSESSEE . HE SUBMITTED THAT SAID PAYMENT OF COMMISSION AND PROJECT MANAGEMENT FEES BY NEGMIPL C ANNOT BE CORRELATED TO CONCLUDE THAT THE COST OF WIND MILLS STOOD INFLATED. THAT S AID OBSERVATION OF THE AO IN THE ASSESSMENT ORDER HAS NO RELEVANCE AS FAR AS COST P AID BY ASSESSEE FOR PURCHASE OF WIND MILLS TO NEGMIPL. HE SUBMITTED THAT THERE IS NO EV IDENCE BROUGHT ON RECORD BY THE AO THAT ANY MONEY CAME BACK TO THE ASSESSEE FROM NEGMI PL. LD A.R. FURTHER SUBMITTED THAT THE AOS OBSERVATION THAT NEGMIPL HAD INFLATED THEIR PURCHASES BY OBTAINING FICTITIOUS PURCHASE BILL TO THE EXTENT OF RS.15.31 CRORES TO ONE M/S. SAMBAV STEEL DISTRIBUTORS, A PROPRIETARY CONCERN OF SHRI ABHAY M OHNOT OF CHENNAI (AS DISCUSSED IN PARA 3.6 OF ASSESSMENT ORDER), WHO HAD ADMITTED HAV ING GIVEN ACCOMMODATION ENTRIES TO NEGMIPL HAS NO RELEVANCE TO THE ASSESSEE AS IT I S PURELY AN INTERNAL MATTER OF NEGMIPL. ON THE OTHER HAND, THERE IS NO FINDING BY THE AO THAT THE SAID AMOUNT WAS RECEIVED BY ASSESSEE OR ITS GROUP ENTITIES. THEREF ORE, TO CORROBORATE THE SAID OBSERVATION BY THE AO IN ASSESSMENT ORDER GIVES A M ISLEADING PICTURE TO MAKE HIS ASSUMPTION THAT ASSESSEE INFLATED PURCHASE PRICES O F WIND MILLS. LD A.R. REFERRED PAGES 57 TO 62 OF PB, WHICH IS A COPY OF AFFIDAVIT FILED BY THE SECRETARY, REDAM BEFORE MERC STATING THE INSTALLATION OF WIND MILLS BY 72 PARTIE S AND THE NAME OF THE ASSESSEE IS APPEARING AT SL. NO.45 OF THAT LIST AT PAGE 60 OF P B AND ALSO STATING THE PROJECT COST. HE SUBMITTED THAT ASSESSEE ALSO FILED A COMPARATIVE ST ATEMENT OF CONTRACT OF SAVITA KARMA ENERGY LTD., M/S. WEIZMANN LTD 27 CHEMICALS LTD., AND COST PRICE PER WIND MILL OF TH AT CONCERN IS RS.405 LAKHS AS COMPARED TO RS.360.64 LAKHS OF THE ASSESSEE. HE SUBMITTED T HAT THE WIND MILLS OF BOTH PARTIES I.E. M/S. SAVITA CHEMICALS LTD., AND OF ASSESSEE ARE ON IDENTICAL MODEL SITUATED AT SAME SITE AND HAVING MOST OF THE PARAMETERS MATCHING. HE SUB MITTED THAT AO PLACED RELIANCE OF COMPARISON OF THREE OTHER PARTIES WHO HAD INSTALLED WIND MILLS IN DIFFERENT STATE AND CONCLUDED THE PRICE BY COMPARING ONE OR TWO PARAMET ERS OF WIND MILL OF THOSE THREE PARTIES VIS-A-VIS-ASSESSEE. HE SUBMITTED THAT AO DI D NOT CONSIDER MAIN CHARACTERISTIC AND SCOPE OF WORK AND, THEREFORE, AO WAS NOT JUSTIF IED TO CONCLUDE THAT THE COST OF WIND MILLS OF OTHER PARTIES WERE AT LESSER PRICE VIS--V IS ASSESSEE. LD A.R. FURTHER REFERRED PAGES 7 & 8 OF ORDER OF LD CIT(A) WHICH CONTAIN A C OMPARATIVE STATEMENT OF THE CONTRACT OF THREE PARTIES (DETAILS ALSO MENTIONED HEREINABOV E IN PARA 10.5) TO POINT OUT THE DIFFERENCE BETWEEN THE TERMS OF THE PURCHASE OF THO SE PARTIES WITH THE ASSESSEE. LD A.R. SUBMITTED THAT WIND MILLS INSTALLED BY ASSESSE E ARE IN A HILLY AREA AND WHICH IS ALSO EARTHQUAKE PRONE AREA AND, THEREFORE, THE FOUNDATIO N IS REQUIRED TO BE OF SPECIFIC DESIGN AND MUCH STRONGER AND ON THE OTHER HAND THE WIND MI LLS INSTALLED BY OTHER PARTIES ARE NOT IN EARTHQUAKE PRONE AREA. HE FURTHER SUBMITTED THAT THE HEIGHT OF THE TOWER IN THE CASE OF THE ASSESSEE IS 55 MTRS UNLIKE IN THE CASE OF OTHER PARTIES. LD A.R. FURTHER SUBMITTED THAT LD CIT(A) HAS RIGHTLY CONSIDERED THE DIFFERENCE IN THE CONTRACT OF THE ASSESSEE WITH OTHER PARTIES TO HOLD THAT WIND MILL PRICE OF THE SAID PARTIES CANNOT BE COMPARABLE WITH THAT OF ASSESSEE. HE FURTHER SUBMI TTED THAT AS PER AFFIDAVIT FILED BEFORE MERC BY THE SECRETARY, REDAM, THE COST PER MW VARIE D ON AN AVERAGE BETWEEN RS.5 CRORES TO RS.6.60 CRORES. HE SUBMITTED THAT MERC R ELIED ON THE SAID AFFIDAVIT IN ITS TARIFF ORDER DATED 24.11.2003 AND DETERMINED THE AVERAGE C OST OF WIND MILL PROJECTS AT RS.5.36 CRORES PER WIND MILL PROJECT. LD A.R. FURT HER SUBMITTED THAT THE ACTUAL COST COULD BE DISTURBED BY THE AO IN FIRST YEAR I.E. THE YEAR IN WHICH ASSETS WERE ENTERED IN KARMA ENERGY LTD., M/S. WEIZMANN LTD 28 THE BOOKS AND FOR SUBSEQUENT YEARS ONLY THE WRITTEN DOWN VALUE IS TO BE CONSIDERED. HE SUBMITTED THAT AO COMPLETED THE ASSESSMENT FOR ASSE SSMENT YEAR 2003-04 FIRST THOUGH THE ASSESSEE CAPITALIZED THE SAID ASSETS FOR THE FI RST TIME IN THE YEAR OF ITS PROCUREMENT AND COMMISSIONING I.E. A.Y. 2002-03. THEREFORE, A. Y. 2003-04 IS THE SECOND YEAR AFTER ACQUISITION OF THE ASSETS AND AS SUCH, DEPRECIATION CAN BE CLAIMED ONLY ON THE WRITTEN DOWN VALUE OF THE ASSET IN THE BLOCK OF ASSETS AS A T THE END OF THE PREVIOUS ASSESSMENT YEAR IN ACCORDANCE WITH SECTION 43(6) OF THE ACT. LD A.R. SUBMITTED THAT IN THE NEXT YEAR I.E. A.Y. 2003-04, AO ARBITRARILY DISALLOWED D EPRECIATION OF RS.3 CRORES ON 12 WIND MILLS ON SIMILAR FACTS WHICH HE DISCUSSED IN A.Y. 2 002-03 I.E. INFLATION OF COST OF PURCHASE OF WIND MILL @ RS.1 CRORE PER WIND MILL. 15. IN HIS REJOINDER, LD D.R. FOR THE DISMISSAL OF APPEALS OF DEPARTMENT FOR A.Y. 2002- 03 TO 2004-05 AS THE TAX EFFECT IS BELOW RS.2 LAKHS , PLACED RELIANCE OF CBDT INSTRUCTION NO.2/2005 DATED 24.10.2005 AND SUBMITTED THAT CBDT VIDE ITS INSTRUCTION NO.5/2008 DT.15.5.2008 CLARIFIED THE TAX EFFECT THAT IN LOSS CASES, NOTIONAL TAX EFFECT SHOULD BE TAKEN INTO ACCOUNT. HE SUBMITTED THAT SAID PARA 4 OF INSTRUCTION NO.5/2008 IS CLARIFICATORY IN NATURE AND SHOULD BE EFFECTIVE RET ROSPECTIVELY. SINCE, THE TAX EFFECT INVOLVED IN THESE APPEALS IS MORE THAN THE LIMIT PR ESCRIBED IN THE SAID CIRCULAR, ALL THE APPEALS SHOULD BE CONSIDERED ON MERITS. 16. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE CAS ES CITED BEFORE US AS WELL AS RELEVANT PAGES OF PAPER BOOK RELIED UPON BY BOTH PARTIES. 17. IN RESPECT OF PRELIMINARY OBJECTION TAKEN BY LD A.R. THAT THE APPEALS OF DEPARTMENT FOR ASSESSMENT YEARS 2002-03 TO 2004-05 ARE NOT MAINTAINABLE AND ARE TO KARMA ENERGY LTD., M/S. WEIZMANN LTD 29 BE DISMISSED IN LIMINE AS THE TAX EFFECT IN EACH OF THE APPEAL IS LESS TH AN RS.2 LAKHS ON ACCOUNT OF LOSS RETURN FILED AND THE ASSESSED INCOM E WAS ALSO A LOSS, WE OBSERVE THAT AS THE SAME VERY ISSUE HAS BEEN CONSIDERED RECENTLY BY ITAT MUMBAI IN THE CASE OF M/S. ESSAR STEEL LTD (SUPRA). THE SAID ORDER HAS BEEN P ASSED AFTER CONSIDERING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CONTINENTAL CONSTRUCTIONS LIMITED (SUPRA) AND ALSO THE DECISION OF ITAT DELHI IN THE CASE OF SPEC IALTY COATINGS & LAMINATION LTD (SUPRA). WE CONSIDER IT NECESSARY TO STATE PARA 4 OF THE ORDER IN CASE OF ESSAR STEEL LTD (SUPRA) WHICH READS AS UNDER: 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING MAINTAINABILITY OF APPEALS ONLY ON GROUND OF LOW TAX EFFECT. CBDT HAD BEEN ISSUING CIR CULARS FROM TIME TO TIME DIRECTING REVENUE AUTHORITIES NOT TO FILE APPE AL BEFORE THE TRIBUNAL OR HIGH COURTS IN CASE TAX EFFECT WAS LESS THAN A PART ICULAR AMOUNT. INSTRUCTION NO.1979 DATED 27.3.2000, PROVIDED THAT NO APPEAL WOULD BE FILED BEFORE TRIBUNAL IF THE TAX EFFECT WAS LESS TH AN RS.1.00 LACS, AND THEREAFTER INSTRUCTION DATED 17.7.2003 CLARIFIED TH AT MONETARY LIMIT/TAX EFFECT MENTIONED IN THE CIRCULAR HAS TO BE READ AS REVENUE EFFECT WHICH WOULD MEAN TAX, INTEREST, PENALTY, FINE OR ANY OTHE R SUM INVOLVED. FURTHER, VIDE CIRCULAR DATED 24.10.2005 CBDT ENHANC ED MONETARY LIMIT FOR FILING APPEAL BEFORE THE TRIBUNAL TO RS.2.00 LA CS AND VIDE INSTRUCTION NO.16.7.2007 IT WAS CLARIFIED THAT THE TAX EFFECT W OULD MEAN TAX ONLY AND NO INTEREST. CBDT BY SUBSEQUENT INSTRUCTION NO.5 OF 2008 DATED 15.5.2008 CLARIFIED THAT THE TAX EFFECT WOULD ALSO MEAN NOTIONAL TAX EFFECT IN CASES OF LOSSES. THUS, FOR THE FIRST TIME, IT WA S MADE CLEAR THAT EVEN NOTIONAL TAX EFFECT HAD TO BE TAKEN INTO ACCOUNT BU T THE INSTRUCTION ALSO MADE IT CLEAR THAT IT WOULD APPLY ONLY TO APPEALS F ILED AFTER 15.5.2008 AND THAT APPEALS FILED PRIOR TO THAT DATE WOULD BE GOVE RNED BY INSTRUCTIONS WHICH WERE IN OPERATION AT THE TIME OF FILING OF AP PEAL. HONBLE HIGH COURT OF DELHI IN THE CASE OF CONTINENTAL CONSTRUCTIONS L IMITED (336 ITR 394), HAVE HELD THAT THOUGH FOR THE PURPOSE OF MONETARY L IMIT, CIRCULAR ISSUED BY CBDT PRESCRIBING A PARTICULAR LIMIT WOULD APPLY TO ALL PENDING APPEALS BUT THE NOTIONAL TAX EFFECT AS PRESCRIBED IN THE IN STRUCTION DATED 15.5.2008 WOULD BE PROSPECTIVE AND WOULD NOT APPLY TO PENDING APPEALS. FOLLOWING THE SAID JUDGMENT, THE DELHI BENCH OF THE TRIBUNAL IN CASE OF ITO VS. SPECIALTY COATINGS & LAMINATION LTD. (144 T TJ 532), HAS HELD THAT THE REAL TAX EFFECT AND NOT NOTIONAL TAX EFFECT HAS TO BE TAKEN INTO ACCOUNT WHILE COMPUTING THE MONETARY CEILING IN RES PECT OF APPEALS FILED PRIOR TO THE ISSUE OF INSTRUCTION OF 15.5.2008. THE CASE OF THE ASSESSEE IS IDENTICAL. WE HAVE THEREFORE TO FOLLOW THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL (SUPRA), AND RESPECTIVELY FOLLOWING THE SAME, WE DISMISS BOTH THE APPEALS FILED BY THE REVENUE AS NON-MAINTA INABLE. KARMA ENERGY LTD., M/S. WEIZMANN LTD 30 18. HENCE, THE APPEALS OF DEPARTMENT FOR ASSESSMENT YEARS 2002-03 TO 2004-05 ARE LIABLE TO BE DISMISSED IN LIMINE, BUT WE OBSERVE T HAT THE FACTS AND THE ISSUE INVOLVED IN THE APPEALS FOR ASSESSMENT YEARS 2002-03 AND 2003-0 4 ARE INTER LINKED WITH THE APPEALS FOR SUBSEQUENT ASSESSMENT YEARS VIZ; A.Y. 2 005-06 AND A.Y. 2006-07. THEREFORE, IT IS NECESSARY TO DECIDE THE ISSUE INVO LVED IN THE APPEALS FOR ASSESSMENT YEAR 2002-03 AS WELL ON MERITS INSTEAD OF DISMISSIN G THE APPEAL IN LIMINE. 19. NOW COMING TO THE MERITS, WE OBSERVE THAT ASSES SEE IN ASSESSMENT YEAR 2002- 03 PURCHASED 12 WIND MILLS AT COST OF RS.50,72,18,6 88, AS SHOWN FOR THE PURPOSE OF CALCULATING DEPRECIATION. AO DOUBTED THE COST OF A CQUISITION PER WIND MILL ON THE GROUND THAT DURING THE COURSE OF SURVEY UNDER SECTION 133A AT THE PREMISES OF SUPPLIER OF WIND MILLS NAMELY NEGMIPL AT CHENNAI, IT WAS FOUND THAT THE SAID COMPANY DEBITED COMMISSION @ 8% PAYABLE TO M/S. SAMRAT SPINNERS FOR INTRODUCING THE CUSTOMER I.E. INTER ALIA, ASSESSEE AND ALSO DEBITED @ 7% ON ACCO UNT OF PROJECT MANAGEMENT FEES PAYABLE TO M/S. KAKATIYA INDUSTRIES FOR SERVICES RE NDERED IN ASSISTING TO SET UP 12 WIND MILLS AS PURCHASED BY ASSESSEE. AO STATED THAT NEG MIPL DEBITED TOWARDS COMMISSION AND PROJECT MANAGEMENT FEES ON SALE OF WIND MILL TO THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 OF RS.1.15 CRORES IN THE ACCOUNT OF M/S. SA MRAT SPINNERS AND RS.4.53 CRORES IN THE ACCOUNT OF M/S. KAKATIYA INDUSTRIES. THE SAID COMPANIES BELONG TO SUJANA GROUP OF HYDERABAD. AO AFTER DISCUSSING THE WORKING OF OTHE R COMPANIES WHICH HAVE BEEN DISCUSSED HEREINABOVE, HAS COME TO THE CONCLUSION T HAT THE MONEY FROM M/S. SAMRAT SPINNERS AND M/S. KAKATIYA INDUSTRIES, HYDERABAD WA S REMITTED TO VARIOUS PROPRIETARY CONCERN OF THE PROMOTERS OF WEIZMANN IN THE GUISE O F PAYMENT OF SERVICES (FINANCIAL ASSISTANCE AND QUALITY CHECKING OF GRAY CLOTH RENDE RED BY THEM). AO HAS ALSO COMPARED KARMA ENERGY LTD., M/S. WEIZMANN LTD 31 THE COST OF WIND MILL OF