ASIA POWER PROJECT PRIVATE LIMITED,BANGALORE V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE

ITTPA 294/BANG/2014

AI Insights

The case involves cross-appeals by the Deputy Commissioner of Income Tax and Asia Power Projects Pvt. Ltd. concerning transfer pricing adjustments and disallowances related to advances written off for the assessment years 2004-05 and 2005-06. The primary legal contention revolved around the applicability of the VSV scheme 2020, which led to the settlement of similar disputes in the hands of the foreign parent company, affecting the protective additions made in the hands of the Indian subsidiary, Asia Power Projects. The Tribunal's decision emphasized the need for a re-examination of the protective additions in light of the VSV scheme's provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784313 (ITAT-BANGALORE)
• Duration Of Justice: 11 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 11-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 07-04-2014
• Other Referred Cases: Commissioner vs. Mahindra and Mahindra Ltd, CIT vs. TV Sundaram Iyengar & Sons Ltd, Rollatiners Ltd vs. Commissioner of income tax, IG Petrochemicals Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CHAVALI NARAYAN
• Keywords: Transfer pricing; Capital receipt; Rectification of order; Wholly owned subsidiary

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER IT(TP)A Nos. 219 & 220/Bang/2014 Assessment years : 2004-05 & 2005-06 The Deputy Commissioner of Income Tax, Circle 11(1), Bangalore. Vs. M/s. Asia Power Projects Pvt. Ltd., No.4, Lakeside Residency, 4, Annaswamy Mudaliar Road, Bangalore – 560 042. PAN: AADCA 0485B APPELLANT RESPONDENT IT(TP)A Nos. 294 & 295/Bang/2014 Assessment years : 2004-05 & 2005-06 M/s. Asia Power Projects Pvt. Ltd., Bangalore – 560 042. PAN: AADCA 0485B Vs. The Deputy Commissioner of Income Tax, Circle 11(1), Bangalore. APPELLANT RESPONDENT Revenue by : Dr. Divya K J, CIT(DR)(ITAT), Bengaluru. Assessee by : Shri Chavali Narayan, CA Date of hearing : 19.08.2025 Date of Pronouncement : 11.11.2025 O R D E R Per Prashant Maharishi, Vice President 1. These are the cross appeals in case of Asia Power Projects Private Limited for assessment years 2004 – 05 and 2005 – 06 against the appellate order passed by the learned CIT – A dated 31 January 2014. Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 2 of 12 2. First, we state the facts for the assessment year 2004 – 05 in ITA No. 294/Bangalore/2014 filed by the assessee and ITA No. 219/Bangalore/2014. 3. The assessee Asia Power Projects Private Limited is a company incorporated under the Companies Act 1956 and is engaged in the business of engineering, contracting and technical consultancy services. It is a wholly owned subsidiary of Ansaldo Energeia SpA, an Italian company. 4. For the assessment year 2004 – 05 the assessee filed its return of income on 31 October 2004 at a loss of ₹ 206,275,706/–. The return of the assessee was picked up for the scrutiny wherein the assessment order was passed making an adjustment of transfer pricing issues amounting to ₹ 1,034,861,360 and disallowance of advances written off ₹ 3,056,342/–. The total income was determined at ₹ 1,036,217,702. 5. The assessee preferred an appeal before the learned CIT – A who passed an order on 31st of January 2014. The learned CIT – A upheld the transfer pricing adjustment which were made in the hands of the assessee on protective basis but has granted a relief about the working capital adjustment to the appellant. The other additions were confirmed. Accordingly, the assessee is in appeal against the transfer pricing adjustment and disallowance of advance written off whereas the revenue is in appeal against working capital adjustment granted by the learned CIT – A. Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 3 of 12 6. At the time of hearing the learned counsel submitted that assessee presses the only one issue in this appeal that the addition has been made in the hands of the Ansaldo Energeia, foreign entity and the assessee entity is held to be a fake entity. The foreign entity has settled the issue as per the VSV scheme 2020 and so the protective addition also stands settled. The learned assessing officer may verify the same that if the transfer pricing additions in the hands of a foreign entity are settled and if those are also covered based on which the protective addition has been made in the hands of the assessee, then he may delete the addition. 7. With respect to the appeal of the learned AO it was stated that it is against the granting of the working capital adjustment to the assessee which is also related to the transfer pricing adjustment. If the transfer pricing adjustments are stated to be covered, then this addition could also not be made in the hands of the assessee. Therefore, it was his argument that this issue must be restored back to the file of the learned assessing officer with a direction that if the same is settled in the hands of the foreign entity, then the protective addition in the hands of the assessee should be deleted. 