TaxTMI 
TaxTMI 
2024 (2) TMI 276
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....shall be applicable mutatis mutandis to all the appeals under consideration. 3. ITA No. 1147/Mum/2023 In the instant case, the Assessee during the year under consideration was engaged in the business of generation and distribution of power, execution, procurement, commissioning of power plants and financial services and had declared its total income at Rs. 102,14,14,228/- under normal provisions of the Act and Rs. 1093,46,60,900/- for the book profit under section 115JB of the Act, by filing its return of income on 30/09/2011, which was processed under section 143(1) of the Act on 30/08/2012. Subsequently, the Assessee, by revising its return of income on dated 28/03/2013, declared its total income at Rs. 86,35,14,103/- under normal provisions of the Act and "NIL‟ book profit under section 115JB of the Act. Thereafter, the case of the Assessee was selected for scrutiny, which resulted into making the assessment dated 29/03/2014 under section 143(3) of the Act, whereby the income of the Assessee was determined at Rs. 133,93,36,775/- and book profit to the tune of Rs. 1093,46,60,960/- under section 115JB of the Act. 3.1 On appeal, the then Ld.CIT(A), vide order dated 28/04/2....
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....s to believe that Income chargeable to tax has been under assessed to the tune of Rs. 56,07,90,522/- crores. The case is squarely fit to be reopened with reference to the provisions under section 147/14S of the Income Tax Act, 1961." 4.1 Accordingly, the notice dated 27/12/2017 under section 148 of the Act was issued to the Assessee, in response to which the Assessee by filing its return of income on 25/01/2018 declared its total income at Rs. 57,50,52,140/- after claiming deduction under chapter VIA of the Act to the tune of Rs. 89,35,98,120/-. The Assessee also claimed carry forward of long-term capital loss of Rs. 2,07,07,65,293/-. 4.2 The AO, in order to verify the return of income filed by the Assessee in response to notice u/s 148 of the Act, issued the statutory notices under section 143(2) and 142(1) of the Act and also provided the reasons for reopening of the case to the Assessee, against which the Assessee vide letter dated 19/03/2018 filed its objections, which were disposed of by the Assessing Officer vide order dated 13/12/2018. 4.3 As per Assessment order, the Assessing Officer in order to verify the information from the Directorate of Revenue Intelligence (DRI),....
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....rovide herewith the following documents In support of transactions for purchase of coal: * Statement giving details of Imported coal purchased during the year as per books. * Copy of Invoices along with supporting documents namely contract copy, certificate In Form B from the Ministry of Trade of the Republic of Indonesia. Bill of Entry, Certificate of sampling, weight etc. * Copy of the proposal note and quotations taken from the various parties. The company has also deposited the custom duty on import of coal at the applicable rate on the value of imports amounting to Rs. 16,75,22,035/-, The Electricity business of the company Is regulated by the Maharashtra Electricity Commission ("MERC"). R Infra has been granted a Distribution License of relectricity in Mumbai suburban area and area falling under Mira Bhayender Municipal Corporation, Being a regulated entity, the tariffs charged by the company to its consumers are approved by the State Commission, I.e. MERC. The tariffs set by the MERC are meant to recover the cost of supplying electricity to the consumers In its License area along with the a/lowed return on equity. In our submission dated 19,03,2018, we have ex....
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....at Inflated price mentioned In the latter to the former. It appears from the investigation done by Department of Revenue Intelligence that the Intermediary firms were merely Invoicing agents for facilitating Invoice Inflation. The intermediary firms appear to have received remittances towards value of Invoices raised on the assessee in India, which included the over-valued portion of the price. 7.3 Looking at the above case from the perspective of normal commercial prudence and due diligence, payment of such huge amounts running Into more than few crores over and above the actual value of the goods appears to be unusual and highly Irregular, When the actual suppliers were selling the Coal, at a much lower value, no prudent business entity would pay so much more than the actual value of the goods to Intermediary firms with no known bona fide value addition and more so by foregoing the duty benefit available to the imported goods on production of certificates In Vorm-Ar, added to their cost, IN the Instant case, the Coal was shipped directly to India, by the actual suppliers, and only Invoices were routed through the Intermediary firms. Reliance ADAG companies, assessee knowing fu....
