TaxTMI 
TaxTMI 
2024 (2) TMI 783
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....he head 'income from other sources' ; (ii) disallowance of over-valued part of cost of imported capital goods out of capital work in progress; (iii) disallowance of interest on capital borrowed for overvalued part of imported capital goods; (iv) treating compensation received from M/s Essar Oil Ltd. as revenue receipt in nature ; (v) disallowance of depreciation claimed on overvalued part of work-in-progress post capitalization. 1.2. The issues raised in appeals and cross objection filed by the assessee include challenging validity of making additions by the AO without aid of any incriminating material found during the course of the search, qua (i) taxation of interest earned on margin money with bank under the head 'income from other sources'; (ii) disallowance of over-valued part of cost of imported capital goods; (iii) treating compensation received from M/s Essar Oil Ltd. as revenue receipt in nature.;. 2. Before us, both the parties agreed to take up the appeal for assessment year 2014-15 as a lead case and to follow the decision of the same in other year mutatis mutandis. Accordingly, we take up the appeal of the Revenue and the assessee for AY 2014-15 for adjudication.....
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....valuation and siphoning off of foreign exchange as brought out by DRI in its report*? 7. "Whether the Ld.CIT (A) is justified in deleting the disallowance u/s 37(1) of the Act. of Rs. 129,32,54.291/- thereby reducing the CWIP. ignoring the Statement of Shri Vijay Kumar Goyal (CA and General Manager (F&A) in the assessee company ] which was recorded on oath us. 132(4) of the IT. Act. 1961 on 11.05.2018 during the course of Search proceedings wherein he has categorically explained that how an invoice of Sungjin Geotec Co. Lid.. Korea with an original price of S11,98.190/- with gross weight of 154,827 kgs has been over valued at $32.98.500/- through routing the invoice from Global Supplier (UAE) FZE to BPIL. which in tum has billed the same to the assessee company at an overvalued valuation and on perusal of bill of landing seized during the course of scarch action, it is seen that the original supplier Sungjin Geotec Co. Ltd. Korea has shipped this consignment directly to EPIL at Port Haldia/India. It is observed that Global Supplies (UAE) FZE has been used a routing entity." 2.1 The grounds of the assessee's appeal for AY 2014-15 are reproduced as under: 1. On t....
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....60,430/ - law, the Hon'ble CIT(A) erred in confirming the order of Ld. AO making addition of interest of Rs. 17,33,75,749/- arbitrarily calculated 12% alleging that appellant has utilised the borrowed funds for acquisition of alleged overvalued capital goods recorded in CWIP in context with Onshore Supply Contract. We therefore pray to your honour to delete the addition made and necessary direction shall be given in this regard. 2.1. On the facts and circumstances of the case and in N.A. law, the Hon'ble CIT(A) erred in confirming the action of Ld. AO, there by presuming that the entire project was funded with Borrowed funds without appreciating the fact that appellant was mandated to maintain the Debt Equity ratio of 2:1. 2.2. Without prejudice to the ground no. 2 and 2.1, on N.A. the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of Ld. AO without appreciating the fact that Average rate of interest for the funds borrowed by the appellant during the A.Y. 2013-14 and 2014-15 was 11.42% and 9.18% respectively. 2.3. On the facts and circumstances of the case and in N.A. law, the hon'ble CIT ....
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....essee awarded an 'Erection, Procurement and Commissioning' (EPC) contract dated 11.12.2009 to M/s Essar Project India Ltd. (EPIL) for a lump-sum fixed price of Rs. 3200 crores. The said contract included procurement, supply, erection, commissioning, testing of machinery and wrap up guarantee etc. The assessee also entered into a process technology license agreement with 'Saipem S.p.A', Italy, and 'Kellogg Brown & Root Inc.' USA. This project was supervised by 'M/s Project and Development India Ltd'. (PDIL). The project was funded by a consortium of Banks and Financial Institutions laid by 'IDBI' Bank. During the year under consideration said project was under construction and the commercial production started on 01.10.2017. 4.1. A search and survey action u/s 132/133A of the Income-tax Act, 1961 (in short 'the Act') were carried out in the case of the assessee on 10.05.2018 . Subsequently, a notice u/s 153A of the Act was issued on 13.02.2020. In response, the assessee filed return of income u/s 153A of the Act. The assessment proceedings u/s 153A was completed on 30.09.2021 after making various additions/disallowance. On further appeal, the Ld CIT(A) partly allowed the appeal o....
