2013 (9) TMI 894 - HC - Income Tax

Excessive Expenses - transaction with related parties - disallowance u/s 40A(2) - Price paid by the assessee to sister concern for electricity is excessive or not Held that - Tribunal viewed that such an isolated instance could not be a basis for making a meaningful comparison. On facts, thus, the Income Tax Appellate Tribunal held that the supplier had reasons for charging different rates. The Income Tax Appellate Tribunal further pointed out that the rate at which, the assessee purchased electricity from M/s OPG Energy Pvt. Ltd., was lower than the tariff fixed by the Tamil Nadu Electricity Board. Decided against the Revenue.

Summary

Issues:
1. Excess payment on purchase of power from a group company under Section 40A of the Income Tax Act, 1961.
2. Reasonableness of price paid for electricity purchased from a group company in comparison to sales to unrelated parties.

Analysis:
1. The Assessing Officer disallowed an amount as excess payment on purchase of power from a group company under Section 40A of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) concluded that the price paid by the assessee to the sister concern was not excessive, leading to the allowance of the appeal.

2. The Revenue appealed before the Income Tax Appellate Tribunal challenging the decision. The Tribunal examined the rates at which the sister concern sold electricity to various parties and found that the average rate at which electricity was supplied to unrelated parties was Rs.3.266 per unit. Even in the case of M/s. Meridian Industries Limited, where the rate was Rs.3.041 per unit, the Tribunal considered it an isolated instance not sufficient for a meaningful comparison. The Tribunal noted that the supplier had valid reasons for charging different rates and observed that the rate at which the assessee purchased electricity was lower than the tariff fixed by the Tamil Nadu Electricity Board. Consequently, the Tribunal held that the commercial consideration justifying the purchase rate could not favor the Revenue's case, leading to the rejection of the appeal.

3. The High Court, upon review, found no substantial question of law for admitting the Tax Case. Consequently, the Tax Case (Appeal) was dismissed without costs.