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....ct., 2010, 4 consignments. ii. Larimar Holdings Ltd,, Jersey ("LHL"); A British crown dependency and tax haven. 11 consignments, stopped as Invoicing agent from May, 2011 due to S.94A of l.T. Act, 1961, ITEA with Jersey only in 2012. iii. Epic Alloy Steel Pvt. Ltd, Raigarh, only one consignment. Iv. Century Exports Ltd., Hong Kong, ("CEL"): Tax haven, after May, 2011 all consignments Invoiced through It (21 In number); one Sandeep Kumar Dhanuka Is its sole Director and 100% equity holder, he Is an Indian passport holder residing in Hong Kong at the registered address of GEL, 7.7 In respect of the Coal imported by assesses, documentary evidence (Invoices of actual suppliers etc.) pertaining to back- to-back transaction between the intermediary firms and the actual suppliers in relation to consignments Imported by assesses are available, based on which the actual value of the Coal Invoiced by the Intermediary firms for Individual consignments could be estimated. The extent of what appears as artificial Inflation of value by the Intermediary firms in their invoices, during F.Y.201Q-11 to F.Y.2014-15, Is at Column (6) and (7) of the Table below : S. No. Name of Importer ....
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....gulators to the power generators enhances the cost of purchase of the power distributors which In turn is passed on to ultimate consumers benefiting to power generating companies. 7.11 The intermediary firm-wise extent of over-valuation for A.Y. 2011-12 relevant to F.Y. 2010-11 Is tabulated as below: Sl. No Name of the Intermediary firm (Name of Importer) Financial Year Declared CIF Value (Rs.) Actual CIF Value determined (Rs.) Extent of over- valuation (Rs.) 1. RNRL 2010-11 63,36,23,178 59,58,78,459 3,77,44,179 2. LHL Jersey 2010-11 122,73,93,460 111,89,31,084 10,84,62,376 3. Epic 2010-11 23,33,34,835 21,87,51,408 1,45,83,427 TOTAL 209,43,51,473 193,35,60,951 16,07,90,522 8.1 As discussed above in summary of Inter connectedness among the buyers and their ' authenticity, It Is clear that all the buyers have been pre-arranged. If one puts together and sees In totality all that has been discussed above, which Is nothing but pure, unadulterated marshalling of hard facts, there emerges undeniable and concrete evidence to suggest that the purchase of coal of Indonesian origin through intermediaries was nothing but a colourable device,....
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....e assessee are rejected and it is concluded that the assessee has purchased coal of Indonesian origin, which were purchased from intermediaries at an inflated rate than the actual value of such coals sourced from the original suppliers'. Therefore, the inflated coal expenses of Rs 16,07,90,522/- are disallowed and added back to the total Income, 8.5 As the assessee has inflated the cost-of coal expenses of Rs. 1,6,07,90,522/- and claimed the same in the Profit and Loss Account, therefore, penalty proceedings are initiated separately under section 271(1)(c) of the Income Tax Act, 1961 for inaccurate particulars of income." 5. The Assessee being aggrieved, challenged the said addition before the Ld. Commissioner, who vide impugned order by analyzing the peculiar facts and circumstances of the case and following the order dated 31/05/2018 passed by the Hon'ble CESTAT, Mumbai in the case of Knowledge Infrastructure Systems Ltd and two others (Appeal No.A/86617- 86619/2018), deleted the addition, by concluding as under: - "I have considered the facts of the case, assessment order, appellant submission and details of document uploaded by the appellant. The appellant submitted ....
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....rgeable to duty/ interest. It is with regard to applicability of Clause (a) of section 28(9A) of the Act. It does not suggest anything related to the issue on hand. (9) The proper officer shall determine the amount of duty or interest under subsection (8),- (a) within six months from the date of notice, 3* in respect of cases falling under clause (a) of sub-section (1); (b) within one year from the date of notice, 3 * in respect of cases falling under sub-section (4). [Provided that where the proper officer fails to so determine within the specified period, any officer senior in rank to the proper officer may, having regard to the circumstances under which the proper officer was prevented from determining the amount of duty or interest under sub-section (8), extend the period specified in clause (a) to a further period of six months and the period specified in clause (b) to a further period of one year: Provided further that where the proper officer fails to determine within such extended period, such proceeding shall be deemed to have concluded as if no notice had been issued;] (9A) Notwithstanding anything contained in sub-section (9), where the proper officer is unable ....
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....and the Assessee under no circumstances can inflate the cost or reduce its revenue. The electricity business of the Assessee is regulated by the Maharashtra Electricity Regulatory Commission ("MERC"). Being a regulated entity, the tariffs charged by the Assessee to its consumers are approved by the State Commission i.e. MERC. The tariffs set by the MERC are meant to recover the cost of supplying electricity to the consumers in its License area along with the allowed Return on Equity. The business is cost plus business. All the expenses incurred namely cost of fuel, power purchase, other operating cost etc. are pass through. Any increase or decrease in cost of power sold would result into increase or reduction in tariff respectively without affecting the profitability from the business. The cost of coal purchase has been accepted by the MERC and was never a matter of dispute by the MERC. The Assessee submits that the Assessing Officer has made the disallowances without appreciating the fact that cost of coal is an integral part for determining the tariff price and the cost of coal already recovered as part of tariff from the consumers and credited to Profit and Loss Account th....
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....ause notice. The Assessee submits that the entire basis of the reopening of the assessments is now no longer there as the show cause notice of DRI is cancelled by the Pr. Commissioner of Customs. Further the Assessing Officer has not provided any evidence about the inflation of coal price in course of the re-assessment proceedings. The matter of similar addition had come up in the Assessee's case for A.Y.2016-17. DRI show cause notice did not cover the period in A.Y.2016-17. The Tribunal has decided the matter in favour of the Assessee and deleted the addition. The gist of the said Tribunal order is as under- Income Tax Appellate Tribunal Order in A.Y.2016-17 in Assessee's case The Assessee further submits that the Hon'ble ITAT in the Assessee's own case in Appeal no. ITA 2796/Mum/2022 & 2590/Mum/2022 for AY 2016-17 has decided the issue of disallowance of so-called inflated coal expenses in favour of the Assessee. The ITAT observed that all the observations and findings given by the Assessing Officer as incorporated in the Assessment order are based on DRI report which had not been approved by the higher appellate forums and was still at the show cause n....
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....No actual work has been done by any of the entitles, either be it PATH or Geet Exim and the money was transferred out without utilization for any of the business purposes. 'Back to back' payments were made to Geet Exim Pvt, Ltd, by PATH without actual execution of contractual work. The expenditure to the extent of Rs. 40 crores Is not genuine and the sub-contract expenditure has been Inflated by the incorporation of this non-genuine expenditure. Therefore, I have reasons to believe that the Income chargeable to tax to the extent of Rs. 40 crores has been under-assessed. The assessee, Reliance Infrastructure Limited, has purchased coal of Indonesian origin for the thermal power plant In Dahanu (Maharashtra) which were purchased from intermediaries at an Inflated rate than the actual value of such coals sourced from the original suppliers. The said transactions are fully paid during the year under consideration or are standing as sundry creditors and are claimed as fuel purchases In the Profit and Loss Account under the head cost of fuel. Therefore, the expenditure to the tune of Rs. 16,07,90,522/- is not genuine, and due to this inflated cost of fuels, I have reasons to b....
