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TMI Blog2024 (2) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons and evidences that the extent of over-valuation alleged in the show cause notice in respect of RNRL other intermediaries are more or less same, suggestive of the fact that the relationship per se has not affected the transaction value . Hence considering the peculiar facts and circumstances in totality, in our considered view, the determination made by the AO in any case is un- sustainable being sans foundation/substantive material and thus the impugned order is affirmed and the appeal filed by the Revenue Department is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract Business, which includes subcontract charges in the Profit and Loss Account, which was in turn transferred to Geet Exim Pvt. Ltd by PATH after deducting Its commission. No actual work has been done by any of the entitles, either be it PATH or Geet Exim and the money was transferred out without utilization for any of the business purposes. 'Back to back' payments were made to Geet Exim Pvt, Ltd, by PATH without actual execution of contractual work. The expenditure to the extent of Rs. 40 crores Is not genuine and the sub-contract expenditure has been Inflated by the incorporation of this non-genuine expenditure. Therefore, I have reasons to believe that the Income chargeable to tax to the extent of Rs. 40 crores has been under-assessed. The assessee, Reliance Infrastructure Limited, has purchased coal of Indonesian origin for the thermal power plant In Dahanu (Maharashtra) which were purchased from intermediaries at an Inflated rate than the actual value of such coals sourced from the original suppliers. The said transactions are fully paid during the year under consideration or are standing as sundry creditors and are claimed as fuel purchases In the Profit and Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount under the head cost of fuel along with copies of Invoices, LOAs, Ledger account bank statement reflecting the transactions. 4.4 In response to aforesaid queries, though the Assessee vide letter dated 19,03.2018 has inter-alia submitted "That the electricity business of the company is regulated by Maharashtra Electricity Regulatory Commission (MERC). The Assessee's business is cost plus business. All the expenses incurred namely cost of fuel, power purchase, other operating cost etc. are pass through. Thus, any increase or decrease in cost of power sold would result into Increase or reduction in tariff respectively without affecting the profitability from the business," however as per AO ,did not furnish the details of purchase of fuel, as called for Vide notice u/s,142(1)of the Act. Therefore, vide letter dated 12.10.2018, the AO requested the Assessee to furnish the details of the fuel as called for vide notice u/s, 142(1) and vide letter dated 19.12,2018 also show-caused the Assessee to explain, as to why the expenditure to the tune of Rs. 16,07,90,522/- being the inflated cost of fuels should not be disallowed and added to its Income. 4.4 In response to the said show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and selected the lower quote and therefore it cannot be said that the company has purchased / Imported coal at high / inflated price," 4.5 The Assessing Officer perused and considered the submissions of the Assessee and by referring to the enquiry report of DRI, observed as under: - "7.1. The Coal Procurement team (CPT) of R Infra floats inquiries for the required quality and quantity of coal and negotiates with the bidders, After settling terms a, conditions, quality specifications and price, the successful bidders (called as 1st stage traders) were told to route the transactions through certain intermediaries firms. The Intermediary firms were given letters of awards (LoAs) by R Infra for supply of coal as per specifications finalized by the CPT with the 1st stage traders. Intermediary firms further issued LoAs to the 1st stage traders selected by the CPT of R Infra In their bidding process, Both the LoAs are almost mirror of each other except the price In as much as the price In the LoAs from the Intermediary firms to the 1st stage traders was as negotiated by the CPT of R Infra, but the price in the LoAs from R Infra to the Intermediary firms was much higher, T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntermediary firms were not Independent suppliers, per-se, but merely intermediary dummy agents for artificial inflation of Invoice for enabling siphoning off of money abroad as a part of the modus- operandi. 7.5 The assessee through Coal Procurement Team (CRT) of Reliance ADAG were all along aware of the actual suppliers of the Coal ordered by them on the intermediary firms, In fact, they only dealt with the actual suppliers and finalized the prices, The Coal was shipped directly to India by the actual suppliers and only documents were routed through the intermediary firms, The Intermediary firms appear to have executed back-to-beck contracts with assessee with overlapping scope and responsibility and supply of the Coal when they were fully aware that these responsibilities were entrusted upon the actual suppliers, The Intermediary firms had no role to play even in negotiation, finalization of order with actual suppliers, and freightment of cargo as the incoterms of trade remained identical between the actual suppliers and the Intermediary firms on one hand and the intermediary firms and assessee on the other. That the intermediary firms were dummy supplier created only for -arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate contains the FOB value of the goods. The assessee have, however, In majority of the Import consignments, have not availed of the concession eligible to them. It appears that they have deliberately not claimed the concession because it would have necessitated submission of the 'Form-AI' certificates, which In turn would have revealed the true FOB value of the Coal consignments to the Assessing Officers and would have exposed them to scrutiny for overvaluation. 7.9 Further, it Is pertinent to mention that the assessee, as the importers of the overvalued Coal, has preferred to pay more Customs duty inasmuch as they have not claimed the exemption under AIFTA for many Imports, This eagerness to pay taxes when less were payable was apparently for the reason that the taxes formed part of landed cost of the Coal which was being factored In for power tariff accrued to the power generators. Thus, the non-payable taxes paid by the power generators did not affect their profitability and was revenue neutral. 7.10 The overvaluation of Coal has the effect of artificially raising the power tariff fixed by the respective state electricity regulatory commission. In India the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial pronouncements, gain substance, weight and meaning, time and cases of financial and economic fraud, Assessees have raised questions about the evidence rooted in circumstances, and the test of human probability. 4.6 The AO also analyzed and considered the judgments passed by the Hon'ble Apex Court and High Courts and the Tribunal and ultimately made the disallowance/addition of Rs. 16,07,90,522/- on account of inflated coal expenses by holding that Assessee has purchased coal from Indonesia originally, which was purchased by intermediary at an inflated rate than the actual value of coal rate. Conclusion drawn by the AO is reproduced herein below: "8.3.8 Finally, only very recently, the Bangalore bench of the Hon'ble ITAT, in the case of M.K. Rajeshwari vs. The ITO, Ward-3, Raichur, dismissed the appeal of the assessee against the order of the Ld. CIT (A) upholding the additions made by the Assessing Officer : "We do not find merit in these contentions of the assesses in the lights of the facts that there is prevalent practice in the country through which unaccounted money Is converted Into long term capital gain by circuitous means. While dealing with the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 1. The Paras 36 to 40 of the Hon'ble CESTAT order elaborates as to how the valuation done by the Customs Authorities is arbitrary and without any reasoning. Therefore, the fundamental allegation of over valuation of coal made by DRI which has been dealt in detail in these Paras has been rendered without any basis. 2. The Paras 32 to 35 and 43 elaborates as to how the goods in question can not be confiscated and fine imposed under provision of 111(m) of the Customs Act 1962 and therefore how Section 112 of the Customs Act, 1962 cannot be invoked to impose penalty. Hon'ble CESTAT concluded that imposition of penalty is without any basis. Therefore, on the basis of above said Orders, it can be concluded that the imported coal is not overvalued and there is no inflation in coal expenses. In view of order of Hon'ble CESTAT, further Hon'ble Bombay High Court vide order dated 18th June 2019 disposed the appeal as not maintainable and from the above mentioned facts of the case, it is inferred that coal expenses are not inflated. This ground of appeal is allowed." 6. The Revenue being aggrieved is in appeal before us. The Ld.DR more or less claimed as under: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. DRI report pertains to AYs 2011-12 to 2015-16, hence facts of AY 2016-17 are different from the AYs in appeal. 4. ITAT's observation on revenue-neutrality of the transaction and profitability element is not correct because it has not absolved the Assessee from the wrong claim of non-genuine expenses in P&L account and which also has other consequences such as imposition of penalty u/s 271(1)(c) of the Act." 7. On the contrary, the Assessee more or less claimed as under: - "The Assessee submits that the Assessing Officer has disallowed so-called inflated coal expenses merely based on the preliminary report received from the Directorate of Revenue Intelligence (DRI), Mumbai without providing the same to the Assessee and also without providing any opportunity of cross examination of the information to the Assessee. The Assessee has a coal-based generation plant at Dahanu and requires coal as a primary fuel for generation of power. Due to shortage in domestic supply of coal, the Assessee resorted to import of coal required for generation of power. The Assessee follows a proper procedure for purchase of coal. Quotations are called from various parties for the coal re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESTAT dated 31.05.2018 was further challenged by the Additional Director General (DRI) Mumbai before the Bombay High Court. The Hon'ble Bombay High Court also vide their order dated 18.06.2019 in customs appeal no. 7 of 2019 has dismissed the appeal as not maintainable. Therefore the order of CESTAT has attained finality (Page 91 to 100 of Paperbook for A.Y. 2011-12) Further the Assessee has also received Intimation under section 28(9A) of the Customs Act, 1962 dated 25.03.2019 wherein the Addnl. Director General, DRI (Adjudication), Mumbai has intimated the Assessee that since the issue involved in SCN No. DRI/MZUF/INT-154/2014 dated 31.08.2016 issued in Assessee's case is similar to the one dealt in the matter of M/s. Knowledge Infrastructure Systems Limited, the same is covered under clause (a) of section 28(9A) of the Customs Act, 1962. The Department had also filed appeal before the Hon'ble Supreme Court against the Bombay High Court Order dated 18.06.2019 which was subsequently withdrawn by the Department as stated in the Supreme Court Order in Civil Appeal No.1666/2020 dated 24.01.2023 (Copy enclosed and marked Annexure "A"). DRI Show cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessee therefore submits that the disallowance of so-called inflated coal expenses is wrongly made and ought to be deleted. . . Conclusion: The Assessee submits that the reopening of the assessment is bad in law as DRI show cause notice which was the material relied upon for reopening the assessment is quashed and is therefore not in existence. Further, there is no evidence of the so called inflation of coal price. The Assessing Officer has not provided any tangible material or evidence of the so called inflation. Thus the addition is made without any evidence and supporting documents. The Assessee therefore prays that the department's appeal may be dismissed." 8. Heard the parties and perused the materials available on record. In this case, the regular assessment was made under section 143(3) of the Act and the total income of the Assessee was determined at Rs. 69,04,62,313/- vide consequential order dated 27/04/2017 passed by the AO. Subsequently, the case of the Assessee was reopened under section 147 of the Act by recording reasons, main part of which is reproduced herein below for the sake of brevity and ready reference: - "Reliance Infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, statutory notices have also been issued in response to which the Assessee from time to time made submissions as called for and furnished the details as well. The Assessing Officer observed that the Directorate of Revenue Intelligence (DRI), Mumbai had investigated a case of over valuation in the import of coal of Indonesian origin wherein enquiries were conducted with Reliance Infrastructure Ld (RInfra) under the provisions of Customs Act. The Assessee has purchased coals of Indonesian origin for the thermal plant in Dahanu (Mumbai) which were purchased from intermediaries at an inflated rate than the actual value of such coals sourced from the original suppliers. The said transactions are fully paid during the year under consideration or are standing as sundry creditors and are claimed as "fuel purchases‟ in the profit & loss account under the head "cost of fuel‟. Therefore, the expenditure to the tune of Rs. 16,07,90,522/- is not genuine. Consequently, the Assessee was asked to furnish complete details of expenses debited to its profit & loss account under the head "cost of fuel‟ along with copies of invoices, LoS, ledger account, bank statement refle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he coal was shipped directly to India by the coal suppliers and only invoices were routed through the intermediary firms. The Reliance ADAG company i.e.the Assessee knowing fully as well as to whom the actual suppliers were and where the coal was coming from (as the coal was shipped directly to them) have chosen to pay such an inflated value and that too on such a large scale which appears to be contrary to all commercial prudence and due diligence. It appears that Reliance ADAG company, i.e. the Assessee has colluded with the intermediary firms and paid various persons to import impugned coal by over valuation following a well-planned and executed modus operandi of trade passed mis-pricing. Further, other intermediary firms were not independent suppliers per se, but merely intermediary dummy agents for artificial inflation of invoice for enabling siphoning off of money abroad as a part of the modus-operandi. The Assessing Officer also observed that the conduit companies i.e. intermediary firms that have been used as mentioned below:- "I, Reliance Natgral Resources Ltd. (RNRL); Imports only upto Oct., 2010, 4 consignments. II. Larimar Holdings Ltd,, Jersey ("LHL"): A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice, the issues involved relates to the same matter as involved in the instant case. The Ld. Principal Commissioner of Customs (Adjudication) has clearly held that the show cause has not given out any separate reasons and evidences that the extent of over-valuation alleged in the show cause notice in respect of RNRL & other intermediaries are more or less same suggestive of the fact that the relationship per se has not affected the transaction value. The declared value does not appear to satisfy the requirements of the transaction value under section 14 of the Customs Act, 1962 read with rule 3(1) an 2(2(vi) of the CVR, 2007 and needs to be arrived at in accordance with the provisions of sub section (1) of section 14 of Customs Act, 1962 read with sub rule (1) of Rule 3 of the CVR. 8.7 We further observe that the Ld. Commissioner while deleting the addition under consideration also mainly relied upon the order passed in Knowledge Infrastructure Systems Pvt. Ltd (supra) by CESTAT, Mumbai 8.8 It is a fact that issues involved in this case and in the case of Knowledge Infrastructure Systems Pvt Ltd are exactly similar, wherein the order in original dated 23/12/2016 has also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SUBHASH AGRAWAL) Additional Director General DRI (Adjudication), Mumbai l. M/s Reliance Infrastructure Ltd., Dhirubhai Ambani Knowledge City, Koparkhairane, Thane Belapur Road, Navi Mumbai - 400 710. 2. M/s Rosa Power Supply Co. Ltd., Dhirubhai Ambani Knowledge City, Koparkhairane, -Thane Belapur Road, Navi Mumbai - 400 710. 8.10 We further observe that the co-ordinate bench of the Tribunal in Assessee‟s own case for the A.Y. 2016-17, vide order dated 29/03/2023 also dealt with identical issue as involved in the instant case and ultimately by taking cognizance of the decision in Knowledge Infrastructure Systems Pvt Ltd (supra), deleted the similar addition as involved in the instant case by holding as under:- "47. We have heard rival submissions and perused the relevant finding given in the impugned orders. For the purpose of generation of electricity plant at Dahanu which requires coal as a primary fuel for generation of power, assessee purchased coal from M/s. Century Exports Ltd. Hongkong based company for supply of imported coal to Dahanu thermal power station at agreed standard terms and conditions. The assessee had purchased imported coal from C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forums and as informed by the assessee, the same are still at the stage of show-cause notice and no final order has been passed. Thus, all the observations of AO has no relevance at all. As observed above, the case of the Revenue is that assessee might have inflated cost of the coal, however, once the cost of the coal is part of tariff price determination by the regulatory authority and once the electricity is sold on the same tariff which has been credited to the profit and loss account and offered to tax, then there is no question of separately taxing the alleged inflated cost of coal. Therefore, we agree with the contention of the ld. Counsel that in such circumstances, no disallowance at all is warranted. Accordingly, the entire addition is deleted and consequently, the Revenue's appeal is dismissed and Assessee's appeal is allowed." 8.11 It is also a fact that Hon‟ble High Court of Bombay,vide order dated 18/06/2019 by dismissing the appeal of the Customs Department, has already affirmed the decision of CESTAT order dated 31/05/2018. The said order dated 18/06/2019 passed by the Hon‟ble High Court, was though also challenged before the Hon‟ble Apex Court, h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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