ACIT (CIR.) - 6(1)(2), MUMBAI V. BHANDAR POWER LTD., MUMBAI

ITA 6061/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1725 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 10-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Depreciation; Source of fund; Wrong claim; Corroborative evidences; Commercial expediency
• Section: 143(3); 142(1); 143(1); 80IA; 143(2); 264; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS.6061 & 6062/M/2016 ASSESSMENT YEARS: 2010-11 & 2011-12 ACIT (CIR.)-6(1)(2), ROOM NO.563, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 VS. M/S. BHANDAR POWER LTD., ESSAR HOUSE, 11, K.K. MARG, MAHALAXMI, MUMBAI 400 034 PAN: AAACB6693B (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI ANUJ KISNADWALA, A.R. REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 10.04.2019 DATE OF PRONOUNCEMENT : 31.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED TWO APPEALS HAVE BEEN PREFERRED B Y THE REVENUE AGAINST THE SEPARATE ORDERS DATED 08.07.12. 2016 AND 13.07.2016 RELEVANT TO ASSESSMENT YEAR 2010-11 & 20 11-12 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-12 [HEREIN AFTER REFERRED TO AS THE CIT(A)]. 2. THE GROUNDS RAISED BY THE REVENUE IN ASSESSMENT YEAR ARE AS UNDER:- '1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF DEDUC TION U/S 80IA OF THE INCOME TAX ACT OF RS. 42,29,03,244/~ WITHOUT CONSIDERING THE F ACT THAT THE PROVISIONS OF SECTION 80IA(10) ARE CLEARLY ATTRACTED IN THIS CASE HENCE T HE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 80IA OF THE INCOME TAX ACT. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 2 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF DEDUC TION U/S 80IA OF THE INCOME TAX ACT, WITHOUT CONSIDERING THE FACT THAT EVERY ASSESS MENT YEAR IS DIFFERENT. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF MANAGERIA L SUPPORT SERVICE CHARGES OF RS.5,00,73,084/- WITHOUT CONSIDERING THE FACT THAT ASSESSEE WAS UNABLE TO PROVE BENEFIT ARISING OF THE SERVICES OBTAINED FROM THE R ELATED PARTY. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE ISSUES RAISED IN GROUND NO. 1 AND 2 BY THE R EVENUE ARE INTER-CONNECTED AND ARE AGAINST THE ORDER OF CIT(A ) DELETING THE DISALLOWANCE OF DEDUCTION U/S 80IA OF THE ACT OF RS . 42,29,03,244/- BY IGNORING THE FACT THAT PROVISIONS OF 80IA (10) WERE CLEARLY ATTRACTED AND ALSO BASING HIS DECISION ON THE FACT THAT SIMILAR DEDUCTION HAS BEEN ALLOWED IN THE PREC EDING THREE ASSESSMENT YEARS BY IGNORING THAT EACH YEAR IS DIFF ERENT YEAR. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF GENERATION OF ELECTRICITY. THE ASSESSEE HAS SET UP AND OPERATING 500MW PARTLY DUAL FIRED COMBINED CYCL E POWER PLANTS AT HAZIRA, SURAT, GUJARAT AND WAS OPERATING THREE INDUSTRIAL UNITS HEREINAFTER REFERRED TO AS PHASE 1 , PHASE 11 AND PHASE 111. THE PROFITS DERIVED FROM PHASE 1 WAS ELI GIBLE FOR DEDUCTION U/S 80IA OF THE ACT. DURING THE YEAR, THE ASSESSEE FILED THE RETURN OF INCOME ON 28 TH SEPTEMBER, 2010 DECLARING AN INCOME OF RS.15,35,39,040/- AFTER CLAIMING DEDUCTIO N OF RS.42,29,03,244/- U/S 80IA OF THE ACT IN RESPECT OF PROFITS DERIVED FROM PHASE 1. THE RETURN OF INCOME WAS PROC ESSED U/S 143(1) OF THE ACT ON 5.10.2011. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S 143(2) AND 142(1) WERE DULY ISSUED AND SERVED UPON THE ASSESSEE. THE AO DU RING THE ASSESSMENT PROCEEDINGS OBSERVED FROM THE PERUSAL OF FORM ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 3 10CCB THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA IN RESPECT OF POWER PLANT OF 155 MW AT HAZIRA, SURAT W HICH COMMENCED POWER GENERATION ON 15.01.2006 . THE FIRS T YEAR OF CLAIM OF DEDUCTION WAS 2006-07.THE TOTAL INVESTMENT S IN PLANT AND MACHINERY WAS SHOWN AT RS. 278,94,22,000/-, TOT AL SALES DURING THE YEAR RS. 89,65,10,171 WITH NET PROFITS O F RS. 42,29,03,244/-.THE AO ALSO OBSERVED THAT THE ASSESS EE HAS ENTERED INTO POWER PURCHASE AGREEMENTS (HEREINAFTER CALLED AS PPA) WITH ITS GROUP CONCERNS FOR SALE AND SUPPLY OF ELECTRICITY GENERATED BY THE PHASE-1 UNIT. ACCORDINGLY AO ISSUE D A SHOW CAUSE NOTICE TO THE ASSESSEE TO JUSTIFY THE CLAIM O F DEDUCTION U/S 80IA WITH THE SUPPORTING EVIDENCES. 5. IN REPLY TO SHOW CAUSE NOTICE, THE ASSESSEE VID E LETTER DATED 13.8.20012 SUBMITTED BEFORE THE AO DETAILED F ACTS OF THE POWER PLANT AND EXPLAINED THE CLAIM U/S 80IA OF TH E ACT. THEREAFTER THE AO IN ORDER TO FURTHER VERIFY THE CL AIM REQUIRED SOME INFORMATION/DOCUMENTS WHICH WERE FILED AS UNDE R:- A) LEASE AGREEMENTS ENTERED INTO WITH M/S. ES SAR POWER B) COPIES OF POWER PURCHASE AGREEMENTS (PPA) C) BREAK-UP IF COST PRICE 8& SALE PRICE OF ELECTRICITY -UNIT FIR 80-IA & NON 80-IA UNITS. D) NOTE ON FUEL EXPENSES DEBITED ONLY TO PHASE -II & III. E) SERVICE AGREEMENTS ENTERED INTO W ITH ESSAR INVESTMENTS LTD. F) FUEL PURCHASE & TRANSPORTATION INVOICES FOR THE NAT URAL GAS. G) AGREEMENT FOR SERVICE & CONSULTANCY ENTER ED INTO BY THE ASSESSEE WITH ESSAR INVESTMENT FOR THE RELEVANT PREVIOUS YEAR, NATURE O F SERVICES RENDERED BY ESSAR INVESTMENT WITH DOCUMENTS, EVIDENCE AND PROOF OF TD S DEDUCTED. H) NAME OF ALL SALE PARTIES IN NON-80-IA & 8 0-IA UNDERTAKING AND NUMBER OF UNITS OF POWER GENERATED & SOLD TO GROUP CONCERNS W ITH PRICE JUSTIFICATION. I) FACILITY USER AGREEMENT. J) AGREEMENT ENTERED INTO BY THE ASSESSEE W ITH GUJUBNL FOR POWER SUPPLY. K) STATUTORY CERTIFICATES.' THEREAFTER ALSO THE ASSESSEE REPLIED THE QUERIES RA ISED BY THE AO IN THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME. TH E AO ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 4 OBSERVED ON THE BASIS OF THE WRITTEN SUBMISSIONS AN D REPLIES OF THE ASSESSEE DATED 24.08.2012, 29.10.2012, 5.11.201 2, 20.12.2012, 11.01.2013, 20.1.2013 & 24.1.2013 AND A RGUMENTS MADE DURING THE ASSESSMENT PROCEEDINGS THAT THE TOT AL POWER PRODUCED BY ALL THE UNITS OF ASSESSEE TOGETHER WORK S OUT TO 2,310 MU ONLY, BUT THE AMOUNTS RECEIVED AGAINST COR RESPONDING UNITS OF POWER SUPPLY WERE FAR MORE THAN AMOUNTS RE CEIVABLE ON ACTUAL SUPPLY OF POWER. ACCORDINGLY TO THE AO, THE DEDUCTION U/S.80-IA THE CLAIM OF THE ASSESSEE U/S 80IA COULD NOT BE ALLOWED FOR THE FOLLOWING THREE REASONS :- (I) THE RECEIPTS WHICH ARE ATTRIBUTABLE TO F IXED COST CHARGES AS PER PPAS ARE NOT ELIGIBLE FOR DEDUCTION AND SUCH DEDUCTION IS PERMISSIBLE ONLY WITH REGARD TO RECEIPTS WHICH DIRE CTLY FLOW FROM ACTUAL SUPPLY OF ELECTRIC POWER (II) ENTERING INTO PPAS TANTAMOUNT TO CO LOURABLE TAX PLANNING. (III) PROVISIONS OF SECTION 80-IA(10) ARE ALSO APPLICABLE. 6. THE ASSESSING OFFICER ULTIMATELY REJECTED THE CL AIM OF THE ASSESSEE U/S 80IA OF THE ACT OF RS. 42,29,03,244/- BY BRUSHING ASIDE THE CONTENTIONS AND REPLIES OF THE ASSESSEE B Y FRAMING ASSESSMENT VIDE ORDER DATED 13.3.2013 PASSED U/S 14 3(3) OF THE ACT. 7. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) AFTE R TAKING INTO ACCOUNT THE SUBMISSIONS AND CONTENTIONS OF THE ASSE SSEE ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 10.9 I HAVE PERUSED THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WELL AS THE DETAILED SUBMISSIONS MADE BY THE APPELL ANT IN THIS BEHALF. THE MAIN ISSUE INVOLVED HERE IS WHETHER THE APPELLANT-COMPAN Y IS ELIGIBLE FOR DEDUCTION ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 5 U/S.SO-IA IN RESPECT OF THE CLAIM OF RS.42.29 CRORE S U/S.80-IA OF THE I.T. ACT. IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS SET UP A POW ER PLANT FOR GENERATION OF POWER. IT HAS BEEN GENERATING POWER OVER THE YEARS AS ITS SOLE BUSINESS AND IT IS NOT ENGAGED IN ANY OTHER BUSINESS. BEFORE PROCEEDING TO DEAL WITH FINDINGS OF THE AO AS WELL AS THE SUBMISSIONS MADE BY THE APPELLANT, IT I S EXTREMELY IMPORTANT TO UNDERSTAND THE NUANCES OF POWER BUSINESS IN WHICH A LL POWER GENERATING COMPANIES OPERATE. THE GENERATING COMPANY SUCH AS T HE APPELLANT-COMPANY ENTERS INTO LONG TERM POWER PURCHASE AGREEMENT (PPA) WITH ITS CUSTOMERS WHICH IS VERY PRUDENT ACROSS THE ENTIRE INDUSTRY SO AS TO ENSURE STEADY CUSTOMERS FOR THE POWER WHICH IS GENERATED BY THE PLANT. ALL THE PROSPECTIV E CUSTOMERS ARE REQUIRED TO PURCHASE POWER AND BY ENTERING INTO A LONG TERM CON TRACT WHICH IS VERY ESSENTIAL TO BOTH THE POWER GENERATORS AS WELL AS THE CUSTOMERS AS IT WOULD ENSURE LOWER COST AS WELL AS CERTAINTY OF POWER ON NEED BASIS WHICH C OULD BE FATAL TO THE ENTIRE BUSINESS MODEL. FURTHER, THE AR HAD ALSO DRAWN MY ATTENTION TO THE REGULATORY PROVISIONS AND NOTIFICATION DATED 19.1.2009 ISSUED BY THE CERC WHICH HAS CATEGORICALLY STATED THAT THE COMPONENT OF TARIFF F OR SUPPLY OF ELECTRICITY FROM A THERMAL GENERATING STATION SHALL COMPRISE TWO PARTS , NAMELY, CAPACITY CHARGE (FOR RECOVERY OF ANNUAL FIXED COST CONSISTING OF THE COM PONENTS SPECIFIED IN REGULATION 14) AND ENERGY CHARGE (FOR RECOVERY OF PRIMARY FUEL COST AND LIMESTONE COST WHERE APPLICABLE). BROADLY, ON THE BASIS OF THE ABOVE NOT IFICATION THE APPELLANT-COMPANY HAS BEEN RECOVERING FIXED COST FROM ITS CUSTOMERS W HICH HAS BEEN BOOKED AS REVENUE. I HAVE ALSO PERUSED THE PPA COMPILED IN TH E PAPER BOOK BY THE APPELLANT. ON PERUSAL, IT TRANSPIRES THAT THE APPELLANT-COMPAN Y, BASED ON THE CAPACITY ALLOCATED FOR EACH CUSTOMER, CHARGES - ANNUAL FIXED CHARGES SUCH AS MAINTENANCE COST, INTEREST ON DEBT, DEPRECIATION ETC. THE APPEL LANT-COMPANY RECOVERED FIXED CHARGES AS WELL AS VARIABLE CHARGES DEPENDING UPON THE TERMS OF THE PPA FROM ITS RESPECTIVE CUSTOMERS. THE CLAIM OF THE APPELLANT, W HILE FILING ITS RETURN OF INCOME, WAS THAT THE INCOME BOOKED IN RESPECT OF THE ABOVE RECOVERY CHARGES SHOULD BE CONSIDERED AS ELIGIBLE FOR DEDUCTION U/S 801A OF TH E ACT. THIS CLAIM OF THE APPELLANT WAS DENIED BY THE ASSESSING OFFICER ON THE GROUND T HAT SUCH INCOME CANNOT BE CONSIDERED TO HAVE BEEN DERIVED BY THE UNDERTAKING FROM GENERATION OF ELECTRICITY. THE QUESTION NOW ARISES IS WHETHER THE SAID RECOVER Y CHARGES WOULD BE ELIGIBLE FOR DEDUCTION U/S.80-IA OR NOT? IN ORDER TO CONSIDER TH E ABOVE, I WOULD LIKE TO ANALYZE THE PROVISIONS OF SECTION 80IA OF THE INCOME TAX AC T, WHICH READ AS UNDER; '(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFIT AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS REFERRED TO IN THE SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS TH E ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO ONE HUN DRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TE N CONSECUTIVE ASSESSMENT YEARS. (4) THIS SECTION APPLIES TO (IV) AN UNDERTAKING WHICH, IS SET UP IN ANY PART OF INDIA FOR THE GENERATION OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS T O GENERATE POWER AT ANY ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 6 TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OFAPRIL,1993 AND ENDING ON THE 31 ST DAY OF MARCH, 2014 ...... '(UNDERLINED FOR EMPHASI S) ON THE ANALYSIS OF THE ABOVE PROVISIONS, IT IS NOTE D THAT THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE BUSINESS OF GENE RATION OF POWER WOULD BE ELIGIBLE FOR DEDUCTION U/S.80-IA(4). BASED ON THE U NDERSTANDING OF THE POWER INDUSTRY, A CUSTOMER WOULD ALWAYS ENTER INTO THE AG REEMENT TO ENSURE STEADY AND CONSISTENT SUPPLY OF POWER BASED ON THE REQUIREMENT FOR A LONG PERIOD OF TIME. FURTHER, THE GENERATOR OF POWER WOULD ALWAYS DESIRE TO HAVE SOME MINIMUM COMMITMENT OF SALE OF POWER. ACCORDINGLY, SUCH A CO MPANY SHALL ENTER INTO POWER PURCHASE AGREEMENTS WITH PROSPECTIVE CUSTOMERS. REV ENUES HAVE BEEN GENERATED FROM VARIOUS PPAS WHICH HAVE BEEN EXECUTED BY THE A PPELLANT WITH OTHER COMPANIES ONLY IN THE INTEREST OF BUSINESS CONSIDER ATIONS. COPIES OF PPAS HAVE BEEN PLACED ON RECORD BY THE APPELLANT. THE SAID PP AS WERE EXECUTED PURELY ON THE PRINCIPLES OF COMMERCIAL EXPEDIENCY AND IN THE INTE REST OF THE APPELLANT COMPANY. FURTHER, ON ANALYSIS OF VARIOUS DOCUMENTS IT IS SEE N THAT THERE IS NO DOUBT THAT THE INCOME WAS RECEIVED BY THE APPELLANT-COMPANY BY VIR TUE OF PPAS WHICH IS INEXTRICABLY LINKED WITH THE POWER GENERATION UNIT AND THERE IS NO OTHER SOURCE OTHER THAN THE INCOME FROM POWER GENERATING UNITS. IN THIS RESPECT THE APPELLANT- COMPANY DREW MY ATTENTION TO THE DECISION OF THE HO N'BLE DELHI ITAT IN THE CASE OF MAGNUM POWER GENERATION LTD. VS. DCIT 16 TAXMANN.CO M 75 (DEL.). THE HON'BLE TRIBUNAL HAS DECIDED THE CASE IN FAVOUR OF THE ASSE SSEE BY OBSERVING AS UNDER:- '9. WE HAVE CAREFULLY GONE THROUGH THE AFORESAID TR IBUNAL'S ORDER DATED 'NOVEMBER 27, 2009, AND FIND THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSEE'S FAVOUR IN THE ASSESSMENT YEAR 2005-06 BY OBSERVING AND HOLDING AS UNDER: '3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMIS SIONS MADE BEFORE US. SUB-SECTION (1) OF SECTION 80-IA GRANTS DEDUCTI ON FROM THE TOTAL INCOME OF AN ASSESSEE IN RESPECT OF ANY PROFITS AND GAINSDERI VED BY AN INDUSTRIAL UNDERTAKING FROM THE ELIGIBLE BUSINESS, MENTIONED I N SUB-SECTION (4). SUB- CLAUSE (A) OF CLAUSE (IV) OF SUBSECTION (4) IS IN R ESPECT OF AN UNDERTAKING WHICH IS SET UP IN ANY PART OF INDIA FOR THE GENERA TION OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS TO GENERATE POWE R AT ANY TIME DURING THE PERIOD BEGINNING ON APRIL 1, 1993 AND ENDING ON MAR CH 31, 2001. FROM THE ASSESSMENT ORDER, IT IS SEEN THAT THE SUBMISSIONS O F THE ASSESSEE WAS THAT THE ASSESSEE-COMPANY COMMENCED OPERATIONS FOR POWER GENERATION IN THE YEAR 1998. THUS, THE POWER PLANT WAS SET UP IN INDI A AFTER APRIL 1, 1993 AND BEFORE APRIL 1, 2011. THEREFORE, THE CONDITION MENT IONED IN SUB-CLAUSE (A) STANDS SATISFIED IN THIS CASE. IN ANY CASE, THE ASS ESSING OFFICER HAS NOT RAISED ANY DISPUTE IN THIS MATTER. 3,1 COMING TO THE ISSUE OF INCOME FROM DEEMED GENER ATION, THE SAME ARISES WHEN HPGCL DOES NOT TAKE POWER FROM THE POWER PLANT OF THE ASSESSEE. IN SUCH A SITUATION, IT IS OBLIGED TO PAY CHARGES TO T HE ASSESSEE TO KEEP THE PLANT IN READY CONDITION. THERE IS STIPULATION TO THAT EF FECT IN THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND HPGCL. THERE IS NO DISPUTE ABOUT THESE FACTS ALSO. THUS, THE ONLY QUESTION LEFT IS W HETHER, THE AFORESAID INCOME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 7 3.2 WE HAVE ALREADY MENTIONED THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING SPECIFIED IN SUB-SECTION (4), IT IS ENTITLED TO DEDUCTION UND ER THE PROVISION. THERE IS NO DISPUTE THAT AN UNDERTAKING SET UP IN ANY PART OF I NDIA FOR GENERATION OR GENERATION AND DISTRIBUTION OF POWER IS AN ELIGIBLE UNDERTAKING FOR THE PURPOSE OF THE AFORESAID DEDUCTION, AS PROVIDED IN SUB-SECTION (4)(IV)(A). THE WORDS USED IN THE AFORESAID SUB-CLAUSE ARE AN UNDER TAKING WHICH 'IS SET UP IN ANY PART OF INDIA FOR THE GENERATION OR GENERATION AND DISTRIBUTION OF POWER*. THERE IS NO DISPUTE THAT THE UNDERTAKING OF THE ASSESSEE IS SET UP FOR GENERATION OF POWER. THE ASSESSEE HAS BEEN SELLING THE POWER TO HPGCL AS PER TERMS AND CONDITIONS OF THE AGREEMENT ENTERED I NTO WITH IT. THIS AGREEMENT HAS BEEN ENTERED INTO IN THE COURSE OF BU SINESS, WHICH IS PRIMARILY OF GENERATION OF POWER. THE ASSESSEE RECE IVED REVENUE FOR THE POWER ACTUALLY SUPPLIED TO HPGCL. CERTAIN INCOME IS ALSO RECEIVED WHEN POWER IS NOT DRAWN BY HPGCL AND THE REASON FOR TLIE SAME IS STATED TO BE THAT THE ASSESSEE HAS TO KEEP ITS PLANT IN READINES S AND FOR THIS PURPOSE EXPENSES ARE INCURRED. THEREFORE, THE AGREEMENT BET WEEN THE ASSESSES AND HPGCL IS IN RESPECT OF SALE OF POWER, THE GENERATIO N OF WHICH IS THE MAIN BUSINESS OF THE ASSESSEE. BUT FOR CARRYING ON THE B USINESS OF GENERATION OF POWER, THE ASSESSEE WOULD NOT HAVE EARNED INCOME EI THER BY WAY OF ACTUAL SALE OF POWER OR BY WAY OF DEEMED GENERATION. IN OT HER WORDS, THE PPA IS ENTERED BECAUSE THE ASSESSEE HAS SET UP AN UNDERTAK ING FOR GENERATION OF POWER. THE INCOME BY WAY OF SALE OF POWER AND THE I NCOME BY WAY OF DEEMED GENERATION OF POWER HAVE PROXIMATE NEXUS WIT H THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. BOTH COMPONENTS OF INCOME A RE INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE. IT CAN ALSO BE SAID T HAT THE AGREEMENT IN RESPECT OF BOTH TYPES OF REVENUES RECEIVED OR RECEI VABLE BY THE ASSESSEE ARE ON ACCOUNT OFPOIVER SUPPLIED TO HPGCL, REPRESENTING A METHOD TO DETERMINE THE SALE PROCEEDS, WHICH HAS A PROXIMATE CONNECTION WITH THE BUSINESS OF THE ASSESSEE.' (EMPHASIS SUPPLIED) IT HAS ALSO BEEN HELD BY THE HON'BLE TRIBUNAL THAT INCOME FROM DEEMED GENERATION WAS ALLOWABLE U/S.80-IA OF THE ACT. IN OTHER WORDS, PPAS HAVE BEEN ENTERED BECAUSE THE APPELLANT HAS SET UP AN UNDERTAKING FOR GENERATION OF POWER AND WANTED TO ENSURE COMMITTED OFFTAKE OF ELECTRICITY. FURTHER THE PROCEEDS ARE DIRECTLY EMANATING FROM THE PPAS. THE FACT THAT THE CUSTOMERS ARE NOT IN A POSITION TO PURCHASE OR DO NOT PURCHASE BECAUSE OF COMMERCIA L REASONS CANNOT MAKE THE APPELLANT INELIGIBLE FOR DEDUCTION. BECAUSE THE CUS TOMERS OF THE APPELLANT COMPANY WERE NOT IN A POSITION TO PURCHASE ELECTRICITY THEY USED TO COMPENSATE THE APPELLANT FOR FIXED COSTS INCURRED SUCH AS DEPRECIA TION , INTEREST ON CAPITAL ETC. WHICH IS IN ACCORDANCE WITH THE PPA AS WELL AS THE NOTIFICATION RELIED UPON BY THE APPELLANT. ACCORDINGLY, THE APPELLANT IS ELIGIBLE F OR DEDUCTION U/S.804A. BEFORE CONCLUDING THAT THE APPELLANT IS ELIGIBLE, I T WOULD ALSO RELEVANT TO REFER TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF C IT VS. MEGHALAYA STEELS LTD. (GAUHATI) 356 ITR 235 WHEREIN THE HON'BLE APEX COUR T HAS DEALT WITH THE DEFINITION OF THE TERM ''DERIVED FROM'. IT MAY BE NOTED HERE T HAT THE ASSESSING OFFICER HAS TIME AND AGAIN STATED IN THE ASSESSMENT ORDER THAT THE PROCEEDS RECEIVED BY THE APPELLANT FROM THE GROUP INCOME CANNOT BE CONSIDERE D TO HAVE BEEN DERIVED FROM ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 8 THE UNDERTAKING OF GENERATION OF POWER AS THERE IS NO POWER GENERATED. THE HON'BLE APEX COURT HAS DEALT WITH AND EXPLAINED THE RATIONAL AS UNDER:- '20. FROM THE DECISIONS REFERRED TO ABOVE, FURTHER SUBMITS THE LEARNED ASG, IT CAN BE SAFELY SAID THAT A NUMBER OF SUPERIOR JUDICIAL AUTHORITIES HAVE CHOSEN TO IGNORE THE WORD 'FROM 1 OR 'BY', APPEARING AFTER THE WORD 'DERIVED', WHILE C ONSIDERING THE SUBJECT-MATTER INVOLVING AND/ OR USING THE SAID TWO EXPRESSIONS. ON PERUSAL OF THE ABOVE FINDING HON'BLE APEX COURT HAS HELD THAT THE DECISION OF LIBERTY INDIA DOES NOT COME TO THE AID OF THE REVEN UE BECAUSE IT WAS DEALING WITH INCOME FROM EXPORT INCENTIVES WHICH IS VERY FAR REM OVED FROM REIMBURSEMENT OF COSTS. IN THE FACTS OF THE CASE BEFORE HON'BLE APEX COURT THE ASSESSEE WAS RECEIVING PAYMENT TOWARDS TRANSPORT SUBSIDY, POWER SUBSIDY, I NTEREST SUBSIDY ETC. AND IT HAVING A FIRST DEGREE NEXUS WITH THE COST OF THE PR OJECT WAS HELD TO BE ELIGIBLE FOR DEDUCTION U/ S 801 A. IN THE FACTS OF THE CASE, IT IS SEEN THAT THE APPEL LANT HAS DERIVED PROFIT FROM ENTERING INTO PPAS AND NOWHERE HAS THE ASSESSING OF FICER DENIED THAT THE REVENUES EMANATED FROM ANY OTHER SOURCES. FURTHER, ON PERUSA L OF THE PPAS IT IS EVIDENT THAT THE REVENUES ARE IN RESPECT OF ANNUAL FIXED CHARGES SUCH AS MAINTENANCE COST, INTEREST ON DEBT, DEPRECIATION ETC. THEREFORE, RESP ECTFULLY FOLLOWING THE APEX COURT'S DECISION THE SAID REVENUE OUGHT TO BE CONSI DERED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE ELIGIBLE F OR DEDUCTION U/S.80-IA. THIS FINDING FURTHER GET STRENGTHENED BY THE FACT THAT O N SIMILAR FACTS AND CIRCUMSTANCES THE ASSESSING OFFICER HAD ALLOWED DEDUCTION U/S.80- IA FOR EARLIER THREE ASSESSMENT YEARS I.E. A.YS. 2007-08. 2008-09 AND 2009-10. THE VERY ISSUE HAS BEEN CONSIDERED AND DECIDED CONSISTENTLY IN A NUMBER OF ASSESSMENT YEARS IN A PARTICULAR MANNER AND THE SAME IN SUBSEQUENT YEARS. SINCE IN THE FACT S OF THE CASE THE ASSESSING OFFICER HAS NOT MADE ANY ADJUSTMENTS/ DEDUCTION U/S .80-IA FOR A.YS. 2007-08, 2008- 09 AND 2009-10 NOR HAS HE UNDERTAKEN ANY PROCEEDING S U/S.148 OR 263, THEN, FOLLOWING THE DECISION OF THE DELHI HIGH COURT IN T HE CASE OF CIT VS. ALLIED FINANCE FVT LTD. 289 ITR 318, 1 WOULD HOLD THAT ON THIS GRO UND AS WELL ANY ADJUSTMENT MADE U/S,80-IA IS NOT PERMISSIBLE AND HENCE SHOULD BE DE LETED. FURTHER, THE ASSESSING OFFICER HAS ALSO ALLEGED THA T THE INCOME GENERATED BY THE APPELLANT-COMPANY IS NOT OPERATING INCOME AN D THE ENTIRE TRANSACTION STRUCTURED IS A COLOURABLE AND RESULTING INTO ABUSI VE TAX PLANNING. IN THIS REGARD, A.O. PLACED RELIANCE ON THE DECISION OF THE HON'B LE APEX COURT IN THE CASE OF MCDOWELL & CO., 154 ITR 148 AS WELL AS SEVERAL OTHE R DECISIONS. I HAVE ALSO PERUSED THE SUBMISSIONS MADE BY THE APP ELLANT TO JUSTIFY THAT IT HAS NOT RESORTED TO ABUSIVE TAX PLANNING. IN THIS R ESPECT, THE APPELLANT HAS PLACED RELIANCE ON THE DECISION OF THE PUNJAB & HARYANA HI GH COURT IN THE CASE OF CIT VS. PUNJAB STATE ELECTRICITY BOARD, 320 ITR 469 AND POR RITS AND SPENCER (ASIA) LTD. VS. CIT, 329 ITR 222 AS WELL AS THE HON'BLE SUPREME COU RT DECISION IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. VS. UNION OF INDIA, 341 ITR 1 . THE HON'BLE APEX COURT HAS COMPREHENSIVELY DEALT WITH THE ISSUE OF TAX PLANNING VISA-VIS COLOURABLE AND ABUSIVE TAX PLANNING. AS A MATTER OF FACT, IN THE PRESENT CASE, VARIOUS PPAS HAVE BEEN EXECUTED BY THE APPELLANT-CO MPANY WITH OTHER COMPANIES IN THE INTEREST OF ONLY BUSINESS PURPOSES AND BUSIN ESS CONSIDERATIONS. THE RATIONALE BEHIND ENTERING INTO LONG TERM PPAS HAS BEEN EXPLAI NED AT LENGTH BY THE APPELLANT ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 9 BOTH FROM THE ANGLE OF PURCHASER AS WELL AS SUPPLIE R OF POWER. MAJORITY OF ALL THE COMPANIES WITH WHOM THE APPELLANT HAS ENTERED INTO A PPA HAVE ALREADY COMMISSIONED THEIR PLANTS, HOWEVER THEIR COMMERCIAL PRODUCTION MAY BE AT A SUBSEQUENT DATE. IN ANY CASE, THE PPAS WERE EXECUTE D PURELY ON THE PRINCIPLES OF COMMERCIAL EXPEDIENCY SO THAT THE PURCHASING COMPAN IES ARE ASSURED UNINTERRUPTED SUPPLY OF POWER. THEREFORE, I HOLD TH AT THE PPAS HAVE BEEN GENUINELY EXECUTED FOR BUSINESS PURPOSES AND THERE IS NO ANGLE OF TAX PLANNING MUCH LESS COLOURABLE TAX PLANNING AS ALLEGED BY THE ASSESSING OFFICER. COMING TO THE MERITS OF THE CASE, THE ASSESSING OFF ICER HAS GIVEN A FINDING THAT MOST OF THE FUEL COST IN PHASE-I WAS RS.NIL WH EREAS THE ENTIRE FUEL COST OF RS.99.48 CR. WAS DEBITED AGAINST FHASE-II. FURTHE R A.O. HAS STATED THAT THE NET PROFIT FOR PHASE-I WAS 47% AS AGAINST THE NET PROFI T IN PHASE-II ATJ.7%. FURTHER, AT PARA 4.7 OF THE ORDER THE ASSESSING OFFICER HAS STA TED THAT PROFITS FROM PHASE-I WAS NOT FROM SUPPLY OF POWER BUT RECEIVED FROM OTHERWIS E THAN SUPPLY OF POWER. I HAVE ALREADY HELD ABOVE THAT THE APPELLANT COMPANY IS EL IGIBLE FOR DEDUCTION IN RESPECT OF RECOVERY OF FIXED CHARGES AS AGREED UPON WITH TH E CUSTOMERS IN PPAS. HOWEVER, NOW, GOING TO THE FACT THAT THE APPELLANT HAS NOT I NCURRED ANY FUEL COST IN PHASE -I. I AM CONVINCED WITH THE REASONING OF THE APPELLANT TH AT THE COST HAS NOT BEEN INCURRED BECAUSE FUEL COST WAS SUPPOSED TO BE BORNE BY ESSAR STEEL INDIA LIMITED. THEREFORE, THE QUESTION OF THERE BEING NO FUEL COST INCURRED BY THE APPELLANT DOES NOT ARISE. FURTHER, THE ACCOUNTS OF THE UNDERTAKING ARE AUDITED AND NO ADVERSE COMMENTS BY THE AUDITOR HAVE BEEN MADE. ACCORDINGLY , I HOLD THAT THIS CANNOT BE THE REASON TO REACH TO A CONCLUSION THAT THE MORE T HAN ORDINARY PROFITS HAVE BEEN REFLECTED IN AN ELIGIBLE UNDERTAKING OF THE GROUP U /S 80 IA (10). NOW WE CAN COME TO ANOTHER REASONING THAT THE PROFITS FOR PHASE II AND III ARE LESS AS COMPARED TO PHASE I OF THE APPELLANT COMPANY. IN THIS RESPECT THE APP ELLANT HAS GIVEN DETAILED REASONING AND EXPLAINED THE DIFFERENCES BY EXHAUSTI VE REPLY VIDE LETTER DATED 20 TH DECEMBER 2012, THE REPLY OF THE APPELLANT HAS BEEN IGNORED BY THE ASSESSING OFFICER. ON VERIFICATION OF THE SAID REPLY AS WELL AS THE DETAILED EXPLANATIONS GIVEN THEREUNDER IT IS NOTED THAT DIFFERENCE WAS MAINLY O N ACCOUNT OF FUEL COST WHICH IS VARIABLE IN NATURE. PHASE II AND III WERE RECOVERIN G VARIABLE CHARGES FUEL CHARGES WHICH ARE INCLUDED BOTH AS COST AS WELL AS REVENUES . ON THE OTHER HAND PHASE I GENERATED ELECTRICITY THE FUEL COST OF WHICH WAS BO RNE BY ITS CUSTOMERS. ACCORDINGLY, TO MAKE IT COMPARABLE, THE APPELLANT H AS RIGHTLY SUBMITTED BEFORE THE AO THAT BOTH THE FUEL COST AS WELL AS REVENUES ATTR IBUTABLE SHOULD BE EXCLUDED IN ORDER TO MAKE PHASE II & II COMPARABLE WITH PHASE I . THEREBY THE MARGIN OF PHASE II AND II DROP TO 25.80% (51.24 CRORES / 198.59 CRORES *100). ACCORDINGLY THE ALLEGATION OF THE AO THAT PHENOMENALLY HIGH PROFITS ARE SHOWN IN ELIGIBLE UNDERTAKING DOES NOT HOLD TRUE. THE APPELLANT HAS G ONE FURTHER AND ALSO EXPLAINED AFTER TAKING 25.80 % MARGIN AS A BASE THAT THE REMA INING/BALANCE DIFFERENCE IS BECAUSE OF HIGHER INTEREST COSTS DIFFERENCE( ON ACC OUNT OF DIFFERENT LOANS) , HIGHER DEPRECIATION COST IN PHASE I AS WELL AS LOWER OPERA TION AND MAINTENANCE COST. IF THESE DIFFERENCES ARE FACTORED IN PROFITS OF PHASE I WOULD BE RS. 42.45 CRORES I.E. VERY CLOSE TO THE ACTUAL PROFITS REFLECTED IN THE A UDITED FINANCIAL STATEMENTS OF PHASE I. ACCORDINGLY I AM CONVINCED THAT THE MARGIN S OF THE APPELLANT COMPANY ARE IN THE RANGE WITH PHASE II AND III. THEREFORE, THERE IS NO REASON FOR ME TO CONCUR WITH THE FINDINGS OF THE ASSESSING OFFICER. FURTHE R, THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE AUDITED FINANCIAL STATEMENT S. THEREFORE, THE DISALLOWANCE ON THIS GROUND AS WELL IS DELETED. ACCORDINGLY, THIS GROUND OF APPEAL NO.2 IS ALLOWED. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 10 8. THE LD DR, WHILE RELYING HEAVILY ON THE ORDER OF AO, SUBMITTED THAT THE LD CIT(A) HAS FAILED TO CONSIDER THE FACT THAT THE WHOLE ARRANGEMENT WAS NOTHING BUT A MECHANISM DEVISED TO AVAIL THE DEDUCTION U/S 80IA OF THE ACT. THE LD DR, WHILE REFERRING TO OPERATIONAL RESULTS OF PHASE 1, SUBMIT TED THAT AGAINST THE SALES OF RS.90.49 CR, THE NET PROFITS W ERE RS.42.45 CR WHICH IS APP. 47% OF THE SALES. THE LD DR CONTEN DED THAT THE PROFITS WERE HIGHLY UNREALISTIC AND WERE INFLATED W ITH MOTIVE TO CLAIM HIGHER DEDUCTION U/S 80IA OF THE ACT. THE LD DR SUBMITTED THAT ON THE OTHER HAND THE SALES FROM PHASE 11 AND 111 WERE RS. 298.59 CR AND THE NET PROFITS WERE RS.51.24 CR WHICH IS APP. 17%. THE LD DR ALSO POINTED OUT THAT FIXED COST WER E RECOVERED UNDER PPAS IRRESPECTIVE OF UNITS OF ELECTRICITY GEN ERATED AND SUPPLIED WHICH RAISED DOUBTS ABOUT THE GENUINENESS OF THE CLAIM OF THE ASSESSEE U/S 80IA OF THE ACT. THE LD D R STATED THAT PPAS WERE ENTERED INTO WITH GROUP COMPANIES AND THE PAYMENTS WERE RECEIVED UNDER PPAS DESPITE HAVING NOT SUPPLIE D ANY ELECTRICITY AS NOTED BY THE AO IN PAGE 8 OF THE ASSESSMENT ORDER. THE LD DR ALSO DREW ATTENTION OF THE BENCH T HAT ESSAR STEEL LTD WAS ONLY THE COMPANY WHICH WAS SUPPLIED POWER OF 448 M.U. BY PHASE 1 AGAINST THE PAYMENT OF RS. 63,5 4,37,865/- AND COST OF FUEL WAS ALSO FULLY BORNE BY M/S. ESSAR STEEL LTD. AS THE SAID AMOUNT WAS CLAIMED TO BE PAID AS FIXED COS T TO THE ASSESSEE COMPANY UNDER PPA. THE LD DR ALSO REFERRED TO THE TABLE ON PAGE NO. 9 OF THE ASSESSMENT ORDER TO REIN FORCE HIS ARGUMENTS THAT THE ASSESSEE SUPPLIED POWER TO ONLY ONE COMPANY M/S ESSAR STEEL LTD OF 448 M.U. AGAINST TH E PAYMENT OF RS. 63,54,37,865 WHICH WAS RECOVERED AS FIXED CO ST AND SHOWN AS SALES WHEREAS THE BALANCE RECEIPTS FROM 6 COMPANIES ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 11 WERE RS.26,10,72,305 RECOVERED AS FIXED COST AND S HOWN AS SALES WITHOUT SUPPLYING ANY ELECTRICITY. THE LD DR STATED THAT THE AO HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE B Y INVOKING THE PROVISIONS OF SECTION 80IA(10) OF THE ACT. THE LD D R ALSO REFERRED TO THE FACT THAT 6 CUSTOMERS FROM WHOM THE PAYMENT S OF RS.26,10,72, 035 WERE RECEIVED HAVE NO APPROVAL FRO M CHIEF ELECTRICAL OFFICER TO OBTAIN THE ELECTRICITY FROM T HE ASSESSEE AS IS APPARENT FROM THE LETTER ISSUED BY THE CHIEF ELECTR ICAL OFFICER, GANDHINAGAR ADDRESSED TO THE ASSESSEE DATED 1.4.201 1. IN OTHER WORDS THE ASSESSEE WAS NOT HAVING ANY PERMISSION TO SUPPLY ELECTRICITY TO THESE COMPANIES FOR THE INSTANT YEAR . THEREFORE THE LD DR SUBMITTED THAT THE CLAIM OF THE ASSESSEE WAS FALSE AND FABRICATED AND WAS RIGHTLY REJECTED BY INVOKING THE PROVISIONS OF SECTION 80IA(10) OF THE ACT AS THE TRANSACTIONS WER E WITH THE RELATED PARTIES. THE LD DR FINALLY PRAYED BEFORE T HE BENCH THAT THE DECISION OF THE LD CIT(A) IS PATENTLY WRONG AS IT HAS FAILED TO CONSIDER THE SHAM AND FALSE CLAIM OF THE ASSESSEE U /S 80IA OF THE ACT WHICH WAS AN ARRANGEMENT WORKED OUT BETWEEN THE ASSESSEE AND RELATED PARTIES TO CIRCUMVENT THE TAX LIABILITY BY CLAIMING DEDUCTION U/S 80IA OF THE ACT AND THEREFOR E THE ORDER OF LD CIT(A) DESERVES TO BE REVERSED. ON THE FINDIN G OF LD CIT(A) ABOUT ALLOWING THE SIMILAR CLAIM IN THE EARLIER THR EE YEARS, THE LD DR SUBMITTED THAT NONETHELESS THE CLAIM WAS ALLOWE D IN THE EARLIER THREE YEARS AND ALSO THERE WAS NO PENDING PROCEEDINGS EITHER U/S 148 OR U/S 263 OF THE ACT, BUT EVERY YEA R IS A DISTINCT YEAR AND THERE IS NO BAR ON THE AO TO ACCEPT THE CL AIM OF THE ASSESSEE IF THAT IS ACCEPTED IN THE PAST AS THE PRI NCIPLE OF RESJUDICATA IS NOT APPLICABLE TO THE INCOME TAX PRO CEEDINGS. THE ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 12 LD DR ALSO RELIED ON THE FOLLOWING DECISIONS IN DEF ENSE OF HIS ARGUMENTS: A)LIBERTY INDIA LTD VS CIT (2009) 183 TAXMAN 349 (S C) B)PANDIAN CHEMCIALS LTD VS CIT (2003) 262 ITR 278 ( SC) C)CIT VS JYOTI APPARELS (2008) 166 TAXMAN 343 D) CIT VS MEREENA CREATIONS (2010) 189 TAXMAN 71 E)OPERA CLOTHINGS VS ITO (2017)-TIOL-38-SC-IT)(SC) F) CYBER PEARL INFORMATION TECHNOLOGY PARK (P) LTD VS ITO (2017) 80 TAXMANN.COM 66(MAD) 9. PER CONTRA, THE LD AR SUBMITTED THAT THE ORDER O F LD CIT(A) IS SPEAKING AND REASONED ONE AS THE LD APPELLATE A UTHORITY HAS DEALT WITH ALL ISSUES RAISED BY THE AO IN HIS ORDER ON THE BASIS OF WHICH HE REJECTED THE CLAIM OF THE ASSESSEE U/S 80I A OF THE ACT. THE LD COUNSEL OF THE ASSESSEE SUBMITTED THAT PROVI SIONS OF SECTION 80IA(10) OF THE ACT WERE INVOKED ON THE GRO UND THAT DEDUCTION CLAIMED WAS A FINANCIAL ARRANGEMENT BETWE EN THE RELATED PARTIES OUT OF BUSINESS AND COMMERCIAL EXPE DIENCIES. THE LD AR ARGUED THAT THERE WAS NO ARRANGEMENT BETW EEN THE RELATED PARTIES AS HAS BEEN ALLEGED BY THE AO. THE LD AR PLACED BEFORE THE BENCH DETAILS OF LOSSES /DEPRECIATION CA RRIED FORWARD FROM AY 2010-11 TO 2018-19 AND ARGUED THAT PAYMEN TS FROM RELATED PARTIES HAVE NOT RESULTED INTO ANY EVASION OF TAXES AS THE COMPANY M/S ESSAR STEEL LTD WAS HAVING HUGE LOS SES. THE LD COUNSEL ALSO STATED THAT THE ASSESSEE COMPANY HA S BEEN PAYING TAX UNDER MAT EVERY YEAR. THE LD COUNSEL, JU STIFYING THE CLAIM OF DEDUCTION AND THE ORDER OF CIT(A), CONTEND ED THAT BOOKS OF ACCOUNT OF THE ASSESSEE WERE DULY AUDITED AND CE RTIFIED WITH NO ADVERSE COMMENTS OF THE AUDITORS. ON THE ISSUE OF ABNORMAL PROFITS IN THE PHASE 1 QUA WHICH THE DEDUCTION U/S 80IA WAS CLAIMED, LD COUNSEL SUBMITTED THAT THE MAIN REASON FOR HIGHER NET PROFITS WAS THE FACT THAT UNDER PPA M/S. ESSA R STEEL LTD. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 13 HAD BORNE THE FUEL COST. THUS THE PLEA OF THE AO TH AT THE ENTIRE FUEL COST INCURRED FOR PHASE 1 OF RS. 99.48 CR WAS DEBITED AGAINST PHASE 11 WAS WRONG AND FALLACIOUS. THE LD CIT(A) HAS DULY NEGATED THE CONTROVERSY BY RECORDING A FINDIN G OF FACTS IN THIS REGARDS. 10. THE LD AR ALSO VEHEMENTLY ARGUED THAT THE SAME CLAIM OF THE ASSESSEE U/S 80IA WAS ALLOWED BY THE REVENUE IN EARLIER THREE YEARS AND THAT TOO IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT IN ALL THESE YEARS. THE LD COUNSEL FURTHER POINTED OUT THAT IN THESE YEARS IT WAS ONLY ESSAR STEEL LTD TO WHOM THE POWER WAS SOLD UNDER PPA ON FIXED UNIT CONTRACT BAS IS. THE LD AR ARGUED THAT ONCE THE DEDUCTION IS ALLOWED IN THE INITIAL ASSESSMENT YEAR, THE SAME CAN NOT BE WITHDRAWN IN T HE SUBSEQUENT YEARS BY PLACING RELIANCE ON THE FOLLOWI NG DECISIONS:- A) CIT VS PAUL BROS 216 ITR 548 (BOM) B) CIT VS FATEH GRANITE (P) LTD 314 ITR 32 (BOM) C) CIT VS A.R.J. SECURITY PRINTERS 264 ITR 276 (DEL) D) SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. VS CI T 123 ITR 669 (GUJ) E) CIT VS WESTERN OUTDOOR INTERACTIVE PVT LTD 254 CR 59 3 (BOM) F) CIT VS TATA COMMUNICATION INTERNET SERVICES LTD. 25 1 CTR 290 (DEL) G) IAC VS HOECHST INDIA LTD 32 ITD 689(MUM) H) M.M.PATEL & SONS VS ITO 1ITD 82 (NAG) I) ITO VS SMT PUSHPA DEVI VADERA 57 SOT 138 (JODH) 11. ON THE FINDINGS OF LD AO, THE LD AR SUBMITTED T HAT THE PPAS WERE ENTERED INTO OUT OF COMMERCIAL EXPEDIENCY AS T HE HUGE CAPITAL OUTLAY NECESSITATED THE MINIMUM COMMITMENT FOR SALE OF POWER AND THUS JUSTIFIED THE PPAS IN THE INTEREST O F THE ASSESSEE OUT OF BUSINESS AND COMMERCIAL CONSIDERATIONS. IT W AS ALSO STATED THAT THE ASSESSEE WAS ONLY ENGAGED IN THE EL ECTRICITY ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 14 GENERATION AND THERE WAS NO OTHER BUSINESS OF THE A SSESSEE. THE LD AR STATED THAT THE INCOME WAS RECEIVED BY THE AS SESSEE UNDER PPA WHICH WAS CONNECTED WITH THE GENERATION OF POWE R. THE LD COUNSEL ARGUED THAT NO WHERE THE AO DOUBTED THAT RE VENUE OF THE ASSESSEE THAT IT CAME FROM ANY OTHER SOURCES OF INCOME. THE LD AR SUBMITTED THAT THE REVENUE WAS RECEIVED UNDER PPAS IN RESPECT OF FIXED CHARGES SUCH AS MAINTENANCE COST, INTEREST ON DEBTS, DEPRECIATION ETC. THE LD AR REFERRED TO THE HONBLE SUPREME COURT DECISION IN THE CASE OF CIT VS MEGHALA YA STEEL LTD (GAUHATI) 356 ITR 235 WHEREIN THE APEX COURT HA S DEALT WITH THE DEFINITION OF TERM DERIVED FROM AND FOLLOWING THE SAME RATIO THE SAID REVENUE HAS TO BE OR OUGHT TO BE CONSIDER ED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND ELIGIBLE FO R DEDUCTION U/S 80IA OF THE ACT. THE LD COUNSEL FOR THE ASSESSE E ALSO CONTENDED THAT THE SECTION 80IA IS A BENEFICIAL PRO VISION WHICH HAS BEEN ENACTED WITH THE PURPOSE OF ALLOWING BENEF IT TO THE ASSESSEE WHO HAS SET UP POWER PLANTS OR SPECIFIED U NDERTAKINGS KEEPING IN VIEW THE OVERALL ECONOMIC DEVELOPMENT OF THE COUNTRY. THE LD AR ALSO ARGUED THAT WHERE TWO VIEWS ARE POS SIBLE THEN VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE TAKEN AS H AS BEEN HELD BY THE HONBLE APEX COURT IN THE CASE OF CIT VS VEGE TABLE PRODUCTS LTD 88 ITR 192 (SC) , MANISH MAHESWARI VS ACIT 289 ITR 341(SC) AND PRADIP J. MEHTA VS CIT 300 ITR 231 ( SC). 12. THE LD AR WHILE RELYING HEAVILY ON THE ORDER OF CIT(A) STATED THAT LD CIT(A) PASSED A VERY REASONED AND SPEAKING ORDER FOLLOWING THE DECISIONS OF THE HONBLE APEX COURT, VARIOUS HONBLE HIGH COURTS AND COORDINATE BENCHES AND TH EREFORE THE ORDER OF CIT(A) MAY BE CONFIRMED ON THIS ISSUE BY D ISMISSING THE GROUND RAISED BY THE REVENUE. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 15 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED CAREFULLY THE RECORDS AS PLACED BEFORE US I NCLUDING THE IMPUGNED DECISION OF THE CIT(A) AND CASE LAWS RELIE D BY BOTH THE PARTIES. THIS IS UNDISPUTED THAT THE ASSESSEES ONL Y BUSINESS ACTIVITY IS ELECTRICITY GENERATION WHICH COMMENCED IN THE FINANCIAL YEAR 2006-07 RELEVANT TO THE ASSESSMENT Y EAR 2007-08. IT IS ALSO NOT DISPUTED THAT THE DEDUCTION U/S 80IA OF THE ACT HAS BEEN ALLOWED IN THE EARLIER THREE YEARS IN ASSESSME NTS FRAMED U/S 143(3) OF THE ACT AND NO ACTION U/S 148 OR 263 OF THE ACT IS PENDING AGAINST THE ASSESSEE IN RESPECT OF THESE YE ARS WHICH HAS ALSO BEEN ADMITTED BY THE LD DR WHEN A QUERY WAS PU T DURING THE COURSE OF HEARING. THE ASSESSMENT YEARS IN WHIC H THE DEDUCTION WAS ALLOWED U/S 80IA ARE AS UNDER: 2007-08 143(3) DATED 23.3.2009 2008-09 143(3) DATED 24.12.2010 2009-10 143(3) DATED 26.12.2011 14. THUS THERE IS MERIT IN THE ARGUMENTS OF THE LD AR THAT WHEN THE REVENUE HAS ACCEPTED THE CLAIM OF THE ASSE SSEE U/S 80IA OF THE ACT IN THE EARLIER YEARS AND THERE BEIN G NO CHANGE IN FACTS AND CIRCUMSTANCES DURING THE YEAR ,THE CLAIM OF THE ASSESSEE CAN BE REJECTED IN THE YEAR UNDER CONSIDER ATION. WE ARE IN AGREEMENT WITH THE CONCLUSION OF THE LD CIT(A) AND THE LD COUNSEL OF THE ASSESSEE ON THIS ISSUE. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE VARIOUS CASE LAWS AS STA TED SUPRA TO THIS EFFECT THAT ONCE THE CLAIM OF THE ASSESSEE IS ACCEPTED IN THE INITIAL YEAR IT CAN NOT BE REJECTED IN THE SUBSEQUE NTLY. 15. ON THE ISSUE OF HIGH NET PROFIT RATE IN PHASE 1 AND LOW NET PROFIT IN OTHER TWO PHASES 11 AND 111, THE LD CIT(A ) HAS GIVEN A CATEGORICAL FINDING THAT IN PHASE-1, THE FUEL COST IS BORNE BY ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 16 M/S ESSAR STEEL LTD. AND IF THE ADJUSTMENTS ARE MAD E TO THAT EFFECT, THE PROFIT WOULD BE COMPARABLE TO OTHER UNI TS AND THUS THERE IS NO FORCE IN THE FINDINGS OF THE AO TO THI S EFFECT. IT IS ALSO TRUE THAT ASSESSEE HAS ENTERED INTO PPAS WITH VARIO US RELATED PARTIES AS STATED HEREINABOVE OUT OF COMMERCIAL EXP EDIENCY AND COMMERCIAL CONSIDERATIONS TO ENSURE SALE OF POWER G ENERATED AND RECEIVED REVENUE IN RESPECT OF FIXED CHARGES BU T THAT IS DONE OUT OF BUSINESS CONSIDERATIONS ONLY. SO FAR AS THE ALLEGATIONS AND OBSERVATIONS OF THE AO ON THE ISSUE OF FINANCIA L ARRANGEMENT BETWEEN THE GROUP COMPANIES ARE CONCERN ED, THE LD AR HAS PROVED THAT NO EVASION OF TAX HAS TAKEN PLAC E AS M/S ESSAR STEEL LTD FROM WHOM SUBSTANTIAL REVENUE HAS BEEN RECEIVED IS A LOSS MAKING ENTITY AS IS APPARENT FRO M THE FOLLOWING DATA: 1. 2010-11 -29.62 -2990.09 2. 2011-12 -986.77 -3976.86 3. 2012-13 2845.60 -6822.45 4. 2013-14 6321.22 -13,143.67 THE LD CIT(A) COMPREHENSIVELY BROUGHT OUT ALL THE F ACTS AND TAKEN A VERY REASONED VIEW CONSIDERING ALL THE FACT S. WE ALSO NOTE THAT EVEN THE ASSESSEE COMPANY HAS BEEN PAYING MAT EVERY YEAR. SO CONSIDERING ALL THESE FACTS AND CIRC UMSTANCES WE HOLD THAT ALLEGATION OF THE AO THAT THERE WAS TAX E VASION HAS NO WEIGHT. 16. WE HAVE ALSO PERUSED THE DECISIONS RELIED UPON BY THE LD DR AND OBSERVE THAT THE THESE ARE DISTINGUISHABLE O N FACTS AND RENDERED ON DIFFERENT CONTEXT AND ARE NOT APPLICABL E IN THE PRESENT CASE. THE REVENUE HAS FAILED TO CONTROVERT THE FINDINGS ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 17 OF THE LD CIT(A) AND ALSO THE ARGUMENTS OF THE LD A R AND THUS WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. ACCORDINGLY THE GROUND NO. 1 AND 2 RAISED BY THE REVENUE ARE DISMISSED. 17. THE ISSUE RAISED IN THE 3 RD GROUND OF APPEAL IS AGAINST THE DELETION OF RS. 5,00,73,084/- BY LD CIT(A) AS MADE BY THE AO TOWARDS MANAGERIAL SUPPORT SERVICES WITHOUT APPREC IATING THAT THE ASSESSEE COULD NOT PROVE THE BENEFIT ARISING FR OM THE SERVICES RECEIVED FROM RELATED PARTY. 18. THE FACTS IN BRIEF ARE THAT ASSESSEE HAS PAID RS.5,00,73,084/- ON ACCOUNT OF MANAGERIAL SUPPORT S ERVICES TO ESSAR INVESTMENTS LTD. FOR THE SERVICES RENDERED BY THE SAID RELATED COMPANY. THE PAYMENT WAS MADE PURSUANT TO AN AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ESSAR I NVESTMENTS LTD. THE ESSAR INVESTMENTS HAVE EMPLOYED PROFESSION AL IN VARIOUS FIELDS TO RENDER THEIR SERVICES TO VARIOUS GROUP COMPANIES INCLUDING THE ASSESSEE. THE SERVICES PROV IDED INCLUDED FINANCE, DIRECT AND INDIRECT TAXATION, INS URANCE AND HUMAN RESOURCES ETC. MONTHLY BILLS WERE RAISED BY T HE SERVICE PROVIDER WHICH WERE PAID AS AGREED THROUGH REGULAR BANKING CHANNELS. ACCORDING TO THE AO, THE SAID AGREEMENT W AS NOT GENUINE AND THERE WAS NO EVIDENCE OF PROVIDING SERV ICES BY ESSAR INVESTMENTS LTD TO THE ASSESSEE. ACCORDING TO THE AO ALL THE DOCUMENTS PRODUCED BY THE ASSESSEE WERE SELF SE RVING DOCUMENTS. THE AO DISALLOWED THE SAID PAYMENTS AND ADDED THE SAME TO THE INCOME OF ASSESSEE BY TREATING THE SAME AS COLOURABLE TAX PLANNING. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 18 19. IN THE APPELLATE PROCEEDINGS THE ASSESSEE VIDE WRITTEN SUBMISSIONS DATED 03 RD MAY, 2016 SUBMITTED AS UNDER:- 2.4 AT THE OUTSET, IT IS SUBMITTED THAT PAYMENT S WERE MADE TO ESSAR INVESTMENTS LTD. IN THE PRECEDING ASSESSMENT YEAR 2009-10 ALSO ON THE BASIS OF SIMILAR AGREEMENT. THE ASSESSING OFFICER ACCEPTED SUCH PAYM ENTS AND THE SAME WAS ALLOWED IN THEASSESSMENT MADE UNDER SCRUTINY. THUS, IN IDENTICAL CIRCUMSTANCES SUCH SERVICE CHARGES HAVE BEEN FULLY ALLOWED BY THE DEPARTMENT IN THE PRECEDING ASSESSMENT YEAR. THEREFORE, THE WELL ESTABLISHED RU LE OF CONSISTENCY OF APPROACH SHOULD APPLY AS ALREADY EXPLAINED ELABORATELY (SUPR A). 2.5 SECONDLY, THERE IS NO BASIS WHATSOEVER FOR THE ASSESSING OFFICER TO DOUBT THE GENUINENESS OF THE AGREEMENT ENTERED INTO BETWEEN T WO CORPORATE ENTITIES, WHICH ARE BOTH ASSESSED TO INCOME-TAX AND ARE FILING REGU LAR INCOME-TAX RETURNS. 2.6 THE APPELLANT COMPANY WOULD LIKE TO MOST R ESPECTFULLY SUBMIT THAT BHANDER POWER LTD. HAS AVAILED SERVICES IN THE NATURE OF SH ARED SERVICE CHARGES FROM ESSAR INVESTMENTS LTD. AND ENTERED INTO AGREEMENT ACCORDI NGLY TO WHICH RS. 5,00,73,084 WAS INCURRED. IN THIS CONNECTION, THE APPELLANT WIS HES TO SUBMIT THAT THE ESSAR GROUP HAS BEEN ON A GROWTH TRAJECTORY AND THIS NECE SSITATED A LARGE AMOUNT OF INPUTS AND ADVICE BY EXPERTS HAVING EXTENSIVE EXPER IENCE IN VARIOUS ASPECTS OF THE BUSINESSES THAT IT WAS ENGAGED IN OR WAS FORAYING I NTO. TO MEET THESE REQUIREMENTS, IT WAS CONSIDERED EXPEDIENT TO CREATE INTERNAL SKILL SETS AND EXPERTISE THAT COULD SERVICE THE VARIOUS NEEDS OF THE GROWING BUSINESSES AS THE GROUP REALIZED THAT TO APPROACH SPECIALISTS FROM VARIOUS ORGANIZATIONS FOR GUIDANCE IN EACH FIELD/ FACET OF BUSINESS COULD PROVE UNVIABLE IN TE RMS OF TIME AND COSTS INVOLVED. THEREFORE, ESSAR INVESTMENTS LIMITED (EIL) TEAMS OF EXPERTS AND EXECUTIVES WITH SPECIALIZATION IN VARIOUS FIELDS, BESIDES TRANSFERR ING EXISTING PERSONNEL IN VARIOUS GROUP COMPANIES HAVING REQUISITE SKILLS TO PROVIDE THE NECESSARY GUIDANCE TO BUSINESSES ON THE WHAT'S, WHEN'S AND HOW'S OF VARIO US ACTIVITIES, FOR BETTER COMPLIANCE OF REGULATIONS AND LAWS AND FOR IMPROVIN G THE QUALITY OF OUTPUT SERVICE OF THE GROUP COMPANIES, IN A TIMELY AND COST EFFECT IVE MANNER. EIL THEREFORE, PROVIDED A BASKET OF SERVICES TO GROUP COMPANIES IN CLUDING BPOL, TO TAKE ADVANTAGE OF AND TO AVAIL AS AND WHEN REQUITED, ON AN ON-GOING BASIS. THE COSTS FOR RENDERING THESE SERVICES WERE ALLOCATED TO GROUP CO MPANIES WHO WERE THE BENEFICIARIES OF SUCH SERVICES. IN PARTICULAR, IN THE CASE OF BPOL, THE FOLLOWING A RE SOME OF THE TECHNICAL, MANAGERIAL AND ADMINISTRATIVE SERVICES AVAILED FOR SMOOTH OPERATIONS AND FUNCTIONING - ADVISING IN THE AREAS OF FINANCE AND TREASURY FUNCT IONS ADVISING ON FINANCE CONTROLLER MATTERS, ACCOUNTING STANDARDS AND AUDITS ETC ADVISING LEGAL MATTERS, LITIGATIONS (BOTH IN INDIA AND ABROAD), ARBITRATIONS, DISPUTES. ADVISING IN IDENTIFYING LEADING EDGE TECHNOLOGIES, INTERNATIONAL BENCH MARKING NORMS AND PROJECT MANAG EMENT SYSTEMS. ADVISING ON GROUP CORPORATE GOVERNANCE ADVISING THE COMPANY ON PERSONNEL POLICY ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 19 ADVISING REGARDING ENVIRONMENTAL MANAGEMENTS ADVISING REGARDING RISK AND INSURANCE MANAGEMENT CO-ORDINATING WITH INSURANCE COMPANIES AND NEGOTIATE RATE(S), PREMIA WITH VARIOUS INSURANCE COMPANIES A ND ASSISTING IN FOLLOWING UP OF CLAIMS RECRUIT PROFESSIONALS AT SENIOR LEVEL KEY AREAS LIAISE WITH GOVERNMENT AGENCIES AND STATUTORY MATTE RS ADVISING ON DIRECT TAX MATTERS, APPEALS, LITIG ATIONS AND ASSISTING IN FOLLOW UP ADVISING ON INDIRECT TAX MATTERS, LITIGATIONS, APPE ALS AND ASSISTING IN FOLLOW UP IDENTIFYING GOOD INDUSTRIAL PRACTICES FOR ESTABLISHING ENVIRONMENTAL FRIENDLY OPERATIONS AND INDUSTRIAL SAFETY IDENTIFYING AND DEVELOPING NEW BUSINESS OPPORTUNITI ES , STRATEGY ALLIANCES AND JOINT VENTURES FOR THE COMPANY, STRATEGIES AND POLICIES FOR EFFECTIVE EXTERNAL AND INTERNAL COMMUNICATIONS TO ENHANCE CORPORATE IMAGE OF THE COMPANY. BPOL'S SHARE OF THE COMMON EXPENSES AMOUNTED TO RS. 5.01 CRORES FOR THE FINANCIAL YEAR 2009-10 WHICH WERE RECOVERED BY EIL FOR PROVIDING THE AFORESAID SERVICES. 2.7 IT WILL BE APPRECIATED THAT IT WOULD BE NEAR IMPOSS IBLE TO AVAIL OF THESE MULTIPLE SERVICES FROM A ONE STOP SHOP OUTFIT ON AN UNINTERRUPTED/ CONTINUOUS BASIS AND THAT TO APPROACH VARIOUS REPUTED ORGANIZATIONS INDIVIDUALLY, FOR EXPERT SERVICES IN THE VARIOUS FIELDS MENTIONED ABOVE WOULD HAVE INVOL VED A HUGE FUND OUTFLOW. BESIDES, WITHOUT A DOUBT, THE INVOLVEMENT AND ENGAG EMENT RIGHT UP TO THE COMPLETION OF THE ACTIVITY WOULD BE GREATER IN THE CASE OF A GROUP COMPANY RENDERING CAPTIVE SERVICES. 2.8 IT MAY KINDLY BE APPRECIATED THAT THE AFOR ESAID FACTUAL POSITION WAS ALSO FULLY EXPLAINED BEFORE THE ASSESSING OFFICER BUT HE DISAL LOWED THE CLAIM MERELY ON THE BASIS OF A SUSPICION THAT SERVICES MAY NOT HAVE BEE N RENDERED. IT IS SUBMITTED THAT THE PAYMENT MADE BY THE APPELLANT-COMPANY IS REFLEC TED AS INCOME IN THE AUDITED ACCOUNTS OF ESSAR INVESTMENTS LTD. AND BOTH THE ENT ITIES BEING COMPANIES, THE RATE OF TAX WOULD BE THE SAME. ASSESSMENT IN THE CASE OF ES SAR INVESTMENTS LTD. FOR THE A.Y. 2010-11 HAS BEEN COMPLETED ON 30.01.2015 U/S.!43(3) WHEREIN THE SAID RECEIPT OF RS.5,00,73,084 HAS BEEN ASSESSED. THE ASSESSING OFF ICER IS TOTALLY UNJUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT-COMPANY ON AN ASSUMPTION THAT THIS WAS AN ARRANGEMENT IN THE NATURE OF COLOURABLE TAX PLANNIN G. THE APPELLANT-COMPANY RELIES ON THE HON'BLE DELHI HIGH COURT JUDGEMENT IN THE CA SE OF PAVANKUMAR JAIN VS. CIT, 334 ITR 23 AND THE HEADNOTE OF THIS CASE IS REPRODU CED BELOW FOR READY REFERENCE:- 'THE ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTU RE OF STAINLESS STEEL UTENSILS, FILED A RETURN FOR THE ASSESSMENT YEAR 20 06-07. THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD PAID COMMISSION TO L PURPORTEDLY, IN CONSIDERATION FOR S TANDING GUARANTEE FOR PURCHASES FROM CERTAIN FIRMS/COMPANIES. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THIS TRANSACTION WAS NOT GENUINE. THE COM MISSIONER (APPEALS) AS WELL AS THE TRIBUNAL CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. ON ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 20 APPEAL : HELD, THAT THE ASSESSEE HAD CONTENDED THAT L HAD FILED A RETURN FOR THE ASSESSMENT YEAR 2006-07 DECLARING INCOME OF RS. 1,48,50,705 AND HAD PAID TAX. THE REVENUE HAD NOT SUFFERED ANY LOSS, IN ASMUCH AS, THE TAXES WERE PAID BY WHICH RECEIVED THE COMMISSION. SINCE THIS WAS VITAL INFORMATION AND HAD NOT BEEN CONSIDERED BY THE AUTH ORITIES BELOW, THE MATTER WAS TO BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER. 2.7 THE APPELLANT-COMPANY FURTHER RELIES ON TH E HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUZLON ENERGY LTD., 354 ITR 630 AND THE RELEVANT PART OF THIS JUDGEMENT IS REPRODUCED BELOW FROM PAGES 632 AND 63 3 OF THE REPORT:- '2.1 QUESTION (1) PERTAINS TO AN AMOUNT OF RS. 9.34 CRORES (ROUNDED OFF) PAID BY THE ASSESSEE TOWARDS SALES COMMIS SION. THE____ASSESSING____OFFICER, HOWEVER, MADE AN ADDIT ION OF THE SAID AMOUNT PRIMARILY ON THE GROUND THAT THE ASSESSEE FA ILED TO ESTABLISH THE ACTUAL____SERVICES____RENDERED____BY____THE COMMISS ION AGENTS. HE WAS OF THE OPINION THAT THE QUESTION WAS WHETHER THE AMOUNT CLAIMED AS EXPENDITURE WAS LAID DOWN WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE MERE EXISTENCE OF THE A GREEMENTS BETWEEN THE ASSESSEE AND ITS SALES AGENTS OR PAYMENT OF THE AMOUNT AS COMMISSION WOULD NOT ESTABLISH THAT SUCH PAYMENT WA S MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF ENHANCING THE ASSESSEE'S BUSINESS. 2.2 THE ASSESSEE CARRIED THE MATTER IN APPEA L. THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETED THE DISALLOWA NCES ON THE GROUND THAT THE ASSESSEE HAD : ENTERED INTO AGREEMENTS FOR PAYMENT OF COMMISSION IN RESPECT OF THE WORK DONE BY THE AGENT S. THE PAYMENTS WERE __MADE _AS PER THE AGREEMENTS. THE COMMISSIONER OF INCOME- TAX (APPEALS) ALSO NOTED VARIOUS SERVICES THAT THE COMMISSION AGENTS HAD TO PROVIDE AS PER THE AGREE MENTS. HE FURTHER NOTED THAT ALL THE PAYMENTS WERE MADE THROUGH CHEQUES AND THE PARTIES WERE GENUINE. SUCH COMMISSION AGENTS HAD IN TURN CONFIRMED TH E RECEIPT OF THE PAYMENTS AND ALSO OF HAVING RENDERED SE RVICES. SUCH COMMISSION RECEIVED WERE SHOWN IN THEIR TAX RETURNS AND T AXES WERE ALSO PAID. THE COMMISSION AGENTS WERE INDIVIDUAL PERSO NS AND NO WHERE RELATED TO THE ASSESSEE-COMPANY. HE ALSO THAT THERE WAS CONSIDERABLE INCREASE IN THE SALES OF THE COMPANY AND T HAT, THEREFORE, THE PAYMENT OF COMMISSION WAS JUSTIFIED. (EMPHASIS SUPPLIED) 2.8 IT IS FORCEFULLY SUBMITTED THAT HAVING REG ARD TO THE PAST HISTORY, THE FACTUAL POSITION EXPLAINED ABOVE AND THE LEGAL POSITION WHI CH EMERGES FROM THE CASES REFERRED TO (SUPRA), THERE IS NO JUSTIFICATION WHAT SOEVER FOR THE DISALLOWANCE OF SERVICE CHARGES OF RS.5,00,73,084 MERELY ON SURMISE S AND SUSPICION AND THEREFORE THIS UNCALLED FOR ADDITION MAY KINDLY BE DELETED. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 21 20. THE LD CIT(A) AFTER TAKING INTO ACCOUNT THE VAR IOUS CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AND OBSERVING AS UNDER: 11.3 I HAVE GIVEN A CAREFUL CONSIDERATION TO ALL T HE RELEVANT FACTS, THE CASE MADE OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDE R AND ALSO THE WRITTEN SUBMISSIONS MADE ON BEHALF OF THE APPELLANT-COMPANY . AFTER DULY CONSIDERING THE FACTUAL AND LEGAL POSITION DISCUSSED ABOVE, I AM OF THE VIEW THAT THE ASSESSING OFFICER HAS SIMPLY DISALLOWED THE SUMS PAID TO ESSA R INVESTMENT LIMITED ON THE GROUND THAT NO DOCUMENTATION WAS FILED OR PRODUCED BEFORE HIM AND THAT THE SAID SUMS WERE PAID TO A RELATED PARTY. COPY OF THE AGRE EMENT HAS BEEN PLACED BEFORE ME. THE DETAILED SCOPE OF SERVICES RENDERED BY ESSA R INVESTMENTS HAS BEEN EXPLAINED AT LENGTH. IT IS A SETTLED POSITION THAT THE ASSESSING OFFICER CANNOT CHALLENGE WHY THE APPELLANT HAD NOT DEVELOPED IN HO USE EXPERTISE FOR RENDERING SUCH SERVICES. HAVING SHARED SERVICES IS VERY COMMO N AS THE SAME TEAM CAN RENDER EXPERT SERVICES TO THE ENTIRE GROUP AS A WHOLE. THE FUNCTIONS / SERVICES THAT ESSAR INVESTMENT RENDERS IS FOR ALL MATTERS INCLUDING ADV ISING ON HR POLICIES , RISK MANAGEMENT, LIAISE WITH GOVERNMENT AGENCIES , ASSIS TING FOR HANDLING DIRECT TAX AND INDIRECT TAX MATTERS ETC. IT IS NOT THE CASE TH AT THE PARTY TO WHOM PAYMENT IS MADE IS A BOGUS PARTY. TRANSACTIONS HAVE BEEN ENTER ED THROUGH BANKING CHANNELS. THE AO HAS SIMPLY DISALLOWED THE ABOVE SUM ON SUSPI CION THAT NO SUCH SERVICES HAVE IN FACT BEEN RENDERED. SINCE THE APPELLANT HAS PRODUCED THE AGREEMENT, IDENTIFIED THE PARTY AND NO FURTHER INQUIRIES WERE MADE BY THE AO TO BRING OUT ANY EVIDENCES THAT THE AFOREMENTIONED SERVICES WERE NOT NECESSARY FOR THE BUSINESS, I DIRECT THE AO TO DELETE THE ADDITION. ACCORDINGLY T HIS GROUND OF APPEAL NO.3 STANDS ALLOWED. 21. THE DR ARGUED BEFORE US THAT THE ASSESSEE HAVE NOT PRODUCED ANY CREDIBLE EVIDENCE OF SERVICES HAVING B EEN RECEIVED BY THE ASSESSEE AND RENDERED BY M/S ESSAR INVESTMEN TS LTD. THE DR CONTENDED THAT SINCE THE SERVICE PROVIDER I S A RELATED PARTY, THEREFORE THE WHOLE ARRANGEMENT HAS TO BE SE EN IN A VERY OBJECTIVE MANNER. LD. DR SUBMITTED THAT ONLY AN AGR EEMENT BETWEEN ASSESSEE AND ESSAR INVESTMENTS LTD AND BILL S RAISED BY THE LATTER ON THE FORMER ALONG WITH PAYMENTS THROUG H BANKING CHANNELS WOULD NOT BE SUFFICE AS THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE OF SERVICES HAVE ACTUALLY BEEN RENDER ED TO THE ASSESSEE. THUS THE LD DR RELIED HEAVILY ON THE ORDE R OF AO. THE LD DR SUBMITTED THAT THE WHOLE ARRANGEMENT WAS A CO LOURABLE DEVICE. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 22 22. THE LD AR ON THE OTHER HAND HAS SUBMITTED THAT M/S ESSAR INVESTMENTS HAVE EMPLOYED 281 PERSONNEL IN VARIOUS FIELDS WITH SPECIALISATION IN THEIR RESPECTIVE FIELD WHILE THE ASSESSEE HAD EMPLOYED ONLY 47 PERSONNEL. OUT OF 47 EMPLOYEES, 3 9 WERE EMPLOYED IN PLANT TO DO WORK IN THE FIELD OF ELECTR ICAL, MECHANICAL, CIVIL, CHEMICAL AND C&I, 6 IN OPERATION AL AND MAINTENANCE SECTION AND 2 OTHER IN HEALTH SAFETY AN D STORES. THE LD AR WHILE TAKING US THROUGH THE PATTERN OF EM PLOYMENT IN ESSAR INVESTMENTS LTD. SUBMITTED THAT 33 PERSONS W ERE EMPLOYED IN ASSURANCE AND COST CONTROL, 29 IN CORPO RATE HUMAN RESOURCES, 10 IN CORPORATE LEGAL, 23 CORPORATE RELA TION GROUP, 26 GLOBAL FINANCE, 79 IN INVESTMENTS, 15 MERGERS AND A CQUISITIONS, 18 TELECOM AND REMAINING IN VARIOUS OTHER FIELDS. T HE LD A.R. ALSO PRODUCED BEFORE THE BENCH THE DETAILS OF SERVI CES PROVIDED BY ESSAR INVESTMENTS TO VARIOUS GROUP COMPANIES ALO NG WITH THE DETAILS OF PAYMENTS AND SUBMITTED THAT IN ALL THE CASES THE PAYMENTS WERE ACCEPTED BY THE REVENUE EVEN IN THE A SSESSMENT FRAMED U/S 143(3) OF THE ACT EXCEPT THE ASSESSEE. T HE LD AR SUBMITTED THAT THE ASSESSEE HAS NOT EMPLOYED ANY ST AFF IN THE FIELD OF FINANCE, HUMAN RESOURCES, ASSURANCE AND CO ST CONTROL, CORPORATE RELATION, INVESTMENTS AND THEREFORE IT C LEAR THAT FOR ALL THESE SERVICES, THE ASSESSEE WAS DEPENDING ON THE SERVICES PROVIDED BY ESSAR INVESTMENTS. THE LD AR SUBMITTED THAT IT IS THE ASSESSEE WHO IS TO DECIDE AS TO WHAT EXPENSES W ERE NECESSARY FOR THE BUSINESS OF THE ASSESSEE AND THE REVENUE CAN NOT DICTATE TO THE ASSESSEE. THE LD AR SUBMITTED TH AT ALL THESE EXPENSES WERE INCURRED OUT OF BUSINESS CONSIDERATIO N AND THEREFORE WERE RIGHTLY ALLOWED BY THE LD CIT(A). TH E LD A.R. RELIED ON A SERIES OF DECISIONS IN DEFENCE OF HIS ARGUMENT S: A)CIT VS YUM RESTAURANTS INDIA PVT LTD. 371 ITR 139 (DELHI) ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 23 B)CIT VS DISCOVERY COMMUNICATION INDIA 370 ITR 57 (DELHI) C)S.A BUILDERS VS CIT 288 ITR 1 (SC) THE LD AR SUBMITTED THAT THE LD CIT(A) HAS CONSIDER ED ALL THE ABOVE ASPECTS WHILE PASSING THE ORDER AND THERE FORE THE SAME NEEDS TO BE AFFIRMED ON THIS ISSUE. 23. AFTER HEARING BOTH THE SIDES AND CAREFULLY PERU SING THE MATERIALS AS PLACED BEFORE US INCLUDING THE CASE LA WS CITED BY THE RIVAL PARTIES, WE OBSERVE THAT THE ASSESSEE HAS HARDLY EMPLOYED ANY STAFF IN THE POWER PLANT, STORE AND M AINTENANCE SECTION AND THUS WAS DEPENDENT ON M/S ESSAR INVESTM ENTS LTD FOR ALL THE MANAGERIAL SUPPORT SERVICES FOR WHICH T HERE WAS AN AGREEMENT WITH THE SAID COMPANY. MOREOVER THE MONTH LY BILLS WERE RAISED ON THE ASSESSEE FOR THE SERVICES RENDER ED AND THE PAYMENTS WERE ALSO MADE ACCORDINGLY. WE FURTHER NOT E THAT THERE WAS HEAVY EMPLOYMENT OF STAFF IN THE VARIOUS SECTION IN ESSAR INVESTMENTS LTD AS STATED BY THE AR OF THE A SSESSEE AND THE SAID COMPANY WAS PROVIDING SERVICES TO OTHER G ROUP COMPANIES WHICH WERE ACCEPTED BY THE REVENUE EVEN I N THE SCRUTINY PROCEEDINGS WHERE ALL THE ASSESSMENTS WERE FRAMED U/S 143(3) OF THE ACT. FURTHER IT IS THE ASSESSEE WHO I S TO DECIDE WHAT TO DO AND WHEN TO DO AND BUT NOT TO DO AND THE DEPARTMENT CAN NOT DICTATE TO THE ASSESSEE. IN THE CASE OF CIT VS YUM RESTAURANT INDIA PVT. LTD.(SUPRA) THE HONBLE DELHI HIGH COURT HAS HELD THAT AS LONG AS THE PAYMENT IS MADE FOR THE PURPOSE OF BUSINESS, THE PAYMENT WOULD BE ALLOWABLE AS EXPENSES. WHETHER A PARTICULAR EXPENSE HAS TO BE IN CURRED IS TO BE SEEN FROM THE BUSINESS POINT OF VIEW AND HAVE T O BE RESPECTED BY THE AUTHORITIES, REGARDLESS OF THE FAC T THAT IT MAY APPEAR TO THE LATTER THAT EXPENSES WERE INCURRED U NNECESSARILY. ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 24 IN THE CASE OF S.A BUILDERS (SUPRA), THE HONBLE AP EX COURT HAS HELD THAT ANY PARTICULAR EXPENDITURE MAY NOT BE INC URRED UNDER ANY LEGAL OBLIGATION, YET IT IS ALLOWABLE AS BUSIN ESS EXPENDITURE AS IT IS INCURRED ON THE GROUNDS OF COMMERCIAL EXPE DIENCY. THE REVENUE HAS NOT BROUGHT ANY MATERIALS BEFORE US TO CONTROVERT THE FINDINGS OF LD CIT(A) WHO HAS OTHERWISE TAKEN A CORRECT VIEW OF THE ISSUE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND NO. 3 OF THE REVENUE . ITA NO. 6062/MUM/2016 AY 2011-12 24. THE ISSUES RAISED IN THIS APPEAL ARE IDENTICAL TO ONES AS DECIDED BY US IN ITA NO. 6061/MUM/2016 AY 2010-11 W HEREIN WE HAVE DISMISSED THE APPEAL OF THE REVENUE ON BOTH THE GROUNDS. THEREFORE OUR DECISIONS ON BOTH THE GROUND S IN ITA NO. 6061/MUM/2016 AY 2010-11 WOULD, MUTATIS MUTANDIS, A PPLY TO THIS APPEAL AS WELL. ACCORDINGLY BOTH THE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 25. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.05.2019. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.05.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI ITA NOS.6061 & 6062/M/2016 M/S. BHANDAR POWER LTD. 25 THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.