TMI Blog2009 (1) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments found addition of Rs.58,85,41,252 was made for surrendering the rights in the said contract. The assessee was engaged in the business of manufacture of bicycles, chains, precision steel tubes, CR steel strips, etc. It was alleged that to meet the power requirements of the business the assessee entered into an EPC contract with Lagerway Wind Turbines BV (Netherlands), a Dutch entity, (hereinafter called LW) on January 20, 1997 for the development of a wind farm of 20 MW capacity consisting of 80 wind turbine generators to be built and delivered by LW. To install the windmills the assessee acquired land in Sankanapuram in the State of Tamil Nadu. This location was advised by LW for putting up the wind turbine generators. In terms of the EPC contract the supply and installation of the wind turbine generators was to be done in two phases and 40 MW generators were to be supplied and erected in each phase. The total project cost was 4,83,01,031 guilders. The erection work was to be carried out in India by DLWL, an Indian company and a joint venture, which was a company involving LW. Out of the aforesaid amount of 4,83,01,131 guilders the amount relatable to the work to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Wipro initially for the first phase of the contract. On March 24, 1997 a grant agreement was entered into between the NIO Bank and the assessee. For availing of the benefit of grant it was a sine qua non that it should be used for financing the EPC part of the project. The right in such grant was not transferable to other parties. It was highlighted in the grant agreement that Tube Investments of India Ltd. shall not assign or in any other way whatsoever any of its rights under this agreement to a third party. Vide a memorandum of understanding dated February 17, 1997 between the assessee, Wipro and Wind Energy System Care India Ltd. (hereinafter called Wescare), the assessee took operation lease of 20 MW wind farm at Sankanapuram from Wescare and Wipro syndicated lease finance for the project. In terms of the memorandum of understanding there was no liabi lity on the assessee to pay any amount to Wipro for the opening of such letter of credit but the liability was wholly that of DLWL. In this memorandum of understanding the assessee evinced interest in purchasing the electricity generated out of the said project on a concessional tariff. The cost of turbines was paid to L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by the assessee to DLWL and similarly the sale of windmills to the finance companies was only a sham transaction. These windmills were stated to be standing in the name of the assessee in the books of the Tamil Nadu Electricity Board. The assessee did receive payments from the Electricity Board for the electricity generated by these windmills. The alleged sale to the finance companies was only a finance transaction. There was no genuine sale as finance companies never became the owners of the windmills. These companies claimed only 100 per cent. depreciation on the entire cost of the windmills. The assessee did receive the Miliev grant. It was in the nature of a subsidy. Though it was paid to the Dutch manufacturers, it was paid in the account of the assessee for its benefit in regard to the EPC contract. As such it was exigible to tax under section 28(iv) of the Act. The fact that the assessee did not purchase the machinery but transferred its rights in the said machinery along with the rights to get the subsidy to a third party makes it amply clear that the subsidy was not used for installing the machinery. It can, therefore, not be construed as capital subsidy. The payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dated June 30, 1997 from Shri V. Madan requesting Sanjay Jayaraman in Hong Kong to send a letter directly to Lagerway in Holland backdating it as March 27, 1997. This letter is included at page 311 of the paper book No.2. It is reproduced as under : "I enclose a draft of the letter to be sent from Parry Overseas Ltd., Hong Kong. This letter has to be dated March 27, 1997 and signed by you on behalf of Parry Overseas Ltd. You may please arrange to counter the letter to Holland directly at the following address. (Please note that this letter should not be faxed to Holland) : Lagerway Windturbines B.V. Hanzeweg 31 3771 NG Barneveld The Netherlands. Please mark a copy of the letter to us for our records. Regards, Yours sincerely, V. Madan." Shri V. Madan was the company secretary of the assessee-company. This letter was found at the time of search. But no enclosure was appended along with this letter. The learned standing counsel also invited our attention on the observation of the Assessing Officer in the assessment order that certain incriminating documents were found in the premises of the assessee-company regarding remittances to be made to a particular account in T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have examined the details of the Miliev programme. It enables developing countries to buy investment goods or services in the Netherlands for commercially non-viable products that will enhance employment and economic activities and protect environment. The Dutch acronym Miliev stands for environment and economic self reliance. The programme was concentrated on investment in environment (clean energy, sanitation, etc.). This fact was relevant for the Dutch development policy. Dutch exporters seeking support from this programme were required to look for strong counterparts for wind power projects in the least developed countries. The technical aspects of the deliverables were such that all recipient entities could be expected to manage well the operation and maintenance of investment goods. According to Gilbert Law Dictionary the word "subsidy" connotes Governmental aid in establishing or carrying on private enterprises which are found to be of great public importance and which cannot be self supporting. The Miliev programme, albeit bearing some of the characteristics of subsidy, was not in effect subsidy in the real sense. This grant by the Dutch Government was meant for protecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that certain incriminating documents were found in the premises of the asses see regarding remittances to be made to a particular account in TIO Bank Bahrain belonging to Crystal Investment Services Ltd. Sheet Nos. 43 to 45 of the book impounded vide serial No. 8 of Ann/PC/B and D/Imp dated February 7, 2005 was referred to but those sheets were not produced at the time of hearing. In the order of assessment also there is no discussion in regard to the contents of those sheets. Since this piece of evidence was not placed before us we cannot take due cognisance in regard to the same. The Revenue failed to produce any cogent material to substantiate that the assessee did receive amount over and above the disclosed consideration of Rs. 2 crores. Wind turbines were transferred on high seas with certain obligations. It was a commercial transaction. The assessee explained the business expediency. It entered into a tripartite agreement with M/s. Wescare India Ltd. under which the finance companies were allowed to operate these windmills on lease. The payment of lease rentals was assured by Wescare. The assessee was to pay operational lease rentals calculated as the electricity consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee during the survey conducted under section 133A of the Act by the Assessing Officer. On the basis of this correspondence it was concluded that the assessee did receive offset credit of Rs. 33,87,06,625 which was not offered for taxation. On denial made by the assessee in this regard, the Assessing Officer required the assessee to furnish a letter from the Government of Netherlands stating that the assessee did not utilise the offset credits. The incriminating document referred to by the Assessing Officer was letter dated July 15, 1997, which is reproduced by the Commissioner (Appeals) in his order vide paragraph 2.8 of his order. The wind turbines were installed in April, 1998. This letter was written much before the supply of wind turbines. The Commissioner (Appeals) examined the details contained in the letter and concluded that no adverse inference could be drawn from the aforesaid document. The Freemont group vide letter dated August 1, 2006 certified that no offset credit was paid to the assessee or any of its affiliated companies either in India or abroad. The Freemont group was the co-ordinator, facilitator and go between in so far as the assessee and Lock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. DLWL in fact paid a sum of Rs. 2 crores, i.e., Rs. 2.5 lakhs per wind turbine for 80 wind turbines to the assessee to acquire its right under the EPC contract for the purchase of wind turbines. The said amount was duly accounted for and offered for taxation. The assessee was only interested in assured supply of electricity and not in the ownership of the wind turbines. Various agreements/arrangements/ memorandum of understandings were entered into by the assessee with the various parties from time to time with the objective of ensuring supply of electricity for a long duration at an economical/concessional rate DLWL was the real owner of the wind farm project. It accounted for the income in relation to the sale of wind turbines to the finance companies. The assessments of the finance companies were completed treating those companies as the owners of the wind turbines and depreciation was allowed accordingly. The Arbitration Tribunal found the agreement/arrangement as genuine commercial transaction. The fact that the assessee's name was recorded in the TNEB's records is of little consequence. The consumer of electricity can also make an application for approval. The Arbitration T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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