TaxTMI 
TaxTMI 
2025 (1) TMI 272
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether on the facts and the circumstances of the case and in law, the ld. CIT(A), NFAC erred in law in deleting the addition of Rs. 140,49,65,231/- and accepting the income of the assessee as per its audited annual report without appreciating the facts that the assessee is following the mercantile system of accounting. 2. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A), NFAC erred in law in deleting the addition without appreciating the facts that the interest income was liable to be taxed on accrual basis in line with mercantile system of accounting adopted by the assessee." 4. The brief facts are that the assessee company was incorporated on 15.02.2005 as Special Purpose Company promoted by Indian Financial Institutions, vis-à-vis IDBI, ICICI Bank, IFCI Ltd., SBI and Canara Bank and the same is registered as a Government Company u/s. 617 of the Companies Act, 1956. The assessee company was set up for the sole purpose of settlement of claim of off-shore lenders of Dabhol Power Co. Ltd. (DPC) as per a comprehensive restructuring plan for the purpose of revival of DPC's power project approved by Empowered Group of Ministers (EGOM) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue is in appeal before us, challenging the order of the ld. CIT(A). 9. We have heard the rival submissions and perused the materials available on record. The submission made by the assessee before the ld. CIT(A) has been reproduced hereinunder for ready reference: "Assessee Company Gas and Power Investment Co Limited (GPICL), incorporated on February 15, 2005, is special purpose company, promoted by Indian Financial Institutions viz. IDBI, ICICI Bank, IFCI Ltd., SBI and Canara Bank and registered under section 617 of Company Act, 1956 as a government company. GPICL was set up for the specific purpose of settlement of claim of off- shore lenders of Dabhol power company (DPC), as envisaged under a comprehensive restructuring plan for revival of the DPC's power project, finalized under the aegis of the Empowered Group of Ministers (EGOM) constituted by the Government of India (GOI). GPICL settled the claim by raising loans from the IFIs as also placing secured, nonconvertible GOI guaranteed bonds aggregating Rs. 1309.30 crore with Life Insurance Corporation of India (LIC). Under the revival plan and pursuant to a consent approved by Bomba....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in face less hearing and we are expecting a favorable order based on all other assessments. C. Facts for the relevant previous year: On vacating the bank seizure order the assessee could manage to adopt annual report for FY 2013-14 The Audit report for FY 2013-14 was signed on 24.01.2022 and Tax Audit report was obtained on 31.03.2022 and the tax of Rs. 1,61,01,794/- was also paid on 31.03.2022. Due to this the assessee could not file its ROI in time and also could not respond to notice issued under section 148 and subsequent notices under section 142 (1). On 24 March 2022 a show cause notice was issued. In response to the same the assessee filed its ROI on 31.03.2022 but could not generate Acknowledgement for AY 2014-15 as during filling process of ROI on 31.03.2022 the window for response was withdrawn which was open when assessee started filling the Return. And on same date the assessment order for the year was passed considering the Income shown as per 26 AS. The annual report of the assessee and SAT paid was not considered. The assessee then preferred an appeal before your honour. D. Basis of revenue recognition in Annual Report for the fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be in the books of GPICL. The plant generally operated satisfactorily during FY 2011 and FY 2012. However from the year 2013, operations of the plants were impacted due to acute shortage of domestic gas supply. Power blocks were completely shut downed from December 2013. Accordingly RGPPL faced stiff liquidity constraints and could not meet the debt obligations regularly. With a view to find a viable solution, numbers of Inter-Ministerial Meetings were held at the aegis GOI office. At one such high level meeting, convened by Department of Economic Affairs (DEA) on September 25, 2014, lenders suggested for hiving-off LNG Terminal into a separate SPV (with appropriated debt) and restructure the debt in both the resulting companies. Lenders kept DEA informed about the developments and also continuation of guarantee as well. The Demerger Scheme was approved by NCLAT, vide its order dated February 28, 2018 and implemented in FY 19. LNG Terminal got demerged into a separate entity viz. Konkan LNG Private Limited (KLPL) and entire assets and liabilities of LNG terminal have been shifted to KLPL Lenders. Subsequently during FY 2020-21, outstanding deb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved. 9. One time settlement dated 23.03.2020 with Konkan LNG Limited (Demerged entity of RGPPL) of with Rs 756.82 crores was settled for Rs 512.71 crores 10. One time settlement 24.03.2020 with RGGPL for Rs 269.13 Crores was settled for Rs. 162.02 crores. Para 9.2 of Accounting Standard -9 for revenue recognition read as under: Quote 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by installments. Unquote The Financials for FY 13-14 as approved by board of directors and duly audited by the auditors, it was certain on that time of preparing the financials that the revenue as shown in 26AS will certainly not be realized and he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved that the assessee has not filed its original return of income and had filed the returns only in response to notice u/s. 148 of the Act. The ld. CIT(A) further held that the assessee has not done any other activity other than for the specific purpose for which it was set up. The assessee had granted a loan of Rs. 1552.53 crore to RGPPL by raising funds through Redeemable Non-Convertible Debentures (NCD) amounting to Rs. 1309.25 crore and the remaining was sourced by way of loans from lenders viz. IDBI, SBI ICICI, Canara bank and IFCI amounting to Rs. 243.28 crores. The ld. CIT(A) also observed that the assessee issued redeemable NCDs in two series (Rs. 1004 crore Series A and Rs. 305.30 crore Series B) with face value of Rs. 10,00,000/- each and subscribed by LIC. The ld. CIT(A)'s finding is cited hereinunder: 6.1 "On perusal of the appellant's submissions along with the Assessment Order and the remand report provided by the AO, it is observed that the appellant did not submit the original Income Tax Return (ITR) and only filed it in response to a notice under section 148 of the Act. Nonetheless, the reasons for not filing the original ITR have been clarified by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sal, GPICL informed and requested NOC from LIC for the OTS settlement. LIC accepted and granted NOC for OTS settlement with KLPL (vide letter dated March 20, 2020) and RGPPL (vide letter dated December 28, 2020). 6.6 The above loan along with overdue interest was as under: Name of Scheme Amount of Principal and funded interest (Rs. in crores) Settled Amount Date of Receipt CRPS (17.05.2019) 860. 57 Rs.5 only Rs. 3 on 07.09.2019 Rs. 1 on 31.02.2020 Rs. 1 on 31.12.2020 One Time Settlement (dated 23.03.2020 with Konkan LNG Limited (Demerged entity of RGPPL) 756.82 (including 107.9 crores towards overdue interest) 512.71 Crores 24.03.2020 One Time Settlement dated 24.03.2020 with RGPPL 269.13 162.02 crores 31.12.2020 6.7 From the above facts, it is undisputed that an order by the NCLAT during the FY 2020-21 settled the loan provided to RGPPL and KLNG(demerged entity of RGPPL) through its One Time Settlement Scheme (OTS). The appellant has also provided details of the consequent amount to be received, as per the NCLAT order, which is evident from the table above. In support of its claim, the appellant has also furnished a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 29.06.2013 : 16666019 Total 8,50,38,218 3. NIL 2015-16 NIL 4. Gas and Power to RGPPL 2019-20 Date : Amount 31.10.2018 : 14347958 30.11.2018 : 13885121 31.12.2018 : 14347958 & 47646300 Total 9,02,27,337 6.12 From the above, it can clearly seen that the credits in the Bank account commensurate with the revenue shown in the Profit and loss account. In fact in F.Y. 2012-13, the appellant has shown Rs. 140,21,47,133/- as revenue received from RGPPL in its Profit and Loss against the credit of Rs 137,83,70,003/- appearing in the Bank statement. Therefore, it can be safely ascertained that when the appellant received substantial amount of Rs. 140,21,47,133/- in FY 2012-13 it has shown it as revenue in its Profit and loss account. 6.13 In view of the NCLAT settlement order and the bank statement submitted by the appellant it is seen that the amount mentioned in Form 26AS, which forms the basis of the AO's addition, was not actually received by the appellant during the year. 6.14 Now turning to the AO's argument in the remand report, stating that AS-9 cannot be applied in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee pertaining to the SBI account which reflects credits from RGPPL which tallies with the P & L Account of the assessee. Further, the assessee has declared the impugned amount of Rs. 140,21,47,133/- as revenue received from RGPPL in its P & L against the credit of Rs. 137,83,70,003/- in F.Y. 2012-13 which substantiates the facts that the assessee has declared it as revenue in its P & L Account for F.Y. 2012-13. The ld. CIT(A) has also held that the ld. AO's contentions that the assessee has not followed a consistent method for revenue recognition is also negated for the reason that due to the uncertainty that prevailed because of the Hon'ble NCLAT proceeding in the case of RGPPL, application of AS-9 is justified where the revenue recognition is based on the actual interest received during the year under consideration which is NIL during the impugned year. To corroborate further the assessee being a government entity is subjected to statutory audit by Comptroller and Auditor General of India (CAG) along with supplementary audit which has approved the revenue recognition adopted by the assessee in considering AS-9 to be appropriate in case of uncertainties arising subsequent to p....