2013 (9) TMI 601 - AT - Income Tax

Revenue appeal - tax effect is below 2 lakhs - whether maintainable Held that - the appeals of the Department for the assessment years 2002-03 to 2004-05 are liable to be dismissed in limine, but we observe that the facts and the issue involved in the appeals for the assessment years 200203 and 2003-04 are inter-linked with the appeals for the subsequent assessment years, viz., the assessment year 2005-06 and the assessment year 2006-07. Therefore, it is necessary to decide the issue involved in the appeals for the assessment year 2002-03 as well on merits instead of dismissing the appeal in limine. Decided in favor of revenue. Disallowance of depreciation on the inflated price of windmill - Disallowance of depreciation of ₹ 9 crores considering the cost of per windmill as inflated by Rs. one crore considering the cost of per windmill of other buyers Held that - Reliance placed on the cost price of windmill installed by M/s. Savita Chemicals Ltd. , i.e., the assessee as well as M/s. Savita Chemicals Ltd., have installed windmills on identical models at the same site and having many matching parameters. Considering the above facts, the assumption made by the Assessing Officer that the assessee inflated the cost price at Rs. one crore per windmill is not based on evidence and/or cogent material but is based on assumption and surmises - If the Assessing Officer wants to change the cost price, the onus is on the Assessing Officer to bring on record the relevant documents that price as shown by the assessee is not the actual price Commissioner of Income-tax (Appeals) has rightly held that disallowance of depreciation of ₹ 9 crores in the assessment year 2002-03 on the presumption that there was inflation in the purchase price at Rs. one crore per windmill is not justified Decided against the Revenue. Excessive lease rent paid by the assessee to be disallowed Application of section 40A(2) of the Income tax act - Held that - IREDA had financed the said project and the lease rents payable by the assessee to M/s. Weizmann Ltd., has been structured taking into consideration the instalment of principal and interest payable to IREDA by M/s. Weizmann Ltd - Lease rents paid by the assessee is based on lending rates of the financial institution, namely, IREDA - Assessee had made payment of lease rent by account payee cheque to the lessor, i.e., M/s. Weizmann Ltd which had accounted for the same in its books of account - Nothing on record to prove that there was excessive payment of lease rents by the assessee Decided against the Revenue. Adjustment in the book value Disallowance of depreciation Held that - Sub-section (2) of section 115JB of the Act provides the situation in which the Assessing Officer can make adjustment to the book profit - Considering the decision of the Hon ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT 2002 (5) TMI 5 - SUPREME Court , disallowance of depreciation made by the Assessing Officer of ₹ 31,68,000 in each of the assessment year under consideration is not justified Decided against the Revenue.

Summary

Issues Involved:
1. Disallowance of depreciation on windmills due to alleged inflated cost.
2. Disallowance of lease rentals based on alleged inflated cost of windmills.
3. Addition under section 40(a)(ia) for non-deduction of TDS on reimbursement of expenses.
4. Addition of disallowed depreciation to book profit under section 115JB.

Detailed Analysis:

1. Disallowance of Depreciation on Windmills:
The Department disputed the deletion of additions made on account of depreciation claimed by the assessee on windmills, alleging inflated costs. The Assessing Officer (AO) argued that the cost of windmills was inflated by Rs. 1 crore per windmill, based on a survey at NEG Micon (India) Pvt. Ltd. (NEGMIPL). The AO found discrepancies in the price of windmills sold to the Weizmann group compared to others. The assessee countered, stating the cost included various additional services and warranties, making direct price comparisons misleading. The Commissioner of Income-tax (Appeals) (CIT(A)) found the assessee's cost justifiable, supported by affidavits and regulatory body determinations, and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, noting the AO's assumptions lacked concrete evidence.

2. Disallowance of Lease Rentals:
The AO disallowed part of the lease rentals paid by the assessee to M/s. Weizmann Ltd., arguing the rentals were based on inflated windmill costs. The assessee justified the lease rentals as being structured based on IREDA's lending rates. The CIT(A) deleted the disallowance, finding the rentals reasonable and based on legitimate business needs. The Tribunal upheld this decision, noting the AO's findings on inflated costs were not substantiated.

3. Addition under Section 40(a)(ia) for Non-Deduction of TDS:
The AO disallowed the reimbursement of expenses to Weizmann Corporate Services Ltd. (WCSL) under section 40(a)(ia) for non-deduction of TDS. The CIT(A) deleted the disallowance, accepting the assessee's argument that reimbursements do not attract TDS as they do not constitute income. The Tribunal upheld this decision, referencing the Bombay High Court's ruling in Siemens Aktiongesellschaft, which supports the non-applicability of TDS on reimbursements.

4. Addition of Disallowed Depreciation to Book Profit under Section 115JB:
The AO added disallowed depreciation to the book profit under section 115JB. The CIT(A) deleted this addition, stating that adjustments to book profit can only be made as specified in section 115JB(2), which does not cover depreciation adjustments. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in Apollo Tyres Ltd. v. CIT, which restricts the AO's power to alter book profits beyond the specified adjustments.

Conclusion:
The Tribunal dismissed the Department's appeals for all assessment years, upholding the CIT(A)'s decisions to delete the disallowances and additions made by the AO. The cross-objections filed by the assessees were also rejected.