Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA Nos. 2402 & 2403/H/2018 Assessment Year: 2007-08 & 2010-11 Dy. Commissioner of Vs. East India Petroleum Income-tax, Pvt. Ltd., Hyderabad. Circle – 17(1), Hyderabad. PAN – AAACE 4494K (Appellant) (Respondent) Revenue by: Shri Rajendra Kumar Assessee by: Shri H. Srinivasulu Date of hearing: 16/07/2021 Date of pronouncement: 24/08/2021 O R D E R PER L.P. SAHU, A.M.: These appeals filed by the Revenue is directed against CIT(A) - 5, Hyderabad’s separate orders dated 03/10/2018 and 04/10/2018 respectively for AY 2007-08 and 2010-11 involving proceedings u/s 143(3) rws 147 and 143(3) of the Income- Tax Act, 1961; in short “the Act”. ITA No. 2402/Hyd/2018 for AY 2007-08 2. In this appeal, the revenue has raised the following grounds of appeal:
:- 2 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. “1. The order of the Ld. CIT(A) is erroneous both on law and facts. 2. The Ld. CIT(A) erred in holding that the receipt of Rs.2,41,O8,000/(mentioned as Rs.2,46,00,000 in Assessment order ) is not income of the assessee even though the assessee had received the same as evidenced in its books and had claimed TDS on the same. 3. The Ld. CIT(A) failed to appreciate that there was no evidence that the assessee had transferred the contract received from Wardha Power Private Limited to another party, Viz Infra Consultants Private Limited, except for a letter issued by the assessee to Wardha Power Private Limited and a tripartite settlement agreement to which Wardha Power Private Limited i.e., the company that gave the contract was not a party, and hence the same has no validity. 4. The Ld. CIT(A) erred in directing the Assessing Officer to allow the deduction of Rs.5,00,00,000/- being service fee paid without effecting TDS though liable to TDS u/s 194J on the condition that on furnishing original Form 26AS by the assessee wherein the recipient has accounted for the same as income for the A.Y.2011-12, overlooking the fact that the second proviso of section 40(a)(ia) upon which the Ld.CIT(A) has relied to allow the deduction for the A.Y.2011-12, was inserted vide Finance Act, 2012, w.e.f. 01.04.2013 whereas the instant issue pertains to A,Y.2007-08. 5. Any other ground that may be raised at the time of hearing.” 3. Briefly, the facts of the case are that the appellant company engaged in the business of storage of OIL and Gas had filed return of income for the A.Y. 2007-08 admitting NIL income after claiming business losses of earlier years. A
:- 3 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. survey operation u/s. 133A was conducted on appellant's premises and consequent to the survey the appellant's case was reopened by issue of notice u/s. 148 of the Act. The case was taken up for scrutiny and the reassessment u/s 143(3)/147 was completed by making the following additions /disallowances of Rs. 2,46,00,000/- as unreported receipts from Wardha Power Co., difference in gross receipts of Sitaram Power of Rs. 1,21,604/ - and disallowance u/s. 40(a)(ia) of Rs. 5 crores.
When the assessee preferred an appeal before the CIT(A), the CIT(A) deleted the addition/disallowance of Rs. 2,46,00,000/- made by the AO towards unreported receipts from Wardha Power Co., and the addition of Rs. 5,00,00,000 made u/s 40(a)(ia) of the Act.
Aggrieved by the order of CIT(A), the revenue is in appeal before the ITAT.
As regards the addition of Rs. 2,46,00,000/- made by the AO towards unreported receipts from Wardha Power Co., the AO observed that the appellant had contract receipts of Rs. 2,46,00,000/- from M/s. Vardha Power Company and the same was not shown as income for the year under consideration. The appellant stated that the same was part of advance money received from the party and which was subsequently assigned to M/s. Viz Projects
:- 4 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. Pvt. Ltd. as part of settlement agreement. The AO noted that the same has not been assigned and therefore he added the same as income of the appellant.
Before the CIT(A), the appellant had submitted that the business of the appellant was into a severe crisis and the Board took a decision not to undertake projects and transferred the business to M/s. Viz Infra Consultants Pvt. Ltd(VIZ). The appellant thus transferred the work and the outstanding balance to VIZ. The appellant submitted, two letters in this regard which are of relevance. The same are brought out by the CIT(A) in his order at pages 19.
