MATIX FERTILISERS AND CHEMICALS LTD ,MUMBAI vs. COMMISSIONER OF INCOME TAX, CIT(A)53, MUMBAI

PER BENCH

These appeals by the Revenue These appeals by the Revenue & assessee and and cross-objection by the assessee are directed against separate orders passed by the are directed against separate orders passed by the are directed against separate orders passed by the Ld. Commissioner of Income Ld. Commissioner of Income-tax (Appeals)-53, Mumbai, [in short 53, Mumbai, [in short ‘the Ld. CIT(A)’] for assessment years 2013 ‘the Ld. CIT(A)’] for assessment years 2013-14 to 2019 14 to 2019-2020 respectively. As common grounds are involved in those appeals ctively. As common grounds are involved in those appeals ctively. As common grounds are involved in those appeals and cross objection, therefore, same were heard together and disposed therefore, same were heard together and disposed therefore, same were heard together and disposed off by way of this consolidated order for convenience. off by way of this consolidated order for convenience. off by way of this consolidated order for convenience.

1.1. The issues involved in the involved in the appeals filed by Revenue filed by Revenue are primarily: (i) taxation of taxation of interest earned on ‘margin money margin money’ with banks under the head ‘income from other sources’ under the head ‘income from other sources’ ; (ii) disallowance of over-valued part of of cost of imported capital goods imported capital goods out of capital work in progress; (iii) (iii) disallowance of interest on capital borrowed capital borrowed for overvalued part of imported overvalued part of imported capital goods; capital goods; (iv) treating compensation received received from M/s Essar Oil Ltd. as revenue receipt as revenue receipt in nature ; (v) disallowance isallowance of depreciation claimed on overvalued imed on overvalued part of work-in-progress progress post capitalization.

Matix Fertilizers and Chemicals Ltd. 3 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

1.2. The issues raised in appeals and cross objection filed by the The issues raised in appeals and cross objection filed by the The issues raised in appeals and cross objection filed by the assessee include challenging validity of making additions by the AO assessee include challenging validity of making additions assessee include challenging validity of making additions without aid of any incriminating material found during the course incriminating material found during the course incriminating material found during the course of the search, qua (i) (i) taxation of interest earned on m taxation of interest earned on margin money with bank under the head ‘income from other sources’; (ii) with bank under the head ‘income from other sources’ with bank under the head ‘income from other sources’ disallowance of over- -valued part of cost of imported capital goods; valued part of cost of imported capital goods; (iii) treating compensation received from (iii) treating compensation received from M/s Essar Oil Ltd. as Essar Oil Ltd. as revenue receipt in nature revenue receipt in nature.;.

"1. Whether the Ld.CIT (A) is justified in deleting the disallowance u/s "1. Whether the Ld.CIT (A) is justified in deleting the disallowance u/s "1. Whether the Ld.CIT (A) is justified in deleting the disallowance u/s 37(1) of the Act. of Rs. 87.89.98.214/ 37(1) of the Act. of Rs. 87.89.98.214/- being interest expense on being interest expense on borrowed funds holding borrowed funds holding that the ground is interlinked with the that the ground is interlinked with the disallowance of Rs. 129.32.54.291/ disallowance of Rs. 129.32.54.291/-? 2. The Applicant craves to leave. 10 add. 10 amend and/or to alter any 2. The Applicant craves to leave. 10 add. 10 amend and/or to alter any 2. The Applicant craves to leave. 10 add. 10 amend and/or to alter any of the ground of appeal. if need be. of the ground of appeal. if need be. 3. "Whether the Ld.CIT (A) is justified in deleting the addition u/s 3. "Whether the Ld.CIT (A) is justified in deleting the addition u/s 3. "Whether the Ld.CIT (A) is justified in deleting the addition u/s 56 of the Act, of Rs. 1.00.77.381/ the Act, of Rs. 1.00.77.381/-, despite the fact that the opportunities , despite the fact that the opportunities were accorded to the assessee by the AO to substantiate its claim that were accorded to the assessee by the AO to substantiate its claim that were accorded to the assessee by the AO to substantiate its claim that the deposits are kept as margin money which are under lien with Bank the deposits are kept as margin money which are under lien with Bank the deposits are kept as margin money which are under lien with Bank in respect of guarantees and letter of in respect of guarantees and letter of credit for the purpose of setting up credit for the purpose of setting up its plant*"? 4. "Whether the Ld.CIT (A) is justified in relying upon the decision of Hon 4. "Whether the Ld.CIT (A) is justified in relying upon the decision of Hon 4. "Whether the Ld.CIT (A) is justified in relying upon the decision of Hon 'ble Apex Court in the case of CIT vs. Bokaro Sieel Lid. 236 ITR 315 and 'ble Apex Court in the case of CIT vs. Bokaro Sieel Lid. 236 ITR 315 and 'ble Apex Court in the case of CIT vs. Bokaro Sieel Lid. 236 ITR 315 and CIT Vs. Karnal Co CIT Vs. Karnal Co-op Sugar Mills Lid., as the facts of the present case is e present case is completely different than the judicia! pronouncement relied upon by the completely different than the judicia! pronouncement relied upon by the completely different than the judicia! pronouncement relied upon by the Ld.CIT(A).*"?

Matix Fertilizers and Chemicals Ltd. 4 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

Matix Fertilizers and Chemicals Ltd. 5 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

to your honour to delete the addition made and necessary direction to your honour to delete the addition made and necessary direction to your honour to delete the addition made and necessary direction shall be given in this regard. shall be given in this regard. 1.1 On the facts and circumstances of the case and in N.A. law the, the 1.1 On the facts and circumstances of the case and in N.A. law the, the 1.1 On the facts and circumstances of the case and in N.A. law the, the hon'ble CIT (A) erred in conf hon'ble CIT (A) erred in confirming the order of Ld. AO, without irming the order of Ld. AO, without appreciating the fact that appellant has given a Lumpsum Contract to appreciating the fact that appellant has given a Lumpsum Contract to appreciating the fact that appellant has given a Lumpsum Contract to EPIL for Rs. 3200 crores which were subsequently divided into three EPIL for Rs. 3200 crores which were subsequently divided into three EPIL for Rs. 3200 crores which were subsequently divided into three separate contracts including the Onshore Supply Contract of Rs.765 separate contracts including the Onshore Supply Contract of Rs.765 separate contracts including the Onshore Supply Contract of Rs.765 crores and the T crores and the Total Project cost has not exceeded the the Lumpsum otal Project cost has not exceeded the the Lumpsum Contract Value. Contract Value. 1.2 On the facts and circumstances of the case and in N.A. law, the 1.2 On the facts and circumstances of the case and in N.A. law, the 1.2 On the facts and circumstances of the case and in N.A. law, the hon'ble CIT (A) erred in confirming the order of Ld. AO, without hon'ble CIT (A) erred in confirming the order of Ld. AO, without hon'ble CIT (A) erred in confirming the order of Ld. AO, without appreciating the fact that the entire project expenses w appreciating the fact that the entire project expenses were authorized ere authorized by Project & Development India Ltd (PDIL), Tata Consulting Engineers by Project & Development India Ltd (PDIL), Tata Consulting Engineers by Project & Development India Ltd (PDIL), Tata Consulting Engineers Ltd (TCE) and the project lenders consisting more than 12 Bankers Ltd (TCE) and the project lenders consisting more than 12 Bankers Ltd (TCE) and the project lenders consisting more than 12 Bankers financial institutions. financial institutions. 1.3 On the facts and circumstances of the case and in NA law, the 1.3 On the facts and circumstances of the case and in NA law, the 1.3 On the facts and circumstances of the case and in NA law, the hon'ble CIT (A) hon'ble CIT (A) erred in confirming the order of Ld. AO without erred in confirming the order of Ld. AO without appreciating the fact that the order was passed U/s 153A of the Act appreciating the fact that the order was passed U/s 153A of the Act appreciating the fact that the order was passed U/s 153A of the Act without considering the fact that assessment for the year under without considering the fact that assessment for the year under without considering the fact that assessment for the year under consideration was completed U/s 143(3) of the Act and no incriminating consideration was completed U/s 143(3) of the Act and no incriminating consideration was completed U/s 143(3) of the Act and no incriminating documents in respect of such disallowances were found during the ents in respect of such disallowances were found during the ents in respect of such disallowances were found during the course of entire search proceedings. course of entire search proceedings. 1.4 On the facts and circumstances of the case and in N.A. law, the 1.4 On the facts and circumstances of the case and in N.A. law, the 1.4 On the facts and circumstances of the case and in N.A. law, the hon'ble CIT (A) erred in confirming the order of Ld. AO without hon'ble CIT (A) erred in confirming the order of Ld. AO without hon'ble CIT (A) erred in confirming the order of Ld. AO without appreciating the fact that appreciating the fact that addition of Rs. 3,08,97,979/- was without was without giving any show cause notice and without providing any opportunity of giving any show cause notice and without providing any opportunity of giving any show cause notice and without providing any opportunity of being heard to furnish explaination in this regard. being heard to furnish explaination in this regard. 2. On the facts and circumstances of the case and in Rs.5,62,60,430/ 2. On the facts and circumstances of the case and in Rs.5,62,60,430/ 2. On the facts and circumstances of the case and in Rs.5,62,60,430/ - law, the Hon'ble CIT( law, the Hon'ble CIT(A) erred in confirming the order of Ld. AO making A) erred in confirming the order of Ld. AO making addition of interest of Rs. 17,33,75,749/ addition of interest of Rs. 17,33,75,749/- arbitrarily calculated 12% arbitrarily calculated 12% alleging that appellant has utilised the borrowed funds for acquisition of alleging that appellant has utilised the borrowed funds for acquisition of alleging that appellant has utilised the borrowed funds for acquisition of alleged overvalued capital goods recorded in CWIP in context alleged overvalued capital goods recorded in CWIP in context alleged overvalued capital goods recorded in CWIP in context with Onshore Supply Contract. We therefore pray to your honour to delete Onshore Supply Contract. We therefore pray to your honour to delete Onshore Supply Contract. We therefore pray to your honour to delete the addition made and necessary direction shall be given in this regard. the addition made and necessary direction shall be given in this regard. the addition made and necessary direction shall be given in this regard. 2.1 On the facts and circumstances of the case and in N.A. law, the 2.1 On the facts and circumstances of the case and in N.A. law, the 2.1 On the facts and circumstances of the case and in N.A. law, the Hon'ble CIT(A) erred in confirming the act Hon'ble CIT(A) erred in confirming the action of Ld. AO, there by ion of Ld. AO, there by presuming that the entire project was funded with Borrowed funds presuming that the entire project was funded with Borrowed funds presuming that the entire project was funded with Borrowed funds without appreciating the fact that appellant was mandated to maintain without appreciating the fact that appellant was mandated to maintain without appreciating the fact that appellant was mandated to maintain the Debt Equity ratio of 2:1. the Debt Equity ratio of 2:1. 2.2 Without prejudice to the ground no. 2 and 2.1, on N.A. the fact 2.2 Without prejudice to the ground no. 2 and 2.1, on N.A. the fact 2.2 Without prejudice to the ground no. 2 and 2.1, on N.A. the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in circumstances of the case and in law, the Hon'ble CIT(A) erred in circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of Ld. AO without appreciating the fact that confirming the action of Ld. AO without appreciating the fact that confirming the action of Ld. AO without appreciating the fact that Average rate of interest for the funds borrowed by the appellant during Average rate of interest for the funds borrowed by the appellant during Average rate of interest for the funds borrowed by the appellant during the A.Y. 2013-14 and 2014 14 and 2014-15 was 11.42% and 9.18% respectively. .18% respectively.

Matix Fertilizers and Chemicals Ltd. 6 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

2.3 On the facts and circumstances of the case and in N.A. law, the 2.3 On the facts and circumstances of the case and in N.A. law, the 2.3 On the facts and circumstances of the case and in N.A. law, the hon'ble CIT (A) erred in confirming the order of Ld. AO without hon'ble CIT (A) erred in confirming the order of Ld. AO without hon'ble CIT (A) erred in confirming the order of Ld. AO without appreciating the fact that the order was passed Us 153A of the Act appreciating the fact that the order was passed Us 153A of the Act appreciating the fact that the order was passed Us 153A of the Act without considering the fact that no i without considering the fact that no incriminating documents in respect ncriminating documents in respect of such disallowance were found during the course of entire search of such disallowance were found during the course of entire search of such disallowance were found during the course of entire search proceedings. 2.2 Before us the assessee raised Before us the assessee raised additional ground additional grounds, which are reproduced as under: reproduced as under:

Matix Fertilizers and Chemicals Ltd. 7 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

and ‘urea’ at Industrial Complex Raniganj (East), Burdwan District, and ‘urea’ at Industrial Complex Raniganj (East), Burdwan District, and ‘urea’ at Industrial Complex Raniganj (East), Burdwan District, West Bengal. For setting up of said plant, the assessee awarded an West Bengal. For setting up of said plant, the assessee awarded an West Bengal. For setting up of said plant, the assessee awarded an ‘Erection, Procurement and Commi ‘Erection, Procurement and Commissioning’ (EPC) contract dated ssioning’ (EPC) contract dated 11.12.2009 to M/s Essar Project India Ltd. (EPIL) for a lump-sum 11.12.2009 to M/s Essar Project India Ltd. (EPIL) for a lump 11.12.2009 to M/s Essar Project India Ltd. (EPIL) for a lump fixed price of Rs.3200 cr fixed price of Rs.3200 crores. The said contract included ores. The said contract included procurement, supply, erection, commissioning, testing of machinery procurement, supply, erection, commissioning, testing of machinery procurement, supply, erection, commissioning, testing of machinery and wrap up guarantee etc. The asse and wrap up guarantee etc. The assessee also entered into a ssee also entered into a process technology license agreement with ‘Saipem S.p.A’, Italy, and process technology license agreement with ‘Saipem S.p.A’, Italy, process technology license agreement with ‘Saipem S.p.A’, Italy, ‘Kellogg Brown & Root Inc.’ USA. This project was supervised by ‘Kellogg Brown & Root Inc.’ USA. This project was supervised by ‘Kellogg Brown & Root Inc.’ USA. This project was supervised by ‘M/s Project and Development India Ltd’. (PDIL). The project was ‘M/s Project and Development India Ltd’. (PDIL). The project was ‘M/s Project and Development India Ltd’. (PDIL). The project was funded by a consortium of Banks a funded by a consortium of Banks and Financial Institutions laid by nd Financial Institutions laid by ‘IDBI’ Bank. During the year under consideration said project was ‘IDBI’ Bank. During the year under consideration said project was ‘IDBI’ Bank. During the year under consideration said project was under construction and the commercial production started on under construction and the commercial production started on under construction and the commercial production started on 01.10.2017.

