Appeal Details
Counselvise Citation
[2022] 105 COUNSELVISE.COM (IT) 6909 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 11 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-03-2022
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
K
Assessment Year
2011-2012
Appeal Filed On
21-03-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 1660/MUM/2016 Assessment Year: 2011-12 Essar Projects (India) Limited, Essar House, 11 KK Marg, Mahalaxmi, Mumbai-400034. Vs. The Dy. CIT-6(3)(2), Aayakar Bhavan, Mumbai. PAN No. AAACE 2358 J Appellant Respondent Assessee by : None Revenue by : Mr. Satya Pinisetty, DR Date of Hearing : 15/03/2022 Date of pronouncement : 15/03/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against final assessment order dated 25/01/2016 passed by the Deputy Commissioner of Income Tax - Circle 6(3)(2)-Mumbai (hereinafter shall be referred as ‘the Assessing Officer’) for assessment year 2011-12. The grounds raised by the assessee are reproduced as under: 1. The Learned Assessing officer erred in confirming the total income of Essar Projects (India) Limited (the appellants) for the Asst year 2011-12 at Essar Projects (India) Ltd. ITA No. 1660/M/2016 2 ₹360,81,19,440/- making various additions/disallowances to the income ₹354,47,12,474/- reported in the return of income. 2. The appellants submit that the basis on which the additions/disallowances have been made are untenable and pray that the income for the year be assessed as per the return of income filed. 3. The Learned Assessing officer is erred in disallowing the claim of leave encashment of ₹2,82,77,104/- u/s 43 B of the act: 3a. Without considering the various judgments in favour of the appellant by the honorable High courts. 3b. by not considering the fact that the liability has not been incurred during the year. The appellant submit that the disallowance of Rs. 2,82,77,104/- should be deleted. 4. The Learned Assessing officer is erred in disallowing the interest paid on TDS ₹1,96,379/- u/s 220: 4a. without considering the fact that the same is incurred and paid during the year 4b. it is genuine business expenditure u/s 30 read with sec 37(1) 4c. treating the same on similar line with interest under sec 234 A, 234B and 234 C. 4d. Interest takes the nature of principal analogy is applied, interest on TDS is to be allowed, as expenditure in this regard is an allowable expenditure. The appellant submit that the disallowance of Rs. 1,96,379/- should be deleted. 5. 5. The Learned A erred in making an addition of Rs. 1,25,78,400 in respect of interest on Inter Corporate Deposit (ICD) given to its group concern viz. Essar Engineering Services. Essar Projects (India) Ltd. ITA No. 1660/M/2016 3 5a. The AO erred in making the said addition to income without appreciating that the interest income was received by the assessee only in March 2011 (i.e. in assessment year 2011-12) along with the principal amount of the ICD. 5b. The AO erred in not appreciating that the same was taxed in the AYs 2009-10 and 2010-11, on an accrual basis. Accordingly, there was no loss to revenue on that account 5c. The A erred in disregarding that the aforesaid income and corresponding tax deducted thereon were reflected in the Form 26AS of the assessee for assessment year 2011-12. The appellant submit that the addition of Rs. 1,25,78,400/- should be deleted 6. 6. The Learned Assessing Office erred in disallowing interest expenditure of ₹2,04,21,965/- under section 36(1) (il) of the Act. 6a. The AO erred in disallowing the said expenditure on the rationale that the same was incurred for making investment in its subsidiary viz. Essar Offshore Subsea Limited (“EOSL") and Essar Constructions Overseas Limited Mauritius (ECOL). 6b. The AO erred in concluding that interest paid on borrowed capital was towards investment in EOSL/ ECOL and hence the same is not allowable under section 36(1) (in) of the Act. 6c. The AO erred in facts in concluding that the acquisition of shares of EOSL/ECOL was out of borrowed funds and that the increase in capital reserves/surplus was used for acquisition of fixed assets. 6d. The AO erred in observing that a part of the interest cost incurred by the assessee is directly attributable to investment in shares. Essar Projects (India) Ltd. ITA No. 1660/M/2016 4 6d. The AO erred in concluding that the investment in EOSU/ ECOL was for non-business purpose and without any commercial expediency. 6e. The AO failed to appreciate that EOSL was formed by hiving off the assessee's offshore construction division which was an integral part of the value chain of the assesses business. 6f. The AO erred in placing reliance on the decision in the case of M.S. Venkateshwar (222 IT 163) without appreciating that it is based on entirely different set of facts. 