2019 (2) TMI 178 - HC - Income Tax

Disallowing expenditure - proof of receipt of any service from the consultant - addition on statement of said Shri Gupta recorded during search operations held that the said person had not rendered any service to the assessee-company so as to receive such payments - retraction of statement - Held that - We notice that the entire issue is based on the appreciation of materials on record. CIT (Appeals) and the Tribunal concurrently held that there was sufficient evidence justifying the payment to Shri S.K.Gupta, a Consultant and that the Assessing Officer other than relying upon the retracted statements of Shri Gupta recorded in search, had no independent material to make the additions. No question of law arises. Deduction u/s 80IA - assessee had set up a captive power generating unit - rate at which the electricity generated by one unit of the assessee-company and provided to the another be valued - Held that - The profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. See Reliance Infrastructure Limited Vs. Addl. CIT 2011 (1) TMI 36 - ITAT, MUMBAI - Decided against revenue

Summary

Issues:
1. Disallowance of expenditure made to S.K. Gupta
2. Discrepancy in valuation of electricity generated by the assessee-company

Issue 1: Disallowance of expenditure made to S.K. Gupta:
The Assessing Officer disallowed an expenditure of ?3.39 crores incurred by the respondent-assessee as payments to Shri S.K. Gupta, based on a statement by Shri Gupta during search operations claiming he did not provide any services. However, the CIT (Appeals) deleted the addition citing Shri Gupta's retracted statement and the range of services he provided. The Tribunal upheld the CIT (Appeals) view, noting Shri Gupta's retraction and lack of independent material against the expenditure. The Tribunal also referred to a similar case involving Link Engineers Pvt. Ltd. where the Tribunal ruled in favor of the assessee. The High Court concurred with the lower authorities, emphasizing the need for proper appreciation of evidence on record.

Issue 2: Discrepancy in valuation of electricity generated by the assessee-company:
The dispute between the department and the assessee centered on the valuation of electricity generated by one unit of the assessee-company provided to another unit. The assessee argued for valuation based on rates for supplying electricity to consumers, while the revenue insisted on rates at which electricity is purchased from generating companies. The Tribunal, relying on earlier judgments, including one involving Reliance Infrastructure Limited, upheld the CIT (Appeals) order. The High Court noted that similar issues were addressed by other High Courts, such as Chhattisgarh and Gujarat, which emphasized valuing power supplied to consumers at market rates rather than rates for suppliers. Despite a different stance taken by Calcutta High Court, the High Court dismissed the appeal, citing previous decisions and affirming the Tribunal's view.

In conclusion, the High Court dismissed the Income Tax Appeal, upholding the decisions of the lower authorities on both issues, emphasizing the importance of proper evaluation of evidence and consistent application of legal principles in determining tax liabilities.