9911796707
TMI Blog2025 (1) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... , NFAC erred in law in deleting the addition of Rs. 140,49,65,231/- and accepting the income of the assessee as per its audited annual report without appreciating the facts that the assessee is following the mercantile system of accounting. 2. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A), NFAC erred in law in deleting the addition without appreciating the facts that the interest income was liable to be taxed on accrual basis in line with mercantile system of accounting adopted by the assessee." 4. The brief facts are that the assessee company was incorporated on 15.02.2005 as Special Purpose Company promoted by Indian Financial Institutions, vis-à-vis IDBI, ICICI Bank, IFCI Ltd., SBI and Canara Bank and the same is registered as a Government Company u/s. 617 of the Companies Act, 1956. The assessee company was set up for the sole purpose of settlement of claim of off-shore lenders of Dabhol Power Co. Ltd. (DPC) as per a comprehensive restructuring plan for the purpose of revival of DPC's power project approved by Empowered Group of Ministers (EGOM) constituted by Government of India (GOI). The assessee settled the claims by raising loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val submissions and perused the materials available on record. The submission made by the assessee before the ld. CIT(A) has been reproduced hereinunder for ready reference: "Assessee Company Gas and Power Investment Co Limited (GPICL), incorporated on February 15, 2005, is special purpose company, promoted by Indian Financial Institutions viz. IDBI, ICICI Bank, IFCI Ltd., SBI and Canara Bank and registered under section 617 of Company Act, 1956 as a government company. GPICL was set up for the specific purpose of settlement of claim of off- shore lenders of Dabhol power company (DPC), as envisaged under a comprehensive restructuring plan for revival of the DPC's power project, finalized under the aegis of the Empowered Group of Ministers (EGOM) constituted by the Government of India (GOI). GPICL settled the claim by raising loans from the IFIs as also placing secured, nonconvertible GOI guaranteed bonds aggregating Rs. 1309.30 crore with Life Insurance Corporation of India (LIC). Under the revival plan and pursuant to a consent approved by Bombay High Court, the assets of DPC were acquired by Ratnagiri Gas and Power Pvt. Ltd. (RGPPL), a company set up by GAIL (India) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld manage to adopt annual report for FY 2013-14 The Audit report for FY 2013-14 was signed on 24.01.2022 and Tax Audit report was obtained on 31.03.2022 and the tax of Rs. 1,61,01,794/- was also paid on 31.03.2022. Due to this the assessee could not file its ROI in time and also could not respond to notice issued under section 148 and subsequent notices under section 142 (1). On 24 March 2022 a show cause notice was issued. In response to the same the assessee filed its ROI on 31.03.2022 but could not generate Acknowledgement for AY 2014-15 as during filling process of ROI on 31.03.2022 the window for response was withdrawn which was open when assessee started filling the Return. And on same date the assessment order for the year was passed considering the Income shown as per 26 AS. The annual report of the assessee and SAT paid was not considered. The assessee then preferred an appeal before your honour. D. Basis of revenue recognition in Annual Report for the financial year 2013-14 GPICL is a Special Purpose Vehicle (SPV) Incorporated in the year 2005 sponsored by the Indian Financial Institutions and Banks (IFIs) viz. IDBI Bank Ltd., ICICI Bank Ltd., State Bank of India, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 2013. Accordingly RGPPL faced stiff liquidity constraints and could not meet the debt obligations regularly. With a view to find a viable solution, numbers of Inter-Ministerial Meetings were held at the aegis GOI office. At one such high level meeting, convened by Department of Economic Affairs (DEA) on September 25, 2014, lenders suggested for hiving-off LNG Terminal into a separate SPV (with appropriated debt) and restructure the debt in both the resulting companies. Lenders kept DEA informed about the developments and also continuation of guarantee as well. The Demerger Scheme was approved by NCLAT, vide its order dated February 28, 2018 and implemented in FY 19. LNG Terminal got demerged into a separate entity viz. Konkan LNG Private Limited (KLPL) and entire assets and liabilities of LNG terminal have been shifted to KLPL Lenders. Subsequently during FY 2020-21, outstanding debts of both KLPL and RGPPL were settled under a One Time Settlement Scheme (OTS) by the lenders. While accepting the OTS proposal, GPICL informed and requested NOC from LIC for the OTS settlement. LIC accepted and granted NOC for OTS settlement with KLPL (vide letter dated March 20, 2020) and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by installments. Unquote The Financials for FY 13-14 as approved by board of directors and duly audited by the auditors, it was certain on that time of preparing the financials that the revenue as shown in 26AS will certainly not be realized and hence the revenue only to the extent which was received during the FY 13-14 