6g. The AO erred in placing reliance on the decision in the case of S.A. Builders Ltd (288 ITR 1) to conclude that the assessee did not utilize borrowed funds for the purpose of business and accordingly disallowing the interest expenditure of ₹204.21,965/-. 6h. Without prejudice, the AO erred in proposing a double disallowance of interest expenditure (by disallowing ₹2,04,21,965/- under section 36(1) (ii) of the Act) as proportionate interest expenditure (amounting to ₹94,80,034/) has been separately disallowed under section 14A of the Act read with Rule 8D (at para 9.12 of the draft assessment order). The appellant submit that the addition of Rs. 2,04,21,965/- should be deleted. 7. 7. The A/ TPO erred in making addition of Rs. 13,54,393/- under section 92 CA(4) of the Act. 7a. The learned TO/ AO erred in appreciating the fact that Guarantee Commission was not subject to Tax during the financial year. 7b. The AO erred in not considering that -Section 92 is not a charging section and since there was no 'income' arising with regard to the provision of co- guarantee by the eligible assessee to overseas banks in respect of loan drawn Essar Projects (India) Ltd. ITA No. 1660/M/2016 5 by EPPNG, transfer pricing provisions as enshrined in Chapter X of the Act do not apply. 7c. The A erred - issue of corporate guarantee does not fall within the definition of "International Transaction" as defined u/s. 92B of the Act, as it does not have bearing on the profits, income, losses or assets of the eligible assessee. 7d. The A erred in - Performance guarantee is given only to ensure the successful performance of the contract and it doesnot involve any cost associated with it. 7e. The AO erred in observing that - issue of performance guarantee does not fall within the definition of "International Transaction" as defined us. 92B of the Act, as it does not have a bearing on the profits, income, losses or assets of the eligible assessee 7f. The AO erred in observing that - the scope of a charging provision can be enlarged with retrospective effect, however, transfer pricing provisions being an anti-avoidance measure and not charging provision, the retrospective norms cannot be given effect from a date earlier than the date norms amendments are being introduced. Therefore, the retrospective amendment to section 92B of the Act brought on the statute by the Finance Act 2012, cannot be applied to the facts of the case for the assessment year under consideration. The appellant submit that the addition of ₹13,54,393/- should be deleted. 8. The learned AO has erred in observing that penalty should be initiated under section 271(1) c) of the Act for furnishing the inaccurate particulars of income thereby concealing income. Essar Projects (India) Ltd. ITA No. 1660/M/2016 6 2. At the outset, we may like to mention that despite notifying, neither anyone attended on behalf of the assessee for hearing nor any adjournment was sought. It is noticed from the record that on last occasion i.e. order sheet date 10/02/2021, also none attended on behalf of the assessee. In view of the facts, the appeal was heard ex-parte qua the assessee, after hearing arguments of the Ld. Departmental Representative (DR). 3. The Ld. DR referred to the letter dated 11 th February 2020 filed by the assessee and submitted that in this case National Company Law Tribunal (NCLT) has approved a resolution plan submitted by the Committee of Creditors (COC). The Ld. DR referred to concessions, relief and dispensions sought by the resolution applicant. He referred to para(b) of Annexure-4 of resolution plan, which has been reproduced in the order of the NCLT on page 53. For ready reference, said request is reproduced as under: “(b) The CBDT to consider provision relief to the Corporate Debtor from all past litigations (including all proceedings and appeals) pending at different levels and provide waiver and extinguishment on all Tax dues (including those arising out of assessment claims) including interest and penalty on such litigations.” 4. After considering the resolution plan, the NCLT allowed the relief sought by the assessee observing as under: Essar Projects (India) Ltd. ITA No. 1660/M/2016 7 23. The Resolution Applicant has sought extinguishment of all claims along with abatement of any related legal proceeding including criminal proceedings. Furthermore, the Resolution Applicant seeks waiver of outstanding statutory dues and other claims as on the date of approval of the Resolution Plan. The exemption is also sought from the statutory dues of the Central Board of Direct Taxes (CBDT) and under the Stamps Act, from the levy of stamp duty and fees applicable in relation to this plan and its implementation. 