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....namely, cost of fuel, power purchases, other operating cost, etc. are pass-through costs. Thus, any increase or decrease in cost of power sold would result into increase / reduction in tariff, respectively without having the profitability from the business. The tariffs charged by the Assessee from its customers / consumers are approved by the said Commission, i.e. MERC. Tariffs set out by the MERC are meant to discover the cost of supplying electricity to the consumers in its licensed area along with the allowed return on equity. Cost of annual purchases has been accepted by the MERC and never been the matter of disallowance by MERC and entire fuel cost is allowed to be recovered and it is a fact that Assessee has purchased/imported coal from the above parties after taking quotations from various parties and selected the lower quote and, therefore, it cannot be said that the Assessee has purchased / imported coal at high / inflated price." 8.3 The Assessing Officer by considering the reply of the Assessee and the enquiry report conducted by the DRI, observed that from report it appears that the intermediaries‟ firms were merely invoicing agents for facilitating invoice infl....
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.... Dhanuka Is its sols Director and 100% equity holder, he Is an Indian passport holder residing in Hong Kong at the registered address of CEL." 8.4 The Assessing Officer also observed that coal of Indonesian origin was exempted from customs duty with effect from 01-10-2010 subject to submission of country-of-origin certificate in Form-AI issued by Indonesian authorities. The Assessing Officer tabulated the firm-wise over valuation for the assessment year under consideration which is reproduced below: - S. No. Name of the Intermediary firm (Name of Importer) Financial year Declared CIT Value (Rs.) Actual CIF Value determined (Rs.) Extent of over- valuation (Rs.) 1. RNRL 2010-11 63,36,23,178 59,58,78,459 3,77,44,179 2. LHL Jersey 2010-11 122,73,93,460 111,89,31,084 10,84,62,376 3. Epic 2010-11 23,33,34,835 21,87,51,408 1,45,83,427 TOTAL 209,43,51,473 193,35,60,951 16,07,90,522 8.5 The Assessing Officer at last by citing various judgments and concluding "that the Assessee has purchased coals of Indonesian origin from intermediaries, at an inflated rate than the actual value of such coals sourced from the original suppliers", ultimately disallowed an amoun....
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....t/154/2014 dated 31/08/2016 issued to M/s Reliance Infrastructure Ltd and 4 other entities is similar to the one dealt in the matter of Knowledge Infrastructure Systems Pvt Ltd, the same is covered under clause (a) of section 28(9A) of the Customs Act, 1962. In the first para of said intimation it is clearly written and acknowledged that Hon‟ble CESTAT, Mumbai vide order dated 31/05/2018 (supra) in appeal filed by Knowledge Infrastructure Systems Pvt Ltd and two others, set aside the original OIO dated 23/12/2016. The department has filed an appeal on 01/12/2018 in the Hon‟ble High Court of Bombay against the said order of Hon‟ble CESTAT. For ready reference and completeness, the intimation dated 25thMarch, 2019 issued by DRI is reproduced below: DIRECTORATE OF REVENUE INTELLIGENCE OFFICE OF THE ADDITIONAL DIRECTOR GENERAL (ADJUDICATION) 2m FLOOR, OLD BUILDING,NEW CUSTOM HOUSE, BALLARD ESTATE MUMBAI-400001. Tel. No. 022-22757030/22757034 F. No. S/26-68/ADJ. DRI/Reliance lnfrastructure/2017-18/2132 Mumbai, 25th March, 2019 INTIMATION UNDER SECTION 280A) OF THE CUSTOMS ACT, 1962 It is intimated that Hon'ble CESTAT, Mumbai vide Order dated 31.05.2018 in resp....
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....ing invoice inflation which has effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission. The ld. CIT(A) has merely stated that the ld. AO has not brought out profitability and the over valuation of coal as an effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission and accordingly, he restricted the disallowance in Adhoc 50% made by the ld. AO. 48. First of all, so far as DRI report is concerned, the same pertains to A.Y.2011-12 to 2015-16 and moreover, no final conclusion or any order has been passed in the case of the assessee therein and it is still at show-cause notice stage. 49. Here in this case, the cost of coal is otherwise an integral part of determining the tariff price and the cost of coal are tariff price and the cost of coal already recovered as part of tariff from the consumers has been credited to the profit and loss account and tariff of electricity sold has already been offered for tax. Though ld. Counsel has pointed out that based on similar show-cause notice issued by the DRI for alleged over valuation of Indonesian coal imports in case of Knowledg....