8. The learned CIT DR supported the order of the learned lower authorities and submitted that it is not known that what kind of settlement application is filed by the assessee in view of VSV scheme 2022. And if that be so, the addition is made in the hands of the Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 4 of 12 assessee on protective basis and the learned assessing officer may verify the same. 9. No other grounds were pressed by the learned authorised representative. 10. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The background of the transfer pricing adjustment shows that the assessee along with its holding company entered forward contract with Nevyeli Lignite Corporation during the year 1988. The contracts are entered into by the holding company concerning of on offshore supply and the assessee was entrusted the onshore supply and construction services. In the assessment proceedings of the holding company i.e., Ansaldo Energia, it was held that the assessee company is merely a façade and has no separate existence and consequently tax the profit arising out of the contracts in the hands of the parent company. The Ansaldo was in challenge on the issues before the higher forum, and it is stated that the dispute is settled in VSV scheme 2020. Meanwhile the additions were made in the hands of the assessee on the subject on protective basis. This is also mentioned by the learned CIT – A wherein it was pointed out to him that the appeals of the parent company are pending before the honourable Supreme Court. The learned CIT confirmed the addition holding that he is deciding the appeals on protective basis subject to the outcome of the appeal before the honourable Supreme Court. As it is claimed before us that the foreign entity i.e., holding Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 5 of 12 company has settled the issue in the VSVS scheme where the addition is made on the hands of that entity on substantive basis, naturally the addition in the assessee on protective basis could not have been made. It is also stated before us that the Ansaldo has settled this dispute and has withdrawn the appeals starting from assessment year 1999 – 2000 to assessment year 2008 – 09. It is also the fact that the frequently asked questions issued by the Central Board Of Direct Taxes on 22 April 2020 in Circular No. 9/2020 in question No. 35 it is mentioned that if the substantive addition is eligible to be covered under the scheme, then on settlement of disputes related to substantive addition, the assessing officer shall also pass the rectification order deleting the protective addition relating to the same issue in the case of the assessee or in case of another assessee. Therefore, as claimed by the assessee, the dispute involved in this appeal is made on the protective basis and the learned assessing officer may verify the fact that it is covered in accordance with question no 35 of the circular FAQ or not. Accordingly, we direct the learned assessing officer to examine the ground No. 3 – 11 of the appeal of the assessee that whether the same is covered by the dispute settlement of VSV scheme 2020, if it is found to be correct, the addition deserves to be deleted. Accordingly ground No. 3 – 11 of the appeal of the assessee is allowed with above direction. 11. The ground No. 1, 2, 12 are not pressed and therefore same are dismissed. In the result appeal filed by the assessee in ITA No. Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 6 of 12 294/Bangalore/2014 is partly allowed for statistical purposes as indicated above. 12. Coming to the appeal of the learned assessing officer against allowance of granting of working capital adjustment to the assessee by the learned CIT – A is also related to the transfer pricing adjustment which is also covered in the appeal of the assessee, where the appeal of the assessee has been remitted back to the file of the learned assessing officer for verification of applicability of VSV scheme, this issue is also restored back to the file of the learned assessing officer to decide in consequence of his decision in the appeal of the assessee. Accordingly appeal of the learned AO is allowed as indicated above. 13. Accordingly appeal of the parties for assessment year 2004 – 05 are allowed for statistical purposes. 14. Coming to the appeal of the parties for assessment year 2005 – 06 wherein the assessee has challenged the appellate order passed by the learned CIT – A in ITA No. 295/Bangalore/2014 and the learned assessing officer has challenged in ITA No. 220/Bangalore/2014 it was on identical facts and circumstances of the case as in AY 2004-05 , so far as the transfer pricing issues are concerned. 