24. The relief sought is hereby allowed by this Bench in view of the judgement of the respected Coordinate Bench at Chandigarh and Chennai in the matter of State Bank of India V. MOR Farms Private Limited [CA No. 71/2018 & 171/2018 in CP (IB) No. 51/Chd/Hry/2017], order dated 15.06.2018 and SKR Wind Energy LLP v. Subburaj Spinning Mills Private Limited [MA/31/IB/2019 filed in CP/655/IB/2017], order dated 12.03.2019. The relevant portion of the judgement of Chandigarh Bench is reproduced below for ready reference: “32. Before parting with this order, it is necessary to deal with the conditions laid down by the Resolution Applicant in the Resolution Plan, which were discussed by the CoC. One of the prayers made by the Resolution Applicant is seeking waivers of liability from any taxation dues for the previous periods which may arise in future and to exempt the Resolution Applicant from the pending export obligations in lieu of the benefits of duty on import of the machines. Learned representing the Financial Creditors and the Resolution Professional submit that the CoC could not make a decision with regard to such waiver as the same was not within their competence. It is admitted proposition of fact that pursuant to the public announcement, no such claim has been made by the Government Department. The concern shown here-in is with regard to any dues that may arise in future in respect of the past period. With regard to Essar Projects (India) Ltd. ITA No. 1660/M/2016 8 the export obligations to which the corporate debtor was liable, it is submitted by learned counsel for the Resolution Professional and the learned counsel representing the promoter directors of the suspended Board of Directors that the corporate debtor had imported certain machines in the year 2012, 2013 and 2014 and there are pending obligations in lieu of the benefit of duty on the said import. The export obligation liable to be paid to the Government is to the tune of 14,20,52 USD. It is contended that the export obligation would become due latest by the year 2020-24. 33. We have given our thoughtful consideration to the submissions made by the learned counsel for the parties and the prayer made in the Resolution Plan and we find that since the corporate debtor defaulted in making the payment of the debt and is undergoing insolvency resolution process, it would be perfectly legal in exempting the Resolution Applicant from complying with the export obligations as it is taking over the corporate debtor on fulfilling certain conditions including payments to the Financial Creditors as agreed upon and the plan must be implemented free of any such conditions. 35. In view of the above discussion, the Resolution Plan Annexure A- 25 stands approved granting waiver in respect of the past tax dues to the Government which may arise in future and exempt the Resolution Applicant from the export obligations, which the corporate debtor had entered.” The relevant extract from the judgement of Chennai Bench is given below: “22. The Corporate Debtor shall be entitled to carry forward all accumulated business losses and unabsorbed depreciation as “set out” in the resolution Plan. All the statutory duties including taxes/cess/interest/penalty and other liabilities due to the operational Essar Projects (India) Ltd. ITA No. 1660/M/2016 9 creditors shall stand satisfied/waived off. The reason for these waivers and abatement is that the Operational Creditors and Financial creditors except those in whose favour the provision is made in the ‘Resolution Plan’ would not get anything in the event of liquidation of the Corporate Debtor, as per the waterfall mechanism provided under Section 53 of the I&B Code, 2016. Moreover, this is with a view to implement the Resolution Plan successfully as approved by the CoC.” 4.1 It is evident that, relief sought by the assessee including relief from all proceedings including appeals and waiver of outstanding dues has been granted by the NCLT. The liability arising out of the present appeal also stands extinguished. In view of the finding of the NCLT, adjudicating the present appeal has been reduced academic & thus appeal has become infructuous. Accordingly, we dismiss the same. However, in case, the finding of the NCLT are altered adversely to the assessee by higher appellate forum, the assessee is at liberty to request for recall of the appeal by way of filing miscellaneous application. 5. In the result, the appeal filed by the assessee is dismissed as above. Order pronounced in the open Court. Sd/- Sd/- (RAHUL CHAUDHARY) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 15/03/2022 Dragon Legal Software/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : Essar Projects (India) Ltd. ITA No. 1660/M/2016 10 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai
Mehul