ACIT-6(1)(1),MUMBAI, MUMBAI vs. M/S ESSAR POWER GUJARAT LIMITED, MUMBAI
Facts
The appeals were filed by the Revenue and cross-objections by the assessee against the CIT(A)'s order for AY 2009-10 and 2012-13. The Revenue's grounds concerned the deletion of Transfer Pricing adjustment made by the TPO, while the assessee's cross-objections challenged the validity of reopening and the addition on merit.
Held
The Tribunal condoned the delay in filing the cross-objections. Considering the facts that the DRI's show cause notice, which formed the basis for reopening, was found to be not maintainable by the adjudicating authorities and subsequently set aside by CESTAT, the addition made by the AO/TPO was deemed unsustainable. The Tribunal also noted that the CIT(A) had not adjudicated on merits, but had deleted the addition based on the DRI's findings.
Key Issues
Whether the addition made by the AO/TPO concerning transfer pricing adjustment is sustainable when the basis for reopening (DRI's findings) was found to be unsustainable by higher authorities.
Sections Cited
Section 143(3), Section 147, Section 148, Section 254(1)
AI-generated summary — verify with the full judgment below
PER BENCH;
These two appeals by Revenue and cross-objection therein by assessee are
directed against the order of ld. CIT (A) dated 14.04.2025 for assessment year
2009-10 and 2012-13. In both the appeals the revenue has raised similar
grounds of appeals, the assessee has also raised similar grounds in its C.O., thus
with the consent of both the parties both the appeals and C.O.s are clubbed,
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd heard together and are decided by this common order to avoid the conflicting
decisions. For appreciation of facts, the appeal for AY 2009-10 is treated as lead
case. The Revenue in its appeal for AY 2009-10 in ITA No.4353/M/2025 has
raised following grounds of appeal:-
“On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in deleting the TP adjustment made by the TPO after computing the ALP of the transaction done by the assessee with its AE without appreciating the fact that the DRI authorities are not competent to compute ALP to prevent base erosion and profit shifting.”
On receipt of memorandum of appeal the assessee has filed its CO by raising following grounds of appeal:-
“1. The CIT(A) ought to have held that the reopening of assessment u/s. 147 of the Act is illegal and bad in law.
The CIT(A) ought to have held that the specific objections raised by the assessee was not disposed of by the Assessing Officer thereby, rendering the entire assessment proceeding illegal and bad in law.
The CIT(A) ought to have held that the prior approval for issue of notice u/s, 148 of the Act was not obtained by the Assessing Officer.
The CIT(A) ought to have appreciated that the Assessing Officer has made addition in respect of transfer pricing adjustment which was not the issue in reasons for reopening. Since the Assessing Officer has not made any addition in respect of issue in reasons for reopening, addition made by the Assessing Officer is bad in law. 3. Perusal of record shows that there is delay of 29 days in filing of Cross
Objections (C.O.) by assessee. The assessee in Form 36A has mentioned the
date of receipt of notice of appeal as of 22.07.2025, however, cross-objections
were filed only on 19.02.2025,thus, there is delay of 29 days in filing the CO.
The assessee has filed application for condonation of delay in filing CO. The
application for condonation of delay is supported by affidavit of Sumeet
Agrawal, Joint General Manager (Taxation). The learned authorised
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd representative (Ld. AR) of the assessee submits that on receipt of Form No.36
and grounds of appeal filed by Revenue, the matter was assigned to in-house
Chartered Accountant Sumeet Agrawal. In the month of August 2025, Sumeet
Agrawal had to visit his native place in Indore, on account of festival of Raksha
Bandhan. Though he returned back to Mumbai on 10.08.2025 but due to
medical emergency of his father he has to rush back to Indore. His father
suffered heart-attack and has undergone angiography. Thereafter, his father
was again hospitalised for dialysis procedure and Sumeet Agrawal returned
back to Mumbai in September and ultimately the C.O. was filed on 19.02.2025.