15. The facts clearly show that for assessment year 2005 – 06 the assessee filed return of income on 30 October 2005 at the returned income of Rs. nil. The assessment took place wherein the addition of transfer pricing adjustment was made of ₹ 30,743,708. Further during the Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 7 of 12 assessment proceedings, it was found that there was a waiver of loan from Ansaldo Energia to the tune of ₹ 92,920,000 which the assessee has offered to tax as miscellaneous income in the return of income. However, during the scrutiny assessment proceedings, the assessee as per letter dated 15 December 2008 stated that such waiver is not chargeable to tax in the hands of the assessee. The learned assessing officer had not considered the appellant's request by determining the assessed income. Accordingly in the assessment order the addition of ₹ 30,743,708 was made but the claim of the assessee of ₹ 92,920,000 was not considered. 16. The assessee preferred an appeal before the learned CIT – A wherein the transfer pricing adjustment on protective basis as was confirmed as in assessment year 2004 – 05 was also confirmed this year. However, the learned CIT – A as he allowed the claim of working capital adjustment for assessment year 2004 – 05, he allowed the same for this year also. The learned CIT – A also upheld the taxability of waiver of loan from the holding company. Accordingly, the appellate order was passed on 31 January 2014. 17. The assessee is challenging the addition of transfer pricing adjustment of ₹ 30,743,708 as well as not allowing the claim of waiver of loan is not taxable amounting to ₹ 92,920,000 whereas the learned assessing officer has challenged the direction of granting of hands working capital adjustment to the assessee. Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 8 of 12 18. With respect to the transfer pricing adjustment both the parties confirmed that the identical facts exist where the addition has been made in the hands of the assessee on protective basis and on substantive basis the additions have been made in the sourdough energy which has been settled in the direct taxes VSV scheme 2020. As we have restored back the whole issue to the file of the learned assessing officer that whether the transfer pricing adjustment could be made in the hands of the assessee wherein the assessee was held to be merely a façade and the addition is required to be made in the hands of the parent company, which has settled the dispute under VSV scheme, the addition is required to be confirmed in the hands of the assessee which was originally made on protective basis. As this issue has been restored for assessment year 2004 – 05 to the file of the learned assessing officer, we restore both the appeals of the assessee and AO as far as it relates to the transfer pricing adjustment to the file of the learned assessing officer with the similar direction. Accordingly ground No. 3 – 11 of the appeal of the learned assessing officer and the solitary ground involved in the appeal of the learned assessing officer are allowed with above direction. 19. This leaves with the only issue as per ground No. 12 of the liability is written back in the hands of the assessee. The brief facts shows that the assessee has entered a contract with Madhya Pradesh power generating Corporation Ltd for refurbishment of its thermal power station. As per part of the contract the mobilisation advance of ₹ 9.29 crores were provided to the assessee in financial year 2000 – 01. The assessee Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 9 of 12 furnished the bank guarantee of the same amount to the principle which was backed by bank guarantee from its holding company Ansaldo Energia, Italy. During the assessment year 2002 – 03 this contract was terminated by the principal and the bank guarantees were invoked. The liability arising from invocation of the bank guarantee was settled by the parent company due to back-to-back guarantee provided by the Italian company. Subsequently the holding company decided to waive the claim against the appellant. The assessee recorded this waiver as its income in financial year 2004 – 05 under the head miscellaneous income and offered the same in the return of income filed for the impugned assessment year. However during the course of assessment proceedings it was found that this income is not chargeable to tax and therefore the assessee as per letter dated 15 December 2008 presented the claim before the assessing officer that these income though already offered by the assessee in its return of income, is not chargeable to tax and therefore it should be granted as deduction from the total income. The learned assessing officer did not consider the assessee's request at the time