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....his, the appellant has already offered a sum of Rs. 2,48,48,541/- as "Income from Other Sources" on the ground that such interest income has arisen out of short term deposits made from surplus idle funds. The balance amount of Rs. 1,00,77,381/- is reduced from the Capital WiP on the ground that such deposits are kept as margin money which are under lien with Bank in respect of guarantees and letter of credit for the purpose of setting up its plant. The plant has become operational in a later assessment year and not during the year under consideration. 4.3.1. In the case of CIT vs. Bokaro Steel Ltd. 236 ITR 315, the Hon'ble Apex Court held that "if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets". In the case of CIT vs. Karnal Co-operative Sugar Mills Ltd. 243 ITR 2, the Hon'ble Apex Court held that "the interest earned out of deposits to open a letter of credit for the purchase of the machinery required for setting up the plant was incidental to the acquisition of the assets and ruled in favour of the assessee". In view of the decision of t....
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.... (2015) 93 CCH 0210 Del HC (2015) 281 CTR 0045 (Del): (2015) 126 DTR 0130 (Del): (2016) 380 ITR 0573 (Delhi): (2015) 234 Taxman 0300 (Delhi). In the case of Jitendra Virwani vs. DCIT [2021] 129 taxmann.com 38 (Bangalore Trib) dated 30.07.2021, the Hon'ble ITAT, Bangalore has held that assessment u/s. 153A can be made even if no incriminating material was found during search action. In this judgment, the above cited judgments of the appellant have actually been considered by the Hon'ble ITAT. Hence, it cannot be stated that the position of law is squarely in favour of the appellant. A similar issue of incriminating material came up before the Allahabad High Court in the case of PCIT vs. Siddharth Gupta in ITA No. 17 of 2022. In the said appeal, 2 questions of law were raised. i. Whether assessment or re-assessment under section u/s. 153A of the Income Tax Act, 1961 can be framed only on the basis of incriminating material found during the course of search under section 132 of the Act. ". Whether assessment or re-assessment under section u/s. 153A of the Income Tax Act, 1961 can be framed where no incriminating material has been found in the search under sec....
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....owance of Rs. 1,29,32,54,291/- in respect of overvaluation of the capital goods imported by the assessee company, which were purchased from M/s Essar Project India Ltd (EPIL) as per offshore supply contract. The facts in brief qua the issue in dispute are that the assessee awarded an 'EPC' contract dated 11.12.2009 to M/s EPIL for a lump sum fixed price of Rs. 3200 crores. Subsequently, in mid 2010 EPIL specifically requested assessee to split the above 'EPC' contract into three separate contracts, viz., Engineering and construction, onshore supply contract and offshore supply contract. The assessee contended that the split was done merely to enable 'EPIL' for proper implementation and execution over the scope of work of the EPC contract and the total scope and lump sum fixed price remained the same. The agreement for split of the EPC contract was entered into 29.07.2010, break up of which is as under: "Engineering and Procurement Contract (E & C) - Rs 635 Crore(g325483 of Paperbook of A.Y. 2013-14) Onshore Supply Contract - Rs 765 Crore (page no. 484-568 of Paperbook of A. Y. 2013-14) Offshore Supply Contract - Rs 1800 Crore. (page no. 569-675 of Paperbo....
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....ting entity with the sole purpose to inflate the import invoices. The above example given above of one consignment holds good for other remaining 92 other consignment also. Documentary evidences have revealed that goods of all the 93 consignments were shipped directly to India from OEM / actual suppliers and only invoice was routed through intermediary entity Global Supplies (UAE) FZE with the only purpose of inflation of invoice value. 5.12. It is pertinent to mention here that a copy of show cause notice alongwith relied upon documents had already been supplied by DRI to the assessee company and on further request by the assessee the same were supplied once again to the assessee. The show cause notice has discussed in detail alongwith supporting documentary evidences how the over valuation of invoices with respect to Onshore Contract with EPIL has been done by the assessee via Global Supplies (UAE) FZE. 5.13. The assessee has failed to furnish satisfactory reply to business prudence and exigency prompted the Board of Directors to take a decision to route all capital goods through an agreement with EPIL despite the fact that goods were shipped directly t....
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....uring search. The issue to be decided by the undersigned falls in a very narrow compass of applicability of provisions of I.T. Act as regards overvaluation, qua the appellant. In this respect, I find that certain facts brought out by the appellant are very relevant. a. The appellant has entered into a fixed lumpsum price Engineering Procurement and Construction (EPC) contract dated 11.12.2009 with EPIL for Rs. 3200 crs. to set up ammonia and urea complex at Panagarh, Wesh Bengal. There have been subsequent modifications in the contract as well. It is seen that the contract is split into 3 parts and the agreement for the same was entered into 29.07.2010 at agreed lumpsum price which are as under:- Engineering and Procurement Contract (E&C) - Rs. 635 cr. Onshore Supply Contract - Rs. 765 cr. Offshore Supply Contract - Rs. 1800 cr. b. According to the appellant, the contract price of Rs. 3200 crs. is based on the fixed lumpsum contract without any provision for price escalation except as expressly provided in the contract. This is noted from Clause 14.1 of the contract dated 11.12.2009 which reads as follows :- "Unless otherwise st....
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....ssessee had paid value in excess to the actual price of those goods and the assessee failed to explain payment of such excess price , therefore, the Assessing Officer is justified in making disallowance of excess overvalued part of the capital goods and accordingly, the action of the reducing of capital work-in-progress of the assessee by the Assessing Officer is justified. On the contrary, the Ld. Counsel for the assessee submitted that entire project of installation and supply for the project was duly supervised by M/s PDIL, which is Government of India Undertaking and due intelligence was undertaken by Tata Consulting Engineers Ltd (TCEL), which was appointed by the lenders. It was submitted that in the report prepared by both these experts, overall project cost had been compared with like projects which were proposed to be set up and it emerged from those reports that project cost of the assessee was lowest in peer comparison. Further, the Ld. Counsel submitted that the Assessing Officer failed to appreciate that the assessee had placed a fixed price rupees contract on EPIC for overseas supply component, as such the assessee was immune from fluctuation in foreign currency and t....
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....the goods which are neither prohibited nor have any duty implications cannot be confiscated under Section 111(m) of Customs Act, 1962 for mis declaration of value. In the present case I find that goods are not prohibited goods and as such are not liable for confiscation u/s 111(d) of Customs Act, 1962. There is also no dispute about these goods being eligible for project import at nil rate of duty, thus having no implication of duty in respect of mis declaration of value, if any. Therefore, I find that the impugned goods are not liable for confiscation under Section 111(d) and 111(m) of Customs Act, 1962. Since goods are held not liable for confiscation, the penalty u/s 112 (a) or 112 (b) of Customs Act, 1962 is not being imposed. There is a proposal in SCN for imposition of penalty u/s 114 AA of the Customs Act, 1962. I find that the SCN, in para 29.5, has stated that since invoices have been manipulated for purpose of over valuation and false and incorrect declaration/ statements have been made in the import document, penalty u/s 114 AA is imposable. However, as stated earlier, the charges of over invoicing of import goods have been held as not maintainable, there is no false or ....
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.... of over valuation of imported capital goods and only basis of the addition i.e. the show cause notice issued by the DRI, was not unearthed during the search action at the premises of the assessee, therefore, following our finding in preceding paragraphs, we are of the opinion that in absence of any incriminating material no addition/disallowance could be made in completed assessments i.e. unabated assessments . Thus, the addition of the overvaluation of the imported capital goods and the corresponding interest are also liable to be deleted. The corresponding/additional grounds of the appeal of the assessee are accordingly allowed. 8. The next issue is in respect of disallowance u/s 37(1) of the Act at Rs. 70,77,37,047/- by the Assessing Officer on the ground that the assessee has recorded excess expenses in the books of accounts in context with onshore supply contract with EPIL. 8.1. The brief fact qua the issue in dispute are that in post search inquiry the assessee submitted that entire turnkey project of manufacturing of 'Ammonia' and 'Urea' was split into three subcontracts as under: Offshore Supply Contract Rs. 1800 Crores Dated 29.07.2010 Onshore Supply Con....
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....ns the contractor had to complete the work or supply the materials at price decided earlier in the contract. Therefore, the assessee is eligible to claim only Rs. 7,65,00,00,000/- under this head as per the lumpsum contract dated 20.08.2010. The assessee's explanation that splitting of contract into 3 parts is merely to enable EPIL for proper implementation and execution of overall scope of work does not hold water as the total contract value has been specifically split up into 3 parts by assigning separate specific values for each component of the contract. If the splitting of the original contract was only for the convenience purpose there was no need to assign spate values to each component to the original contract in a case where total contract value is already assigned in original agreement. Further, it is also pertinent to mention here that in none of these agreements it is mentioned that the contract value between these agreements can be adjusted within the original contract value of Rs. 3200 crores. Further, the contention of the assessee that these 3 agreements are irrelevant for the assessee company is not valid because through these agreements specific separate value....
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....sh Patwa (employee of appellant) recorded u/s. 132(4) of the Act on 12.05.2018 to buttress its claim. The appellant has also referred to a certification by Chartered Engineer vide letter dated 08.05.2018. I am afraid, I am unable to entertain these submissions of the appellant. Such findings/submissions do not emanate from the assessment order and it is not known whether all these evidences and records were placed by the appellant before the AO. The appellant has repeatedly harped (including in the letter dated 11.01.2023) that the contract of Rs. 3200 crs. was a lumpsum fixed price contract. Under the circumstances, in my view, the excess expenditure claimed to be incurred by the appellant over and above the contracted price of Rs. 765 crs. towards Onshore supply (within the overall cost price of Rs. 3200 crs.) cannot be allowed. Hence, the AO's action of reduction of CWIP by Rs. 70,77,37,045/- stands upheld." 8.4 Before us, the Ld. Counsel for the assessee submitted that Assessee Company was liable for fixed lump sum contract price of Rs. 3200 crores without any provision for price escalation and same was expressly provided in contract and EPC contract was split into three....
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.... is offshore supply. In the case of engineering and construction and offshore supply the expenditure booked by the assessee is lower than contract price, however in case of the onshore supply the actual cost booked by the assessee in its books of account is of Rs. 832 crores as compared to Rs. 765 crores agreed between the parties. The contention of the assessee is that the total turnkey project price was Rs. 3200 crores whereas assessee has booked in books of account only Rs3018.99 crores, which is lower than the overall contract price. According to the Assessing Officer the assessee agreed for contract price of Rs. 765 crores for onshore supply of lump sum basis and therefore, the excess price paid by the assessee cannot be allowed. We are of the opinion that the Assessing Officer has not held the excess payment of Rs. 70.77 crores paid by the assessee as non-genuine. If the assessee has actually paid the amount though it may be slightly more than the contracted price but if it is incurred wholly and exclusively for the purpose of the assessee, then merely for the reason that amount finally incurred has increased as compared to contracted price, the Assessing Officer has no right....
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....leaning of boilers, steam blowing of steam headers, cooling water flushing , lube oil flushing of rotary machines etc. As per the terms of the contract of project, it was the responsibility of the Essar India Project Ltd. to arrange for methane gas from M/s Essar Oil Ltd. The assessee had entered into GSPA agreement dated 11.12.2009 with EOL for long term supply of coal methane gas for a period of 20 years. According to the assessee, the plant was ready for commissioning as per lender's stipulated time for scheduled Commercial Operation Date (SCOD) of 1^st April, 2014 for the Fertilizer Plant but the EOL failed to supply the requisite amount of coal based methane (CBM) gas to the plant of assessee, therefore the assessee was unable to carry out the plant's pre-commissioning and commissioning activity. The gas is the basic material and there was a delay on the part of EOL, thus the production could not be undertaken. This failure on the part of the EOL, not any delayed commissioning but also increased the cost of the project. The negotiation with respect to fixed cost reimbursement took place between IDBI Bank, EOL and the assessee and in August, 2014 EOL finally agreed to pay the a....