was recognized considering the Accounting Standard 4 relating to Contingencies and Events occurring after the Balance Sheet date. Your honour will appreciate that appellant had never received the differential interest not recognized in the annual report in view of the settlements. All the related parties are Government Company. In view of above the appellant prays that 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nara bank and IFCI amounting to Rs. 243.28 crores. The ld. CIT(A) also observed that the assessee issued redeemable NCDs in two series (Rs. 1004 crore Series A and Rs. 305.30 crore Series B) with face value of Rs. 10,00,000/- each and subscribed by LIC. The ld. CIT(A)'s finding is cited hereinunder: 6.1 "On perusal of the appellant's submissions along with the Assessment Order and the remand report provided by the AO, it is observed that the appellant did not submit the original Income Tax Return (ITR) and only filed it in response to a notice under section 148 of the Act. Nonetheless, the reasons for not filing the original ITR have been clarified by the appellant. 6.2 Now, regarding the merits of the issue, it is observed that GPICL was set up for the specific purpose of buy-out/settlement of the debt/claims of offshore stakeholders in relation to the Dabhol Power Project (DPP) through Ratnagiri Gas and Power Pvt Ltd. (RGPPL). GPICL never had undertaken any activity apart from the specific purpose for which it was set up. RGPPL was incorporated in 2005 by NTPC, GAIL, MSEB Holding Co Ltd (MSEB) (representative of Govt. of Maharashtra) and Indian Financial Institutions/Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity of RGPPL) 756.82 (including 107.9 crores towards overdue interest) 512.71 Crores 24.03.2020 One Time Settlement dated 24.03.2020 with RGPPL 269.13 162.02 crores 31.12.2020 6.7 From the above facts, it is undisputed that an order by the NCLAT during the FY 2020-21 settled the loan provided to RGPPL and KLNG(demerged entity of RGPPL) through its One Time Settlement Scheme (OTS). The appellant has also provided details of the consequent amount to be received, as per the NCLAT order, which is evident from the table above. In support of its claim, the appellant has also furnished a copy of the NCLAT order. 6.8 In light of this NCLAT Order, it is seen that the appellant has received partial principal and interest, with the partial interest component being received before the settlement took effect. Notably, the AO's remand report lacks any comments on the impact of the settlement order on the receipt of loan and interest by the appellant from RGPPL especially when it is clearly seen that the appellant has not received the stipulated amount on account of principal as well as interest component of the loan given by the appellant to RGPPL after the settlement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 it has shown it as revenue in its Profit and loss account. 6.13 In view of the NCLAT settlement order and the bank statement submitted by the appellant it is seen that the amount mentioned in Form 26AS, which forms the basis of the AO's addition, was not actually received by the appellant during the year. 6.14 Now turning to the AO's argument in the remand report, stating that AS-9 cannot be applied in the appellant's case due to inconsistent interest recognition in its ITR, it's important to note that AS-9 precisely addresses situations where uncertainty exists, leading to postponement of revenue recognition. In this case, the uncertainty existed because of RGPPL approaching the NCLT and the uncertainty was resolved following the NCLAT order which determined the settlement of dues of RGPPL towards the appellant. Therefore, the inconsistency highlighted by the AO aligns with the uncertainty outlined in AS-9 and supports the appellant's claim regarding the actual interest received from RGPPL during the year which is NIL and the recognition of revenue on the basis of the actual amount of Interest received during the year from RGPPL. 6.15 Further, it is ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the year under consideration which is NIL during the impugned year. To corroborate further the assessee being a government entity is subjected to statutory audit by Comptroller and Auditor General of India (CAG) along with supplementary audit which has approved the revenue recognition adopted by the assessee in considering AS-9 to be appropriate in case of uncertainties arising subsequent to preparation of the balance sheet. The learned Authorised Representative (ld. AR for short) for the assessee relied on the decision of the coordinate bench in the case of ITA No. 2488/Del/2010, M/s. MMTC Ltd. vs. The Dy. CIT, order dated 30.01.2024 to substantiate that Accounting Standard AS-9 on revenue recognition issued by ICAI in case of uncertainty is most appropriate. It is also pertinent to point out that the ld. AO has also not brought on record any fact to establish that the assessee has received the impugned amount during the year under consideration in his remand report. The revenue has nothing to controvert assessee's contentions. 13. In the above factual matrix, we do not find any infirmity in the order of the ld. CIT(A) and we therefore are inclined to dismiss the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