The delay in filing C.O. is not intentional or deliberate but due to bona fide
reasons of medical emergency in the family of person, who was looking after
the tax matter. The Ld. AR of the assessee submits that relevant medical
prescription and medical diagnosis and discharge slip are filed on record. The
ld AR of the assessee prayed for condonation of delay in filing his CO.
On the other hand, the learned Commissioner of Income Tax- Departmental
representative (Ld. CIT-DR) for the Revenue after going through the contents
of application and various medical prescriptions of father of Sumeet Aggarwal,
not seriously opposed the plea of Ld. AR of the assessee in seeking
condonation of delay in filing CO.
We have considered the rival submissions of both the parties and have gone
through the contents of application for condonation of delay. Considering the
fact that delay in filing in C.O. by assessee is not intentional or deliberate. And
it was due to medical condition of father of Sumeet Agrawal, who was looking
after tax matter of assessee. Thus, we find that delay in fling CO was not
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd intentional and deliberate. Hence, delay in filing appeal is condoned. Now
adverting to merits of the case.
Brief facts of the case are that the assessee-company is engaged in the
business of generation of electricity, filed its return of income for Assessment
Year 2009-10 on 27.09.2010 declaring income of Rs.1.44 Crore. Initially, the
return was processed under Section 143(1). Subsequently, case was reopened
under Section 147. Case was reopened on the basis of information received
from Directorate of Revenue Intelligence, Mumbai with regard to over-invoicing
of goods purchased by Assessee-Group (Essar Group) of Companies through
Global Supplies FZE UAE from various equipment manufacturer located in
different countries. The Assessing Officer in the reasons recorded noted that
Directorate of Revenue Intelligence (DRI) investigated the matter and back-to-
back invoices of goods purchased by SR Group Companies from suppliers were
matched with invoices raised on Global Suppliers FZE by the original equipment
manufacturer the matching was done to extent back-to-back invoices with DRI,
which reveals over-valuation of goods supplied by Global Suppliers to Essar
Group. The extent of over-valuation was not in consonance with value addition
made by Global Supplies FZE UAE. The investigation carried out by DRI in
Assessee-Group reveal that there is over-invoicing to the extent of 30-40% in
the Group concern in respect of import of goods made through Global Supplies
FZE UAE. During the relevant final year Global supplies FZE UAE supplied
equipment of Rs.273.13 Crore to the assessee. On the basis of such
information the Assessing Officer formed his opinion that he has reason to
believe that assessee inflated its expenditure in import of goods and such
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd inflated expenses resulted in escapement of income on account of failure of the
assessee to disclose fully and truly all the material facts relevant for
assessment of correct income. The Assessing Officer was of the view that
inflated expenditure/excess expenses is Rs.109.25 Crore being 40% of total
value of equipment supplied to assessee. The Assessing Officer issued notice
under Section 148 on 31.03.2016. In response to notice under Section 148 the
assessee filed its reply dated 09.05.2016 and submitted that return filed on
23.09.2009 be treated as return in response to such notice. The Assessing
Officer proceeded for re-assessment. During assessment, the Assessing Officer
also recorded that objections were filed on 30.09.2016 which was disposed of
by speaking order dated 02.11.2016. During re-assessment proceeding the
Assessing Officer recorded that the assessee reported international transaction
with its Associated Enterprises accordingly, with the approval of competent
authority he made reference for computation of Arm’s Length Price (ALP) to
Transfer Pricing Officer (TPO). The TPO passed order and suggested upward
adjustment @ 27% of Rs.273.13Crore, thereby suggested addition/adjustment
of Rs.73.74 Crore. The TPO held that ALP of purchases from Global Supplies
FZE is of Rs. 199.39 Crore. On the basis of report of TPO, the Assessing Officer
passed draft assessment order on 30.11.2017 under Section 143(3) r.w.s
144(C). The assessee vide it’s letter dated 08th June 2019 stated that they will
file appeal before CIT (A) instead of filing objection before Dispute Resolution
Panel (DRP). Accordingly, the Assessing Officer (AO)while passing assessment
orderdated 05.02.2019 under Section 143(3) r.w.s 144(C)(3) reduced Capital
Work in Progress (CWIP) by and amount of Rs.73.74 Crore.