4.1 A search and survey action u/s 132/133A of the Income search and survey action u/s 132/133A of the Income search and survey action u/s 132/133A of the Income-tax Act, 1961 (in short ‘the Act’) Act, 1961 (in short ‘the Act’) were carried out in the case of the carried out in the case of the assessee on 10.05.2018 assessee on 10.05.2018 . Subsequently, a notice u/s 153A of the notice u/s 153A of the Act was issued on 13.02.2020. In response, the assessee filed Act was issued on 13.02.2020. In response, the assessee filed Act was issued on 13.02.2020. In response, the assessee filed return of income u/s 153A of income u/s 153A of the Act. The assessment proceedings . The assessment proceedings u/s 153A was completed on 30.09.2021 after making various u/s 153A was completed on 30.09.2021 after making various u/s 153A was completed on 30.09.2021 after making various additions/disallowance. additions/disallowance. On further appeal, the Ld CIT(A) partly On further appeal, the Ld CIT(A) partly allowed the appeal of the assessee. Aggrieved, both the Revenue and of the assessee. Aggrieved, both the Revenue and of the assessee. Aggrieved, both the Revenue and assessee are in appeal raising grounds as reproduced as above. e are in appeal raising grounds as reproduced as above. e are in appeal raising grounds as reproduced as above.

Matix Fertilizers and Chemicals Ltd. 8 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

4.2 The Ground No. 1 of the appeal of the Revenue relates to Ground No. 1 of the appeal of the Revenue relates to Ground No. 1 of the appeal of the Revenue relates to addition addition addition of of of interest interest interest income income income on on on margin margin margin money money money kept with Bank/Financial Institution, Bank/Financial Institution, which was held by the Assessing Officer which was held by the Assessing Officer as taxable under the head as taxable under the head ‘income from other sources income from other sources’. The brief facts qua the issue in dispute are that the Assessing Officer facts qua the issue in dispute are that the Assessing Officer facts qua the issue in dispute are that the Assessing Officer observed following interest observed following interest income/receipts:

Particulars Amount Remarks Interest Income On account of Margin money which On account of Margin money which 1,00,77,381 Treated by the assessee as directly Treated by the assessee are under lien with bank in respect of are under lien with bank in respect of related to the project of setting up related to the project of setting up guarantees and for the letter of credit guarantees and for the letter of credit plant and reduced from and reduced from work in progress. On account of short term deposit f short term deposit 2,47,02,364 Treated as taxable by the assessee Treated as taxable by the assessee made from surplus idle funds made from surplus idle funds and offered under income from and offered under income from other sources other sources -On other Accounts 1,193 Taxable Treated as taxable by the Treated as taxable by the assessee and offered under income and offered under income from other sources from other sources -On Income Tax Refund 1,44,984 Treated as taxable by the assessee Treated as taxable by the assessee and offered under income from and offered under income from other sources other sources 3,49,25,922 4.3 On perusal of the above On perusal of the above chart of interest income, income, it is evident that except an amount of Rs.1,00,77,381/ amount of Rs.1,00,77,381/-, balance amount has , balance amount has been offered by the assessee itself as taxable under the head the assessee itself as taxable under the head the assessee itself as taxable under the head ‘income from other sources income from other sources’ whereas the sum of interest of sum of interest of Rs.1,00,77,381/-, has has been adjusted by the assessee by the assessee against the expenditure for capital work capital work-in-progress and to that extent capital hat extent capital work-in-progress has been reduced. The assessee relied on the progress has been reduced. The assessee relied on the progress has been reduced. The assessee relied on the Supreme Court in the case of CIT v. Bokaro decision of the Hon’ble decision of the Hon’ble Supreme Court in the case of Steel Ltd. (1999) 102 taxman 94 (SC) Steel Ltd. (1999) 102 taxman 94 (SC), however, the however, the Assessing Officer did not agree with the contention of th did not agree with the contention of the assessee and treated e assessee and treated

Matix Fertilizers and Chemicals Ltd. 9 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

this interest income of Rs.1,00,77,381/ this interest income of Rs.1,00,77,381/- as taxable under the head as taxable under the head ‘income from other sources income from other sources’. On further appeal, the Ld. CIT(A) . On further appeal, the Ld. CIT(A) allowed relief to the assessee on merit observing as under: allowed relief to the assessee on merit observing as under: allowed relief to the assessee on merit observing as under:

“4.3 The issue to be determined is the trea 4.3 The issue to be determined is the treatment of interest income tment of interest income of Rs. 1,00,77,381/ of Rs. 1,00,77,381/-. While the appellant has reduced this amount . While the appellant has reduced this amount from the Capital WIP, the AO has taxed it as "Income from Other from the Capital WIP, the AO has taxed it as "Income from Other from the Capital WIP, the AO has taxed it as "Income from Other Sources". It is noted that the total interest income received by the Sources". It is noted that the total interest income received by the Sources". It is noted that the total interest income received by the appellant during the year is Rs. appellant during the year is Rs. 3,49,25,922/-. Out of this, the . Out of this, the appellant has already offered a sum of Rs. 2,48,48,541/ appellant has already offered a sum of Rs. 2,48,48,541/ appellant has already offered a sum of Rs. 2,48,48,541/- as "Income from Other Sources" on the ground that such interest "Income from Other Sources" on the ground that such interest "Income from Other Sources" on the ground that such interest income has arisen out of short term deposits made from surplus income has arisen out of short term deposits made from surplus income has arisen out of short term deposits made from surplus idle funds. The balance amount of Rs. 1 idle funds. The balance amount of Rs. 1,00,77,381/- is reduced is reduced from the Capital WiP on the ground that such deposits are kept as from the Capital WiP on the ground that such deposits are kept as from the Capital WiP on the ground that such deposits are kept as margin money which are under lien with Bank in respect of margin money which are under lien with Bank in respect of margin money which are under lien with Bank in respect of guarantees and letter of credit for the purpose of setting up its guarantees and letter of credit for the purpose of setting up its guarantees and letter of credit for the purpose of setting up its plant. The plant has become operational in The plant has become operational in a later assessment year assessment year and not during the year under consideration. and not during the year under consideration. 4.3.1 In the case of CIT vs. Bokaro Steel Ltd. 236 ITR 315, the In the case of CIT vs. Bokaro Steel Ltd. 236 ITR 315, the In the case of CIT vs. Bokaro Steel Ltd. 236 ITR 315, the Hon'ble Apex Court held that "if the assessee receives any amounts Court held that "if the assessee receives any amounts Court held that "if the assessee receives any amounts which are inextricably linked with the process of which are inextricably linked with the process of setting up its plant setting up its plant and machinery, such receipts will go to reduce the cost of its and machinery, such receipts will go to reduce the cost of its and machinery, such receipts will go to reduce the cost of its assets". In the case of CIT vs. Karnal Co assets". In the case of CIT vs. Karnal Co-operative Sugar Mills Ltd. operative Sugar Mills Ltd. 243 ITR 2, the Hon'ble Apex Court held that "the interest earned out 243 ITR 2, the Hon'ble Apex Court held that "the interest earned out 243 ITR 2, the Hon'ble Apex Court held that "the interest earned out of deposits to open a letter of cr of deposits to open a letter of credit for the purchase of the edit for the purchase of the machinery required for setting up the plant was incidental to the machinery required for setting up the plant was incidental to the machinery required for setting up the plant was incidental to the acquisition of the assets and ruled in favour of the assessee". In acquisition of the assets and ruled in favour of the assessee". In acquisition of the assets and ruled in favour of the assessee". In view of the decision of the Hon'ble Apex Court, by respectfully view of the decision of the Hon'ble Apex Court, by respectfully view of the decision of the Hon'ble Apex Court, by respectfully following the same, this groun following the same, this ground stands allowed.” 4.4 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that the Assessing Officer Assessing Officer has rejected the contention of the assessee has rejected the contention of the assessee that interest income is derived from or that interest income is derived from or attributed to the activity of attributed to the activity of the construction of the p the construction of the project and therefore same is eligible to roject and therefore same is eligible to be adjusted against the capital work justed against the capital work-in-progress. But, we find that the we find that the Hon’ble Supreme Court in the case of Bokaro Steel Ltd. (supra) has Hon’ble Supreme Court in the case of Bokaro Steel Ltd. (supra) has Hon’ble Supreme Court in the case of Bokaro Steel Ltd. (supra) has held that when asses held that when assessee receives any amount which is inextricably see receives any amount which is inextricably

Matix Fertilizers and Chemicals Ltd. 10 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

linked to the process of process of construction of plant and machinery plant and machinery, such receipts goes to the receipts goes to the root cause of asset, and thus eligible for , and thus eligible for adjusting against the expenses on capital work adjusting against the expenses on capital work-in- -progress. Same followed in the case of CIT v. Karnal Co v. Karnal Co-op. Sugar ratio has been followed in the case of Mills Ltd. 243 ITR 2 Mills Ltd. 243 ITR 2. In the case in hand, it is undisputed that it is undisputed that interest has been earned by the assessee on the margin money kept interest has been earned by the assessee on the margin mo interest has been earned by the assessee on the margin mo with the bank under lie with the bank under lien in respect of guarantees and the letter of n in respect of guarantees and the letter of the credit availed from consortium of banks availed from consortium of banks. The fact that interest he fact that interest has been earned and the margin money has been earned and the margin money was kept for purpose of kept for purpose of guarantees and letter of credit letter of credit in relation to setting up of the project in relation to setting up of the project has not been disputed , thus has not been disputed , thus, same being linked inextricab same being linked inextricably with setting up of the plant, setting up of the plant, interest is eligible for deduction against the eduction against the cost of the asset or capital work or capital work-in-progress. In view of the settled . In view of the settled principle laid down by the Hon’ble Supreme Court in the case of CIT principle laid down by the Hon’ble Supreme Court in the case of CIT principle laid down by the Hon’ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. (supra), we do no v. Bokaro Steel Ltd. (supra), we do not find any infirmity in the t find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and we accordingly order of the Ld. CIT(A) on the issue in dispute and we accordingly order of the Ld. CIT(A) on the issue in dispute and we accordingly uphold the same.

4.4.1 We find that We find that before the Ld. CIT(A) , the assessee , the assessee challenged validity of making validity of making above addition on the principle on the principle that such addition could not be made in case of non uld not be made in case of non-abated assessment abated assessment, without aid of any incriminating material, however, t d of any incriminating material, however, t d of any incriminating material, however, the Ld. CIT(A) rejected the said contention of the assessee observing as under: rejected the said contention of the assessee observing as under: rejected the said contention of the assessee observing as under:

“4.3.3 The appellant has also raised another contention that there was The appellant has also raised another contention that there was The appellant has also raised another contention that there was no incriminating material. The appellant has relied on various judicial incriminating material. The appellant has relied on various judicial incriminating material. The appellant has relied on various judicial precedents including All Cargo Global Logistics Ltd. (ITAT, Mumbai precedents including All Cargo Global Logistics Ltd. (ITAT, Mumbai precedents including All Cargo Global Logistics Ltd. (ITAT, Mumbai

Matix Fertilizers and Chemicals Ltd. 11 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

Special Bench), Continental Warehousing Corpn. ITA No. 523 of 2013 and Special Bench), Continental Warehousing Corpn. ITA No. 523 of 2013 and Special Bench), Continental Warehousing Corpn. ITA No. 523 of 2013 and 1969 of 2013 dated 21.04.2015, Kabul Chawla, High 1969 of 2013 dated 21.04.2015, Kabul Chawla, High Court of Delhi Court of Delhi (2015) 93 CCH 0210 Del HC (2015) 281 CTR 0045 (Del): (2015) 126 DTR (2015) 93 CCH 0210 Del HC (2015) 281 CTR 0045 (Del): (2015) 126 DTR (2015) 93 CCH 0210 Del HC (2015) 281 CTR 0045 (Del): (2015) 126 DTR 0130 (Del): (2016) 380 ITR 0573 (Delhi): (2015) 234 Taxman 0300 (Delhi). 0130 (Del): (2016) 380 ITR 0573 (Delhi): (2015) 234 Taxman 0300 (Delhi). 0130 (Del): (2016) 380 ITR 0573 (Delhi): (2015) 234 Taxman 0300 (Delhi). In the case of Jitendra Virwani vs. DCIT [2021] 129 taxmann.com 38 In the case of Jitendra Virwani vs. DCIT [2021] 129 taxmann.com 38 In the case of Jitendra Virwani vs. DCIT [2021] 129 taxmann.com 38 (Bangalore Trib) dated 30.07.202 (Bangalore Trib) dated 30.07.2021, the Hon'ble ITAT, Bangalore has held 1, the Hon'ble ITAT, Bangalore has held that assessment u/s. 153A can be made even if no incriminating material that assessment u/s. 153A can be made even if no incriminating material that assessment u/s. 153A can be made even if no incriminating material was found during search action. In this judgment, the above cited was found during search action. In this judgment, the above cited was found during search action. In this judgment, the above cited judgments of the appellant have actually been considered by the Hon'ble judgments of the appellant have actually been considered by the Hon'ble judgments of the appellant have actually been considered by the Hon'ble ITAT. Hence, it cannot be stated that the position of law is squarely in Hence, it cannot be stated that the position of law is squarely in Hence, it cannot be stated that the position of law is squarely in favour of the appellant. A similar issue of incriminating material came up favour of the appellant. A similar issue of incriminating material came up favour of the appellant. A similar issue of incriminating material came up before the Allahabad High Court in the case of PCIT vs. Siddharth Gupta before the Allahabad High Court in the case of PCIT vs. Siddharth Gupta before the Allahabad High Court in the case of PCIT vs. Siddharth Gupta in ITA No. 17 of 2022. In the said appeal, in ITA No. 17 of 2022. In the said appeal, 2 questions of law were raised. 2 questions of law were raised. i. Whether assessment or re i. Whether assessment or re-assessment under section u/s. 153A of the assessment under section u/s. 153A of the Income Tax Act, 1961 can be framed only on the basis of incriminating Income Tax Act, 1961 can be framed only on the basis of incriminating Income Tax Act, 1961 can be framed only on the basis of incriminating material found during the course of search under section 132 of the Act. material found during the course of search under section 132 of the Act. material found during the course of search under section 132 of the Act. ". Whether assessment or re assessment or re-assessment under section u/s. 153A of the assessment under section u/s. 153A of the Income Tax Act, 1961 can be framed where no incriminating material has Income Tax Act, 1961 can be framed where no incriminating material has Income Tax Act, 1961 can be framed where no incriminating material has been found in the search under section 132 of the Act. been found in the search under section 132 of the Act. Eventually, the Hon'ble High Court upheld the stand of the revenue and Eventually, the Hon'ble High Court upheld the stand of the revenue and Eventually, the Hon'ble High Court upheld the stand of the revenue and ruled that assessment can be framed even when no incriminating ruled that assessment can be framed even when no incriminating ruled that assessment can be framed even when no incriminating material has been found u/s. 132 of the Act. material has been found u/s. 132 of the Act. While doing so, the Hon'ble While doing so, the Hon'ble High Court considered a host of High Court considered a host of The judgment was rendered The judgment was rendered decisions including CIT vs. Kabul Chawla 380 ITR 573. including CIT vs. Kabul Chawla 380 ITR 573. on 04.07.2022. The appeal 7.2022. The appeal fled by the assessee before the Hon'ble Supreme Court as dismissed vide fled by the assessee before the Hon'ble Supreme Court as dismissed vide fled by the assessee before the Hon'ble Supreme Court as dismissed vide SLP (Civil) Diary No. 29742/2022 dated 12.12.2022. In view of the fact SLP (Civil) Diary No. 29742/2022 dated 12.12.2022. In view of the fact SLP (Civil) Diary No. 29742/2022 dated 12.12.2022. In view of the fact that the order of the Honible Supreme Court is declaratory in nature, the that the order of the Honible Supreme Court is declaratory in nature, the that the order of the Honible Supreme Court is declaratory in nature, the decision of the Hon' decision of the Hon'ble Supreme Court would apply to this case as well. Supreme Court would apply to this case as well. Accordingly, this part of the ground is dismissed. Accordingly, this part of the ground is dismissed.” 4.5 Before us, the assessee has challenged the finding of the Ld. Before us, the assessee has challenged the finding of the Ld. Before us, the assessee has challenged the finding of the Ld. CIT(A) by way of the additional ground which we have already CIT(A) by way of the additional ground which we have already CIT(A) by way of the additional ground which we have already admitted above. We find t admitted above. We find that the Hon’ble Supreme Court in the hat the Hon’ble Supreme Court in the case of PCIT vs Abhisar Abhisar Buildwell P. Ltd. [Civil Appeal Appeal No. 6580 of 2021] has upheld finding of the Hon’ble Bombay High Court in ld finding of the Hon’ble Bombay High Court in ld finding of the Hon’ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (supra) the case of CIT v. Continental Warehousing Corporation the case of CIT v. Continental Warehousing Corporation that no addition could be m that no addition could be made in the case of the non ade in the case of the non-abated assessment years without aid of assessment years without aid of any incriminating material found incriminating material found during the course of the search. Thus during the course of the search. Thus, both the condition both the conditions that

Matix Fertilizers and Chemicals Ltd. 12 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

firstly, assessment is unabated i.e. no assessment proceedings assessment is unabated i.e. no assessment proceedings assessment is unabated i.e. no assessment proceedings pending as on the date of the search and on the date of the search and secondly no incriminating no incriminating material found during the course of the search, are to be material found during the course of the search material found during the course of the search cumulatively fulfilled. When we examine the above ratio of the cumulatively fulfilled. When we examine the above ratio of the cumulatively fulfilled. When we examine the above ratio of the Hon’ble Jurisdictional High Court confirmed by the Hon’ble Hon’ble Jurisdictional High Court confirmed by the Hon’ble Hon’ble Jurisdictional High Court confirmed by the Hon’ble Supreme Court, we fi we find that qua the issue in dispute nd that qua the issue in dispute, there is no reference of any incriminating material in the order of the Assessing reference of any incriminating material in the order of the Assessing reference of any incriminating material in the order of the Assessing Officer. The Ld. CIT(A) followed the decision of the Hon’ble Officer. The Ld. CIT(A) followed the decision of the Hon’ble Officer. The Ld. CIT(A) followed the decision of the Hon’ble Allahabad High Court in the case of Pr. CIT v. Sidhart Gupta Allahabad High Court in the case of Pr. CIT v. Sidhart Gupta Allahabad High Court in the case of Pr. CIT v. Sidhart Gupta (supra) but in view of the decision of the Hon’ble Supreme Court in w of the decision of the Hon’ble Supreme Court in w of the decision of the Hon’ble Supreme Court in the case of Abhisar Abhisar Buildwell P. Ltd.(supra), said ratio of the said ratio of the decision of the Hon’ble Allahabad High Court decision of the Hon’ble Allahabad High Court is is no longer in operation and therefore, the finding of the Ld. CIT(A) on the issue in and therefore, the finding of the Ld. CIT(A) on the issue in and therefore, the finding of the Ld. CIT(A) on the issue in dispute is set aside .T .Thus, no addition qua the interest on margin no addition qua the interest on margin money could have been made in the case of the assessee even on money could have been made in the case of the assessee even on money could have been made in the case of the assessee even on the legal principle. Thus . Thus, the additional ground of the assessee to additional ground of the assessee to this extent is allowed. s allowed.

Matix Fertilizers and Chemicals Ltd. 13 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

EPIL specifically requested a EPIL specifically requested assessee to split the above ssessee to split the above ‘EPC’ contract into three separate contract contract into three separate contracts, viz., Engineering and s, viz., Engineering and construction, onshore onshore supply contract and offshore supply contract. supply contract. The assessee contended that the split was The assessee contended that the split was done merely to enable merely to enable ‘EPIL’ for proper implementat for proper implementation and execution over the scope of ion and execution over the scope of work of the EPC contract and the total scope and work of the EPC contract and the total scope and lump lump sum fixed price remained the the same. The agreement for split of the EPC same. The agreement for split of the EPC contract was entered into contract was entered into 29.07.2010, break up of w 29.07.2010, break up of which is as under:

“Engineering and Procuremen “Engineering and Procurement Contract (E & C) - Rs 635 Crore(g325 Rs 635 Crore(g325- 483 of Paperbook of A.Y. 2013 483 of Paperbook of A.Y. 2013-14) Onshore Supply Contract Onshore Supply Contract - Rs 765 Crore (page no. 484 Rs 765 Crore (page no. 484-568 of Paperbook of A. Y. 2013 Paperbook of A. Y. 2013-14) Offshore Supply Contract Offshore Supply Contract - Rs 1800 Crore. (page no. 569 Rs 1800 Crore. (page no. 569-675 of Paperbook of A.Y. 2013 Paperbook of A.Y. 2013-14)” 5.1 For offshore supply of the capital goods For offshore supply of the capital goods, the assessee made the assessee made contract for Rs.1800 Rs.1800 Crores. The Assessing Officer in para 5.1 of . The Assessing Officer in para 5.1 of the assessment order has noted that Directorate of Revenue the assessment order has noted that Directorate of Revenue the assessment order has noted that Directorate of Revenue Intelligence(DRI), Mumbai issued , Mumbai issued a show cause to show cause to Essar Group of Companies including M/s EPIL es including M/s EPIL, regarding overvaluation of goods regarding overvaluation of goods imported from M/s Glob Supplier (RFZE, UAE). It is to be noted imported from M/s Glob Supplier (RFZE, UAE). It is to be noted imported from M/s Glob Supplier (RFZE, UAE). It is to be noted that while performing offshore supply of capital goods to the that while performing offshore supply of capital goods to the that while performing offshore supply of capital goods to the assessee, assessee, assessee, the the the EPIL EPIL EPIL procured/imported procured/imported procured/imported goods goods goods from from from original original original equipment manufact equipment manufacturers through M/s Glob Supplier (FZE UAE). through M/s Glob Supplier (FZE UAE). In view of the show cause notice issued by the In view of the show cause notice issued by the DRI DRI, the Assessing Officer also issued show cause notice to the assessee as why the Officer also issued show cause notice to the assessee as why the Officer also issued show cause notice to the assessee as why the

Matix Fertilizers and Chemicals Ltd. 14 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

overvaluation done in import of capital goods done in import of capital goods done in import of capital goods should not be disallowed. The Assessing Officer also referred the statement of Shri disallowed. The Assessing Officer also referred the statement of Shri disallowed. The Assessing Officer also referred the statement of Shri Vijay Kumar Goel (Chartered Accountant and General Manager of Vijay Kumar Goel (Chartered Accountant and General Manager of Vijay Kumar Goel (Chartered Accountant and General Manager of assessee company), which assessee company), which was recorded on oath u/s 132(4) of the recorded on oath u/s 132(4) of the Act on 11.05.2018 during the course of the search and seizure Act on 11.05.2018 during the course of the search an Act on 11.05.2018 during the course of the search an proceedings in the case of the proceedings in the case of the assessee at ‘Panagarh Industrial Panagarh Industrial Park’. In said statement Authorized O ’. In said statement Authorized Officer referred to the invoices fficer referred to the invoices issued by the original equipment original equipment manufacturers (OEM OEM) Company and corresponding invoi and corresponding invoices issued by the M/s Glob Su Glob Supplier, UAE to the the assessee assessee and and brought brought to their notice notice the the over- invoicing/overvaluation of the capital goods supplied to the invoicing/overvaluation of the capital goods supplied to the invoicing/overvaluation of the capital goods supplied to the assessee. In view of the show cause notice of the Directorate of n view of the show cause notice of the Directorate of n view of the show cause notice of the Directorate of Revenue Intelligence and stat Revenue Intelligence and statement of Shri Vijay Kumar Goel, th ement of Shri Vijay Kumar Goel, the Assessing Officer held that amount of Rs.1,29,32,54,291/- as Assessing Officer held that amount of Rs.1,29,32,54,291/ Assessing Officer held that amount of Rs.1,29,32,54,291/ disallowable observing as under: observing as under:

“On careful verification of the above seized document and statement of On careful verification of the above seized document and statement of On careful verification of the above seized document and statement of Shri Vijay Kumar Goyal, it is clear that Shri Vijay Kumar Goyal has Shri Vijay Kumar Goyal, it is clear that Shri Vijay Kumar Goyal has Shri Vijay Kumar Goyal, it is clear that Shri Vijay Kumar Goyal has categorically explained categorically explained that how an invoice of Sungjin Geotec Co Ltd, that how an invoice of Sungjin Geotec Co Ltd, Korea with an original price of $11,98,190/ Korea with an original price of $11,98,190/- with gross weight of with gross weight of 154,827 Kgs has been over valued at $ 32,98,500/ 154,827 Kgs has been over valued at $ 32,98,500/- through routing the through routing the invoice from Global Supplier(UAE) FZE to EPIL which in turn has billed invoice from Global Supplier(UAE) FZE to EPIL which in turn has billed invoice from Global Supplier(UAE) FZE to EPIL which in turn has billed the same to the assessee company at an overvalued valuation. Further, e same to the assessee company at an overvalued valuation. Further, e same to the assessee company at an overvalued valuation. Further, on perusal of bill of landing seized during the course of search action it is on perusal of bill of landing seized during the course of search action it is on perusal of bill of landing seized during the course of search action it is seen that the original supplier Sungjin Geotec Co Ltd, Korea has shipped seen that the original supplier Sungjin Geotec Co Ltd, Korea has shipped seen that the original supplier Sungjin Geotec Co Ltd, Korea has shipped this consignment directly to EPIL at this consignment directly to EPIL at Port Haldia/India. It is observed that Port Haldia/India. It is observed that Global Supplier (FZE), UAE has been used as a routing entity with the Global Supplier (FZE), UAE has been used as a routing entity with the Global Supplier (FZE), UAE has been used as a routing entity with the sole purpose to inflate the import invoices. sole purpose to inflate the import invoices. The above example given above of one consignment holds good for other The above example given above of one consignment holds good for other The above example given above of one consignment holds good for other remaining 92 other consignment a remaining 92 other consignment also. Documentary evidences have lso. Documentary evidences have revealed that goods of all the 93 consignments were shipped directly to revealed that goods of all the 93 consignments were shipped directly to revealed that goods of all the 93 consignments were shipped directly to India from OEM / actual suppliers and only invoice was routed through India from OEM / actual suppliers and only invoice was routed through India from OEM / actual suppliers and only invoice was routed through intermediary entity Global Supplies (UAE) FZE with the only purpose of intermediary entity Global Supplies (UAE) FZE with the only purpose of intermediary entity Global Supplies (UAE) FZE with the only purpose of inflation of invoice value. f invoice value.

Matix Fertilizers and Chemicals Ltd. 15 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

5.12. It is pertinent to mention here that a copy of show cause notice 5.12. It is pertinent to mention here that a copy of show cause notice 5.12. It is pertinent to mention here that a copy of show cause notice alongwith relied upon documents had already been supplied by DRI to alongwith relied upon documents had already been supplied by DRI to alongwith relied upon documents had already been supplied by DRI to the assessee company and on further request by the assessee the same the assessee company and on further request by the assessee the same the assessee company and on further request by the assessee the same were supplied once again to the were supplied once again to the assessee. The show cause notice has assessee. The show cause notice has discussed in detail alongwith supporting documentary evidences how the discussed in detail alongwith supporting documentary evidences how the discussed in detail alongwith supporting documentary evidences how the over valuation of invoices with respect to Onshore Contract with EPIL has over valuation of invoices with respect to Onshore Contract with EPIL has over valuation of invoices with respect to Onshore Contract with EPIL has been done by the assessee via Global Supplies (UAE) FZE. been done by the assessee via Global Supplies (UAE) FZE. 5.13. The assesse 5.13. The assessee has failed to furnish satisfactory reply to business e has failed to furnish satisfactory reply to business prudence and exigency prompted the Board of Directors to take a prudence and exigency prompted the Board of Directors to take a prudence and exigency prompted the Board of Directors to take a decision to route all capital goods through an agreement with EPIL decision to route all capital goods through an agreement with EPIL decision to route all capital goods through an agreement with EPIL despite the fact that goods were shipped directly to India from OEM / despite the fact that goods were shipped directly to India from OEM / despite the fact that goods were shipped directly to India from OEM / actual suppliers at an highly inflated import value. The reply given by the actual suppliers at an highly inflated import value. The reply given by the actual suppliers at an highly inflated import value. The reply given by the assessee is vague and without any supporting corroborative evidence. assessee is vague and without any supporting corroborative evidence. assessee is vague and without any supporting corroborative evidence. Further, it is also pertinent to mention here that the assessee company Further, it is also pertinent to mention here that the assessee company Further, it is also pertinent to mention here that the assessee company was in possession of invoices issued by was in possession of invoices issued by foreign suppliers to Global foreign suppliers to Global Supplies (UAE) FZE and the invoices issued by Global Supplies (UAE) FZE Supplies (UAE) FZE and the invoices issued by Global Supplies (UAE) FZE Supplies (UAE) FZE and the invoices issued by Global Supplies (UAE) FZE to EPIL which clearly shows that Global Supplies (UAE) FZE is issuing to EPIL which clearly shows that Global Supplies (UAE) FZE is issuing to EPIL which clearly shows that Global Supplies (UAE) FZE is issuing inflated value invoices to EPIL which in turn has been used by the inflated value invoices to EPIL which in turn has been used by the inflated value invoices to EPIL which in turn has been used by the assessee company t assessee company to inflate cost of its capital goods. DRI has calculated o inflate cost of its capital goods. DRI has calculated the extent of overvaluation of import invoices at 98.75% as per the show the extent of overvaluation of import invoices at 98.75% as per the show the extent of overvaluation of import invoices at 98.75% as per the show cause notice mentioned above. Thus, no prudent businessman would cause notice mentioned above. Thus, no prudent businessman would cause notice mentioned above. Thus, no prudent businessman would enter into such transactions having in his possession the invo enter into such transactions having in his possession the invo enter into such transactions having in his possession the invoice value of the OEM supplier. the OEM supplier. 5.14. Thus, on the basis of the above discussion and the reasons stated 5.14. Thus, on the basis of the above discussion and the reasons stated 5.14. Thus, on the basis of the above discussion and the reasons stated above it is clear that the assessee has booked invoices in which the cost above it is clear that the assessee has booked invoices in which the cost above it is clear that the assessee has booked invoices in which the cost of capital goods have been over valued and the same is liable to be of capital goods have been over valued and the same is liable to be of capital goods have been over valued and the same is liable to be disallowed u/s. 37(1) of the Act since the same is not incurred for the u/s. 37(1) of the Act since the same is not incurred for the u/s. 37(1) of the Act since the same is not incurred for the business purpose. Since, the assessee has capitalised these invoices to business purpose. Since, the assessee has capitalised these invoices to business purpose. Since, the assessee has capitalised these invoices to the CWIP, the same is required to be reduced by the amount of over the CWIP, the same is required to be reduced by the amount of over the CWIP, the same is required to be reduced by the amount of over valuation of capital goods AY wise. The working of the o valuation of capital goods AY wise. The working of the overvaluation of vervaluation of Imported Capital Goods for AY 2014 Imported Capital Goods for AY 2014-15 is as under:

Matix Fertilizers and Chemicals Ltd. 16 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

Matix Fertilizers and Chemicals Ltd. 17 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

Matix Fertilizers and Chemicals Ltd. 18 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

5.15. Hence, an amount of Rs. 129,32,54,291/ 5.15. Hence, an amount of Rs. 129,32,54,291/- is disallowed u/s. 37(1) is disallowed u/s. 37(1) of the Act and CWIP is reduced accordingly. Penalty proceedings u/s. of the Act and CWIP is reduced accordingly. Penalty proceedings u/s. of the Act and CWIP is reduced accordingly. Penalty proceedings u/s. 271(1)C) of the Act is initiated 271(1)C) of the Act is initiated separately for furnishing inaccurate separately for furnishing inaccurate particulars of income. particulars of income.” 5.2 On further appeal, the Ld. CIT(A) observed that contract was On further appeal, the Ld. CIT(A) observed that contract was On further appeal, the Ld. CIT(A) observed that contract was assigned to M/s EPIC with to M/s EPIC with associated risk of installation and installation and execution of the project and therefore despite the issue of the show execution of the project and therefore despite the issue of the show execution of the project and therefore despite the issue of the show cause notice by the DRI to M/s EPIC, t notice by the DRI to M/s EPIC, the ld. ld. CIT(A) justified payment of Rs. 1800 crores by the assessee to M/s EPIL for offshore payment of Rs. 1800 crores by the assessee to M/s EPIL for offshore payment of Rs. 1800 crores by the assessee to M/s EPIL for offshore supply contract of capital goods. The r supply contract of capital goods. The relevant finding of the Ld. elevant finding of the Ld. CIT(A) is reproduced as under: ) is reproduced as under:

“5.3.5 Consequent to the 5.3.5 Consequent to the above discussions, the only issue left to be above discussions, the only issue left to be decided is whether the action of the AO in reducing the sum of Rs. decided is whether the action of the AO in reducing the sum of Rs. decided is whether the action of the AO in reducing the sum of Rs. 129,32,54,291/ 129,32,54,291/- from the CWIP is right or not. The AO has made a very from the CWIP is right or not. The AO has made a very elaborate case of trade based money elaborate case of trade based money laundering, which according to him laundering, which according to him is supported by the findings of the DRI and also the material found supported by the findings of the DRI and also the material found supported by the findings of the DRI and also the material found during search. The issue to be decided by the undersigned falls in a very during search. The issue to be decided by the undersigned falls in a very during search. The issue to be decided by the undersigned falls in a very narrow compass of applicability of provisions of I.T. Act as regards over narrow compass of applicability of provisions of I.T. Act as regards over narrow compass of applicability of provisions of I.T. Act as regards over-

Matix Fertilizers and Chemicals Ltd. 19 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

valuation, qua the appellant. In this respe valuation, qua the appellant. In this respect, I find that certain facts ct, I find that certain facts brought out by the appellant are very relevant. brought out by the appellant are very relevant. a. The appellant has entered into a fixed lumpsum price Engineering a. The appellant has entered into a fixed lumpsum price Engineering a. The appellant has entered into a fixed lumpsum price Engineering Procurement and Construction (EPC) contract dated 11.12.2009 with EPIL Procurement and Construction (EPC) contract dated 11.12.2009 with EPIL Procurement and Construction (EPC) contract dated 11.12.2009 with EPIL for Rs. 3200 crs. to set up ammonia and for Rs. 3200 crs. to set up ammonia and urea complex at Panagarh, urea complex at Panagarh, Wesh Bengal. There have been subsequent modifications in the contract Wesh Bengal. There have been subsequent modifications in the contract Wesh Bengal. There have been subsequent modifications in the contract as well. It is seen that the contract is split into 3 parts and the agreement as well. It is seen that the contract is split into 3 parts and the agreement as well. It is seen that the contract is split into 3 parts and the agreement for the same was entered into 29.07.2010 at agreed lumpsum price for the same was entered into 29.07.2010 at agreed lumpsum price for the same was entered into 29.07.2010 at agreed lumpsum price which are as und which are as under:- Engineering and Procurement Contract (E&C) Engineering and Procurement Contract (E&C) - Rs. 635 cr. Onshore Supply Contract Onshore Supply Contract - Rs. 765 cr. Offshore Supply Contract Offshore Supply Contract - Rs. 1800 cr. b. According to the appellant, the contract price of Rs. 3200 crs. is based According to the appellant, the contract price of Rs. 3200 crs. is based According to the appellant, the contract price of Rs. 3200 crs. is based on the fixed lumpsum contract without an on the fixed lumpsum contract without any provision for price escalation y provision for price escalation except as expressly provided in the contract. This is noted from Clause except as expressly provided in the contract. This is noted from Clause except as expressly provided in the contract. This is noted from Clause 14.1 of the contract dated 11.12.2009 which reads as follows : 14.1 of the contract dated 11.12.2009 which reads as follows : 14.1 of the contract dated 11.12.2009 which reads as follows :- "Unless otherwise stated in the Contract The Contract Price shall "Unless otherwise stated in the Contract The Contract Price shall "Unless otherwise stated in the Contract The Contract Price shall constitute a lumpsum constitute a lumpsum fixed price and will not be adjusted save as fixed price and will not be adjusted save as expressly provided in the contract, and includes any and all expressly provided in the contract, and includes any and all expressly provided in the contract, and includes any and all direct indirect and ancillary costs of whatsoever nature, including direct indirect and ancillary costs of whatsoever nature, including direct indirect and ancillary costs of whatsoever nature, including all profit, all license, royalty and other fees, taxes including all all profit, all license, royalty and other fees, taxes including all all profit, all license, royalty and other fees, taxes including all deductions an deductions and withholdings, but not including indirect taxes in d withholdings, but not including indirect taxes in India, Insurance premiums, license fees and other charges, India, Insurance premiums, license fees and other charges, India, Insurance premiums, license fees and other charges, whether directly or indirectly relating to or arising out of the whether directly or indirectly relating to or arising out of the whether directly or indirectly relating to or arising out of the supply and in accordance with this contract" supply and in accordance with this contract" These facts have been placed by the These facts have been placed by the appellant before the AO during the appellant before the AO during the assessment proceedings as well. Thus, this is not a case whether the assessment proceedings as well. Thus, this is not a case whether the assessment proceedings as well. Thus, this is not a case whether the appellant has negotiated the price on itemwise basis. Thus, there is merit appellant has negotiated the price on itemwise basis. Thus, there is merit appellant has negotiated the price on itemwise basis. Thus, there is merit in the claim of the appellant that it has substantially transferred the risk in the claim of the appellant that it has substantially transferred the risk in the claim of the appellant that it has substantially transferred the risks associated with the installation of the plant to EPIL, due to the contract associated with the installation of the plant to EPIL, due to the contract associated with the installation of the plant to EPIL, due to the contract price being frozen. price being frozen. 5.3.6 Another significant aspect is that the appellant has pointed out that Another significant aspect is that the appellant has pointed out that Another significant aspect is that the appellant has pointed out that Project and Development India Ltd., a PSU of the Government of India, Project and Development India Ltd., a PSU of the Government of India, Project and Development India Ltd., a PSU of the Government of India, has in its report of Nov., 2009 estimated the capital cost of the project port of Nov., 2009 estimated the capital cost of the project port of Nov., 2009 estimated the capital cost of the project around 5010.73 crs. around 5010.73 crs. They have estimated the Engineering Procurement They have estimated the Engineering Procurement Construction (EPC) out of the above at Rs. 3948 crs. including taxes and Construction (EPC) out of the above at Rs. 3948 crs. including taxes and Construction (EPC) out of the above at Rs. 3948 crs. including taxes and duties. The lender of the appellant, IDBI Bank has app duties. The lender of the appellant, IDBI Bank has approved the total roved the total project cost of Rs. 4894 crs. in April, 2010. This being the case, the EPC project cost of Rs. 4894 crs. in April, 2010. This being the case, the EPC project cost of Rs. 4894 crs. in April, 2010. This being the case, the EPC contract of Rs. 3200 crs. executed by the appellant (subsumed in Rs. contract of Rs. 3200 crs. executed by the appellant (subsumed in Rs. contract of Rs. 3200 crs. executed by the appellant (subsumed in Rs. 4894 crs.) cannot be stated to be totally arbitrary. While there may be 4894 crs.) cannot be stated to be totally arbitrary. While there may be 4894 crs.) cannot be stated to be totally arbitrary. While there may be truth in the findings of truth in the findings of the DRI, the reality remains that the appellant has the DRI, the reality remains that the appellant has entered into a fixed price contract which insulates itself from the risks entered into a fixed price contract which insulates itself from the risks entered into a fixed price contract which insulates itself from the risks