The CIT(A) after considering the financial statements and the ledger accounts of the party to whom the work and outstanding balance was transferred and the settlement agreement entered into with the party i.e. Viz Projects Pvt. Ltd., all of which are extracted by the CIT(A) in his order, observed that the appellant has nothing to do any more with these funds as part of its books of account as well as the business under consideration. The A.O in the assessment order has mentioned the quantum as Rs. 2,46,00,000/- which is as per TDS Certificate, however, it has been clarified with the above re-produced ledger accounts that the quantum is Rs. 2,46,00,000/-. He, therefore, held that in view of the above facts, the receipt is not the income of the appellant under peculiar factual
:- 5 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. circumstances of the case under consideration and therefore, Rs. 2,41,08,000/- (as mentioned at Rs. 2,46,00,000/- in the assessment order) is hereby deleted.
Before us, the ld. DR submitted that there was no evidence that the assessee had transferred the contract received from Wardha Power Pvt. Ltd. to another party, Viz Infra Consultants Pvt. Ltd., except for a letter issued by the assessee to Wardha Power Pvt. Ltd. and a tripartite settlement agreement to which Wardha Power Pvt. Ltd. i.e., the company that gave the contract was not a party, and hence, the same has no validity. He, therefore, submitted that the order of AO may be restored.
The ld. AR, on the other hand, reiterated the submissions made before the lower authorities and submitted that the assessee company went into severe financial crisis and accordingly, the business structure of the assessee company was completely reorganized and the board took a decision not to undertake any construction projects and restrict business module to storage of oil and gas alone. He further submitted that on account of restructure, the assessee company requested M/s VIZ Infra Consultants Pvt. Ltd. (VIZ) to take over the responsibility and liability of the execution of the contemplated work and they have agreed to take up the work and accordingly, the assessee assigned entire responsibility to complete the
:- 6 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. work and entire outstanding balance from Wardha was transferred to VIZ during the previous year relevant to AY 2008-09. In this connection, the ld. AR invited the Bench attention to the following documents, which were filed before the revenue authorities to demonstrate that the assessee transferred the work and outstanding balance to M/s VIZ: Sl.No. Description Pages 1. Tripartite agreement dated 1-3 26/09/2005 between assessee, Viz Projects Pvt Ltd and Saini Hydro Power Pvt. Ltd. 2 Settlement agreement dated 4-8 26/09/2007 between the assessee, Viz Projects Pvt. Ltd and Saini Hydro Power Pvt. Ltd. 3 Award of Arbitrator in arbitration 9-41 between HPCL & Assessee, dated 03/10/2009 4 Minutes of Negotiation between the 42-46 assessee and HPCL, dated 27/01/2010 5 OP filed by HPCL before the Hon’ble 47-57 Court of Principal District Judge, Visakhapatnam 6 Letter daed 05/06/2010 by Counsel 58 of HPCL or withdrawal of OP filed by HPCL
10.1 The ld. AR of the assessee finally submitted that the CIT(A) after considering the submissions of the assessee and examining the documentary evidence, directed the AO to delete the addition made on this count. He, therefore, prayed for confirming the order of CIT(A).
:- 7 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. Before us, the ld. AR of the assessee demonstrated that the assessee transferred the work and outstanding balance to M/s VIZ. Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the addition of Rs. 2,46,00,000/- being the advance amount received from Wardha Power Pvt. Ltd. and upholding the order of CIT(A), we dismiss the ground raised by the revenue on this issue.
As regards ground No. 4 against the action of the CIT(A) in directing the AO to allow the deduction of Rs. 5 crores being service fee paid without effecting TDS, the AO considered the same as contingent liability and also disallowed it as a payment which cannot be allowed as a revenue expenditure for the year under consideration for non-deduction of TDS u/s 40(a)(ia) of the Act. 13. The CIT(A) observed that whether the provision made by the assessee is a contingent or not, it is seen that the liability arose vide agreement dated 26/09/2005, wherein clause 7 of the agreement between the appellant and Sainj Hydro Power Pvt. Ltd., and VIZ Pojects Pvt. Ltd., it was provided as under:-
:- 8 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. "EIPL shall pay service fee of 10% of the amount of Rs. 50,00,00,000/-, which is the minimum upset amount fixed for negotiating and settling the debts of EIPL to VIZ and Sainj in proportion to the amounts set up by VIZ and Sainj respectively."
13.1 The CIT(A) observed that the appellant passed an entry on 30.09.2006 regarding the provision of Rs. 5,00,00,000/ - as service fee after one year of entering into the agreement. The parties were supposed to arrange the fund to the tune of Rs. 43,60,00,000/- combined towards payment of OTS amount as per the original agreement. The appellant was supposed to repay a sum of Rs. 50,00,00,000/- as upset amount and Rs. 5,00,00,000/- towards service fee and interest from November, 2006. Later on the quantum of consideration were reduced to the extent of sums repaid by EIPL. As on 30.08.2007, there was liability of Rs. 35,60,31,001/- plus interest. The supplementary agreement dated 26.09.2007 has already been reproduced in the context of mobilization advance. Referring to the original agreement dated 26/09/2005, which was reproduced by the CIT(A) in his order at pages 27 to 30, observed as under:
“From the above agreement it is clear that the appellant needs to pay Rs. 50 crores and a service fee of 10% that is Rs. 5 crores in lieu of their outstanding debt. It is also important to note that VIZ Projects had already contributed a sum of Rs. 25,58,07,300/- as 011
:- 9 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. 01.04.2006 and the payments were going to IDBI on a regular basis. The parties VIZ and Sainj have already contributed Rs. 30,96,17,061/- as on 31.03.2007 . VIZ had contributed more than Rs. 32 crores by 30.09.2006 and was later repaid a sum of Rs. 13 crores odd to have a closing balance of almost Rs. 19 crores as on 31.03.2007. Thus, the parties had contributed from the date of the agreement and it is also seen that the appellant got a net waiver of more than 30 odd crores by September, 2007. The appellant has debited the above service charges, in view of the agreement and has claimed the same as revenue expenditure. The issue of the same being contingent in nature does not arise, in view of the activity performed and the agreement cited above, which already indicates that the officials of VIZ and Sainj were actively involved prior to 30.09.2005 in the matter and the contributions were made 'by VIZ and Sainj as per understanding of the agreement. Thus, the appellant was justified in accounting the service charges as a liability for the year under consideration on the basis of terms of the agreement and the conduct of the parties involved in the agreement who had discharged most of their functions. It is also seen that as on 30.09.2007 all the accounts in toto were settled through assignments etc., including the service fee quantum. Thus, the liability of Rs. 5 crore was not contingent in nature and was a liability for the year under consideration and therefore the first issue of ground 4(a) is allowed. In view of the same, the same cannot be added while computing income u/s 115JB and therefore the ground 4(b) is also allowed.”
Before us, the ld. DR relied on the order of AO and the ld. AR of the assessee relied on the order of CIT(A).
:- 10 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. 15. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. As quoted by the CIT(A), as per the agreement dated 26/09/2005 entered into between assessee and Amongst VIZ Projects Pvt. Ltd. & Sainj as per clause 7, the assessee shall pay the service at 10% on the upset amount of Rs. 50 crores to VIZ and Sainj in proportion to the amounts set up by them before end of November, 2006. Therefore, the liability of 5 crores is not contingent in nature and was liability for the year under consideration and the assessee has rightly the same as revenue expenditure in view of the said agreement. Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the addition of Rs. 5 crores made by the AO u/s 40(a)(ia) treating it as contingent in nature. Accordingly, the ground raised by the revenue on this issue is dismissed. ITA No. 2403/Hyd/2018 for AY 2010-11 16. In this appeal, the revenue has raised the following grounds of appeal: (1J The ld.CIT(A) erred in deleting the addition of Rs.2,04,07,342/ - without appreciating the fact that as per arbitration order dated 03.10.2010, the idling charges of Rs.2,04,07,342/ - for not utlising the facilities during the period April 2000 to September 2003 were awarded to the assessee. (2) The ld.CIT(A) erred in relying on settlement agreement dated 26.09.2007 which is prior to the arbitration order dated 03.10.2010.
:- 11 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad.
