TMI Blog2022 (6) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Authorities further noted that as per the agreements entered into the parties, the finance companies were allowed to operate the wind mills on lease and the payment of lease rentals was assured by Wescare and the assessee was to pay operational lease rental calculated as the electricity consumed x TNEB rates 25 paise per unit. We do not find any good reason to disagree with the reasonings so recorded by the appellate authorities. Addition in respect of off set credits alleged to have been received by the respondent / assessee - CIT(A) was of the view that there is absolutely no document on record to indicate with the authority that the assessee did receive offset credits and accordingly, deleted the addition made by the assessing officer, which finding of the CIT(A) was also affirmed by the Tribunal. In the absence of any concrete material, we have no option except to concur with the view taken by the appellate authorities. Electricity charges paid to Wescare - This court is of the opinion that without any substantive material, the respondent / assessee cannot be construed as owner of the wind mills and hence, the payment made by them to Wescare can be treated only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the Appellate Tribunal was right in confirming the order of the Commissioner of Income Tax (Appeals) holding that the assessee was not the owner of the Wind Turbine Generators and the 'electricity charges' paid to M/s.Wescare India Ltd., was allowance as deduction? 2. Without prejudice to the preceding question, whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the 'electricity charges' paid to M/s.Wescare India Ltd., was allowable as deduction, when purchase of electricity from a person other than the Tamil Nadu Electricity Board was illegal and contrary to the Public Policy? 5. At the outset, the brief facts of the case, which are necessary for deciding the issues involved herein, have been stated below: 5.1. The respondent / assessee is engaged in the business of manufacture of bicycles, chains, precision steel tubes, CR steel strips, etc. For the assessment year 1998-99, they filed its return on 30.11.1998 declaring total income of Rs.1,46,86,704/- and disclosing profit under section 115J at Rs.4,04,28,085/-. The said return of income was processed under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of benefit passed on to DLWL was Rs.58.85 crores and DLWL paid a sum of Rs.2 crores i.e., Rs.2.5 lakhs per wind turbine for 80 WTGs to the respondent/assessee to acquire its right under EPC contract. 5.4. Out of total contract of Rs.102.15 crores, as per the purchase order dated 17.02.1997, the respondent/assessee received only a part of the same valued at Rs.84,52,700/- and sold the same to M/s.DLWL on high sea sale basis for a consideration of Rs.86,21,753/- and the difference of Rs.1,69,053/- was accounted as commission by the assessee. They did not purchase the balance value of the goods and they requested LW to issue the same in the name of DLWL, which assembled the wind turbines and sold the same to various finance companies. On 05.09.1997, a performance guarantee letter was issued by LW in favour of the respondent / assessee; on 25.09.1997, no objection certificate was issued by the Tamil Nadu Electricity Board to the respondent / assessee for installation of WTGs; and on 29.09.1997, a tripartite agreement was entered into among the respondent / assessee, Wescare and the finance companies, as per which, the finance companies allowed Wescare to operate the wind mills on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the wind mills. The returns of income filed by the respondent/assessee were processed under Section 143(1). Subsequently, notices under Section 148 came to be issued to the respondent/assessee on 06.03.2007, 11.10.2007, 05.02.2007 28.03.2008 respectively. Upon receipt of the same, the respondent/assessee filed its replies treating the original returns filed by them as response to the said notices. After following due procedure, the assessing officer ultimately passed the assessment order dated 31.12.2007 in respect of the assessment years 2000-01 and 2003-03 and assessment order dated 27.11.2008 in respect of the assessment years 2001-02 and 2003-04, thereby disallowing the electricity expenses incurred by the respondent / assessee, on the basis of the earlier order passed in respect of the assessment year 1998-99. 5.7. Aggrieved over the assessment orders so passed by the Assessing Officer, the respondent/assessee preferred Appeals before the CIT(A), who by separate orders dated 13.02.2009, partly allowed the appeals. Challenging the same, the appellant/Revenue preferred Appeals and the respondent/assessee preferred cross objections before the ITAT and all the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to have in all fairness remanded the matter to the assessing officer so as to enable the revenue to get a clear certificate from the Dutch Government through diplomatic channels in this regard. 6.3. That apart, the learned senior standing counsel for the appellant submitted that the wind mills were installed in the name of the assessee and the assessee had been shown as the owner of the wind mills in the records of TNEB; the transaction with the finance company for the sale of wind turbines was not genuine and as such, the finance company cannot be construed to be the owner of the same; the sale of components of wind turbines by the assessee to DLWL was a sham transaction; and hence, the assessing officer wholly justified in disallowing the electricity charges incurred by the assessee in respect of the electricity supplied to it by Wescare. However, the CIT(A) erroneously concluded that the assessee was not the owner and accordingly, allowed the claim of the assessee in regard to the payment of operational lease rental to Wescare equivalent to the measure of units of electricity consumed by the assessee at TNEB rates less Rs.0.25 per unit. The said finding of the CIT(A) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel, no interference of this court is required to the orders passed by the Tribunal, which are impugned herein. 