OPG Energy Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 2097/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61169 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 22-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V RA VICHANDRAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ) .. I.T.A. NO. 2097/MDS/2011 ASSESSMENT YEAR : 2008-09 M/S.OPG ENERGY PVT LTD. NO.6 & 8, SARDAR PATEL ROAD, GUINDY, CHENNAI 600 032. PAN : AAACO 4724 G (APPELLANT) V. DCIT, COMPANY CIRCLE V(1), CHENNAI. (RESPONDENT) APPELLANT BY : SHRI V.RAVICHANDRAN, C.A. RESPONDENT BY : SHRI SHAJI P. JACOB ADDL. C.I.T DR DATE OF HEARING : 22.05.12 DATE OF PRONOUNCEMENT : 31.05.12 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-V, CHENNAI DATE D 28.09.2011 FOR ASSESSMENT YEAR 2008-09 BY TAKING THE FOLLOWING GROUNDS:- ITA NO.2097/MDS/11 2 1. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE APPELLANT HAD CHARGED HIGHER RATES TO RELATED PARTIES. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FAILED TO APPRECIATE THAT THE SALE OF POWER TO RELATED PARTIE S WAS NOT HIGHER THAN MARKET PRICE. 3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN SUSTAINING PARTIALLY DISALLOWING DEDUCTION UNDER SE CTION 80 IA ON SALE OF POWER TO RELATED PARTIES. 4. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PRICES PAID BY THE RELATE D PARTIES WERE LOWER THAN THE PRICES CHARGED BY THE TAMIL NAD U ELECTRICITY BOARD. 5. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PRICES PAID BY THE RELATE D PARTIES WERE COMPARABLE WITH THOSE PAID BY UNRELATED PARTIE S SUCH AS ENNORE FOUNDRIES, SCHASAYEE PAPER ETC. 6. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE APPRECIATED THAT EVEN THE AVERAGE PRICES PAID BY THE NON-RELATED PARTIES WAS LOWER ON ACCOUNT OF A LOWER TARIFF PAID BY ONE PARTY MERIDIAN INDUSTRIES LTD ON ACCOUNT OF DIFFERENCE IN THE NATURE OF THE PRICE WHICH WAS FIXED WITH REF ERENCE TO THE PRICE OF GAS. 7. IN ANY CASE, DEDUCTION UNDER SECTION 80-IA CAN B E DENIED ONLY IF THERE IS A DELIBERATE ATTEMPT TO INFLATE PR OFITS WHEREAS ITA NO.2097/MDS/11 3 THE PRICES CHARGED BY THE APPELLANT ARE LOWER THAN PRICES CHARGED BY THE TAMIL NADU ELECTRICITY BOARD. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT EXEMPTION CLAIMED UND ER SECTION 80IA MAY BE GRANTED IN FULL AND THE RETURNED INCOME ACCEPTED AND JUSTICE RENDERED. 2. THE SOLE ISSUE IN THE ABOVE GROUNDS OF APPEAL O F ASSESSEE IS THAT COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRM ING THE PARTIAL DENIAL OF DEDUCTION UNDER SECTION 80-IA FOR THE RE ASON THAT THE ASSESSEE HAD SOLD POWER TO ITS GROUP CONCERN AND NO N-GROUP CONCERNS AT DIFFERENT RATES. THE COMMISSIONER OF IN COME TAX(A) HAS DECIDED THE ISSUE AS UNDER:- 8.3. THE SECOND ISSUE, AS PER THE GROUND NO.8, IS WITH REGARD TO PARTIAL DENIAL OF DEDUCTION UNDER SECTION 80-IA FOR THE REASON THAT THE APPELLANT HAS SOLD POWER TO ITS GRO UP CONCERN AND NON GROUP CONCERNS AT DIFFERENT RATES. ACCORDIN G TO THE WORKING GIVEN BY THE ASSESSING OFFICER IN THE ASSES SMENT ORDER THE APPELLANT HAS SOLD POWER TO ITS RELATED PARTIES AT THE RATE OF ` 3.364 PER UNIT WHEREAS THE OTHER PARTIES WHICH IT H AD BEEN ITA NO.2097/MDS/11 4 CHARGED AT THE RATE OF RS.3.266 PER UNIT. THE DIFF ERENCE OF ` 0.098( 3.364-3.266) WAS APPLIED TO 1185056.17 UNITS SOLD TO THE RELATED PARTIES AND EXCESS RECEIPTS FROM THE RE LATED PARTIES. WERE WORKED OUT AT ` 1,16,13,550/- AND THE CLAIM OF DEDUCTION UNDER SECTION 80 IA WAS NOT ALLOWED ON THE EXCESSIV E RECEIPTS FROM THE RELATED PARTIES. HOWEVER, SINCE THE ENTIRE PROFIT ATTRIBUTABLE TO SALE OF POWER TO M/S.OPG METALS WAS ALREADY DISALLOWED BY THE ASSESSING OFFICER, THIS DISALLOWA NCE WAS NOT MADE AGAIN. IT IS SUBMITTED BY THE APPELLANT THAT THE HONBLE ITAT HAS HELD IN ITA NO.1014/MDS./10(SUPRA) THAT AND AVERAGE SALE PRICE OF ` 3.45 PER UNIT WAS REASONABLE AND NOT EXCESSIVE AND HENCE DEDUCTION UNDER SECTION 80 IA COULD NOT BE DENIED A ND THAT THE AVERAGE SALE PRICE TO GROUP COMPANIES OF ` 3.364 WAS NOT EXCESSIVE ESPECIALLY WHEN THE TARIFF OF THE ELECTRI CITY BOARD WAS ` 3.50 PLUS PEAK HOUR CHARGES PLUS MAXIMUM DEMAND CH ARGES ETC. IT IS FURTHER SUBMITTED BY THE APPELLANT THAT A Q UICK LOOK AT THE TABLE PREPARED BY THE ASSESSING OFFICER SHOWS THAT THE SALE TO ITA NO.2097/MDS/11 5 GROUP COMPANIES AT AN AVERAGE RATE OF ` 3.364 IS ACTUALLY LOWER THAN THE PRICE OF ` 3.40 AT WHICH IT HAS BEEN SOLD TO LARGE PUBLIC COMPANIES SUCH AS ENNORE FOUNDRIES, ADYAR GATE HOTE LS, SCHASAYEE PAPER ETC. TO WHOM POWER HAS BEEN SOLD AT ` 3.40. IT IS SUBMITTED BY THE APPELLANT THAT IF THE SALE P RICE TO MERIDIAN INDUSTRIES (OUT OF NON-GROUP COMPANIES) IS IGNORED, THEN THE AVERAGE PRICE TO GROUP COMPANIES IS ACTUALLY LOWER AND THE REASON FOR CHARGING LOWER RATE FROM MERIDIAN INDUST RIES HAS BEEN GIVEN THAT WITH THIS CONCERN ALONE THE RATE WA S FIXED ON THE BASIS OF THE NATURAL GAS PRICE AND IT VARIES WI TH THE GAS PRICE. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLAN T BUT THE SAME CANNOT BE ACCEPTED. FIRSTLY, THE CLAIM OF THE APPELLANT THAT THE ITAT HAVE HELD THE SALE PRICE OF POWER 3 .40 PER UNIT AS REASONABLE AND NOT EXCESSIVE IS NOT CORRECT AS T HE ITAT HAVE CONSIDERED THE SALE PRICE TO OPG METALS PVT LT D, A GROUP CONCERN VIS A VIS THE PRICE PER UNIT AS PER AGREEME NT WITH TNEB. SINCE THE AGREEMENT WITH THE TNEB WAS TO SEL L ONLY SURPLUS POWER AFTER SUPPLIES HAVE BEEN MADE TO SUCH ITA NO.2097/MDS/11 6 CONCERNS, IT WAS OBSERVED THAT THE ARGUMENT OF THE ASSESSEE THAT IT WAS ONLY A STANDBY ARRANGEMENT, AND SUCH RA TE AGREED THERE IN COULD NOT BE TAKEN FOR COMPARISON PURPOSES , COULD NOT BE BRUSHED AIDE. THE ITAT, THEREFORE, HELD THAT THE POWER PURCHASE AGREEMENT WITH TNEB, WHICH WAS A STANDBY ARRANGEMENT, COULD NOT BE MADE BASIS FOR ARRIVING A T THE MARKET RATE OF POWER DISREGARDING THE ENERGY RATE AT WHICH TNEB GRID TO ITS CUSTOMERS. THEREFORE, THE RELIANCE BY THE A PPELLANT ON THIS DECISION OF THE ITAT IN APPELLANTS OWN CASE F OR ASSESSMENT YEAR 2006-07, IS MISPLACED. FURTHER THE SUBMISSIONS OF THE APPELLANT THAT TH E SALE PRICE TO MERIDIAN INDUSTRIES MAY BE IGNORED, CANNOT BE CO NSIDERED AS THE MAXIMUM SALE AMONGST UNRELATED PARTIES ARE TO T HIS CONCERN ALONE. IGNORING THE SAME WOULD GIVE A DIST ORTED PICTURE AND IF THIS ARGUMENT OF THE APPELLANT IS AC CEPTED THAN ON THE SAME ANALOGY THE SALE PRICE TO M/S.OPG METALS C AN ALSO BE EXCLUDED AND THE SALE PRICE PER UNIT TO THE GROUP C ONCERNS WORKS OUT TO ` 3.58 PER UNIT AND THE DISALLOWANCE ON THIS ACCOUNT WOULD WORK OUT TO A FIGURE LITTLE ABOVE THE WORKING OF ITA NO.2097/MDS/11 7 THE ABOVE. ALSO ABOUT FROM MAKING THE SUBMISSIONS W ITH REGARD TO THE TRANSACTION WITH MERIDIAN INDUSTRIES, NO DOC UMENTARY EVIDENCE HAS BEEN FURNISHED. IN ANY CASE, THERE MAY BE VARIOUS REASONS FOR CONTRACTING DIFFERENT SALE RATES WITH D IFFERENT CUSTOMERS BUT THE ONUS IS ON THE APPELLANT TO EVIDE NCE THE SAME WHEN DEDUCTION IS CLAIMED ON HIGHER RECEIPTS F ROM RELATED PARTIES AS COMPARED TO UNRELATED PARTIES. I N THE INSTANT CASE, THE APPELLANT HAS FAILED TO JUSTIFY THE SAME WITH ANY EVIDENCE. IN VIEW OF THE ABOVE ACTION OF THE ASSESSING OFFIC ER IN NOT ALLOWING THE DEDUCTION U/S 80 IA ON THE EXCESSIVE R ATES CHARGED FROM THE GROUP CONCERN/RELATED PARTIES IS CONFIRMED AND THIS GROUND (NO.8) IS DISMISSED. 3. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE COMMISSIONER OF INCOME TAX(APPEALS) AND THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDER OF THE ASSESSING OFFICER. ITA NO.2097/MDS/11 8 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBU TION OF POWER. THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80-IA INRESPECT OF PROFITS DERIVED FROM THE SAID UNDERTAKING IN ACC ORDANCE WITH THE PROVISIONS OF THAT SECTION. THE ASSESSING OFFICER OBSERVED THAT THE AVERAGE PRICE AT WHICH THE ASSESSEE SOLD POWER TO S ISTER CONCERNS WORKS OUT TO ` 3.364 PER UNIT, WHEN THE AVERAGE RATE IN RESPECT OF NON- RELATED PARTIES WORKS OUT TO ` 3.266 PER UNIT. THE AVERAGE SALE PRICE TO SISTER CONCERNS IS MORE BY 0.098 PER UNIT. THE TOTAL NUMBER OF UNITS SOLD TO SISTER CONCERNS WAS 11,85,05,617 UNIT S. THEREFORE, THE ASSESSING OFFICER WORKED OUT THAT THE ASSESSEE DERI VED MORE PROFITS OF ` 1.16,13,550/- UNDER SECTION 80-IA OF THE ACT. 5. ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. ITA NO.2097/MDS/11 9 6. THE DISPUTE BEFORE US RELATES TO THE INTERPRETA TION OF PROVISIONS OF SUB-SECTION(10) OF SECTION 80-IA OF THE ACT. TH E SAID SUB SECTION READS AS UNDER:- S.80-IA(10) WHERE IT APPEARS TO THE ASSESSING OFFI CER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON T HE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHE R PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN TH EM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFI CER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BU SINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DE RIVED THEREFROM. A READING OF THE ABOVE PROVISIONS SHOWS THAT WHEN B USINESS TRANSACTION IS SO ARRANGED PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS, WHICH MIGHT BE ACCEPTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THEN THE AO IS EMPOWERED TO RESTRICT THE ALLOWANCE OF DEDUCTION UNDER SECTION 80-IA TO THE AMOUNT OF PROF IT, WHICH MIGHT REASONABLY BE DEEMED TO HAVE BEEN DERIVED FROM THE NORMAL BUSINESS TRANSACTIONS. ITA NO.2097/MDS/11 10 7. WE FIND THAT IN THE INSTANT CASE, THE LOWER AUT HORITIES HAVE RESTRICTED THE ALLOWANCE OF DEDUCTION UNDER SECTION .80-IA BY DETERMINING THE DIFFERENCE BETWEEN THE AVERAGE PRIC E AT WHICH POWER WAS SOLD TO SISTER CONCERNS OF THE ASSESSEE AND TO OTHER UNRELATED PARTIES. WE FIND THAT THE PROVISIONS OF SEC.80-IA( 10) DOES NOT EMPOWER THE REVENUE TO DO SO. THE BASIC CONDITION, WHICH IS TO BE SATISFIED FOR INVOKING THE PROVISIONS OF SECTION 80 -IA(10) IS THAT THE BUSINESS TRANSACTIONS ARE SO ARRANGED SO AS TO PROD UCE TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS, WHICH MIGH T BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. THE SECTION DOES N OT PROVIDE THAT IF THE ASSESSEE EARNS MORE PROFIT FROM RELATED PARTIES IN COMPARE TO UNRELATED PARTIES, THEN THE ALLOWANCE OF DEDUCTION UNDER SECTION 80-IA IS TO BE RESTRICTED TO THE SAME PROPORTION AT WHICH THE PROFIT WAS DERIVED FROM UNRELATED PARTIES, EVEN IN THE CIRCUMS TANCES WHERE SUCH PROFITS DERIVED FROM RELATED PARTIES WERE SUCH THAT IT COULD BE EXPECTED TO ARISE TO SUCH ELIGIBLE BUSINESS AS ORDI NARY PROFIT. IN THE INSTANT CASE, SUBMISSION OF THE ASSESSEE IS THAT TH E AVERAGE RATE OF PER UNIT OF POWER CHARGED FROM SISTER CONCERNS WAS LESS THAN THE RATE ITA NO.2097/MDS/11 11 AT WHICH POWER WAS SOLD BY THE TNEB, WHICH IS AN UN DERTAKING OWNED BY THE STATE GOVERNMENT. THUS, PROFIT REALIZ ED BY CHARGING RATES WHICH ARE LOWER THAN THE RATE, WHICH IS CHARG ED BY AN UNDERTAKING BELONGING TO THE GOVERNMENT BY NO STRAT EGY OF IMAGINATION CAN BE HELD AS MORE THAN THE ORDINARY P ROFIT WHICH REASONABLY BE EXPECTED TO ARISE IN SUCH BUSINESS. WE FIND FORCE IN THE ABOVE ARGUMENT OF THE ASSESSEE. 8. HOWEVER, WE FIND THAT THE ASSESSEE HAS NOT FURN ISHED BEFORE US THE PARTY-WISE BREAK UP OF THE RATE CHARGED BY IT I N RESPECT OF ITS SISTER CONCERNS. IN OUR CONSIDERED OPINION, THE WORKING F OR THE PROVISIONS OF SECTION 80-IA(10) HAS TO BE MADE ON INDIVIDUAL BASI S AND THE SAME CANNOT BE MADE ON AN AVERAGE BASIS. IN ABSENCE OF RATES CHARGED FROM INDIVIDUAL PARTIES HAVING CLOSE CONNECTION WIT H THE ASSESSEE BEFORE US, WE ARE NOT IN A POSITION TO ADJUDICATE T HE ISSUE COMPLETELY. IN OUR CONSIDERED OPINION, IT HAS TO BE VERIFIED ON INDIVIDUAL PARTY BASIS THE RATES, WHICH HAVE BEEN CHARGED FOR POWER SOLD BY THE ASSESSEE AND WHEN IT IS FOUND THAT THE RATES ARE HI GHER THAN THE RATES, WHICH MIGHT BE EXPECTED TO REALIZE BY ITS PO WER GENERATING ITA NO.2097/MDS/11 12 UNIT, THEN IN SUCH CIRCUMSTANCES, THE PROFIT BASED ON RATES, WHICH MAY BE EXPECTED TO BE REALIZED BY THE ASSESSEES POWER GENERATING UNIT CAN ONLY BE ALLOWED DEDUCTION TO THE ASSESSEE IN VI EW OF THE PROVISIONS OF SEC.80-IA(10) OF THE ACT. WE ,THEREF ORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND RESTORE THE ISS UE BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING AFRESH IN LI GHT OF THE OBSERVATIONS MADE HEREIN ABOVE AFTER PROPER VERIFIC ATION AND AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSES SEE. THUS, THE GROUNDS OF APPEAL OF ASSESSEE ARE ALLOWED FOR STATI STICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 31 ST MAY, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 31 ST MAY, 2012. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA NO.2097/MDS/11 13