of framing of the assessment. The assessee challenged the same before the learned CIT – A. The learned CIT – A has categorically held that this is chargeable to tax as it is evident that the amount of ₹ 9.29 crores represented an advance to the assessee for carrying on of its business of construction activity. As the amount is taken on the revenue account related to the carrying on of the business the same is to be considered as a revenue receipt based on the decision of the honourable Supreme Court in case of TV Sundaram Iyengar Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 10 of 12 case. Accordingly, he held that the same is taxable under section 41 (1) of the Act. 20. The assessee aggrieved with the same submits that the provisions of section 41 (1) could not be used to tax the above income because there needs to be an allowance or deduction claimed in any earlier assessment year in respect of the waiver of loan to be taxable under the provisions of this section. Therefore, it was stated that assessee has not availed any deduction of the said amount in any earlier year, the waiver of loan from Ansaldo Italy can by no stretch of imagination be taxable under the provisions of section 41 of the Act. For this proposition, the assessee relied upon the decision of the honourable Supreme Court in case of Commissioner versus Mahindra and Mahindra Ltd (2018) 93 taxmann.com 32 (Supreme Court). It was submitted that that the subsequent decision of the honourable Supreme Court overrides the principles raised by the honourable Supreme Court in CIT versus TV Sundaram Iyengar & Sons Ltd (1996) 222 ITR 344 (SC) and the decision of the honourable Delhi High Court in case of Rollatiners Ltd versus Commissioner of income tax (2011) 339 ITR 54. It was further stated that this issue also covered in favour of the assessee now by the decision of the honourable Karnataka High Court in IG petrochemicals Ltd and therefore the issue needs to be decided in favour of the assessee. 21. The learned CIT DR categorically held that assessee has already offered the income in its return of income. Before the learned assessing Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 11 of 12 officer, it made a fresh claim which was decided by the learned CIT – A relying upon the decision of the honourable Supreme Court and therefore there is no infirmity in the orders of the learned lower authorities. 22. We have carefully considered the rival contention and perused the orders of the learned lower authorities. As the facts already recorded above clearly shows that the amount was due to the holding company in view of the bank guarantees invoked by the Madhya Pradesh power generating Corporation Ltd on cancellation of contract as the Italian holding company issued back-to-back guarantee. Therefore, the sum of ₹ 92,900,000 received by the assessee as mobilisation advance from the principal were repaid through a bank guarantee by the Italian company. Further it is not the case of the revenue that assessee has obtained any allowance or deduction with respect to the above sum which is received from the holding company. Further when the waiver of loan takes place, the honourable Karnataka High Court in case of IG Petro WRIT PETITION No.20579 OF 2022 (T-IT) 23RD DAY OF SEPTEMBER 2023 where the issue was about the taxability of the waiver of the principal amount of term loans and working capital loans was treated to be a capital receipt and was not subjected to tax., has categorically held while setting aside ITAT’s order wherein it was held that benefit upon waiver of working capital loan is perquisite in terms of Section 28(iv) or liable to be assessed under Section 41(1) of the Income tax Act, 1961, the Karnataka High Court held that the benefit from working capital loan waiver was in the form of a cash receipt and did not satisfy Printed from counselvise.com ITA No.219, 220, 294 & 295/Bang/2014 Page 12 of 12 the test laid down by Apex Court in case of CIT vs. Mahindra & Mahindra [(2018) 404 ITR 0001 SC] to make it taxable within the terms of Section 28(iv). In that decision the honourable Karnataka High Court also considered in paragraph No. 27 the decision applied by the learned Commissioner of income tax in CIT versus TV Sundaram Iyengar & Sons Ltd (1996) 222 ITR 344. Therefore, respectfully following the decision of the honourable Karnataka High Court, we allow ground No. 12 of the appeal of the assessee. 23. Ground No. 13 was not pressed before us and dismissed. 24. In the result appeal filed by the assessee is partly allowed and appeal filed by the learned assessing officer is allowed, for statistical purposes. Pronounced in the open court on this 11th day of November, 2025. Sd/- Sd/- ( SOUNDARARAJAN K. ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 11th November, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "