INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Payment of power charges - Allowability -

Assessee claimed deduction of power charges paid by the assessee to Keshav Power Ltd. AO disallowed the same holding that power plant had not commissioned on or before 31-3-2005, as water and coal was not supplied by assessee to Keshav Power Ltd., there was no detail of production of power by that company and whole transaction of leasing of the Power plant as well as the power purchase agreement between assessee and Keshav Power Ltd. was sham. Held: Transaction of purchase of power was backed by the power purchase agreement and lease agreement of power plant leased out to Keshav Power Ltd. had also been executed. There was no infirmity in either the power purchase agreement or in the lease agreement. Further, in the set-aside proceedings for assessment year 2005-06, CIT(A) had allowed depreciation to assessee as well as deduction of proportionate power purchase charges, therefore, above disallowance made by AO was not sustainable, especially when assessee had purchased power from power plant leased out to Keshav Power Ltd. at the competitive rate, which was neither excessive nor unreasonable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2005-06

INCOME TAX ACT, 1961

Section 14A Rule 8D

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