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd 7. Aggrieved by the additions in the assessment order the assessee filed before
ld.CIT (A). Before ld.CIT (A) the assessee challenged the validity of re-opening
under Section 147 and issuance of notice under Section 148 as well as addition
on merit. The assessee also challenged the action of AO in treating Global
Supplies FZE as Associated Enterprises (AE) of assessee. The assessee filed
detailed written submission of both the issues. The validity of reassessment
was challenged on the basis of CBDT instruction No.3/2016. Treatment of
Global Supplies FZE as AE of assessee on the ground that there is no direct
nexus between shareholding of Global Supplies FZE and assessee. Both have
independent management. The impugned transaction of import of capital
equipment was on account of capital transaction. The AO/TPO failed to provide
any justification and nexus between Global Supplies FZE and Essar Power
Gujarat Ltd. On the addition on account of reduction capital working progress
by 27% the assessee stated that due diligence was taken before granting work
order to Global Supply FZE. The assessee considered a number of other criteria
before placing order to Global supplies FZE. The assessee obtained report to
establish the reasonableness of project cost from independent expert
engineering consultant like Tata Consulting Engineers Pvt. Ltd. and Laymer
who have confirmed that price charged/prescribed in Global Supplies FZE
contract were fair and reasonable as compared with equipment required for
similar project set up by the company. The prime lender banker of assessee i.e.
ICICI Bank has also obtained report from expert which has revived the capital
cost estimate and confirm that cost of installation of power project is
reasonable. Thus, transaction with Global Supplies FZE is at arm’s length. The
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd Project import contract is as per the guidelines and customers regulation and
same is registered with Ministry of Power which is sponsoring authority, which
verifies reasonableness of contract and thereafter certified the contract.
Importing parties are also registers such contract with Customs Department
assessee also obtained fair valuation report certificate by Vardhan Project Ltd.
Chartered Engineers which certified reasonableness of contract cost.
The Ld. CIT (A) on considering the submission of assessee recorded that TPO
made adjustment on the proposal of show cause notice dated 11.03.2015
issued by Directorate of Revenue Intelligence (DRI) adjudicating officer.
However, the show cause notice was found to be not maintainable by
Directorate of Revenue Intelligence (DRI), copy of relevant part of DRI
authorities was extracted in his order. On the basis of such view the Ld. CIT (A)
directedthe AO/TPO to deletethe addition/ adjustment. Aggrieved by the order
of ld CIT (A) the Revenue has filed present appeal before the Tribunal.
We have heard the submission of Ld. CIT- DR for Revenue and the Ld. AR of
the assessee. The Ld. CIT-DR for the Revenue supported the order of AO/TPO.
The Ld. CIT-DR submits that TPO made/suggested addition by making
necessary inquiries. The Ld. CIT (A) deleted the addition simply on the basis of
order of adjudicating authority of DRI. The TPO while suggesting the upward
adjustment gave a categorical finding in his order. During TPO proceedings the
assessee simply relied upon valuation reports instead of furnishing any kind of
evidence to prove that there was no over invoicing. No back to back invoices
were furnished by assessee. The Ld. CIT (A) has not given his finding on merit.
The ld. CIT (A) erred in deleting the TP adjustment made by the TPO after
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd computing the ALP of the transaction done by the assessee with its AE without
appreciating the fact that the DRI authorities are not competent to compute
ALP to prevent base erosion and profit shifting.The Ld. CIT-DR submits that
order of CIT (A) may be reversed and order of AO/TPO may be confirmed.
On the other hand, the Ld. AR of the assessee supported the order of CIT (A).
The Ld. AR of the assessee submits that case of AO as well as TPO is based on
show cause notice of DRI which was set aside by Directorate of Revenue
Intelligence (DRI) authorities themselves. Thus, addition suggested by TPO
and made by AO has no leg to stand. The Ld. AR also furnished copy of order
of Principle Commissioner of Custom (Adjudication) Mumbai in case of
assessee as well as order of Custom Excise and Service Tax Appellate Tribunal
dated 03.04.2025. The ld AR of the assessee fully supported the order of ld
CIT(A). to support his submissions, the ld AR of the assessee relied on the
decision of Punjab & Haryana High Court in CIT Vs Sachdeva and Sons (2025)
478 ITR 494 (P& H).
In support of his grounds raised in C.O., the ld AR of the assessee submits that
the CIT(A) ought to have appreciated that the AO has made addition in respect
of transfer pricing adjustment which was not the issue in reasons for
reopening. Since the AO has not made any addition in respect of issue in
reasons for reopening, addition made by the AO is bad in law. To support of his
submission, the ld AR of the assessee relied on the decision of Hon’ble Bombay
High Court in CIT Vs Jet Airway(I) Ltd (2011) 331 ITR 236 (Bom).
We have considered the rival submissions of both the parties and have gone
through the orders of lower authorities carefully. We have also deliberated on
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd order passed by adjudicating authorities that is by Pc CIT Customs dated
18.05.2023 and the order of Customs, Excise and Service Tax Appellate
Tribunal (CESTAT) dated 03.04.2025. It is an admitted fact that the case of
assessee was reopened on the basis of information received from DRI
authorities that Global Supplies GZE UAE supplied goods to the assessee by
over invoicing. Such information was based on initial investigation carried out
by DRI. We find that ultimately the Pr CIT Customs who is adjudicating
authorities exonerated the assessee and other entities which were under
scanner of DRI about charges of alleged over invoicing of imported goods form
Global Supplies GZE UAE,vide his order dated 18.05.2023. We further find that
on appeal by Commissioner Customs (Imports-1), before CESTAT, the order of
adjudicating authorities that is Pr CIT Customs were upheld. Copy of order of
CESTAT dated 03.04.2025 is available on record. Thus, we find that once the
show cause notice which was the basis of triggering the reopening and basis of
addition for reduction of WIP has been set aside, the addition will not survive.
Moreover, the information shared by DRI authorities were based on preliminary
investigation and there was no conclusive evidence about over invoicing of the
imported goods, which was ultimately dis not survived. We find that Hon’ble
Punjab and Haryana High Court in recent decision in CIT Vs Sachdeva and
Sons (supra) also held that when sole ground for making addition on the basis
of information of Enforcement Directorate (ED) alleging misdeclaration of value
of Export and ED has dropped the proceedings against the assessee and the
matter stood settled between the assessee and ED. The foundation of the
proceedings wiped out and thus there was no ground for making addition in
ITA No.4352 &4353/Mum/2025 With CO No. 246 & 247 /Mum/2025 Essar Power Gujarat Ltd the return of income of the assessee. Hence, applying the similar ratio, we
affirm the order of ld CIT(A), with our additional observation. In the result, the
ground of appeal raise by revenue is dismissed.
In the result, the appeal filed by the revenue is dismissed.
Considering the facts that we have dismissed the appeal of revenue on merit;
hence, specific adjudication of grounds raised in C.O. have become academic.
In the result, the grounds raised in the C.O. is also dismissed being
infructuous.
We further find that in appeal for AY 2012-13 the revenue has raised similar
grounds of appeal as raised in appeal for AY 2009-10, similarly, the assessee
has also raised similar grounds in its C.O. thus, considering the facts that the
appeal of revenue in AY 2009-10 is dismissed and C.O. has been treated as
infructuous, therefore, our finding in earlier year will apply mutatis mutandis.
In the result, appeal of revenue for both the years are dismissed and CO. filed
by the assessee are treated as infructuous and dismissed as such.
Order pronounced in open court on 19/01/2026
Sd/- Sd/- GIRISH AGRAWAL /- PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, Dated:19/01/2026 Ashwani Rao Sr. Private Secretary Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); By order (4) The DR, ITAT, Mumbai; and (5) Guard file. Assistant Registrar ITAT, Mumbai