3) The ld.CIT(A) has jailed to consider that in the settlement agreement, the amount in respect of idling charges of Rs.2,04,07,342/ - is not included. This amount has been claimed by assessee in arbitration award only. (4) The ld. CIT(A) erred in relying on agreement dated 27.01.2010 between the assessee and HPCL which does not mention about idling charges and which has no authenticity.”
The AO while passing the assessment order noted that the assessee had claimed certain damages for idling of their facilities and loss of business for 18 months for a period April, 2000 to September, 2003 from HPCL. The arbitrator vide order dated 03/10/2009 awarded a sum of Rs. 2,04,07,342/- to the assessee. The assessee stated that as per the mutual agreement between the assessee and VIZ, the debt of HPCL was assigned to VIZ projects vide agreement dated 26/09/2007.
17.1 However, the AO stated that the amount of debt of Rs. 21,35,39,307/- was only mentioned in the agreement and there was no mention of the idling charges which had now been conferred upon the assessee by the arbitrator and therefore there is no reason for it to be not the income of the assessee for the year under consideration and he further noted that VIZ has no say in the matter as it is nothing to do with it. He accordingly, treated the awarded sum of Rs. 2,04,07,342/- as income of the assessee.
:- 12 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad.
Before the CIT(A) the assessee stated that the assessee had foregone the claim of damages regarding idling as granted by the arbitrator and furnished the final agreement letter dated 11/05/2010 with HPCL, which was extracted by the CIT(A) in his order at pages 16 to 18.
The CIT(A) after considering the submissions of the assessee, deleted the addition of Rs. 2,04,07,342/- by observing as under :
“Thus, it is clear that the final amount was transferred to VIZ as instructed by the appellant as part of final settlement. The party VIZ thus finally received its due, which was assigned way back in September 2007 by the appellant as part of the reorganizing conditions and restructuring of debt which are part of record and are a matter of fact. The appellant was liable for its promise of the transfer of the debt of HPCL to VIZ for the assistance and funds provided in its debt restructuring and the appellant could not have been an impediment in the realization of the debt by the party VIZ from HECL. The appellant has thus waived off its receipt so awarded and also this grant by arbitrator was not final and was a subjudice matter. The prolonging of this matter would have resulted in locking of the realizable fund which was promised and assigned by the appellant to VIZ and therefore a commercial decision was taken by the appellant. The appellant in the submission has made very categorical statement that it has never received the quantum granted by the arbitrator and further it has
:- 13 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. itself waived the same off as part of commercial expediency and consideration. The appellant has also furnished the necessary evidences in this regard and also the same were furnished before the AO. In view of the above facts, the idling charges so granted by the arbitrator and later on waived by the appellant is not the income of the appellant for the year under consideration and therefore the addition of Rs. 2,04,07,342/_ is hereby deleted.” 20. Before us, the ld. DR relied on the order of the AO while the ld. AR of the assessee relied on the order of the CIT(A).
21 After considering the rival submissions and perusing the material on record as well as the order of the authorities below, it is an undisputed fact that the assessee had foregone the claim of damages regarding idling as granted by the arbitrator vide the final agreement letter dated 11/05/2010 with HPCL. Based on this letter, the CIT(A) deleted the addition made by the AO treating the awarded claim of damages regarding idling as granted by the arbitrator, as income of the assessee, without taking into consideration the documentary evidence. Therefore, we find no reason to interfere with the order of the CIT(A) on this issue and upholding the same, we dismiss the ground raised by the revenue on this issue.
:- 14 -: ITA Nos. 2402 & 2403/Hyd/2018 East India Petroleum Pvt Ltd., Hyderabad. 22. In the result, both the appeals under consideration are dismissed in above terms. A copy of this common order be placed in the respective case files.
Pronounced in the open court on 24th August, 2021. Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 24th August, 2021. kv Copy to : 1 DCIT, Circle – 17(1), 9th Floor, Signature Towers, Opp. Botanical Gardens, Kondaur, Hyderabad – 500 084 2 East India Petroleum Pvt Ltd., D.No. 202, Roxana Towers, Green Lands, Begumpet, Hyderabad – 500 016 3 CIT(A) – 5, Hyderabad. Pr. CIT - 5, Hyderabad. 4 ITAT, DR, Hyderabad. 5 6 Guard File.