8. Heard the learned counsel appearing for both sides and also perused the materials placed before this Court. 9. At the outset, it is to be pointed out that the assessee in all these appeals is M/s.Tube Investments of India Ltd. The first case viz., TCA No.695 of 2009 pertains to the assessment year 1997-98. Following the decision rendered by the Tribunal on 09.01.2009 in the appeal relating to the assessment year 1997-98, which is questioned in TC.No.695 of 2009, the appeals relating to the subsequent assessment years viz., 2000-01, 2001-02, 2002-03 and 2003-04 were decided by the Tribunal, by order dated 06.11.2009, which is impugned in TCA Nos.1100 to 1103 of 2010. Therefore, as a logical sequitur, the decision to be taken in the first case viz., TCA No.695 of 2009 will govern the subsequent cases too viz., TCA Nos.1100 to 1103 of 2010. 10.1. The three major issues involved in TCA No.695 of 2009 are with respect to (i)transfer of right by the assessee to another company; (ii)no offset credit; and (iii)electricity charges paid to Wescare as deduction. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged to have been received by the respondent / assessee, stating that the respondent / assessee was entitled to claim the benefit by using the value of the WTGs imported from LW, under 'off set credit' or 'IP credit' allowed by the Dutch Government; Lockheed Martin, a US company, had certain commitments of purchasing goods from Dutch manufacturers to be fulfilled, the supply of 80 WTGs by LW to the assessee under the EPC contract was utilised towards the said commitment of Lockheed Martin to purchase goods from the Dutch manufacturers and the assessee claimed additional compensation from Lockheed Martin to facilitate the claim of the 'off set credit'. The assessing officer also referred to certain communications exchanged among Lockheed Martin, Fremont Group and the assessee in the financial year 1998-99, relating the steps being taken for availing 'off set credits', which were found at the premises of the assessee during the course of inspection. It was contended by the assessee before the appellate authorities that the efforts were made for facilitating the transaction and exploring the possibility of obtaining off set credits, which however, did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the erection and commissioning of the turbines. Ultimately, the CIT(A) concluded that the assessee was not the owner of the wind turbines and accordingly, allowed the claim of the assessee in regard to the payment of operational lease rental to Wescare. Though it was contended by the appellant/Revenue that the allowance of electricity charges incurred by the assessee as deduction, is violative of public policy within the meaning of Explanation 1 of section 37 of the Act, the appellate authorities rejected the same, by observing that the payment of operational lease rental was in terms of the lease arrangement between finance companies, Wescare and the assessee though measured in terms of units of electricity consumed; and the same was admittedly, for the consumption of electricity for business purposes; and there is no violation of the policies/ guidelines by any of the parties to the lease agreement pointed out by the TNEB till date. The said findings of the appellate authorities do not require any interference by this court, as the same are based on the materials available before the same. 11.1. Before this court, the learned counsel for the appellant/ Revenue placed relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to rigorous examination in the light of the aspects highlighted by the assessing officer . In the case of LPG cylinders, the transaction was only a financing transaction and not a lease, with no material to show that the assessee became the owner of the cylinders and leased them to Janta. In the case of air jet spindles and positar disc, the very existence of the assets and the genuineness of the purchase of the assets by the assessee was not proved. Therefore, the assessee was not entitled to depreciation . (iv) Avasarala Technologies Ltd v. Joint Commissioner of Income tax [(2016) 66 taxmann.com 377 (SC)] . In that case, the assessee claimed depreciation on certain machinery allegedly purchased from Andhra Pradesh State Electricity Board vide sale deed dated 29.09.1995 which, as per the assessee, was given to the APSEB itself on lease. All the authorities below had found, as a fact, that there was no such purchase of machinery and the transaction in question was sham. On that basis, it was concluded that since the machinery was not purchased by the appellant, it never became the owner of the machinery and therefore, could not claim any depreciation thereof. These a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii)Commissioner of Income Tax Chennai v. Sundaram Finance Ltd. [(2016) SCC Online Mad 3072], wherein, it was held by this court as follows: 14.As rightly pointed out by the Commissioner of Income Tax (Appeals), the question of ownership of the land has nothing to do with the claim for depreciation. Depreciation is claimed in respect of the plant and machinery installed on the land. 15.Unfortunately, the Assessing Officer was misguided by the fact that the Electricity Authority granted permission only to the land owner to run the windmills. It is not the case of the Department or the respondent herein that the respondent was in the business of generating power through windmills. There is no restriction by the Electricity Board that unless the applicant for the generation of wind power also owns the plant and machinery he would not be entitled to a license. 16.In other words, the Assessing Officer as well as the Tribunal misdirected themselves to the actual issue on hand, without realizing what is the income either from the land owner or from the financier depending each side of the table as per the terms of the financing agreement. The Revenue cannot claim revenue f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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