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2020 (2) TMI 1452

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....iance Power Ltd. and is a part of the Reliance Anil Dhirubhai Ambani Group. It carries on the business of developing, designing, operating maintaining and owning an Ultra Mega Power Project in Sasan, Madhya Pradesh, India. 3. NACC US has entered into an Association Agreement for mine development and operations ("Association Agreement") with SPL effective from January 1, 2009 in order to provide technical know-how to SPL in relation to mine development and operations. 4. In March 2011, NACC US incorporated a subsidiary, NACC India being the applicant, and through the Assignment and Assumption Agreement, Consent, and Second Amendment to the Association Agreement dated April 1, 2011 the rights and obligations of NACC US as per the original Association Agreement were transferred and assigned to the applicant, with the consent of SPL. Further, the applicant has entered into an Intellectual Property Licence and US Service Agreement (IP and Service Agreement) with NACC US dated April 1, 2011 for receiving services and a non-exclusive licence of Intellectual Right from NACC US. 5. NACC US, in the initial phase of mine development and later the applicant, rendered services to SPL under t....

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.... on the facts and circumstances of the case, if answer to question No. 1 is in the negative, the amount of liquidated damages in dispute shall accrue to the applicant during the year ended March 31, 2015 when such claim has been raised or in the year in which the final order/decree is passed by the court directing the payment of liquidated damages creating a right of the applicant ? 3. (a) Whether on the facts, in law and in the circumstances of the case, where the amount representing claim of liquidated damages has not been credited in the profit and loss account for the year ended March 31, 2015 in terms of applicable Companies Act and Accounting Standards, the same shall not form part of the book profits under section 115JB of the Act ? (b) Whether on the facts and circumstances of the case, if the answer to question No. 3 is negative, the said amount shall not again form part of the 'book profits' for the purpose of section 115JB of the Act in the year in which the said amount shall be accounted for in the books of account of the applicant ? 4. Whether on the facts, in law and in the circumstances of the case where for any reason it is held that the liquidated dam....

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....he Revenue 13. The Revenue has argued that in regard to question No. 5, the applicant claims vide the notes forming part of financial statement that it is entitled for payment of the following amount : Nature of unpaid payment Period Amount in Rs. Amount claimed by the company to be written off at the end of March 2015 Financial year Development fees 1-4-2014 to 23-7-2014 2,38,83,207 2,46,92,258 2014-15 Expense reimbursement 1-4-2014 to 23-7-2014 2,19,76,892 2,25,64,723 2014-15 Interest on unpaid invoices For year ended 31st March 2015 44,51,757 46,81,328 2014-15 Total   5,03,11,856 5,19,38,309   The amount mentioned in column No. 3 of the above table is the amount of unpaid invoices claimed by the company in its notes forming part of the financial statement in para 25 under the headings development fees and expense reimbursements. However, while claiming bad debts, the applicant is claiming the amount mentioned in column No. 4 vide its notes forming part of amount in the column No. 4 as the unpaid invoices for the financial year 2014-15 rested at March 31, 2015. But, the reason behind the difference in the amounts in column Nos. 3 and 4 is not ....

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....fference in amount of Rs. 5,03,11,856 and Rs. 5,19,38,309 as provided in note 25 to the applicant's financials and the reason behind the said difference is not clear to the Revenue ; and (b) The applicant has allegedly not included the aforesaid amount of Rs. 5,19,38,309 as income in the current financial year 2014-15 or earlier years, i. e., the basic condition provided under section 36(2) of the Act has allegedly not been satisfied. 17. It is urged that both the aforesaid observations of the Revenue are factually incorrect and are based on misappreciation of documents on record. 18. As regards the first reason, it would be observed from a perusal of note 25 of the applicant's financials that, the amount of Rs. 5,19,38,309 represents the amount restated as at March 31, 2015 as against Rs. 5,03,11,856 which is the actual amount invoiced to SPL during the financial year 2014-15. The said restatement is on account of difference in foreign exchange (forex) rate fluctuation on amounts invoiced to SPL in USD and which were recorded at closing exchange rate. The description/break-up of the aforesaid amounts invoiced to SPL is provided as follows : Particulars. Amount invoic....

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....g the service tax of Rs. 55,34,481) has been considered as a part of debt due to SPL and has been written off during the year under consideration, the same is allowable, as deduction under section 36(2) of the Act. 22. Even otherwise, as the applicant has duly considered the amount of Rs. 4,47,77,356 and Rs. 16,26,453 in its profit and loss account for the financial year 2014-15 and accounted for in computing the income of the applicant in the financial year 2014-15. Thus, both the aforesaid amounts are allowable as deduction under section 36(2) of the Act. 23. As regards the balance amount of Rs. 55,34,481 due from SPL towards service tax and which could not be recovered by the applicant, the same if not considered as allowable under section 36(2) of the Act should be otherwise be allowed under section 37 of the Act. Reliance in this regard is placed on the decision of the hon'ble Bombay High Court in the case of CIT v. Prime Broking Co. (I) Ltd. [2016] 76 taxmann.com 211 (Bom) wherein it has been held that service tax not paid by the client of the assessee in terms of invoice raised for onward payment to Government and paid by the assessee out of its own resources is allowa....

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.... mn. towards liquidated damages have been dismissed and the applicant is not entitled to receive any liquidated damages. It was also confirmed in the hearing before AAR on January 22, 2020 that there is no appeal against the award and that it has become final. Thus, question No. 1 as to the character of the liquidated damage qua revenue or capital is inconsequential. 26. In regard to question No. 2, it is held that in view of the arbitration award nothing accrues to the applicant. 27. Question Nos. 3a, 3b and 4 on applicability of the provisions of sections 115JB and 43B of the Income-tax Act have also become inconsequential as there is no question of crediting any amount to the profit and loss account when there is no receipt of liquidated damages. 28. As regards, question No. 5 the learned authorised representative has elaborated the reason for the difference in figure of Rs. 5,19,38,309 and Rs. 5,03,11,586. The former figure is the amount invoiced to SPL along with service tax and forex fluctuation difference whereas the latter figure is exclusive of foreign rate fluctuation difference amount. It has also been explained from the financial statement that the invoiced amount an....