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....nue receipt. If, on the other hand, the payment received is towards compensation for extinction or sterilisation partly or fully of a profitearning source (capital asset), such receipt not being in the ordinary course of the assessee's business, it must be construed as capital receipt. Any sum received in substitution of income is revenue receipt. It was been held that damages received are the compensation for the profits which were to be earned. 4.8. Now in the instant case as already observed, compensation has been paid for non-supply or short supply of CBM which is the main raw material for the production of Ammonia- Urea. Thus, the compensation is directly linked to the Revenue generating activity of the assessee and it has to be treated as Revenue Receipt. 4.9. Assessee being a company has to compulsory follow mercantile system of accounting. As per the fifth Amendment to SPA between EOL and MFCL on 01.09.2015, compensation of Rs. 240 crores has accrued to the assessee for the period 01.04.2015 to 30.09.2015 pertaining to AY 2016-17 which is taxable as business income and the assessee has not offered to tax during the assessment year 2016-17." 11.1 On ....
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....n granted, if any, shall stand withdrawn, so that there is no double benefit to the appellant. In view of this specific finding, other averments of the AO or that of the appellant are not required to be adjudicated." 11.2 We have heard rival submission of the parties and perused the relevant material on record. The dispute is in respect of the character of compensation received from the EOL for failure in supplying Methane Gas for commissioning and dry run of the project. It is undisputed that the compensation has been paid by the EOL to the assessee for the reason of non-supply of the quantity of the methane gas to the assessee for its dry run of the project and due to which the project cost of the assessee has gone up and therefore, the EOL agreed to pay compensation of Rs. 240 crores to the assessee. The issue-in-dispute is in relation to nature of the compensation whether it is in the character of the revenue or in the capital. We find that the compensation paid mainly for the reason that the dry run of the project could not carried out which is part of the activity in the capital nature and therefore the compensation received also acquired the nature of the capital and elig....
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.... 2012 2011 24 INCCU1 5928873 06-02- 2012 LA MECCANICA PADANA SRL 4020588 20-04-2013 2014-15 GS/EPIL M/258/NOVEM BER/11-12 Dt. 07- 11-2011 AMECO 5.A. मूलो 12428460 14-06-2013 2014-15 CONE TAY DEPARTMENT GERAB NATIONAL M/30/MAY/12-13 DL ENTERPRISES 13-05-2012 6661104 23-04-2013 2014-15 37 INCCU17003207 41064 GS/EPIL- 50 INCCU1 853502220-11- GS/EPIL- ALLIED INTERNATIONAL 3516427 02-04-2013 2014-15 2012 M/92/SEPT/12-13 Dt. SRL 01-09-2012 54 INCCU1 8634158 30-11- 2012 GS/EPIL-M/75/JULY/12- MITSUBISHI CORPORATION 13 Dt. 25-07-2012 487149307 19-04-2013 2014-15 58 INCCU1 8635150 30-11- GS/EPIM- NUOVOPIGNONE SPA 132833753 22-05-2013 2014-15 2012 M/50/JUNE/12-13 D 07-06-2012 62 INCCU1 9189329 01-02- GS/EPIL CCI LTD 2013 M/165/JANUAR Y/12-13 Dt. 09-01-2013 65 INCCU1 96751925-03- 6792214 03-12-2013 2014-15 GS/EPIL- NUOVA FEMA SPA 1831 25-05-2013 2014-15 2013 M/175/JANUAR Y/12-13 Dt. 31-01- 2013 66 INCCU1 981062 09-04- 2013 GS/EPIL- M/206/MARCH/12- ENTERPRISES GERAB NATION....