Matix Fertilizers and Chemicals Ltd. 20 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

associated with the execution of the project. Thus, only on this ground associated with the execution of the project. Thus, only on this ground associated with the execution of the project. Thus, only on this ground alone, the appellant is entitled to succeed. alone, the appellant is entitled to succeed. 5.3.7 It is also noted that DRI has issued show also noted that DRI has issued show-cause to various entities cause to various entities including EPGL, EPMPL, EOL and EPIL but the appellant is not named including EPGL, EPMPL, EOL and EPIL but the appellant is not named including EPGL, EPMPL, EOL and EPIL but the appellant is not named among them (Para 5.1 of the assessment order). To sum up, Ground No. 2 among them (Para 5.1 of the assessment order). To sum up, Ground No. 2 among them (Para 5.1 of the assessment order). To sum up, Ground No. 2 is treated as allowed although some of the sub is treated as allowed although some of the sub-grounds stand rejected, tand rejected, as discussed above. as discussed above.” 5.3 Before us, the Ld. DR submitted that in view of the show Before us, the Ld. DR submitted that in view of the show Before us, the Ld. DR submitted that in view of the show cause notice issued by the Directorate of Revenue Intelligence to cause notice issued by the Directorate of Revenue Intelligence to cause notice issued by the Directorate of Revenue Intelligence to M/s EPIC regarding overvaluation of the purc M/s EPIC regarding overvaluation of the purchase of the capital hase of the capital goods, it was evident that as goods, it was evident that assessee had paid value in excess to the paid value in excess to the actual price of those goods and the assessee failed to explain actual price of those goods and the assessee failed to explain actual price of those goods and the assessee failed to explain payment of such excess price payment of such excess price , therefore, the Assessing Officer is therefore, the Assessing Officer is justified in making disallowance justified in making disallowance of excess overvalued part of the excess overvalued part of the capital goods and accordingly accordingly, the action of the reducing of capital of the reducing of capital work-in-progress of the assessee by the Assessing Officer is progress of the assessee by the Assessing Officer is progress of the assessee by the Assessing Officer is justified. On the contrary, the Ld. Counsel for the assessee justified. On the contrary, the Ld. Counsel for the assessee justified. On the contrary, the Ld. Counsel for the assessee submitted that entire project of installation and supply for the submitted that entire project of installation and supply for the submitted that entire project of installation and supply for the project was duly supervised by upervised by M/s PDIL, which is which is Government of India Undertaking and due intelligence India Undertaking and due intelligence was undertaken by undertaken by Tata Consulting Engineers Ltd ( Consulting Engineers Ltd (TCEL), which was appointed by the which was appointed by the lenders. It was submitted that in the report prepared by both these lenders. It was submitted that in the report prepared by both these lenders. It was submitted that in the report prepared by both these experts, overall project cost had been compared with like project ject cost had been compared with like project ject cost had been compared with like projects which were proposed to be set up and it emerged from those reports which were proposed to be set up and it emerged from those reports which were proposed to be set up and it emerged from those reports that project cost of the assessee was lowest that project cost of the assessee was lowest in peer comparison. peer comparison. Further, the Ld. Counsel submitted that the Assessing Officer failed the Ld. Counsel submitted that the Assessing Officer failed the Ld. Counsel submitted that the Assessing Officer failed to appreciate that the assessee had placed a fixed price rupees ciate that the assessee had placed a fixed price rupees ciate that the assessee had placed a fixed price rupees

Matix Fertilizers and Chemicals Ltd. 21 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

contract on EPIC for overseas supp EPIC for overseas supply component, a ly component, as such the assessee was immune from fluctuation in foreign currency and assessee was immune from fluctuation in foreign currenc assessee was immune from fluctuation in foreign currenc therefore the assessee had no therefore the assessee had no reason to question the value reason to question the value of invoices raised by the EPIL y the EPIL, based on which the assessee had filed based on which the assessee had filed bill of entry. Further, the Ld. Counsel for the assessee submitted bill of entry. Further, the Ld. Counsel for the assessee submitted bill of entry. Further, the Ld. Counsel for the assessee submitted that the disallowance was made merely on the basis of the that the disallowance was made merely on the basis of the that the disallowance was made merely on the basis of the quantification made in the show cause notice issued on 11.03.2015 quantification made in the show cause notice issued on 11.03.2015 quantification made in the show cause notice issued on 11.03.2015 by the Department of Revenue Intelligence, Mumbai on M/s EPIL nt of Revenue Intelligence, Mumbai on M/s EPIL nt of Revenue Intelligence, Mumbai on M/s EPIL and other associated companies for alleged overvaluation of import and other associated companies for alleged overvaluation and other associated companies for alleged overvaluation from M/s Glob Supply (FZE UAE). The Ld. Counsel brought to our from M/s Glob Supply (FZE UAE). The Ld. Counsel broug from M/s Glob Supply (FZE UAE). The Ld. Counsel broug notice that said show notice that said show-cause notice issued by the by the DRI has been dropped vide order dated 18.05.2023 of r dated 18.05.2023 of Principal Commissioner of Principal Commissioner of Customs Adjudication, Mumbai. The Customs Adjudication, Mumbai. The Ld. Counsel submitted that Ld. Counsel submitted that show-cause notice itself has been cause notice itself has been dropped, then, the very basis of the very basis of the Assessing Officer for alleged calculation also fails. Regarding the the Assessing Officer for alleged calculation also fails. Regarding the the Assessing Officer for alleged calculation also fails. Regarding the statement of Shri Vijay Kumar Goel, the Ld. Counsel submitted that t of Shri Vijay Kumar Goel, the Ld. Counsel submitted that t of Shri Vijay Kumar Goel, the Ld. Counsel submitted that he had only provided d details of the import invoice raised by EPIL for details of the import invoice raised by EPIL for delivery of capital goods under the EPC contract and no where delivery of capital goods under the EPC contract delivery of capital goods under the EPC contract stated of any over-invoicing in import of goods invoicing in import of goods.

5.4 We have heard rival submission of the parties on the issue in rd rival submission of the parties on the issue in rd rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as dispute and perused the relevant material on record. As far as dispute and perused the relevant material on record. As far as allegation of the overvaluation allegation of the overvaluation in import of capital of capital goods is concerned, we find that assessee has paid concerned, we find that assessee has paid consideration consideration to M/s EPIL according to the terms of the contract for the terms of the contract for lump lump sum supply

Matix Fertilizers and Chemicals Ltd. 22 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

and installation of the project. In and installation of the project. In the entire process process, the assessee was immune from escalation from escalation of project price on account of foreign price on account of foreign currency fluctuation currency fluctuation or delay in project execution. Therefore, the delay in project execution. Therefore, the assessee was not concern assessee was not concerned about the price at which at which the EPIL further purchased those goods further purchased those goods, merely for the reason that merely for the reason that associated company of EPIL associated company of EPIL i.e. M/s Glob Supplier M/s Glob Supplier, UAE had purchased those goods from purchased those goods from OEM suppliers at lower prices, at lower prices, therefore, the assessee cannot be burdened with the charges of see cannot be burdened with the charges of see cannot be burdened with the charges of overvaluation in purchase of the capital goods. We further note that overvaluation in purchase of the capital goods. We further note that overvaluation in purchase of the capital goods. We further note that the very basis of the addition i.e. show basis of the addition i.e. show-cause notice of the cause notice of the Directorate of Revenue Intel Directorate of Revenue Intelligence itself has been ligence itself has been canceled by adjudicating authority ity. The Ld. Counsel for the assessee filed a copy . The Ld. Counsel for the assessee filed a copy of the detailed order dated 18.05.2023 issued by the Principal of the detailed order dated 18.05.2023 issued by the of the detailed order dated 18.05.2023 issued by the Commissioner Customs Adjudication, Mumbai. The relevant part of Customs Adjudication, Mumbai. The relevant part of Customs Adjudication, Mumbai. The relevant part of the said order is reproduced as under: the said order is reproduced as under:

“5.12.4 As per the law laid down by abo 5.12.4 As per the law laid down by above judgments, the goods which ve judgments, the goods which are neither prohibited nor have any duty implications cannot be are neither prohibited nor have any duty implications cannot be are neither prohibited nor have any duty implications cannot be confiscated under Section 111(m) of Customs Act, 1962 for mis confiscated under Section 111(m) of Customs Act, 1962 for mis confiscated under Section 111(m) of Customs Act, 1962 for mis declaration of value. In the present case I find that goods are not declaration of value. In the present case I find that goods are not declaration of value. In the present case I find that goods are not prohibited goods and as such are prohibited goods and as such are not liable for confiscation u/s 111(d) not liable for confiscation u/s 111(d) of Customs Act, 1962. There is also no dispute about these goods being of Customs Act, 1962. There is also no dispute about these goods being of Customs Act, 1962. There is also no dispute about these goods being eligible for project import at nil rate of duty, thus having no implication eligible for project import at nil rate of duty, thus having no implication eligible for project import at nil rate of duty, thus having no implication of duty in respect of mis declaration of value, if any. Therefore, I of duty in respect of mis declaration of value, if any. Therefore, I of duty in respect of mis declaration of value, if any. Therefore, I find that the impugned goods are not liable for confiscation under Section that the impugned goods are not liable for confiscation under Section that the impugned goods are not liable for confiscation under Section 111(d) and 111(m) of Customs Act, 1962. Since goods are held not liable 111(d) and 111(m) of Customs Act, 1962. Since goods are held not liable 111(d) and 111(m) of Customs Act, 1962. Since goods are held not liable for confiscation, the penalty u/s 112 (a) or 112 (b) of Customs Act, 1962 for confiscation, the penalty u/s 112 (a) or 112 (b) of Customs Act, 1962 for confiscation, the penalty u/s 112 (a) or 112 (b) of Customs Act, 1962 is not being imposed. There is a pr is not being imposed. There is a proposal in SCN for imposition of oposal in SCN for imposition of penalty u/s 114 AA of the Customs Act, 1962. I find that the SCN, in penalty u/s 114 AA of the Customs Act, 1962. I find that the SCN, in penalty u/s 114 AA of the Customs Act, 1962. I find that the SCN, in para 29.5, has stated that since invoices have been manipulated for para 29.5, has stated that since invoices have been manipulated for para 29.5, has stated that since invoices have been manipulated for purpose of over valuation and false and incorrect declaration/ purpose of over valuation and false and incorrect declaration/ purpose of over valuation and false and incorrect declaration/ statements have been mad statements have been made in the import document, penalty u/s 114 e in the import document, penalty u/s 114 AA is imposable. However, as stated earlier, the charges of over AA is imposable. However, as stated earlier, the charges of over AA is imposable. However, as stated earlier, the charges of over invoicing of import goods have been held as not maintainable, there is invoicing of import goods have been held as not maintainable, there is invoicing of import goods have been held as not maintainable, there is

Matix Fertilizers and Chemicals Ltd. 23 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

no false or incorrect declaration in the import documentation and no false or incorrect declaration in the import documentation and no false or incorrect declaration in the import documentation and therefore, no penalty is imposable u/s 114 AA on the importer notices. o penalty is imposable u/s 114 AA on the importer notices.” o penalty is imposable u/s 114 AA on the importer notices. 5.4.1 Since, the very basis of the making addition of Since, the very basis of the making addition of Since, the very basis of the making addition of overvaluation in purchase of capital goods has been cancelled; the overvaluation in purchase of capital goods has been overvaluation in purchase of capital goods has been addition made in the hands of the assessee on that very same basis addition made in the hands of the assessee on that very same basis addition made in the hands of the assessee on that very same basis cannot be sustained. Accordingly, we uphold the finding of the Ld. cannot be sustained. Accordingly, we uphold the finding of the Ld. cannot be sustained. Accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute. The relevant ground CIT(A) on the issue in dispute. The relevant grounds of the appeal of the Revenue are accordingly dismissed. the Revenue are accordingly dismissed.

6.1 We find that we have also upheld the deletion of disallowance We find that we have also upheld the deletion of disallowance We find that we have also upheld the deletion of disallowance by the Ld. CIT(A) for the addition of overvaluation of the imported by the Ld. CIT(A) for the addition of overvaluation of the imported by the Ld. CIT(A) for the addition of overvaluation of the imported capital goods and therefore, we do not find any infirmity in the capital goods and therefore, we do not find any infirmity in the capital goods and therefore, we do not find any infirmity in the

Matix Fertilizers and Chemicals Ltd. 24 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

order of the Ld. CIT(A) on the issu order of the Ld. CIT(A) on the issue in dispute and accordingly we e in dispute and accordingly we uphold the same. The relevant ground of the appeal of the Revenue uphold the same. The relevant ground of the appeal of the Revenue uphold the same. The relevant ground of the appeal of the Revenue is accordingly dismissed. is accordingly dismissed.

7.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. It is dispute and perused the relevant material on record. It is dispute and perused the relevant material on record. It is undisputed that there is no reference of any seized material relevant undisputed that there is no reference of any seized material relevant undisputed that there is no reference of any seized material relevant to the issue in dispute of over valuation of imported capital goods to the issue in dispute of over valuation of imported capital goods to the issue in dispute of over valuation of imported capital goods and only basis of the addition and only basis of the addition i.e. the show cause notice issued by show cause notice issued by the DRI, was not was not unearthed during the search acti during the search action at the premises of the assessee premises of the assessee, therefore, following our finding in preceding paragraphs, w preceding paragraphs, we are of the opinion that in absence of any e are of the opinion that in absence of any incriminating material no addition/disallowance could be made in incriminating material no addition/disallowance could be made in incriminating material no addition/disallowance could be made in completed assessments i.e. unabated assessments . Thus, the completed assessments i.e. unabated assessments completed assessments i.e. unabated assessments addition of the overvaluation of the imported capital goods and the addition of the overvaluation of the imported capital goods and the addition of the overvaluation of the imported capital goods and the

Matix Fertilizers and Chemicals Ltd. 25 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

corresponding interest interest are also liable are also liable to be deleted. The to be deleted. The corresponding/additional ground corresponding/additional grounds of the appeal of the assessee are appeal of the assessee are accordingly allowed.

8.1 The brief fact qua the issue in The brief fact qua the issue in dispute are that in post search dispute are that in post search inquiry the assessee submitted that entire turnkey project of inquiry the assessee submitted that entire turnkey project of inquiry the assessee submitted that entire turnkey project of manufacturing of ‘Ammonia Ammonia’ and ‘Urea’ was split was split into three sub- contracts as under: Offshore Supply Contract Offshore Supply Contract Rs. 1800 Crores Dated 29.07.2010 Dated 29.07.2010 Onshore Supply Contract Contract Rs. 765 Crores Dated 20.08.2010 Dated 20.08.2010 E&C Contract Rs. 635 Crores Dated 29.07.2010 Dated 29.07.2010 8.2 Further, the Assessing Officer perused the seized material the Assessing Officer perused the seized material the Assessing Officer perused the seized material found from the premises located at B found from the premises located at B-Wing, 5th th floor, Poonam Chambers, Dr. Annie Besat Road, Worli, Mumba Chambers, Dr. Annie Besat Road, Worli, Mumbai i (page No. 67 to 86), which included a letter which included a letter written by Shri Prasant (EPIL) to Shri by Shri Prasant (EPIL) to Shri Nishant Kanodia (i.e. director of assessee company) (i.e. director of assessee company) dated (i.e. director of assessee company) 07.02.2017, wherein the actual expenditure incurred on the three wherein the actual expenditure incurred on the three wherein the actual expenditure incurred on the three contract differed from the from the original contract value. A lue. After taking into consideration submission submissions of the assessee, the Assessing Officer the Assessing Officer found that in case of onshore supply excess expenditure of found that in case of onshore supply excess expenditure of found that in case of onshore supply excess expenditure of Rs.70,77,37,045/- was booked by the assessee which being in was booked by the assessee which being in was booked by the assessee which being in

Matix Fertilizers and Chemicals Ltd. 26 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

excess to the lump sum contract price of Rs.765 c sum contract price of Rs.765 crores agreed and rores agreed and therefore same was disallowable u/s 37(1) of the Act. The relevant therefore same was disallowable u/s 37(1) of the Act. The relevant therefore same was disallowable u/s 37(1) of the Act. The relevant finding of the Assessing Officer is reproduced as under: finding of the Assessing Officer is reproduced as under: finding of the Assessing Officer is reproduced as under:

“6.15. The above reply of the assessee has been carefully 6.15. The above reply of the assessee has been carefully 6.15. The above reply of the assessee has been carefully considered but the same is not found acceptable. considered but the same is not found acceptable. On comparison of actual cost capitalized as WIP by MCL under rison of actual cost capitalized as WIP by MCL under rison of actual cost capitalized as WIP by MCL under different supply contracts and agreement value, the following different supply contracts and agreement value, the following different supply contracts and agreement value, the following points emerges: points emerges: Details of Expenditure Details of Expenditure Contracted Price (as per Actual cost booked by MFCL Actual cost booked by MFCL Agreement) under different supply contract under different supply contract Engineering & Construction Engineering & Construction 635 crores 623.80 crores 623.80 crores Expenditure Onshore supply 765 crores 838.00 crores 838.00 crores Offshore supply 1800 crores 1557.19 crores 1557.19 crores Total 3200 crores 3018.99 crores 3018.99 crores Now, With respect to E&C expenses the assessee has capitalized Now, With respect to E&C expenses the assessee has capitalized Now, With respect to E&C expenses the assessee has capitalized total cost of Rs.623.80 Crores in Capital WIP which is found to be cost of Rs.623.80 Crores in Capital WIP which is found to be cost of Rs.623.80 Crores in Capital WIP which is found to be within the limit of lump sum contract. Similarly with respect to within the limit of lump sum contract. Similarly with respect to within the limit of lump sum contract. Similarly with respect to Offshore procurement, the agreement is for Rs. Offshore procurement, the agreement is for Rs. 1800 Crores and 1800 Crores and the assessee has capitalized total cost of Rs. 1557.19 Crores in the assessee has capitalized total cost of Rs. 1557.19 Crores in the assessee has capitalized total cost of Rs. 1557.19 Crores in Capital WIP which is found to be within the limit of lump sum pital WIP which is found to be within the limit of lump sum pital WIP which is found to be within the limit of lump sum contract. Now with respect to Onshore Expenses contract, the contract price Now with respect to Onshore Expenses contract, the contract price Now with respect to Onshore Expenses contract, the contract price is of Rs. 765 Crores only. However, the details of cost break up 765 Crores only. However, the details of cost break up 765 Crores only. However, the details of cost break up shows that the assessee has capitalized total cost of R shows that the assessee has capitalized total cost of R shows that the assessee has capitalized total cost of Rs. 838.86 Crores in Capital WIP till AY 2015 Crores in Capital WIP till AY 2015-16 which is in excess of 16 which is in excess of individual 'lumpsum' contract value of Rs. 7,65,00,00,000/ individual 'lumpsum' contract value of Rs. 7,65,00,00,000/ individual 'lumpsum' contract value of Rs. 7,65,00,00,000/- signed for onshore supply. Under a lump sum contract a figure lump sum' for onshore supply. Under a lump sum contract a figure lump sum' for onshore supply. Under a lump sum contract a figure lump sum' price for all the works is agreed at the onset. It mea price for all the works is agreed at the onset. It mea price for all the works is agreed at the onset. It means the contractor had to complete the work or supply the materials at contractor had to complete the work or supply the materials at contractor had to complete the work or supply the materials at price decided earlier in the contract. Therefore, the assessee is price decided earlier in the contract. Therefore, the assessee is price decided earlier in the contract. Therefore, the assessee is eligible to claim only Rs. 7,65,00,00,000/ eligible to claim only Rs. 7,65,00,00,000/- under this head as per under this head as per the the the lumpsum lumpsum lumpsum contract contract contract dated dated dated 20.08.2010. 20.08.2010. 20.08.2010. The The The assessee's assessee's assessee's explanation that splitting of contract into 3 parts is merely to explanation that splitting of contract into 3 parts is merely to explanation that splitting of contract into 3 parts is merely to enable EPIL for proper implementation and execution of overall enable EPIL for proper implementation and execution of overall enable EPIL for proper implementation and execution of overall scope of work does not hold water as the total contract value has scope of work does not hold water as the total contract value has scope of work does not hold water as the total contract value has been specifically split up into 3 parts by assigning separate been specifically split up into 3 parts by assigning separate been specifically split up into 3 parts by assigning separate specific values for each component of the contract. If the splitting of specific values for each component of the contract. If the splitting of specific values for each component of the contract. If the splitting of the original contract was only for the convenience purpose there the original contract was only for the convenience purpose there the original contract was only for the convenience purpose there was no need to assign spate values to each component to the was no need to assign spate values to each component to the was no need to assign spate values to each component to the

Matix Fertilizers and Chemicals Ltd. 27 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

original contract in a case where total contract value is original contract in a case where total contract value is original contract in a case where total contract value is already assigned in original agreement. assigned in original agreement. Further, it is also pertinent to Further, it is also pertinent to mention here that in none of these agreements it is mentioned that mention here that in none of these agreements it is mentioned that mention here that in none of these agreements it is mentioned that the contract value between these agreements can be adjusted the contract value between these agreements can be adjusted the contract value between these agreements can be adjusted within the original contract value of Rs. 3200 crores. F within the original contract value of Rs. 3200 crores. F within the original contract value of Rs. 3200 crores. Further, the contention of the assessee contention of the assessee that these 3 agreements are irrelevant that these 3 agreements are irrelevant for the assessee company is not valid because through these for the assessee company is not valid because through these for the assessee company is not valid because through these agreements specific separate value has been assigned to the three agreements specific separate value has been assigned to the three agreements specific separate value has been assigned to the three portion of the actual agreement. portion of the actual agreement. 6.16. Therefore, th 6.16. Therefore, the differential amount of Rs. 73,86,35,024/ e differential amount of Rs. 73,86,35,024/- is excess booked which is liable to disallowed in the year in which excess booked which is liable to disallowed in the year in which excess booked which is liable to disallowed in the year in which the expense amount crosses the limit of Rs. 7,65,00,00,000/ the expense amount crosses the limit of Rs. 7,65,00,00,000/ the expense amount crosses the limit of Rs. 7,65,00,00,000/-. For the sake of clarity, break up of year wise disallowance to be made the sake of clarity, break up of year wise disallowance to be made the sake of clarity, break up of year wise disallowance to be made as under: Onshore AY Basic (A) Cumulative Agreement Variation with Variation with Amount of Basic (B) Limit (C) Agreement (B)- Agreement (B) Disallowance (C) to be made in each year 2012-13 2,14,11,92,219 2,14,11,92,219 7,65,00,00,000 (-) Nil 5,50,88,07,781 5,50,88,07,781 2013-14 4,75,39,12,253 6,89,51,04,472 7,65,00,00,000 (-) Nil 75,48,95,528 75,48,95,528 2014-15 1,46,26,32,573 8,35,77,37,045 7,65,00,00,000 70,77,37,045 70,77,37,045 70,77,37,045 2015-16 3,08,97,979 8,38,86,35,024 7,65,00,00,000 73,86,35,024 73,86,35,024 3,08,97,979 6.17. Therefore, an amount of Rs. 70,77,37,045/ 6.17. Therefore, an amount of Rs. 70,77,37,045/- is disallowed is disallowed u/s. 37(1) of the Act as excess expense booked which is not in u/s. 37(1) of the Act as excess expense booked which is not in u/s. 37(1) of the Act as excess expense booked which is not in conformity with the Onshore Agreement dated 20.08.2010 and conformity with the Onshore Agreement dated 20.08.2010 and conformity with the Onshore Agreement dated 20.08.2010 and hence which is not used for the business purpose and CWIP is hence which is not used for the business purpose and CWIP is hence which is not used for the business purpose and CWIP is reduced accordingly. Penalty u/s. 271(1)(c) of the Act is reduced accordingly. Penalty u/s. 271(1)(c) of the Act is reduced accordingly. Penalty u/s. 271(1)(c) of the Act is initiated separately for furnishing inaccurate particulars of income. separately for furnishing inaccurate particulars of income. separately for furnishing inaccurate particulars of income. (Reduction of CWIP by Rs. 70,77,37,045/ (Reduction of CWIP by Rs. 70,77,37,045/-)” 8.3 On further appeal, the Ld. CIT(A) upheld the disallowance On further appeal, the Ld. CIT(A) upheld the disallowance On further appeal, the Ld. CIT(A) upheld the disallowance observing as under:

“7.3.4 It is the appellant's contention that there is no It is the appellant's contention that there is no over- It is the appellant's contention that there is no valuation of Panagarh valuation of Panagarh project. It is a fact that the appellant has project. It is a fact that the appellant has vide submissions dated 04.02.2021 before the AO contended that vide submissions dated 04.02.2021 before the AO contended that vide submissions dated 04.02.2021 before the AO contended that the EPC contract is on the basis of lumpsum fixed price for Rs. the EPC contract is on the basis of lumpsum fixed price for Rs. the EPC contract is on the basis of lumpsum fixed price for Rs. 3200 crs with 3 distinct components. Vide letter dated 06 3200 crs with 3 distinct components. Vide letter dated 06 3200 crs with 3 distinct components. Vide letter dated 06.03.2023, the appellant has submitted that on 11.06.2012 there were certain the appellant has submitted that on 11.06.2012 there were certain the appellant has submitted that on 11.06.2012 there were certain

Matix Fertilizers and Chemicals Ltd. 28 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

changes in the sourcing of the goods of the project as a result of changes in the sourcing of the goods of the project as a result of changes in the sourcing of the goods of the project as a result of which the value of goods being procured indigenously will be which the value of goods being procured indigenously will be which the value of goods being procured indigenously will be significantly higher than what was originally envisa significantly higher than what was originally envisa significantly higher than what was originally envisaged. The appellant has submitted that there was enhancement of on appellant has submitted that there was enhancement of on appellant has submitted that there was enhancement of on-shore supply contract from Rs. 765 crs. to Rs. 865 crs. on 11.06.2012. supply contract from Rs. 765 crs. to Rs. 865 crs. on 11.06.2012. supply contract from Rs. 765 crs. to Rs. 865 crs. on 11.06.2012. The appellant has submitted that EPIL exited before the completion The appellant has submitted that EPIL exited before the completion The appellant has submitted that EPIL exited before the completion of the project and therefore the project was incompl of the project and therefore the project was incomplete and cost ete and cost required to be incurred by EPIL have now been incurred by Matix required to be incurred by EPIL have now been incurred by Matix required to be incurred by EPIL have now been incurred by Matix to complete the project. The appellant has also relied on the to complete the project. The appellant has also relied on the to complete the project. The appellant has also relied on the statement of Shri Rakesh Patwa (employee of appellant) recorded statement of Shri Rakesh Patwa (employee of appellant) recorded statement of Shri Rakesh Patwa (employee of appellant) recorded u/s. 132(4) of the Act on 12.05.2018 to buttress its u/s. 132(4) of the Act on 12.05.2018 to buttress its u/s. 132(4) of the Act on 12.05.2018 to buttress its claim. The appellant has also referred to a certification by Chartered Engineer appellant has also referred to a certification by Chartered Engineer appellant has also referred to a certification by Chartered Engineer vide letter dated 08.05.2018. I am afraid, I am unable to entertain vide letter dated 08.05.2018. I am afraid, I am unable to entertain vide letter dated 08.05.2018. I am afraid, I am unable to entertain these submissions of the appellant. Such findings/submissions do these submissions of the appellant. Such findings/submissions do these submissions of the appellant. Such findings/submissions do not emanate from the assessment order and i not emanate from the assessment order and it is not known t is not known whether all these evidences and records were placed by the whether all these evidences and records were placed by the whether all these evidences and records were placed by the appellant before the AO. The appellant has repeatedly harped appellant before the AO. The appellant has repeatedly harped appellant before the AO. The appellant has repeatedly harped (including in the letter dated 11.01.2023) that the contract of Rs. (including in the letter dated 11.01.2023) that the contract of Rs. (including in the letter dated 11.01.2023) that the contract of Rs. 3200 crs. was a lumpsum fixed price contract. Under t 3200 crs. was a lumpsum fixed price contract. Under t 3200 crs. was a lumpsum fixed price contract. Under the circumstances, in my view, the excess expenditure claimed to be circumstances, in my view, the excess expenditure claimed to be circumstances, in my view, the excess expenditure claimed to be incurred by the appellant over and above the contracted price of incurred by the appellant over and above the contracted price of incurred by the appellant over and above the contracted price of Rs. 765 crs. towards Onshore supply (within the overall cost price Rs. 765 crs. towards Onshore supply (within the overall cost price Rs. 765 crs. towards Onshore supply (within the overall cost price of Rs. 3200 crs.) cannot be allowed. Hence, the AO's acti of Rs. 3200 crs.) cannot be allowed. Hence, the AO's acti of Rs. 3200 crs.) cannot be allowed. Hence, the AO's action of reduction of CWIP by Rs. 70,77,37,045/ reduction of CWIP by Rs. 70,77,37,045/- stands upheld. stands upheld.” 8.4 Before us, the Ld. Counsel for the assessee submitted that Before us, the Ld. Counsel for the assessee submitted that Before us, the Ld. Counsel for the assessee submitted that Assessee Company was liable for fixed was liable for fixed lump sum contract price of sum contract price of Rs. 3200 crores without any provision for price escalation and same Rs. 3200 crores without any provision for price escalation Rs. 3200 crores without any provision for price escalation was expressly provided in contract and EPC contract was split into was expressly provided in contract and EPC contract was split into was expressly provided in contract and EPC contract was split into three parts only for identification and execution of the relevant three parts only for identification and execution of the relevant three parts only for identification and execution of the relevant work. The Ld. Counsel submitted that the Assessing Officer failed to work. The Ld. Counsel submitted that the Assessing Officer failed to work. The Ld. Counsel submitted that the Assessing Officer failed to understand the nature of the transaction entered into between the understand the nature of the transaction entered int understand the nature of the transaction entered int assessee and EPIL. Each details/justification/explanation had been assessee and EPIL. Each details/justification/explanation had been assessee and EPIL. Each details/justification/explanation had been provided by the assessee company that three separate agreements provided by the assessee company that three separate agreements provided by the assessee company that three separate agreements have been agreed and entered in have been agreed and entered into with EPIL on the specific request EPIL on the specific request of the EPIL. The said agreement agreed and of the EPIL. The said agreement agreed and entered entered into with EPIL

Matix Fertilizers and Chemicals Ltd. 29 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

on specific request of EPIL, for smooth functioning and completion on specific request of EPIL, for smooth functioning and completion on specific request of EPIL, for smooth functioning and completion of project within the due course of time. The Ld. Counsel for the of project within the due course of time. The Ld. Counsel of project within the due course of time. The Ld. Counsel assessee submitted that assessee submitted that in one part price incurred one part price incurred was lower, but in other part price slightly in other part price slightly increased then the stipulated, however stipulated, however the entire expenditure on the project had e expenditure on the project had not exceeded then the not exceeded then the agreed contract value of Rs.3200 crores. The Ld. Counsel submitted value of Rs.3200 crores. The Ld. Counsel submitted value of Rs.3200 crores. The Ld. Counsel submitted that the Ld. CIT(A) allowed relief that the Ld. CIT(A) allowed relief on the issue of on the issue of offshore capital goods on same contention, h ention, however failed to appreciate owever failed to appreciate those very facts and rejected the grounds with cryptic reasons without facts and rejected the grounds with cryptic reasons without facts and rejected the grounds with cryptic reasons without assigning any proper reasons assigning any proper reasons. The Ld. Counsel submitted he Ld. Counsel submitted that the entire document by and between the parties by and between the parties has to be understood has to be understood e of Bishwannath P Singh v. Rajendra Prasad Bishwannath P Singh v. Rajendra Prasad as held in the case of (2006) 4 SCC 432. The Ld. Counsel also referred to the decision of . The Ld. Counsel also referred to the decision of . The Ld. Counsel also referred to the decision of preme Court in the case of Shahzada Nand and Shahzada Nand and the Hon’ble Supreme Court in the case of Sons v. CIT [1977] 108 ITR 358 (SC) Sons v. CIT [1977] 108 ITR 358 (SC) and submitted that and submitted that the Department cannot sit Department cannot sit in arm chair of businessmen and decide how m chair of businessmen and decide how he should have entered in the contract. he should have entered in the contract. The Ld. Counsel also The Ld. Counsel also relied on the decision of the Hon’ble Gujarat High Court in the case of on the decision of the Hon’ble Gujarat High Court in the case of on the decision of the Hon’ble Gujarat High Court in the case of Margabhai Kisanbhai Patel & Co. v. CIT (1977) 108 ITR 54, Margabhai Kisanbhai Patel & Co. v. CIT (1977) 108 ITR 54 Margabhai Kisanbhai Patel & Co. v. CIT (1977) 108 ITR 54 wherein it is held that “unless the transaction in proved as s held that “unless the transaction in proved as s held that “unless the transaction in proved as shame or not bona fide, it is not open to the tax authorities to disregard figures not bona fide, it is not open to the tax authorities to disregard figures not bona fide, it is not open to the tax authorities to disregard figures of transaction shown in the assessee’s books of accounts”. of transaction shown in the assessee’s books of accounts of transaction shown in the assessee’s books of accounts

8.5 On the other hand, the Ld. DR relied on the order of the lowe On the other hand, the Ld. DR relied on the order of the lowe On the other hand, the Ld. DR relied on the order of the lower authorities.

Matix Fertilizers and Chemicals Ltd. 30 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

8.6 We have heard rival submission of the parties and perused the have heard rival submission of the parties and perused the have heard rival submission of the parties and perused the relevant material on record. relevant material on record. The issue in dispute he issue in dispute is in respect of alleged excess expenditure booked by the assessee in its books of excess expenditure booked by the assessee in its books of excess expenditure booked by the assessee in its books of account in respect of onshore supply of p account in respect of onshore supply of part of the project. The art of the project. The entire project has been entire project has been bifurcated by the EPIL in three part by the EPIL in three parts, the first part is of engineering and construction first part is of engineering and construction, second part second part is of onshore supply and third part is offshore supply. In the case of onshore supply and third part is offshore supply. In the case of onshore supply and third part is offshore supply. In the case of engineering and construction and of engineering and construction and offshore supply the expenditure fshore supply the expenditure booked by the assessee is lower than contract price, however in booked by the assessee is lower than contract price booked by the assessee is lower than contract price case of the onshore supply the actual cost booked by the assessee case of the onshore supply the actual cost booked by the assessee case of the onshore supply the actual cost booked by the assessee in its books of account in its books of account is of Rs.832 crores as compared to Rs.765 of Rs.832 crores as compared to Rs.765 crores agreed between the part crores agreed between the parties. The contention of the assessee ies. The contention of the assessee is that the total turnkey project price was Rs.32 the total turnkey project price was Rs.3200 crores whereas assessee has booked in books of account only assessee has booked in books of account only Rs3 3018.99 crores, which is lower than the overall contract price. According to the which is lower than the overall contract price. According to the which is lower than the overall contract price. According to the Assessing Officer the ass Assessing Officer the assessee agreed for contract price of Rs.765 essee agreed for contract price of Rs.765 crores for onshore supply of crores for onshore supply of lump sum basis and therefore, the sum basis and therefore, the excess price paid by the assessee cannot be allowed. We are of the excess price paid by the assessee cannot be allowed. We are of the excess price paid by the assessee cannot be allowed. We are of the opinion that the Assessing Officer has not opinion that the Assessing Officer has not held the excess payment the excess payment of Rs.70.77 crores paid by the assessee as non of Rs.70.77 crores paid by the assessee as non- -genuine. If the assessee has actually actually paid the amount though it may be slightly though it may be slightly more than the contract the contracted price but if it is incurred wholly and price but if it is incurred wholly and exclusively for the purpose of the assessee exclusively for the purpose of the assessee, then merely for the reason that amount reason that amount finally incurred has increased has increased as compared to

Matix Fertilizers and Chemicals Ltd. 31 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

contracted price, the Assessing O the Assessing Officer has no right to discard or fficer has no right to discard or ignore the excess price paid. It is for the assessee to decide whether the excess price paid. It is for the assessee to decide whether the excess price paid. It is for the assessee to decide whether it was required for the installa it was required for the installation of the plant or for the purpose of tion of the plant or for the purpose of the business and the Assessing Officer cannot decide what amount the business and the Assessing Officer cannot decide what amount the business and the Assessing Officer cannot decide what amount the assessee should pay to the EPC contractor. In view of the above the assessee should pay to the EPC contractor. In view of the above the assessee should pay to the EPC contractor. In view of the above decisions relied upon by the assessee decisions relied upon by the assessee, we are of the opinion that we are of the opinion that such disallowance made by the Assessing Officer and sustained by made by the Assessing Officer and sustained by made by the Assessing Officer and sustained by the Ld. CIT(A) is not justified. Accordingly the Ld. CIT(A) is not justified. Accordingly, we set aside the finding we set aside the finding of the Ld. CIT(A) and direct the Assessing Officer to delete said of the Ld. CIT(A) and direct the Assessing Officer to delete said of the Ld. CIT(A) and direct the Assessing Officer to delete said addition. This ground of the appeal of the assessee is accordingly addition. This ground of the appeal of the assessee is accordingly addition. This ground of the appeal of the assessee is accordingly allowed.

Matix Fertilizers and Chemicals Ltd. 32 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

assessee is only academic, hence we are not adjudicating upon is only academic, hence we are not adjudicating upon is only academic, hence we are not adjudicating upon same.

10.1 The identical grounds ical grounds/additional grounds have been raised in have been raised in other years either by the Revenue other years either by the Revenue or by the assessee except assessee except, one ground of the addition of compensation received of Rs.240 crores ground of the addition of compensation received of Rs. ground of the addition of compensation received of Rs. from M/s Essar Oil Ltd. Oil Ltd. , which has been treated as business treated as business income by the AO, therefore, the balance grounds raised in other grounds raised in other years are accordingly adjudicated years are accordingly adjudicated mutatis mutandis. .

Matix Fertilizers and Chemicals Ltd. 33 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

EOL for long term supply of coal methane gas for a period of 20 for long term supply of coal methane gas for a period of 20 for long term supply of coal methane gas for a period of 20 years. According to the assessee years. According to the assessee, the plant was ready for e plant was ready for commissioning as per lender commissioning as per lender’s stipulated time for scheduled s stipulated time for scheduled Commercial Operation Date (SCOD) of 1 Commercial Operation Date (SCOD) of 1st April, 2014 for the April, 2014 for the Fertilizer Plant but the EOL failed to supply the requisite amount of Fertilizer Plant but the EOL failed to supply the requisite amount of Fertilizer Plant but the EOL failed to supply the requisite amount of coal based methane ( coal based methane (CBM) gas to the plant of assessee, therefore f assessee, therefore the assessee was unable to carry out the plant’s pre-commissioning the assessee was unable to carry out the plant’s pre the assessee was unable to carry out the plant’s pre and commissioning activity. T and commissioning activity. The gas is the basic material and there material and there was a delay on the part of n the part of EOL, thus the production could not be the production could not be undertaken. This failure on the p This failure on the part of the EOL, not any not any delayed commissioning but also increased the cost of the project but also increased the cost of the project but also increased the cost of the project. The negotiation with respect to fixed cost reimbursement took place negotiation with respect to fixed cost reimbursement took place negotiation with respect to fixed cost reimbursement took place between IDBI Bank, EOL and the assessee and in August, 2014 between IDBI Bank, EOL and the assessee and in August, 2014 between IDBI Bank, EOL and the assessee and in August, 2014 EOL finally agreed to agreed to pay the assessee, expenses of Rs.240 crores expenses of Rs.240 crores, which has been held by the Assessing Officer as Revenue receipt of which has been held by the Assessing Officer as Revenue receipt of which has been held by the Assessing Officer as Revenue receipt of the assessee, whereas according to the assessee this was receipt in whereas according to the assessee this was receipt in whereas according to the assessee this was receipt in the nature of the capital and therefore, assessee is eligible for set off the nature of the capital and therefore, assessee is eligible for the nature of the capital and therefore, assessee is eligible for of the same against the capital work e against the capital work-in-progress. The Ld. Assessing progress. The Ld. Assessing Officer disallowed this claim of the assessee observing as under: Officer disallowed this claim of the assessee observing as under: Officer disallowed this claim of the assessee observing as under:

“4.4.4. Thus, the claim of the assessee that the compensation received 4.4.4. Thus, the claim of the assessee that the compensation received 4.4.4. Thus, the claim of the assessee that the compensation received is capital receipt is found to be not tenable in law as per f is capital receipt is found to be not tenable in law as per f is capital receipt is found to be not tenable in law as per facts of the case. The reliance of the assessee on various case laws is also found case. The reliance of the assessee on various case laws is also found case. The reliance of the assessee on various case laws is also found to be not valid as the facts of the present case are different from the to be not valid as the facts of the present case are different from the to be not valid as the facts of the present case are different from the case laws relied upon by the assessee. case laws relied upon by the assessee. 4.5 It is well settled law that the word "income" has a very wi It is well settled law that the word "income" has a very wi It is well settled law that the word "income" has a very wide amplitude and it should be construed in its general and natural and it should be construed in its general and natural and it should be construed in its general and natural meaning i.e. a thing that comes in. In the case of assessee, a definite meaning i.e. a thing that comes in. In the case of assessee, a definite meaning i.e. a thing that comes in. In the case of assessee, a definite receipt in the form of compensation has come in the hands of the receipt in the form of compensation has come in the hands of the receipt in the form of compensation has come in the hands of the

Matix Fertilizers and Chemicals Ltd. 34 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

assessee and is accordingly, taxable as income being assessee and is accordingly, taxable as income being a revenue receipts. 2(24) "income" includes 2(24) "income" includes- (vd) the value of any benefit or perquisite taxable under clause (iv) of (vd) the value of any benefit or perquisite taxable under clause (iv) of (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28; 4.6. Further, the provision of section 28(iv) are residuary in nature and Further, the provision of section 28(iv) are residuary in nature and Further, the provision of section 28(iv) are residuary in nature and provides that if any benefit or perquisite arises f provides that if any benefit or perquisite arises from business or the rom business or the exercise of a profession by the assessee, the same is chargeable to tax exercise of a profession by the assessee, the same is chargeable to tax exercise of a profession by the assessee, the same is chargeable to tax under the head of Profits and gains of business or profession. In this under the head of Profits and gains of business or profession. In this under the head of Profits and gains of business or profession. In this connection, provisions of section 28(iv) are reproduced hereunder: connection, provisions of section 28(iv) are reproduced hereunder: connection, provisions of section 28(iv) are reproduced hereunder: "28. The following income "28. The following income shall be chargeable to income-tax under the tax under the head "Profits and gains of business or profession", head "Profits and gains of business or profession",— (iv) the value of any benefit or perquisite, whether convertible into (iv) the value of any benefit or perquisite, whether convertible into (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;" money or not, arising from business or the exercise of a profession;" money or not, arising from business or the exercise of a profession;" 4.7. It is now well It is now well-settled that in order to decide whether or not a settled that in order to decide whether or not a payment is revenue receipt its true nature and substance must be is revenue receipt its true nature and substance must be is revenue receipt its true nature and substance must be looked into. The form in which it is expressed is not decisive. How the looked into. The form in which it is expressed is not decisive. How the looked into. The form in which it is expressed is not decisive. How the assessee treated the payment is not conclusive of its nature. If the assessee treated the payment is not conclusive of its nature. If the assessee treated the payment is not conclusive of its nature. If the assessee himself has treated the payment in his account books as assessee himself has treated the payment in his account books as assessee himself has treated the payment in his account books as compensation or consideration received for loss of earnings or profits, compensation or consideration received for loss of earnings or profits, compensation or consideration received for loss of earnings or profits, it is revenue receipt. If the payment is received in the ordinary course it is revenue receipt. If the payment is received in the ordinary course it is revenue receipt. If the payment is received in the ordinary course of the business of the assessee for loss of st of the business of the assessee for loss of stock-in-trade, it is revenue trade, it is revenue receipt. If, on the other hand, the payment received is towards receipt. If, on the other hand, the payment received is towards receipt. If, on the other hand, the payment received is towards compensation for extinction or sterilisation partly or fully of a profit compensation for extinction or sterilisation partly or fully of a profit compensation for extinction or sterilisation partly or fully of a profit- earning source (capital asset), such receipt not being in the ordinary earning source (capital asset), such receipt not being in the ordinary earning source (capital asset), such receipt not being in the ordinary course of the assess course of the assessee's business, it must be construed as capital ee's business, it must be construed as capital receipt. Any sum received in substitution of income is revenue receipt. receipt. Any sum received in substitution of income is revenue receipt. receipt. Any sum received in substitution of income is revenue receipt. It was been held that damages received are the compensation for the It was been held that damages received are the compensation for the It was been held that damages received are the compensation for the profits which were to be earned. profits which were to be earned. 4.8. Now in the instant case as alre 4.8. Now in the instant case as already observed, compensation has ady observed, compensation has been paid for non been paid for non-supply or short supply of CBM which is the main supply or short supply of CBM which is the main raw material for the production of Ammonia raw material for the production of Ammonia- Urea. Thus, the Urea. Thus, the compensation is directly linked to the Revenue generating activity of compensation is directly linked to the Revenue generating activity of compensation is directly linked to the Revenue generating activity of the assessee and it has to be the assessee and it has to be treated as Revenue Receipt. 4.9. Assessee being a company has to compulsory follow mercantile 4.9. Assessee being a company has to compulsory follow mercantile 4.9. Assessee being a company has to compulsory follow mercantile system of accounting. As per the fifth Amendment to SPA between system of accounting. As per the fifth Amendment to SPA between system of accounting. As per the fifth Amendment to SPA between EOL and MFCL on 01.09.2015, compensation of Rs. 240 crores has EOL and MFCL on 01.09.2015, compensation of Rs. 240 crores has EOL and MFCL on 01.09.2015, compensation of Rs. 240 crores has accrued to the assessee for the pe accrued to the assessee for the period 01.04.2015 to 30.09.2015 riod 01.04.2015 to 30.09.2015 pertaining to AY 2016 pertaining to AY 2016-17 which is taxable as business income and the 17 which is taxable as business income and the assessee has not offered to tax during the assessment year 2016 assessee has not offered to tax during the assessment year 2016 assessee has not offered to tax during the assessment year 2016-17.”

Matix Fertilizers and Chemicals Ltd. 35 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

11.1 On further appeal, the Ld. CIT(A) however deleted the addition On further appeal, the Ld. CIT(A) however deleted the addition On further appeal, the Ld. CIT(A) however deleted the addition holding the same to be capital cost of the plant. The relevant finding be capital cost of the plant. The relevant finding be capital cost of the plant. The relevant finding of the Ld. CIT(A) is reproduced as under: of the Ld. CIT(A) is reproduced as under:

“7.3.2 The appellant has reduced the entire compensation of Rs. 240 The appellant has reduced the entire compensation of Rs. 240 The appellant has reduced the entire compensation of Rs. 240 crs. From IS CHIP in A.Y. 2017 IS CHIP in A.Y. 2017-18. However, t the entre compens that 18. However, t the entre compens that this compensation is revenue in nature and is liable to be taxed as this compensation is revenue in nature and is liable to be taxed as this compensation is revenue in nature and is liable to be taxed as such in the year under consideration. A perusal of the P&L Ac. of the such in the year under consideration. A perusal of the P&L Ac. of the such in the year under consideration. A perusal of the P&L Ac. of the appellant for the year shows that there is no income from O appellant for the year shows that there is no income from O appellant for the year shows that there is no income from Operations. Only other income of Rs. 1,2882 481/ Only other income of Rs. 1,2882 481/- has been included in the PaL has been included in the PaL Ac. Similarly, it is seen that the WIP as on 31.03.2016 is stated to be Ac. Similarly, it is seen that the WIP as on 31.03.2016 is stated to be Ac. Similarly, it is seen that the WIP as on 31.03.2016 is stated to be Rs. 5642.52,35,329/ Rs. 5642.52,35,329/-. A perusal of the P&L A/c. of F.Y. 2016 . A perusal of the P&L A/c. of F.Y. 2016-17 also shows that no revenue from operations shows that no revenue from operations was booked during the year. It was booked during the year. It is only in F.Y. 2017 is only in F.Y. 2017-18 that revenue from operations of Rs. 592.7 18 that revenue from operations of Rs. 592.7 lakhs has been booked as income. Further, Note No. 1 to Financial lakhs has been booked as income. Further, Note No. 1 to Financial lakhs has been booked as income. Further, Note No. 1 to Financial Statement of that year states that "the company had commissioned its Statement of that year states that "the company had commissioned its Statement of that year states that "the company had commissioned its plant on 01.10.2017 and plant on 01.10.2017 and has started commercial production". also has started commercial production". also seen that the WIP and related pre seen that the WIP and related pre-operative expenses have been operative expenses have been shifted to fixed assets schedule during the year. Note 3A of the shifted to fixed assets schedule during the year. Note 3A of the shifted to fixed assets schedule during the year. Note 3A of the audited Financial Statement shows that a sum of Rs. 6319.32 crs. has audited Financial Statement shows that a sum of Rs. 6319.32 crs. has audited Financial Statement shows that a sum of Rs. 6319.32 crs. has been transferred/ been transferred/capitalized 7.3.3 In the light of the above, I am of the view that the claim of the In the light of the above, I am of the view that the claim of the In the light of the above, I am of the view that the claim of the appellant that non that non-availability of Coal Bed Methane Gas as per the availability of Coal Bed Methane Gas as per the GSPA agreement resulted in the delayed commissioning of the plant, GSPA agreement resulted in the delayed commissioning of the plant, GSPA agreement resulted in the delayed commissioning of the plant, which eventually happened in 2017 doe which eventually happened in 2017 does have merit. This is not a s have merit. This is not a case where after the commissioning has been done, the supply of gas case where after the commissioning has been done, the supply of gas case where after the commissioning has been done, the supply of gas has been disrupted. In such a scenario, such compensation could be has been disrupted. In such a scenario, such compensation could be has been disrupted. In such a scenario, such compensation could be termed to be revenue in nature. However, in the scenario of the termed to be revenue in nature. However, in the scenario of the termed to be revenue in nature. However, in the scenario of the appellant where the commissio appellant where the commissioning itself was delayed, the view could ning itself was delayed, the view could be formed that such compensation is related to the capital cost of the be formed that such compensation is related to the capital cost of the be formed that such compensation is related to the capital cost of the plant. 7.3.4 It is also noted that the appellant has reduced such It is also noted that the appellant has reduced such It is also noted that the appellant has reduced such compensation from compensation from the CWIP, effectively reducing future depreciation the CWIP, effectively reducing future depreciation claims. This, it cannot be said that the receipts are not being taxed at is, it cannot be said that the receipts are not being taxed at is, it cannot be said that the receipts are not being taxed at all. 7.3.5 In view of the above, considering the specific facts of this case, In view of the above, considering the specific facts of this case, In view of the above, considering the specific facts of this case, the addition made by the AO by treating the compensation as addition made by the AO by treating the compensation as addition made by the AO by treating the compensation as 'Business Income" stands deleted. However, such income 'Business Income" stands deleted. However, such income shall indeed shall indeed be reduced from CWIP and the enhanced depreciation granted, if any, be reduced from CWIP and the enhanced depreciation granted, if any, be reduced from CWIP and the enhanced depreciation granted, if any, shall stand withdrawn, so that there is no double benefit to the shall stand withdrawn, so that there is no double benefit to the shall stand withdrawn, so that there is no double benefit to the appellant. In view of this specific finding, other averments of the AO or appellant. In view of this specific finding, other averments of the AO or appellant. In view of this specific finding, other averments of the AO or that of the appellant are not requir that of the appellant are not required to be adjudicated.”

Matix Fertilizers and Chemicals Ltd. 36 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

11.2 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The dispute relevant material on record. The dispute is in respect of the in respect of the character of compensation received from the compensation received from the EOL for failure in OL for failure in supplying Methane Gas for commissioning a supplying Methane Gas for commissioning and dry dry run of the project. It is undisputed that the compensation has been paid by project. It is undisputed that the compensation has been paid by project. It is undisputed that the compensation has been paid by the EOL to the assessee for the reason OL to the assessee for the reason of non-supply of the quantity supply of the quantity of the methane gas to the assessee for its of the methane gas to the assessee for its dry run of the project run of the project and due to which the project cost of t project cost of the assessee has gone up and he assessee has gone up and therefore, the EOL agreed to pay compensation of Rs.240 crore OL agreed to pay compensation of Rs.240 crore OL agreed to pay compensation of Rs.240 crores to the assessee. The issue the assessee. The issue-in-dispute is in relation to relation to nature of the compensation whether it is in the character of the revenue or in the compensation whether it is in the character of the revenue or in the compensation whether it is in the character of the revenue or in the capital. We find that the capital. We find that the compensation paid mainly for the reason compensation paid mainly for the reason that the dry run of the project could not carried out which is part of run of the project could not carried out which is part of run of the project could not carried out which is part of the activity in the capital nature and therefore the compensation the activity in the capital nature and therefore the compensation the activity in the capital nature and therefore the compensation received also acquire received also acquired the nature of the capital and eligible for the nature of the capital and eligible for adjustment against the capital work ainst the capital work-in-progress. The Assessing progress. The Assessing Officer has made addition on substantive basis in the assessment Officer has made addition on substantive basis in the Officer has made addition on substantive basis in the year 2016-17 and on protective basis and on protective basis in assessment year in assessment year 2017-18, for the reason that assessee has shown commissioning of the plant or the reason that assessee has shown commissioning of the plant or the reason that assessee has shown commissioning of the plant in that assessment year. In our opinion the Ld. CIT(A) has correctly assessment year. In our opinion the Ld. CIT(A) has correctly assessment year. In our opinion the Ld. CIT(A) has correctly charactized the compensation received by the assessee as in the charactized the compensation received by the assessee as in the charactized the compensation received by the assessee as in the nature of the capital and we do not find any infirmity in the order of nature of the capital and we do not find any infirmity in the order of nature of the capital and we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute the Ld. CIT(A) on the issue in dispute . Accordingly ccordingly, we uphold the

Matix Fertilizers and Chemicals Ltd. 37 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

same. The relevant ground of appeal of the Revenue is accordingly same. The relevant ground of appeal of the Revenue is accordingly same. The relevant ground of appeal of the Revenue is accordingly dismissed.

12.1 As far as the issue of depreciation on red As far as the issue of depreciation on reduction in work uction in work-in- progress post capitalization raised progress post capitalization raised in the appeal of Revenue and of in the appeal of Revenue and of the appeal of assessee for the appeal of assessee for AY 2018-19 and 2019-20 20, is concerned, same is consequential to the addition of overvaluation in import of same is consequential to the addition of overvaluation in import of same is consequential to the addition of overvaluation in import of capital goods, which we have already capital goods, which we have already deleted, thus deleted, thus this ground is also decided against the Revenue. decided against the Revenue.

Order pronounced in the open Court on nounced in the open Court on 18/01 01/2024. Sd/ Sd/- Sd/- (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 18/01/2024

Matix Fertilizers and Chemicals Ltd. 38 Matix Fertilizers and Chemicals Ltd. ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, ITA Nos. 1688, 1687, 1686, 1685, 1683, 1684, 2148 to 2154 & CO No. 108/Mum/2023 2148 to 2154 & CO No. 108/Mum/2023

Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai