TMI Blog2019 (9) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the ld. CIT-A. Regarding the interest income from GMDCL, we note that such income was earned by the assessee on the fixed deposits on the bank guarantee made in connection with the project awarded by GMDCL. This fact can be verified from the bank guarantee furnished by the Axis Bank Ltd on behalf of the assessee. There was also no allegation that such bank guarantee represents the circular transaction. Moreover, there was no defect pointed out by the authorities below in the bank guarantee furnished by the assessee. Accordingly, we disagree with the finding of the learned CIT (A). Hence the ground filed by the assessee in its CO is allowed. Ground of appeal of Revenue is dismissed and the ground filed by the assessee in its CO is allowed. Addition on account of CENVAT Credit - contention of the assessee by observing that as per the provisions of section 145A of the Act the assessee is liable to include the amount of duty, cess, tax etc in the amount of purchases, sales and the closing stock - CIT(A) deleted the addition made by the Assessing Officer by observing that the assessee has been following its method of valuation consistently and there was no dissatisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive method for accounting CENVAT as against inclusive method mandated u/s.145A of the Act. The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 3,81,36,986.00 on account of interest income treating the same as inextricably linked with the business and accordingly reduced from the cost of the project. 2. The facts of the case as culled out from the order of the authorities below are that the assessee is a private limited company and hundred percent subsidiary of Adani Enterprises Ltd. (for short AEL). The assessee is engaged in the business of mining/exploration activities. AEL was awarded a contract by UCM Coal Company Limited during the year in a consortium for the development and operation of coal block situated in Orissa. 2.1 AEL subsequently assigned the contract to its subsidiary company being the assessee. After that, the assessee entered into a washery agreement with GVI info private Ltd. As per the agreement, GVI has undertaken the work of constructing, operating, and managing the coal washery for the project. 2.2 The assessee in pursu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. As per the agreement, GVI was to perform the following activities: (i) Construct, operate and manage the coal washery with 40MT per annum capacity at mine head within time line to enable AML to deliver coal under the Contract to UCM. The total capacity of the coal washery shall be required under the Contract. (ii) Transport of coal from Mine to Washery through belt conveyor sustem. (iii) The washing technology, other equipment technology and cost shall be mutually discussed and finanlized by AML and GVL in concurrence. (iv) To make available for dispatch the agreed quantity of washed coal meeting the parameters. (v) To operate and maintain the washery as per the best standards in the industry. (vi) GVI shall maintain all the requisite records properly for the inspection by Government agencies concerned with respect to the details of run of mine coal, washed coal and rejects etc. 3.1 Accordingly, the assessee claimed that such agreement with the GVI was essential to execute the impugned project and GVI would not have agreed for such project wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject. 6.1 In holding so, we find support and the strength from the judgment of Hon ble Supreme Court in the case of CIT Vs. Bokaro Steel Ltd. reported in 236 ITR 315 wherein the income such as rental charges, machine higher charges, and interest income, etc were reduced from the cost of the project as these incomes were directly connected with the business of the assessee. 6.2 Similarly, the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. Vs CIT reported in 227 ITR 172 has treated the interest income as the income from other sources due to the fact that the same was not linked with the project of the assessee. 6.3 Thus, the criteria to see any receipt or payment is whether the same is inextricably link with the project. Accordingly, any receipt shall be treated as inextricably linked with the project if it arises in the course of the project of the assessee. 6.4 Now coming to the present facts of the case whether the impugned interest income from GVI represents the income in connection with the project. Regarding the interest income from the GVI, we among other thing, note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee in its CO is allowed. In view of the above, the ground of appeal of Revenue is dismissed and the ground filed by the assessee in its CO is allowed. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 29,60,018.00 on account of CENVAT Credit. 7. The assessee in its audited financial statement has shown an unutilized CENVAT Credit amounting to ₹ 29,60,018.00 as on 31 March 2011. The assessee during the assessment claimed that the impugned CENVAT Credit represents against the services received by it and as such it does not pertain to the inventories as envisaged under the provisions of section 145A of the Act. Accordingly, the assessee claimed that the provisions of section 145A of the Act does not apply to it. 7.1 However, the AO was not satisfied with the contention of the assessee by observing that as per the provisions of section 145A of the Act the assessee is liable to include the amount of duty, cess, tax etc in the amount of purchases, sales and the closing stock. Accordingly, the AO added the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was no dissatisfaction of the Assessing Officer about the correctness/completeness of the books of accounts of the assessee. 9.2 From the preceding discussion, we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of CENVAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of the closing stock without giving effect to the purchases. In this regard, we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. In Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:- 3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of ₹ 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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