OTHER THREE PARTIES (DETA ILS GIVEN HEREINABOVE IN PARA 10.5) AND STATED THAT 750/48 OR 750-200/48 IS BETWEEN RS.2.25 CRORES TO RS.2.5 CRORES AND WHEREAS SALES PRICE TO ASSESSEE IS VARIED BETWEEN RS.3.5 CRORES TO RS.3.6 CRORES PER WIND MILL. ACCORDINGLY, AO STATED THAT ASSESSEE IS NOT ENTITLED TO ANY DEPRECIATION ON THE INFLATED AMOUNT OF RS.12 CRORES I.E. @ RS.1 CRO RE PER WIND MILL AND, ACCORDINGLY, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y. 2 002-03, DISALLOWED DEPRECIATION OF RS.9 CRORES AND IN SUBSEQUENT ASSESSMENT YEAR I.E. A.Y. 2003-04, DISALLOWED BALANCE AMOUNT OF RS.3 CRORES AS DEPRECIATION. WE OBSERVE THAT AO HAS MADE THE SAID DISALLOWANCE OF DEPRECIATION OF RS.9 CRORES CONSIDE RING THE COST OF PER WIND MILL AS INFLATED BY RS.1 CRORE CONSIDERING THE COST OF PER WIND MILL OF OTHER BUYERS. ON THE OTHER HAND, WE OBSERVE THAT ASSESSEE HAS STATED THA T THE COST PRICE OF OTHER THREE BUYERS CONSIDERED BY AO NAMELY, PRECOT MILLS LTD., RSPC LTD., AND NEDCAP IS NOT COMPARABLE AS THERE WAS A VAST DIFFERENCE BETWEEN T HE SCOPE OF WORK TO BE COMPARED IN THE CASE OF THOSE PARTIES AND IN THE CASE OF ASS ESSEE. LD D.R. HAS NOT DISPUTED THE FACT THAT THE TERMS OF CONTRACT FOR SUPPLY OF WIND MILLS TO OTHER PARTIES (SUPRA) ARE NOT IDENTICAL TO THE TERMS OF CONTRACT FOR SUPPLY OF WI ND MILLS TO THE ASSESSEE, DETAILS OF WHICH HAVE ALSO GIVE BY LD CIT(A) AT PAGES 7-8 OF T HE IMPUGNED ORDER FOR ASSESSMENT YEAR 2002-03 AND HAVE ALSO BEEN REFERRED HEREINABOV E IN PARA 10.5. 20. DURING THE COURSE OF HEARING BEFORE LD CIT(A) A S WELL AS BEFORE US, ASSESSEE RELIED UPON AN AFFIDAVIT FILED BY REDAM BEFORE MERC STATING THAT THE COST OF PER WIND MILL VARIED BETWEEN RS.5.OO CRORES TO RS.6.60 CROR ES, COPY OF AFFIDAVIT IS PLACED AT PAGES 57 TO 62 OF PB ALONGWITH ANNEXURE AND THE SAI D MERC IN THEIR TARIFF ORDER DATED 24.11.2003 DETERMINED THE AVERAGE COST AT RS.5.36 C RORES PER WIND MILL. IT IS RELEVANT TO STATE THAT NAME OF THE ASSESSEE IS ALSO APPEARIN G IN THE ANNEXURE OF AFFIDAVIT AT KARMA ENERGY LTD., M/S. WEIZMANN LTD 32 SL.NO.45 STATING THE PROJECT COST. WE ALSO OBSERVE THAT ASSESSEE FILED ANOTHER STATEMENT GIVING COMPARATIVE COST OF WIND MILL OF THE SAME MA KE AND SAME CAPACITY PURCHASED BY M/S. SAVITA CHEMICALS LTD., DETAILS PLACED AT PAGE 63 OF PB, WHICH WAS ALSO INSTALLED AT THE SAME AREA WHERE ASSESSEE HAD INSTALLED WIND MIL LS AND IT SHOWS THAT THE CONTRACT VALUE OF SAME MAKE OF WIND MILL AT RS.405 LAKHS AS AGAINST ASSESSEES COST OF RS.360.64 LAKHS. ASSESSEE SUBMITTED BEFORE LD CIT(A) AND REI TERATED BEFORE US THE COMPARISON BETWEEN WIND MILLS PURCHASED BY THE ASSESSEE VIS-- VIS PURCHASED BY M/S. SAVITA CHEMICALS LTD., ARE MORE COMPARABLE. ASSESSEE ALS O CONTENDED BEFORE US THAT WIND MILLS OF THE PARTIES WHOSE COST HAD BEEN CONSIDERED BY AO WERE INSTALLED IN PLAIN AREA AND THAT TO NOT EARTHQUAKE PRONE AREA UNLIKE IN THE CASE OF ASSESSEE, WHICH WERE INSTALLED IN HILLY AREA AND ALSO THE AREA IS EARTHQ UAKE PRONE ZONE. THEREFORE, THE FOUNDATION IS REQUIRED TO BE SPECIFICALLY DESIGNED AND MUCH STRONGER WITH ADDITIONAL REINFORCEMENT TO WITHSTAND SUCH FORCE MEASURE CASES . IT IS ALSO A FACT THAT SAID THREE OTHER PARTIES (SUPRA) HAVING WIND MILLS IN DIFFEREN T STATES AND, THEREFORE, WE AGREE WITH LD A.R. THAT RELIANCE PLACED BY ASSESSEE ON THE COS T PRICE OF WIND MILL INSTALLED BY M/S. SAVITA CHEMICALS LTD., A MORE REALISTIC AS BOTH PAR TIES I.E. ASSESSEE AS WELL AS M/S. SAVITA CHEMICALS LTD., HAVE INSTALLED WIND MILLS ON IDENTI CAL MODELS AT THE SAME SITE AND HAVING MANY MATCHING PARAMETERS. CONSIDERING ABOVE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSUMPTION MADE BY THE AO THAT ASSESSEE IN FLATED THE COST PRICE @ RS.1 CRORE PER WIND MILL IS NOT BASED ON EVIDENCE AND/OR COGEN T MATERIAL BUT IS BASED ON ASSUMPTION AND SURMISES. THE OBSERVATION MADE BY T HE AO TO THE EFFECT THAT NEGIMPL OBTAINED FICTITIOUS PURCHASE BILL TO THE EXTENT OF RS.15.31 CRORES FROM M/S.SAMBHAV STEEL DISTRIBUTORS, A PROPRIETARY CONCERN OF SHRI. ABHAY MOHNOT OF CHENNAI, WHO HAD ADMITTED HAVING GIVEN ACCOMMODATION ENTRIES TO NEGMIPL, WE AGREE WITH LD CIT(A) THAT SAME KARMA ENERGY LTD., M/S. WEIZMANN LTD 33 HAS NO RELEVANCE TO THE TRANSACTIONS UNDER CONSIDER ATION AS IT IS NOT THE FINDING OF THE AO THAT THE SAID AMOUNT HAS BEEN RECEIVED BY ASSESS EE OR ASSESSEES GROUP ENTITIES. 21. IN REGARD TO CONTENTION OF LD D.R. THAT AO CAN CHANGE THE PURCHASE PRICE IF THE CIRCUMSTANCES SHOW THAT THEY ARE NOT ACTUAL COST, W E AGREE WITH LD D.R.S ABOVE SUBMISSION BUT IT IS A QUESTION OF FACT THAT IF THE AO WANTS TO CHANGE THE COST PRICE, ONUS IS ON THE AO TO BRING ON RECORD THE RELEVANT D OCUMENTS THAT PRICE AS SHOWN BY THE ASSESSEE IS NOT THE ACTUAL PRICE. HOWEVER, IN THE CASE BEFORE US, WE OBSERVE THAT AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD THAT THE PRI CE PER WIND MILL PAID BY ASSESSEE IS NOT THE ACTUAL PRICE AND IT IS LESS THAN IT. AS M ENTIONED HEREINABOVE, AO HAS ONLY GONE ON PRESUMPTION THAT ASSESSEE HAS INFLATED THE COST PRICE @ RS.1 CRORE PER WIND MILL ONLY FOR THE REASON THAT NEGMIPL PAID COMMISSION AND PRO JECT MANAGEMENT FEES TO M/S. SAMRAT SPINNERS AND M/S. KAKATIYA INDUSTRIES AT RS. 115 CRORES AND RS.303 CRORES RESPECTIVELY BUT NOWHERE IT HAS BEEN PROVED WITH AN Y DOCUMENTARY EVIDENCE THAT THE SAID MONEY HAS COME BACK TO THE ASSESSEE FROM THOSE CONCERNS. 22. ON THE OTHER HAND AS PER SECTION 43(1) OF THE A CT, ACTUAL COST MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE AND REDU CED BY THAT PORTION OF THE COST THAT HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PE RSON OR AUTHORITY. FURTHER, THERE IS NO DISPUTE TO THE FACT THAT THIRD PARTY HAS NOT PAID A NY COST OF PURCHASE PRICE BY THE ASSESSEE NOR IT IS THE CONTENTION OF DEPARTMENT THA T SAID WIND MILLS WERE EARLIER USED BY ANY OTHER PERSON. THEREFORE, THE SAID WIND MILLS A RE NEW AND HAD NOT BEEN EARLIER PUT TO USE BEFORE THEY WERE INSTALLED AT THE SITE OF TH E ASSESSEE. ACCORDINGLY, EXPLANATION (3) TO SECTION 43(1) OF THE ACT UNDER WHICH AO COUL D ALTER THE COST OF WIND MILL IS NOT APPLICABLE. WE ALSO OBSERVE THAT NONE OF THE EXPLA NATION TO SECTION 43(1) IS ALSO KARMA ENERGY LTD., M/S. WEIZMANN LTD 34 APPLICABLE TO THE FACTS OF THE CASE AND, ACCORDINGL Y, THE COST OF ASSETS OF WHICH ASSESSEE PURCHASED HAVE TO BE CONSIDERED THE COST PRICE OF W IND MILL. 23. CONSIDERING THE CONTENTION OF LD AUTHORIZED REP RESENTATIVES OF BOTH PARTIES AND ORDERS OF AUTHORITIES BELOW, WE ARE OF THE CONSIDER ED VIEW THAT LD CIT(A) HAS RIGHTLY HELD THAT DISALLOWANCE OF DEPRECIATION OF RS.9 CRORES I N A.Y. 2002-03 ON THE PRESUMPTION THAT THERE WAS INFLATION IN THE PURCHASE PRICE @ RS .1 CRORE PER WIND MILL IS NOT JUSTIFIED. HENCE, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2002-03. 24. IN GROUND NO.2 OF APPEAL, DEPARTMENT HAS DISPUT ED THE ORDER OF LD CIT(A) FOR ALLOWANCE OF DISALLOWANCE ON ACCOUNT OF LEASE RENT. 25. THE RELEVANT FACTS ARE THAT ASSESSEE HAD TAKEN 9 MW WIND FARM ON LEASE FROM M/S. WEIZMANN LTD., AND PAID LEASE RENT OF RS.5,80, 51,788. AO ASKED THE ASSESSEE TO JUSTIFY THE REASONABLENESS OF THE LEASE RENT PAID U /S.40A(2)(B) OF THE I.T.ACT, 1961. ASSESSEE FILED COPIES OF THE LEASE AGREEMENTS AND S UBMITTED THAT 9 MW WIND FARM HAD BEEN FINANCED BY IREDA. THAT THE LEASE RENTS PAYAB LE TO M/S. WEIZMANN LTD., HAVE BEEN STRUCTURED TAKING INTO CONSIDERATION THE INSTA LLMENTS OF PRINCIPAL AND INTEREST PAYABLE TO IREDA BY M/S. WEIZMANN LTD., THEREFORE, LEASE RENTS ARE BASED ON LENDING RATES OF THE FINANCIAL INSTITUTIONS NAMELY IREDA. 26. HOWEVER, AO STATED THAT PURCHASE PRICE OF WIND MILL HAS BEEN INFLATED BY M/S. WEIZMANN GROUP BY AN AMOUNT OF RS. 1 CRORE PER WIND MILL. THEREFORE, TO THAT EXTENT THE LEASE RENTS PAID TO M/S. WEIZMANN LTD., WERE HE LD TO BE NON-REASONABLE AND EXCESSIVE AND NOT IN TERMS OF THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE. AO KARMA ENERGY LTD., M/S. WEIZMANN LTD 35 WORKED OUT THE LEASE RENTS OF RS.3,83,23,400 AND D ISALLOWED THE BALANCE LEASE RENTS OF RS.1,97,28,388 (RS.5,80,51,788 RS.3,83,23,400) AN D ADDED TO THE TOTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL B EFORE LD CIT(A). 27. IT WAS CONTENDED THAT ASSESSEE PAID LEASE RENTA LS AS PER THE MARKET LENDING RATES; THERE WAS NO EXCESSIVE OR UNREASONABLE PAYME NT. IT WAS ALSO CONTENDED THAT THERE IS NO INFLATION OF THE PURCHASE PRICE OF WIND MILL AND, THEREFORE, AO WAS NOT JUSTIFIED IN REDUCING THE VALUE OF EQUIPMENTS. LD CIT(A) CONSIDERED THE SUBMISSIONS OF ASSESSEE AND VIDE PARA 3.2 OF THE IMPUGNED ORDER HE LD THAT AO WAS NOT JUSTIFIED IN DISALLOWING THE PROPORTIONATE LEASE RENT TO THE TUN E OF RS.1,97,28,388 AND DELETED THE SAME. HENCE, THIS APPEAL BY THE DEPARTMENT. 28. AT THE TIME OF HEARING, LD D.R. SUBMITTED THAT AO REDUCED THE LEASE RENTS PAYABLE BY THE ASSESSEE TO WIND MILLS ON ACCOUNT OF INFLATION OF COST PRICE OF WIND MILLS FOR THE REASONS AS MENTIONED WHILE CONSIDERING GROU ND NO.1 OF APPEAL. ON THE OTHER HAND, LD A.R. SUBMITTED THAT ASSESSEE PAID LEASE R ENTS WHICH WERE BASED ON FORMULA OF IREDA. HE SUBMITTED THAT THE COST WAS APPROVED AND MONEY WAS LENT BY IREDA, A STATUTORY BODY TO THE LESSOR. HE SUBMITTED THAT IN THE HANDS OF THE ASSESSEE, EXPENDITURE HAS BEEN REDUCED WITHOUT DISPUTING THE FACT THAT THE GENUINENESS OF PAYMENT MADE BY THE ASSESSEE AND ON THE OTHER HAND, RECEIPT OF LEASE RENTS BY LESSOR HAS NOT BEEN REDUCED IN THEIR ASSESSMENT. HE SUBMI TTED THAT ORDER OF LD CIT(A) IS JUSTIFIED AND IS IN ACCORDANCE WITH LAW AND SAME SH OULD BE CONFIRMED. 29. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. KARMA ENERGY LTD., M/S. WEIZMANN LTD 36 30. WE OBSERVE THAT AO HAS NOT DISPUTED THE FACT TH AT ASSESSEE HAS PAID LEASE RENTS OF RS.5,80,51,788 TO M/S. WEIZMANN LTD., ON ACCOUNT OF WIND MILLS TAKEN BY THE ASSESSEE ON LEASE FROM M/S. WEIZMANN LTD. HOWEVER, AO FOR THE REASONS MENTIONED, WHICH WE HAVE DISCUSSED WHILE DEALING WITH GROUND N O.1 OF APPEAL, HAS STATED THAT M/S. WEIZMANN LTD., HAD INFLATED THE COST BY RS.1 CRORE PER WIND MILL AND, ACCORDINGLY, AO CALCULATED LEASE RENTS AND SAID LEASE RENTS AS CLAI MED BY THE ASSESSEE IS UNREASONABLE. HENCE, AO BY MAKING HIS OWN CALCULATION WORKED OUT THE LEASE RENTALS OF RS.3,83,23,400. WHILE DEALING WITH GROUND NO.1 OF APPEAL, WE HAVE HELD THAT THE FINDINGS OF AO THAT COST PRICE OF WIND MILL HAS BEE N INFLATED BY RS.1 CRORE IS NOT BASED ON COGENT MATERIAL BUT IS BASED ON ASSUMPTION AND P RESUMPTIONS. ACCORDINGLY, THE SAID FINDING OF AO HAS NOT BEEN ACCEPTED WHILE DEALING W ITH GROUND NO.1 OF APPEAL. FOR THE REASONS, WE HOLD THAT THE OBSERVATION OF AO THAT CO ST OF WIND MILL WHICH HAS BEEN TAKEN ON LEASE BY THE ASSESSEE ARE INFLATED BY RS.1 CRORE IS NOT JUSTIFIED. MOREOVER, IREDA HAD FINANCED THE SAID PROJECT AND THE LEASE RENTS P AYABLE BY THE ASSESSEE TO M/S. WEIZMANN LTD,, HAS BEEN STRUCTURED TAKING INTO CONS IDERATION THE INSTALMENT OF PRINCIPAL AND INTEREST PAYABLE TO IREDA BY M/S. WEIZMANN LTD. THE SAID FACTS HAVE NOT BEEN DISPUTED BY THE DEPARTMENT. THEREFORE, LEASE RENTS PAID BY THE ASSESSEE IS BASED ON LENDING RATES OF THE FINANCIAL INSTITUTION NAMELY I REDA. THE DEPARTMENT HAS NOT ALSO DISPUTED THE FACT THAT ASSESSEE HAD MADE PAYMENT OF LEASE RENT BY ACCOUNT PAYEE CHEQUE TO THE LESSOR I.E. M/S. WEIZMANN LTD WHICH H AD ACCOUNTED FOR THE SAME IN ITS BOOKS OF ACCOUNT. CONSIDERING ABOVE FACTS, WE HOLD THAT LD CIT(A) IS JUSTIFIED TO HOLD THAT THERE IS NOTHING ON RECORD TO PROVE THAT THERE WAS EXCESSIVE PAYMENT OF LEASE RENTS BY THE ASSESSEE. HENCE, WE UPHOLD THE ORDER OF LD CIT(A) TO DELETE THE DISALLOWANCE OF PROPORTIONATE LEASE RENTAL WORKED OUT BY THE AO AT RS.1,97,28,388 BY REJECTING GROUND NO.2 OF APPEAL TAKEN BY DEPARTMENT. KARMA ENERGY LTD., M/S. WEIZMANN LTD 37 31. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2003- 04 BEING I.T.A. NO.4331/M/2007 . 32. THE DEPARTMENT HAS FILED THIS APPEAL TAKING THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF CLAIM OF DEPRECIATION BY THE ASSESSEE ON WINDMILLS PURCHASED BY THE ASSESSEE, THE COST OF WHICH WERE INFLATED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD CIT(A) ERRED IN ALLOWING THE DISALLOWANCES MADE ON ACCOUNT OF LEASE RENTALS ON THE BASIS OF INFLATED COST OF WINDMILLS INSTALLATION. 33. IN RESPECT OF GROUND NO.1 OF APPEAL, AO MADE DI SALLOWANCE OF RS.3 CRORES OF DEPRECIATION ON 12 WIND MILLS FOR THE REASONS AS ME NTIONED AND DISCUSSED IN ASSESSMENT YEAR 2002-03. SINCE FACTS ARE IDENTICAL TO ASSESSM ENT YEAR 2002-03 AND FOR THE REASONS MENTIONED BY US HEREINABOVE IN PARAS 19 TO 23, WE U PHOLD THE ORDER OF LD CIT(A) IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.3 C RORES AND ACCORDINGLY, REJECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT Y EAR 2003-04. 34. IN GROUND NO.2 OF APPEAL, DEPARTMENT HAS DISPU TED THE ORDER OF LD CIT(A) TO DELETE THE DISALLOWANCE OF RS.1,01,46,518 ON ACCOUN T OF PROPORTIONATE LEASE RENTAL OUT OF TOTAL LEASE RENTALS OF RS.5,11,69,081 PAID BY T HE ASSESSEE TO M/S. WEIZMANN LTD. 35. THE FACTS AND THE REASONS GIVEN BY AO TO MAKE T HE SAID DISALLOWANCE ARE SIMILAR TO ASSESSMENT YEAR 2002-03. FOR THE REASONS MENTIO NED BY US HEREINABOVE IN PARA 30 WHILE DEALING WITH GROUND NO.2 OF APPEAL FOR ASSESS MENT YEAR 2002-03, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.2 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2003-04. KARMA ENERGY LTD., M/S. WEIZMANN LTD 38 36. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2004- 05 BEING I.T.A. NO.7670/M/2007. 37. GROUNDS OF APPEAL RAISED BY DEPARTMENT ARE AS U NDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF CLAIM OF DEPRECIATION BY THE ASSESSEE ON WINDMILLS PURCHASED BY THE ASSESSEE, THE COST OF WHICH WERE INFLATED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD CIT(A) ERRED IN ALLOWING THE DISALLOWANCES MADE ON ACCOUNT OF LEASE RENTALS ON THE BASIS OF INFLATED COST OF WINDMILLS INSTALLATION. 38. IN RESPECT OF GROUND NO.1 OF APPEAL, AO DISALLO WED DEPRECIATION OF RS.48,00,000 ON 12 WIND MILLS FOR THE REASONS AS MENTIONED IN PR ECEDING ASSESSMENT YEAR 2002-03 AND LD CIT(A) DELETED THE SAME. 39. AT THE TIME OF HEARING, LD REPRESENTATIVES OF P ARTIES SUBMITTED THAT THE FACTS ARE IDENTICAL TO ASSESSMENT YEAR 2002-03. SINCE WE HAV E CONSIDERED THIS ISSUE IN PARAS 8 TO 15 AND FOR THE REASONS MENTIONED HEREINABOVE IN PAR AS 19 TO 23, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2004-05. 40. IN RESPECT OF GROUND NO.2 OF APPEAL, AO DISALLO WED RS.1,08,85,566 OUT OF LEASE RENTAL OF RS.5,28,50,404 PAID BY THE ASSESSEE ON LE ASE OF 12 WIND MILLS. 41. THE FACTS AND THE REASONS GIVEN BY AO TO MAKE T HE SAID DISALLOWANCE ARE SIMILAR TO ASSESSMENT YEAR 2002-03. FOR THE REASONS MENTIO NED BY US HEREINABOVE IN PARA 30 WHILE DEALING WITH GROUND NO.2 OF APPEAL FOR ASSESS MENT YEAR 2002-03, WE UPHOLD THE KARMA ENERGY LTD., M/S. WEIZMANN LTD 39 ORDER OF LD CIT(A) AND REJECT GROUND NO.2 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2004-05. 42. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2005- 06 BEING I.T.A. NO.3684/M/2010. 43. GROUNDS OF APPEAL RAISED BY DEPARTMENT ARE AS U NDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) ERRED IN ALLOWING DEPRECIATION OF RS.9,60,000 ON INFLATED CO ST OF WIND MILLS PURCHASED BY THE ASSESSEE AS THE COST OF WHICH WAS INFLATED OVER THE MARKET PRICE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD CIT(A) ERRED IN ALLOWING THE LEASE RENT OF RS.1,13,70,695 OF WIND M ILLS ON THE BASIS OF INFLATED COST OF WINDMILLS. 3. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A0 ERRED IN DELETING THE ADDITION OF RS.27,71,243 MADE U/S.40(A)(IA) WITHOUT APPRECIATING THE FACT THAT THE AO IN THE ASSESSMENT ORDER HAS CLEARLY BROUGHT OUT THAT THESE SERVICES WERE COVERED BY PROVISIONS OF S ECTION 194C. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LD CIT(A) ERRED IN ADMITTING ADDITIONAL EVIDENCE IN THE FORM OF DEB IT NOTE IN VIOLATION OF RULE 46A OF THE I.T.RULES, 1962. 44. IN RESPECT OF GROUND NO.1 OF APPEAL, AO DISALLO WED DEPRECIATION OF RS.9,60,000 ON 12 WIND MILLS FOR THE REASONS AS MENTIONED IN PR ECEDING ASSESSMENT YEAR 2002-03 AND LD CIT(A) DELETED THE SAME. 45. AT THE TIME OF HEARING, LD REPRESENTATIVES OF P ARTIES SUBMITTED THAT THE FACTS ARE IDENTICAL TO ASSESSMENT YEAR 2002-03. SINCE WE HAV E CONSIDERED THIS ISSUE IN PARAS 8 TO 15 AND FOR THE REASONS MENTIONED HEREINABOVE IN PAR AS 19 TO 23, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2005-06. KARMA ENERGY LTD., M/S. WEIZMANN LTD 40 46. IN RESPECT OF GROUND NO.2 OF APPEAL, AO DISALLO WED RS.1,13,70,695 OUT OF ACTUAL LEASE RENTAL OF RS.5,79,90,158 PAID BY THE ASSESSE E ON LEASE OF 12 WIND MILLS. 47. THE FACTS AND THE REASONS GIVEN BY AO TO MAKE T HE SAID DISALLOWANCE ARE SIMILAR TO ASSESSMENT YEAR 2002-03. FOR THE REASONS MENTIO NED BY US HEREINABOVE IN PARA 30 WHILE DEALING WITH GROUND NO.2 OF APPEAL FOR ASSESS MENT YEAR 2002-03, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.2 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2005-06. 48. IN RESPECT OF GROUND NO.3 OF APPEAL, RELEVANT F ACTS ARE THAT ASSESSEE REIMBURSED RS.27,71,243 TO ITS HOLDING COMPANY M/S. WEIZMANN C ORPORATE SERVICES LIMITED (WCSL) UNDER A CONTRACT. THE ASSESSEE COMPANY SHARES COMM ON PERSONNEL, COMMON UTILITIES, FOR WHICH, ASSESSEE REIMBURSED, THE AGGREGATE AMOUN T OF RS.27,71,243 OF ACTUAL EXPENSES AS AGREED TO. AO DISALLOWED THE SAID CLAI M ON THE GROUND THAT ASSESSEE DID NOT DEDUCT TDS ON THE SAID PAYMENT. BEING AGGRIEVE D, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 49. LD CIT(A) DELETED THE SAID DISALLOWANCE AFTER A CCEPTING THE CONTENTION OF ASSESSEE THAT PROVISIONS OF SECTION 194C RELATING T O TDS ARE NOT APPLICABLE ON PAYMENT OF REIMBURSEMENT. LD CIT(A) HAS STATED THAT WCSL R AISED BILLS FOR REIMBURSEMENT OF ACTUAL EXPENSES FOR USE OF COMMON UTILITIES BY THE ASSESSEE AND, THEREFORE, THERE IS NO ELEMENT OF INCOME AND, ACCORDINGLY, TDS IS NOT DEDU CTIBLE. HENCE, THIS APPEAL BY THE DEPARTMENT. 50. AT THE TIME OF HEARING, LD D.R. RELIED ON ORDER OF AO. KARMA ENERGY LTD., M/S. WEIZMANN LTD 41 51. ON THE OTHER HAND, LD A.R. SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. SIEMENS AKTIONGESELLSCHAFT, 310 ITR 320(BOM), WHEREIN, IT WAS HELD THAT REIMBURSEMENT OF EXPENSES CANNOT BE REGARDED AS A REVENUE RECEIPT. HE SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO U/S.40(A)(IA) OF THE ACT IS NOT JUST IFIED. 52. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. 53. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT A SSESSEE HAS PAID RS.27,71,243 TO WCSL BY WAY OF REIMBURSEMENT OF EXPENSES AS PER BILLS RAISED FOR USE OF COMMON UTILITIES. HENCE, FOLLOWING THE DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF SIEMENS AKTIONGESELLSCHAFT,(SUPRA) , WE AGREE THAT PROVISIONS OF SECTION 194C IS NOT APPLICABLE AND, ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) BY REJECTING GROUND NO.3 TAKEN BY DEPARTMENT. 54. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2006-07 BEING I.T.A. NO.226/M/2010. 55. GROUNDS OF APPEAL RAISED BY DEPARTMENT ARE AS U NDER: . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, LD CIT(A) ERRED IN ALLOWING DEPRECIATION OF RS.1,92,000 ON INFLATED C OST OF WIND MILLS PURCHASED BY THE ASSESSEE AS THE COST OF WHICH WAS INFLATED OVER THE MARKET PRICE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD CIT(A) ERRED IN ALLOWING THE LEASE RENT OF RS.1,66,85,940 OF WIND M ILLS ON THE BASIS OF INFLATED COST OF WINDMILLS. 3. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A0 ERRED IN DELETING THE ADDITION OF RS.29,80,087 MADE U/S.40(A)(IA) WITHOUT APPRECIATING THE FACT THAT THE AO IN THE ASSESSMENT ORDER HAS CLEARLY BROUGHT OUT THAT THESE SERVICES WERE COVERED BY PROVISIONS OF S ECTION 194C. KARMA ENERGY LTD., M/S. WEIZMANN LTD 42 (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LD CIT(A) ERRED IN ADMITTING ADDITIONAL EVIDENCE IN THE FORM OF DEB IT NOTE IN VIOLATION OF RULE 46A OF THE I.T.RULES, 1962. 56. IN RESPECT OF GROUND NO.1 OF APPEAL, AO DISALLO WED DEPRECIATION OF RS.1,92,000 ON 12 WIND MILLS FOR THE REASONS AS MENTIONED IN PR ECEDING ASSESSMENT YEAR 2002-03 AND LD CIT(A) DELETED THE SAME. 57. AT THE TIME OF HEARING, LD REPRESENTATIVES OF P ARTIES SUBMITTED THAT THE FACTS ARE IDENTICAL TO ASSESSMENT YEAR 2002-03. SINCE WE HAV E CONSIDERED THIS ISSUE IN PARAS 8 TO 15 AND FOR THE REASONS MENTIONED HEREINABOVE IN PAR AS 19 TO 23, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2006-07. 58. IN RESPECT OF GROUND NO.2 OF APPEAL, AO DISALLO WED RS.1,66,85,940 OUT OF LEASE RENTALS OF RS.6,79,61,657 PAID BY THE ASSESSEE ON L EASE OF 12 WIND MILLS. 59. THE FACTS AND THE REASONS GIVEN BY AO TO MAKE T HE SAID DISALLOWANCE ARE SIMILAR TO ASSESSMENT YEAR 2002-03. FOR THE REASONS MENTIO NED BY US HEREINABOVE IN PARA 30 WHILE DEALING WITH GROUND NO.2 OF APPEAL FOR ASSESS MENT YEAR 2002-03, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUND NO.2 OF APPEAL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2006-07. 60. IN RESPECT OF GROUND NO.3, RELEVANT FACTS ARE THAT ASSESSEE REIMBURSED ACTUAL EXPENSES OF RS.29,80,087 TO ITS HOLDING COMPANY M/S . WEIZMANN CORPORATE SERVICES LIMITED (WCSL) UNDER A CONTRACT FOR SHARING COMMON PERSONNEL, COMMON UTILITIES AS KARMA ENERGY LTD., M/S. WEIZMANN LTD 43 AGREED TO. AO DISALLOWED THE SAID CLAIM ON THE GRO UND THAT ASSESSEE DID NOT DEDUCT TDS ON THE SAID PAYMENT. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). LD CIT(A) DELETED THE SAID DISALLOWANCE AFTER ACCEPTIN G THE CONTENTION OF ASSESSEE THAT PROVISIONS OF SECTION 194C RELATING TO TDS ARE NOT APPLICABLE ON PAYMENT OF REIMBURSEMENT. LD CIT(A) HAS STATED THAT WCSL RAIS ED BILLS FOR REIMBURSEMENT OF ACTUAL EXPENSES FOR USE OF COMMON UTILITIES BY THE ASSESSE E AND, THEREFORE, THERE IS NO ELEMENT OF INCOME AND, ACCORDINGLY, TDS IS NOT DEDUCTIBLE. HENCE, THIS APPEAL BY THE DEPARTMENT. 61. SIMILAR ISSUE CAME UP FOR CONSIDERATION IN THE ASSESSMENT YEAR 2005-06 AND WE HAVE UPHELD THE ORDER OF LD CIT(A) (VIDE PARA 53) A S THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. SIEMENS AKTIONGESELLSCHAFT,(SUPRA) . HENCE, WE UPHOLD THE ORDER OF LD CIT(A) BY REJECTING GROUND NO.3 OF APPE AL TAKEN BY DEPARTMENT FOR ASSESSMENT YEAR 2006-07. M/S. WEIZMANN LTD. 62. NOW WE TAKE UP APPEALS FILED BY DEPARTMENT IN R ESPECT OF ASSESSEE M/S. WEIZMANN LTD., FOR ASSESSMENT YEARS 2001-02 AND 200 2-03. 63. IN BOTH THE APPEALS FILED BY DEPARTMENT, THERE ARE COMMON GROUNDS OF APPEAL BASED ON SIMILAR FACTS. IT IS RELEVANT TO STATE TH AT ASSESSEE IS A LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURER OF TEXTILE PRODUCTS, FINANCIAL SERVICES LIKE LEASE KARMA ENERGY LTD., M/S. WEIZMANN LTD 44 FINANCING, MONEY LENDING AND BORROWINGS, BILL DISCO UNTING, ETC AND IS ALSO ENGAGED IN WIND POWER GENERATION. 64. FOR ASSESSMENT YEAR 2001-02, ASSESSEE FILED THE RETURN OF INCOME DECLARING A LOSS OF RS.20,30,82,050 AND BOOK PROFITS U/S.115JB AT RS.18,50,866 ON 31.10.2001. ALONG WITH RETURN OF INCOME, AUDITED ANNUAL ACCOUNT S, I.T.AUDIT REPORTS U/S.44AB OF THE ACT AND COMPUTATION OF TOTAL INCOME, ETC. WERE FILE D. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 22.2.2004 AT (-) RS.18,18,7 2,511. SUBSEQUENTLY, REASSESSMENT PROCEEDINGS WERE INITIATED BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT DATED 29.3.2006. THE ASSESSMENT UNDER SECTION 143(3) R.W . SECTION 147 WAS MADE ON 21.12.2006 DETERMINING THE INCOME AT (-) RS.12,80,7 2,511 UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT WAS COMPUTED UNDER SECTI ON 115JB AT RS.2,37,54,175. WHILE COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, AO ADDED RS.6 CRORES DISALLOWING DEPRECIATION ON 12 WIND MILLS ON THE GR OUND THAT ASSESSEE HAD INFLATED THE COST OF EACH WIND MILL BY RS.1 CRORE . 64.1 IT IS RELEVANT TO STATE THAT FOR ASSESSMENT Y EAR 2002-03 ALSO, REASSESSMENT PROCEEDINGS WERE INITIATED BY ISSUE OF NOTICE U/S.1 48 OF THE ACT DT.7.12.2006. IN THE SAID ASSESSMENT YEAR, ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL LOSS AT RS.18,16,10,897 ON 9.1.2007. AO MADE THE ASSESSMEN T UNDER SECTION 143(3) R.W. S.147 OF THE ACT ON 10.12.2007 COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AT A LOSS OF RS.13,98,70,643 AND BOOK PROFIT U/S. 1 15JB WAS COMPUTED AT RS.3,36,50,223. WHILE COMPUTING THE INCOME UNDER T HE NORMAL PROVISIONS OF THE ACT, AO ADDED RS.6 CRORES AND UNDER SECTION 115JB OF THE ACT RS.31.68 LAKHS AS MADE FOR ASSESSMENT YEAR 2001-02. KARMA ENERGY LTD., M/S. WEIZMANN LTD 45 64.2 FOR BOTH THE ASSESSMENT YEARS, AO STATED THAT ASSESSEE HAD INFLATED COST OF EACH WIND MILL BY RS.1 CRORE. AO DISALLOWED RS.6 C RORES IN ASSESSMENT YEAR 2001-02 PERTAINING TO 12 WIND MILLS AS THE SAID WIND MILLS WERE INSTALLED POST SEPTEMBER, 2000 AND, THEREFORE, ASSESSEE CLAIMED DEPRECIATION @ 50% IN ASSESSMENT YEAR 2001-02 AND REMAINING DEPRECIATION @ 50% IN SUBSEQUENT ASSESSME NT YEAR 2002-03. 65. WHILE MAKING THE ASSESSMENT, AO DISALLOWED TOTA L DEPRECATION OF RS.12 CRORES ON THE SAID 12 WIND MILLS HOLDING THAT COST OF EACH WIND MILL HAS BEEN INFLATED BY RS.1 CRORE. AO ALSO ADDED THE DISALLOWANCE OF DEPRECIAT ION OF RS.31,68,000 IN THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF T HE ACT IN EACH OF THE ASSESSMENT YEARS UNDER CONSIDERATION I.E A.Y. 2001-02 AND 2002 -03.. AO HAS STATED SAME FACTS WHILE MAKING THE AFORESAID DISALLOWANCE AS HAVE BEE N STATED WHILE MAKING THE ASSESSMENT IN THE CASE OF M/S. KARMA ENERGY LTD.,, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA 9. 66. HOWEVER, LD CIT(A) IN THE APPEALS FILED BY ASS ESSEE I.E. M/S. WEIZMANN DELETED THE AFORESAID DISALLOWANCES MADE BY THE AO FOR BOTH ASSESSMENT YEARS GIVING SAME REASONINGS AS STATED IN THE CASE OF M/S. KARMA ENER GY LTD., WHICH WE HAVE ALSO DISCUSSED HEREINABOVE. HENCE, THESE APPEALS BY TH E DEPARTMENT. 67. LD REPRESENTATIVES OF BOTH PARTIES IN RESPECT OF GROUND NO.1 OF BOTH APPEALS, SUBMITTED THAT THE SUBMISSIONS MADE IN THE CASE OF M/S. KARMA ENERGY LTD., BE ALSO CONSIDERED AS SUBMISSIONS MADE IN THE CASE OF THIS ASSESSEE VIS; M/S. WEIZMANN LTD. 68. IN VIEW OF ABOVE SUBMISSIONS OF LD REPRESENTATI VES AND ALSO THE REASONS AS STATED HEREINABOVE (VIDE PARAS 19 TO 23) WHILE DIS POSING OFF THE APPEALS IN THE CASE OF KARMA ENERGY LTD., M/S. WEIZMANN LTD 46 M/S. KARMA ENERGY LTD., WE FOLLOWING FOR THE SAME R EASONS UPHOLD THE ORDERS OF LD CIT(A) DT.15.5.2008 FOR ASSESSMENT YEAR 2001-02 AND DATED 6.6.2008 FOR ASSESSMENT YEAR 2002-03. HENCE, GROUND NO.1 OF BOTH APPEALS TAKEN BY DEPARTMENT IN THE CASE OF M/S. WEIZMANN LTD., FOR BOTH THE ASSESSMENT YEARS ARE REJECTED. 69. IN REGARD TO GROUND NO.2 OF BOTH APPEALS, AO MA DE ADDITION OF RS.31,68,000 WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT ON THE GROUND THAT ASSESSEE HAS INFLATED PRICE OF WIND MILLS AT RS.6 CRORES IN EACH OF THE ASSESSMENT YEAR UNDER CONSIDERATION VIZ; A.YS. 2001-02 AND 2002-03. BEIN G AGGRIEVED, ASSESSEE FILED APPEALS BEFORE THE FIRST APPELLATE AUTHORITY. 70. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT AO HAS NOT DISCUSSED THE FACT IN THE ASSESSMENT ORDERS WHILE MAKING THE DISALLOWANCE AND TO ADD THE AMOUNT OF RS.31,68,000 WHILE COMPUTING THE BOOK PROFITS U/S.1 15B OF THE ACT. IT WAS ALSO CONTENDED THAT IT WAS BEYOND THE COMPREHENSION AS T O HOW THE SAID DISALLOWANCE HAS BEEN WORKED OUT BY THE AO AND TO MAKE THE ADDITION TO THE BOOK PROFIT. IT WAS ALSO CONTENDED THAT THE PROVISIONS OF SECTION 115JB OF T HE ACT IS IN ITSELF IS A SELF CONTAINED CODE. THE SAID PROVISIONS LAY DOWN AS TO HOW THE AU DITED ACCOUNTS ARE TO BE PREPARED AND THE MANNER IN WHICH THE BOOK PROFIT IS TO BE AR RIVED AT. IT WAS CONTENDED THAT ASSESSEE FOLLOWING THE PRINCIPLE LAID DOWN UNDER TH E SAID PROVISIONS, PREPARED THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT. IT WAS CO NTENDED THAT ANY ADJUSTMENT IN THE SAID BOOK PROFIT CAN BE MADE BY THE AO ONLY AS PER THE PROVISIONS OF SUB-SECTION(2) OF SECTION 115JB. THEREFORE, SAID ADDITION/ADJUSTMENT OF DEPRECIATION OF RS.31,68,000 IS BEYOND THE SCOPE OF SUB-SECTION(2) OF SECTION 115JB OF THE ACT. RELIANCE WAS PLACED ON KARMA ENERGY LTD., M/S. WEIZMANN LTD 47 THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F APPOLLO TYRES VS CIT, 255 ITR 273(SC), WHEREIN, IT WAS HELD AS UNDER: THEREFORE, WE ARE OF THE OPINION, THE ASSESSING OF FICER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY THE POWER OF EXA MINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES U NDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO TH E SAID SECTION. TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE TH E JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115J. 71. LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE VIDE PARA 7.7 OF THE IMPUGNED ORDER FOR ASSESSMENT YEAR 2001-02 DELETED THE SAID ADDITION, WHICH READS AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. IT IS NOTICED T HAT THE AO HAS ADDED A SUM OF RS.31,68,000 TO THE APPELLANTS BOOK PROFI T ON ACCOUNT OF DEPRECIATION. THE ISSUE HAS NOT BEEN DISCUSSED BY THE AO IN THE ASSESSMENT ORDER. IT IS A SETTLED LAW THAT THE BOO K PROFIT CAN BE ALTERED ONLY WITHIN THE FRAMEWORK OF THE PROVISION OF SUB-S ECTION(2) OF SECTION 115JB IN RESPECT OF ITEMS WHICH ARE MENTIONED THER EIN. THE ADJUSTMENT OF DEPRECIATION IS NOT COVERED UNDER THE SAID ITEMS MENTIONED IN SUB- SECTION(2) OF SECTION 115JB. THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF APPOLLO TYRES VS CIT, 255 ITR 273 (S C) RELIED UPON BY THE APPELLANT IS DIRECTLY ON THIS POINT AND IN FAVOUR O F THE APPELLANT. CONSIDERING THESE FACTS AND THE LAW IN VOGUE, I FIN D THAT THE DISALLOWANCE OF DEPRECIATION OF RS.31,68,000 AND ADDING THE SAME IN THE BOOK PROFIT IS INCORRECT. ACCORDINGLY, THE DISALLOWANCE OF DEPREC IATION OF RS.31,68,000 IS DELETED FROM THE COMPUTATION OF BOOK PROFIT. 72. FOR ASSESSMENT YEAR 2002-03, LD CIT(A) FOLLOWIN G HIS ORDER FOR A.Y. 2001-02 ALSO DELETED THE ADDITION MADE BY THE AO. HENCE, THESE APPEALS BY THE DEPARTMENT. 73. AT THE TIME OF HEARING, LD D.R. RELIED ON ORDER S OF AO AND WHEREAS LD A.R. SUPPORTED THE ORDERS OF LD CIT(A) AND PLACED RELIAN CE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APPOLLO TYRES (SUPRA). HE SUBMITTED THAT BOOK PROFIT CANNOT BE RECOMPUTED BY THE AO. KARMA ENERGY LTD., M/S. WEIZMANN LTD 48 74. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND CONSIDERED ORDERS OF AUTHORITIES BELOW. WE AGREE THAT LD CIT(A) HAS RIGHTLY HELD TH AT AO HAS NOT DISCUSSED IN THE ASSESSMENT ORDER THE ISSUE RELATING TO ADDITION OF RS.31,68,000 TO THE ASSESSEES BOOK PROFIT ON ACCOUNT OF DEPRECIATION FOR BOTH ASSESSME NT YEARS UNDER CONSIDERATION. WE AGREE WITH LD CIT(A) THAT SUB-SECTION(2) OF SECTION 115JB OF THE ACT PROVIDES THE SITUATION IN WHICH THE AO CAN MAKE ADJUSTMENT TO BO OK PROFIT. THE ADJUSTMENT OF DEPRECIATION AS MADE BY THE AO, WE OBSERVE THAT IT IS NOT COVERED UNDER THE ITEMS (A) TO (F) OF SUB-SECTION (2) OF SECTION 115JB OF THE A CT AS APPLICABLE TO THE ASSESSMENT YEARS UNDER CONSIDERATION. CONSIDERING THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF APPOLLO TYRES (SUPRA), WE AGREE WITH LD CIT (A) THAT THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO OF RS.31,68,000 IN EACH OF THE ASSESSMENT YEAR UNDER CONSIDERATION IS NOT JUSTIFIED AND, ACCORDINGLY, WE UPHOLD HIS ORDERS. HENCE, GROUND NO.2 OF APPEAL TAKEN BY DEPARTMENT FOR BOTH THE ASS ESSMENT YEARS ARE REJECTED. 75. IN THE RESULT, APPEALS FILED BY DEPARTMENT IN T HE CASE OF M/S. KARMA ENERGY LTD., FOR ASSESSMENT YEARS 2002-03, 2003-04, 2004-05, 200 5-06 AND 2006-07 AS ALSO APPEALS FILED IN THE CASE OF M/S. WEIZMANN LTD., FOR ASSES SMENT YEARS 2001-02 AND 2002-03 ARE DISMISSED. CROSS OBJECTION FILED BY M/S. KARMA E NERGY LTD., FOR ASSESSMENT YEAR 2002- 03 AS ALSO CROSS OBJECTION FILED BY M/S. WEIZMANN LTD., FOR ASSESSMENT YEARS 2001-02 AND 2002-03 ARE ALSO REJECTED. PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER, 2012 SD/- (RAJENDRA ) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 7 TH SEPTEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),IV, MUMBAI 4. COMMISSIONER OF INCOME TAX, 4 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI