Itxa 1056-16-O v. M/S Link Engineers Private Limited[1] In Whose Case Also A Similar Issue Of Genuineness Of Payment To Shri S.k. Gupta Had Come Up For Consideration. The Tribuna

Priya Soparkar 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1056 OF 2016 Commissioner of Income Tax-LTU … Appellant V/s. M/s Reliance Industries Ltd. … Respondent --- Mr.Tejveer Singh for the Appellant.Mr.Jehangir Mistri, Senior Counsel with Mr.P.C.Tripathi with Mr.Amit Mathur i/by Mr.Raj Darak for the Respondent. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : JANUARY 30, 2019. P.C.:- 1.The appeal is filed by the revenue to challenge the judgment of the Income Tax Appellate Tribunal. Followingquestions are raised for our consideration:- “(a)Whether on the facts and incircumstances of case as well as in law,Tribunal was right in deleting addition madeto tune of Rs.3,39,95,000/- on account ofpayment made by assessee to S. K. Guptaand his group of companies ignoring thefacts of the case, including the incapacity ofShri S.K.Gupta to render such services, as Priya Soparkar also the spontaneous statement given byhim at the time of search?him at the time of search? (b) Whether ITAT was correct in holdinga divergent view in the assessee's case whenthe co-ordinate bench at Delhi, under thesame fact, upheld the disallowance in thecase of Link Engineers Pvt. Ltd.?a divergent view in the assessee's case whenthe co-ordinate bench at Delhi, under thesame fact, upheld the disallowance in thecase of Link Engineers Pvt. Ltd.? (c)Whether, on the facts and in thecircumstances of the case and in law, the ld.Tribunal was right in upholding the decisionof the ld.CIT(A) who had deleted theaddition made by the then AO by restrictingthe deduction u/s 80IA at Rs.48,76,82,681/-as against Rs.131,43,30,575/- claimed by theassessee?”circumstances of the case and in law, the ld.Tribunal was right in upholding the decisionof the ld.CIT(A) who had deleted theaddition made by the then AO by restrictingthe deduction u/s 80IA at Rs.48,76,82,681/-as against Rs.131,43,30,575/- claimed by theassessee?” 2.Question Nos.1 and 2 are elements of the same issue andrelate to the addition of Rs.3.39 crores (rounded off) made bythe Assessing Officer by disallowing expenditure of the said sumincurred by the respondent-assessee in form of payments to oneShri S.K. Gupta. The Assessing Officer on the basis of statementof said Shri Gupta recorded during search operations held thatthe said person had not rendered any service to the assessee-company so as to receive such payments. CIT (Appeals) howeverdeleted the addition inter-alia on the grounds that Shri S.K.Guptahad retracted the statement recorded during search, that theassessee-company had pointed out range of services provided byShri Gupta and that the Assessing Officer had no other material 35 itxa 1056-16-o to disallow the expenditure. The Tribunal in further appeal bythe revenue confirmed the view of the CIT (Appeals)independently coming to the conclusion that the AssessingOfficer was not justified in making the addition. It was notedthat Shri Gupta retracted his statements within a short time byfiling an affidavit. Subsequently, his further statement wasrecorded in which he also reiterated the stand taken in affidavit.The Tribunal also referred to the decision in case of the DCIT Vs.M/s Link Engineers Private Limited[1] in whose case also asimilar issue of genuineness of payment to Shri S.K. Gupta hadcome up for consideration. The Tribunal noted that in such a casealso the Tribunal had held in favour of the assessee. 35 itxa 1056-16-o to disallow the expenditure. The Tribunal in further appeal bythe revenue confirmed the view of the CIT (Appeals)independently coming to the conclusion that the AssessingOfficer was not justified in making the addition. It was notedthat Shri Gupta retracted his statements within a short time byfiling an affidavit. Subsequently, his further statement wasrecorded in which he also reiterated the stand taken in affidavit.The Tribunal also referred to the decision in case of the DCIT Vs.M/s Link Engineers Private Limited[1] in whose case also asimilar issue of genuineness of payment to Shri S.K. Gupta hadcome up for consideration. The Tribunal noted that in such a casealso the Tribunal had held in favour of the assessee. 3.Having heard learned counsel for the parties and havingperused documents on record, we notice that the entire issue isbased on the appreciation of materials on record. CIT (Appeals)and the Tribunal concurrently held that there was sufficientevidence justifying the payment to Shri S.K.Gupta, a Consultantand that the Assessing Officer other than relying upon the 1(ITA No.968 & 2248/Del/2011) retracted statements of Shri Gupta recorded in search, had noindependent material to make the additions. No question of lawarises. 4.Question (c) pertains to the dispute between thedepartment and the assessee regarding the rate at which theelectricity generated by one unit of the assessee-company andprovided to the another be valued. The assessee contended thatsuch valuation should be at the rate at which the electricitydistribution companies are allowed to supply electricity to theconsumers. The revenue on the other hand argues that theappropriate rate should be the rate at which the electricity ispurchased by the distribution companies from the electricitygenerating companies. 5.This controversy arose in the background of the fact thatthe assessee had set up a captive power generating unit andclaimed deduction under Section 80IA of the Income Tax Act,1961 ("the Act" for short) in respect of the profits arising out ofsuch activity. Obviously, therefore the attempt on the part of the Priya Soparkar 55 itxa 1056-16-o assessee was to claim larger profit under the unit which waseligible for such deduction as against this, attempt of the revenuewould be see that the ineligible unit shows greater profit. 6.The Tribunal in the impugned judgment extractedextensively from the order of CIT (Appeals) and independentreasons for confirming the same. In such order CIT (Appeals) hadplaced reliance on an earlier judgment of the Tribunal in case ofReliance Infrastructure Limited Vs. Addl. CIT, Range 1(1)[1].Learned counsel for the assessee had placed on record a copy ofthe judgment of the Tribunal in case of Reliance Infrastructurelimited. In such judgment an identical issue came up forconsideration. The Tribunal by detailed judgment had held andobserved as under:- “44. In the given facts and circumstances ofthe case, we are of the view that the profitsof the business of generation of powerworked out by the Assessee on the basis ofthe price that it paid to TPC for purchase ofpower continues to be the best basis evenafter the order of MERC and therefore thesame has to be accepted as was done in thepast and as approved by the ITAT inAssesssee's case. We therefore dismiss ground No.4 of the revenue.” 7.Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure limited(supra)was carried in appeal by the revenue before the High Court inIncome Tax Appeal No.2180 of 2011, such appeal was dismissedmaking following observations:- “44. In the given facts and circumstances ofthe case, we are of the view that the profitsof the business of generation of powerworked out by the Assessee on the basis ofthe price that it paid to TPC for purchase ofpower continues to be the best basis evenafter the order of MERC and therefore thesame has to be accepted as was done in thepast and as approved by the ITAT inAssesssee's case. We therefore dismiss ground No.4 of the revenue.” 7.Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure limited(supra)was carried in appeal by the revenue before the High Court inIncome Tax Appeal No.2180 of 2011, such appeal was dismissedmaking following observations:- “6. As far as question (d), namely, the claimrelating to purchase price from Tata PowerCompany is concerned and that was for thededuction under Section 80IA, the ITAT inparagraph 21 onwards has noted the factualfindings and also referred to the order of theMaharashtra Electricity Regulatory Authority (forshort “MERC”). Paragraph 36 set outs as to how theclaim arose. The claim has been considered in thelight of Section 80IA and particularly proviso andexplanation thereto. The Tribunal eventually heldthat till the Assessment Year 2005-2006, theRevenue considered the rate at which the powerwas purchased by the Assessee from Tata PowerCompany as market value. There is nothing broughton record as to how the rate determined by theMERC is the true market value. The Assessee gaveexplanation that the rates determined by the MERCdo not reflect the correct market rate. The finding isthat the mode of computation and deduction underSection 80IA requires no deviation from the past.The findings of fact and to be found in paragraphs42 to 50 also reflect that the very issue came up forconsideration for the Assessment Year 2003-2004.For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation andreappraisal of the factual data that we come to aconclusion that even question (d) as framed is not asubstantial question of law.” 8.Thus, the issue at hand had been examined by this Courton earlier occasion and the view of the Tribunal under similarcircumstances was approved. 9.Additionally, we also notice that similar issue came up forconsideration before Chhattisgarh High Court in case ofCommissioner of Income-tax, Raipur Vs. Godawari Power & Ispat Limited[1], in which the Court held and observed as under: “31. The market value of the power supplied to theSteel-Division should be computed considering therate of power to a consumer in the open marketand it should not be compared with the rate ofpower when it is sold to a supplier as this is not therate for which a consumer or the Steel-Divisioncould have purchased power in the open market.The rate of power to a supplier is not the marketrate to a consumer in the open market. 32.In our opinion, the AO committed anillegality in computing the market value by takinginto account the rate charged to a supplier: itshould have been compared with the market valueof power supplied to a consumer.” 10.Gujarat High Court in case of Principal Commissioner ofIncome-Tax Vs. Gujarat Alkalies and Chemicals Ltd.[1] also hadoccasion to examine such an issue. It referred to earlier orderin case of Asst. CIT Vs. Pragati Glass Works Pvt. Ltd.[2] in which following observations were made:- 10.Gujarat High Court in case of Principal Commissioner ofIncome-Tax Vs. Gujarat Alkalies and Chemicals Ltd.[1] also hadoccasion to examine such an issue. It referred to earlier orderin case of Asst. CIT Vs. Pragati Glass Works Pvt. Ltd.[2] in which following observations were made:- "7. To our mind, Tribunal has committed no error.Assessing Officer and CIT(Appeals) while adoptingRs.4.51 per unit as the value of electricity generatedby eligible unit of assessee and supplied through itsnon eligible unit only worked out cost of suchelectricity generation. In fact CIT(Appeals) in termsrecorded that Rs.4.51 was computed as thereasonable value of the electricity generated byeligible unit of assessee. This amount includedRs.4.17 per unit which was the cost of electricitygeneration and Rs.0.34 per unit which was dutypaid by the assessee to GEB for such powergeneration. Thus the sum of Rs.4.51 per unit onlyrepresented the cost of electricity generation to theassessee. In Section 80IA(8) of the Act what isrequired to be ascertained is the market value of thegoods transferred by the eligible business, whensuch transfer is by eligible business to another noneligible business of the same assessee and theconsideration recorded in the accounts of theeligible business does not correspond to marketvalue of such goods. Term "Market Value" is furtherexplained in explanation to said sub-section tomean in relation to any goods or services, price thatsuch goods or services will ordinarily fetch in theopen market. To our mind sum of Rs.4.51 per unit 1(2017) 395 ITR 247 (Guj) 2Tax Appeal No.1646 of 2010 (order dated January 30, 2012) of electricity only represented cost of electricitygeneration to the assessee and not the market valuethereof. It is not in dispute that the GEB charged Rs.5 per unit for supplying electricity to otherindustries including non eligible unit of the assesseeitself. Tribunal therefore, while adopting the saidbase figure and excluding excise duty therefrom towork out Rs. 4.90 as the market value of theelectricity generated by the assessee, to our mind,committed no error. It can be easily seen that if theassessee were to supply such electricity or wasallowed to do so in the open market, surely it wouldnot fetch Rs. 4.51 per unit but Rs. 5 per unit as wasbeing charged by GEB. Since the excise dutycomponent thereof would not be retained by theassessee, Tribunal reduced the said figure by thenature of excise duty and came to the figure of Rs.4.90 to ascertain the market value of electricitygenerated by the eligible unit and supplied to noneligible business of the assessee. No error wascommitted by the Tribunal. No question of lawtherefore, arises. Tax Appeal is dismissed." 11.Judgment of Calcutta High Court in case of Commissionerof Income-tax, Kolkata - III Vs. ITC Ltd.[1] was also brought toour notice in which the said High Court has taken a differentstand. However, since the issue has already been examined bythis Court earlier and in view of the decisions of the Chhattisgarhand Gujarat High Court, we see no reason to entertain thisquestion. Priya Soparkar 12.In the result, Income Tax Appeal is dismissed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)