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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Sri Rajpal Yadav & Sri Manish Borad
order
: May 17th, 2022 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2014-15 is directed against the order of ld. Pr. Commissioner of Income-tax-1, Kolkata [in short ld. “PCIT”] dated 31.03.2021 vide Document No. (DIN) ITBA/REV/F/REV5/2020-21/1032021779(1) which is arising out of the assessment order framed u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 22.12.2018 by ACIT, Circle-7(2), Kolkata.
2. The assessee is in appeal before the Tribunal raising the following grounds: “1. For that on the facts and in the circumstances of the case the Order passed under section 263 of the Income Tax Act, 1961 ("the Act") setting aside the Order under section 147/143(3) of the Act dated 22-12-2018 for the Assessment Year 2014-15 and directing the Assessing Officer to pass a fresh order, is erroneous, prejudicial, bad in law and against the principle of natural justice. 2. a) For that the Principal Commissioner of Income Tax erred in holding that the said Order of the Assessing Officer was erroneous in so far as it was prejudicial to the interest of the revenue and therefore liable to be set aside. b) For that the Principal Commissioner of Income Tax further erred in holding that the Assessing Officer failed to conduct enquiries on payments made to Silver Point I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited. Infratech Limited ("SPIL") and relied upon some general information that director of SPIL could not produce documents associated with the bills raised by SPIL to its clients, without considering the submissions made by the Appellant. c) For that the Principal Commissioner of Income Tax erred in ignoring the facts that the said assessment under section 147/143(3) was opened to conduct enquiries in respect of payments made to SPIL, for which all the details, documents, information, explanations, etc. as deemed fit and called for by the Assessing Officer were duly submitted to him by the appellant and verified by him before completing the assessment. d) For that the Principal Commissioner of Income Tax failed to appreciate that the said assessment order was passed after examination of all the details, documents, information, explanations, etc. submitted in course of assessment proceedings and yet directing the Assessing Officer to pass a fresh order would only amount to fresh application of mind to the same set of facts and materials, which were available at the time the impugned assessment was made. e) For that the case laws relied on by the Principal Commissioner of Income Tax are distinguishable on facts and not applicable in the case of Appellant as in all those cases no enquiries were conducted. In the instant case all necessary enquiries were conducted before passing the order under section 147/143(3) of the Act.
3. For that the Principal Commissioner of Income Tax erred in directing the Assessing Officer to disallow interest on P. Tax, Service Tax and TDS amounting to Rs. 17,252/- on account of these allegedly being penal in nature without issuing any show cause to the Appellant on this issue when in fact these were only compensatory in nature.
4. For that the appellant craves leave to add and/or amend or alter or delete any of the grounds already taken either before or at the time of hearing of the appeal.”
Brief facts of the case as called out from the records are that the assessee is a private limited company engaged in the business of trading and labour repair and security service provider. Income of Rs. 21,63,800/- was declared in the return of income filed on 30.09.2014 for AY 2014-15. Subsequently, receiving the information from DDIT(Inv.), Unit-3(1), Kolkata that the assessee has booked bogus expenses of Rs. 38,76,420/- with the help of a paper company, M/s. Silver Point Infratech Ltd. during the AY 2011-12, ld. Assessing Officer (in short ld. “AO”) issued notice u/s 148 of the Act. Reasons recorded for re-opening were supplied to the assessee. Various details were called for in relation to the information received by the ld. AO. After being satisfied, ld. AO accepted the returned income declared at Rs. 21,63,800/-. Subsequently ld. PCIT-1, Kolkata called for the assessment records and on perusing the same issued following show cause notice to the assessee:
“Whereas the undersigned had called for and examined the record of your case and it is considered that the impugned assessment order passed u/s 147/143(3) of the I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited.
IT Act. 1961 on 22.12.2018 for A.Y. 2014-15 is prima facie, erroneous in so far as it is prejudicial to the interests of the revenue for the following reason: In the instant case, the assessment was completed at a total income of Rs.S,12,208/-. The assessment was completed u/s 147/143(3) on 28.12.2018. On perusal of the assessment records the following discrepancies have been found in the assessment records. The AO has credible information that Shri Saniay Drolia Director of M/s Silver Point Infratech Ltd. could not produce tender Agreement or an/ relevant document associated with bills raised by his company to the beneficiaries for providing services. The A.O. failed to conduct inquiry about the existence of any “maintenance agreement" that could have been made between the two parties in case of such payment. The payment in this case involved an amount of Rs.28,76,420/- (Rs.34,50,000/-plus service tax with education cess) is not a meagre amount which could be paid to a vendor without any agreement in normal circumstances. The issue should have been looked into by the A.O. as the payment was made at the far end of the financial year. Secondly, the concerned bill of Rs.38,76,420/- was raised by M/s. Silver Point Infratech Ltd. for site upkeep charges and maintenance including supervision, technical fault analysis, training, etc. for various towers of Indus in Kolkata Circle for period Sep,2013 to Jan2014" the AO did not seek the list of 600 sites owned by the assessee with location details during the course of assessment proceeding. Further, the audited books of accounts of M/s. Silver Point Infratech Ltd. revealed that the nature of business of M/s. Silver Points Infratech Ltd. is providing land development construction sector proejects. Considering the above discrepancies it may safely be concluded that there are stark contrast between the nature of business activities of both the companies and the bill raised by M/s. Silver Point Infratech Ltd. appears to be bogus, hence the amount of Rs.38.76.420/- should have been disallowed by the A.O. The omission on the part of the A.O. resulted in undercharge of income to the tune of Rs.38,76,420/-. AO has passed the impugned assessment order without conducting any enquiries or verifications which should have been made in this case.
2. Having regard to the facts and circumstances of the case and in law and in accordance with the provisions of Sec. 263(1) of IT Act, 1961 you are hereby given an opportunity of being heard to show cause as to why the impugned assessment order passed u/s 147/143(3) on 22.12.2018 for A.Y. 2014-15 should not be held as erroneous in so far as it is prejudicial to the interests of the revenue. You may accordingly furnish your written submissions u/s 263(1) of I.T. Act, 1961 by 16.03.2021 in this regard, elaborating and/or evidencing your contentions/submissions. Considering the pandemic situations arising due to COVID-19, physical attendance is not considered necessary and you are requested to make Written submissions with necessary details through ID: kolkata.pcit1@incometax.gov.in and it will be treated as compliance to this notice u/s 263(1).”
During the course of revisionary proceedings, the assessee made detailed submissions on 24.03.2021 to show that the assessee company has truly and fully disclosed all material facts in the return filed by it for AY 2014- 15 and has produced all evidence in support of the return before the ld. AO during the assessment proceedings. Ld. Counsel for the assessee stated that there is no material to form reasonable belief that the order dated 22.12.2018 passed u/s 147/143(3) of the Act by the ld. AO was either without conducting an enquiry or verification or erroneous insofar as prejudicial to the interests I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited. of the Revenue. The reply by the assessee was considered by ld. PCIT but was not found acceptable. Relevant observation of the ld. PCIT reads as follows:
5. I have considered the facts of the case and also the submission by the assessee company. Scrutiny of assessment records revealed that the AO has credible information that Shri Sanjay Drolia Director of M/s. Silver Point Infratech Ltd. could not produce tender Agreement or any relevant document associated with bills raised by his company to the beneficiaries for providing services. The payment in this case involved an amount of Rs.38,76,420/- (Rs.34,50,000/- plus service tax with education cess). The concerned bill of Rs.38,76,420/- was raised by M/s. Silver Point Infratech Ltd. for site upkeep charges and maintenance including supervision, technical fault analysis, training, etc. for various towers of Indus in Kolkata Circle for period Sep,2013 to Jan,2014.!t is seen from the audited books of accounts of M/s. Silver Point Infratech Ltd that the nature of business of M/s. Silver Points Infratech Ltd. is providing land development construction sector projects Considering the nature of business activities of both the companies and the bill raised by M/s. Silver Point Infratech Ltd., the bills appear to be bogus, hence the amount of Rs.38,76,420/- should have beer, disallowed by the A.O. Further Rs.17,252/- is to be disallowed on account of interest on P.Tax, Service Tax and TDS, as the amount is penal in nature. The assessee company has failed to produce any documents to counter this fact. Moreover, the AO should have examined the Director of M/s. Silver Point Infratech Ltd. u/s.131 of the IT Act, 1961. The A.O. has passed the assessment order without making enquiries or verification which should have been made in the instant case. Clause (a) and (b) of Explanation 2 to Section 263(1) is attracted in this case. Accordingly, it is held that the assessment order is erroneous insofar as it is prejudicial to the Interest of revenue.
Based on the above observation and referring to certain decisions and judgments, ld. PCIT held that the impugned assessment order dated 28.12.2018 passed by the ld. AO is erroneous insofar as it is prejudicial to the interests of the Revenue and accordingly, set aside the said assessment order directing the AO to frame the assessment afresh after considering the observations given in the impugned order.
6. Aggrieved, the assessee is in appeal before the Tribunal. Ld. Counsel for the assessee reiterated the submissions made by the assessee before the ld. PCIT during the revisionary proceedings. Reference was also made to paper book containing 89 pages dated 08.03.2022. Reliance was also placed on the following decisions: i) CIT Vs JL Morrison (I) Ltd (366 ITR 593) (Cal HC) (Head Notes) ii) K.R. Satyanarayan Vs CIT (126 taxmann.com 22) (Kar HC)
I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited. iii) CIT Vs Suresh Paul Bansal (2 taxmann.com 260) (Del HC) iv) Chandravadan Desai Vs CIT (ITA Nos. 122-125/K/21) (ITAT Kol) v) CIT Vs Inbuilt Merchants Pvt Ltd (GA No. 3825 of 2013) (Cal HC) 7. Per contra, ld. D/R vehemently argued supporting the order of the ld. PCIT.
We have heard rival contentions and perused the records placed before us. The jurisdiction of ld. PCIT u/s 263 of the Act has been challenged before us by the assessee. Before we advert to the facts and law involved in this lis before us, let us revisit the law governing the issue before us. The assessee has challenged in the first place, the very usurpation of jurisdiction by ld. PCIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is existing in this case before the PCIT rightfully exercises his revisional power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions need to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the ld. PCIT. The twin conditions are that the order of the ld. AO must be erroneous insofar as prejudicial to the interests of the Revenue. In the following circumstances, the order of the ld. AO can be held to be erroneous order, that is (i) if the ld. AO’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Ld. AO’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the ld. AO without application of mind; (v) if the AO has not investigated the issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any event the order passed by the ld. AO can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the ld. AO can be termed as prejudicial to the interests of Revenue.
I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited. When this aspect is examined, one has to understand what is prejudicial to the interests of the Revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interests of the revenue” has to be read in conjunction with an erroneous order passed by the ld. AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of ld. AO cannot be treated as prejudicial to the interests of the Revenue. When the ld. AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the ld. AO has taken one view with which the ld. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue “unless the view taken by the ld. AO is unsustainable in law”.
Keeping the above settled judicial law in mind, we find that in the present case, ld. PCIT has referred to the transaction of claim of expenses of Rs. 38,76,420/- alleged to be a bogus expenditure claimed by the assessee company with the assistance of an alleged paper company M/s. Silver Point Infratech Ltd. Ld. PCIT has observed that based on the information received from the Investigation Wing, the Director of M/s. Silver Point Infratech Ltd. could not produce Tender Agreement or any other relevant documents associated with bills raised by his company to the beneficiaries for providing services.
Now, first we will examine the fact that whether this issue came up for examination before the ld. AO and whether he has conducted enquiry to examine the genuineness of the transaction and the claim of expenses made by the assessee. We find that the assessee’s case was re-opened by issuing notice u/s 148 of the Act and following reasons were recorded for re-opening the case which are same as has been raised in the show cause notice issued u/s 263 of the Act:
“1. The assessee was engaged in carry on the business of Engineers, Designers and Consultants including providing Facility Management Services, etc., during the previous year relevant to the A.Y 2014-15 and had filed its return of income for the assessment year 2014-15 on 30-09-2014, declaring total income of Rs.21,63,800/- I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited.
Subsequently, an information from DDIT (Inv) Unit-3(1), Kolkata has been received which furnished the details of paper companies and thus helping them in tax entries and bogus billings to the beneficiary companies and thus helping them in tax evasion by inflating their expenses. These companies are also availing service tax benefits. Those are six paper companies in the report which are indulged in providing accommodation entries and giving bogus billings to the beneficiary companies. Out of these six, Sri Sanjay Kumar Drolia is the director of a company M/s. Silver Point Infratech Ltd. whose main and sole business is providing bogus billings and accommodation entries.
3. Investigation, Wing, Kolkata carried out investigation regarding the above mentioned company and notices issued u/s 131 were sent to the director of the above company. In response to the notices issued U/s 131. Director of M/s Silver Point Infratech Ltd. appeared and his statement was recorded on 11.05.2016 and also on 06.09.2016. He admitted that he was the director of M/s Silver Point Infratech Ltd. and also of some other companies, which are mainly engaged in facilitating accommodation entries in the form of bogus billing, bogus share capital, unsecured loans to the beneficiary companies in lieu of commission. He also accepted he used to provide accommodation bills to beneficiary companies through professional fees, commission, sub-contracts. supplies, share capital, unsecured loan advance for land etc. Cheques/ RTGS used to come to the bank account of M/s. Silver Point Infratech Ltd. from various parties/companies in lieu of bogus bills and he used to further sub-contract it to the other parties/companies and hence it got returned to the beneficiary companies through cheques/RTGS. For this work Sri Drolia admitted getting commission at the rate of 0.50% of cheque amount. He also admitted having provided bogus billing of Rs. 775 Crores during the period F.Y. 2009-10 to 2013-14 from the company as detailed under: 4. As per the statement given by Sri Sanjay Drolia, director of Silver Point Infratech Ltd., the debit transactions from the bank accounts were made only for completing the process of bogus billing and forming cash to return to the parties who have credited the bank accounts either by way of cheque or RTGS, and there was no such beneficiary for the debit transactions made from the bank accounts. But from the verification of the bank statement of Silverpoint Infratech Ltd., it is found that some, fund has been transferred out to real beneficiaries through Silverpoint Infratech Ltd. in the form of various accommodation entries. In his statement Sri Sanjay Drolia accepted that Silver Point Infratech Ltd. is engaged in facilitating accommodation entry in the form of bogus share capital, unsecured loans to the beneficiary companies in lieu of commission. The outflow of fund from the debit side of the bank account of Silver Point Infratech Ltd. proves this modus operandi. 5. Apart from the information regarding the bank account given by Sri Sanjay Drolia in respect of Silver Point Infratech Ltd. in his statement recorded u/s 131 of the Income Tax Act, 1961, it was subsequently found during investigation that there were other bank accounts of Silver Point Infratech Ltd. in which similar modus operandi of bogus billings were carried out. The details of the bank accounts are as under: Sl. No. Name of Company Name of Bank Account Number 1 Silver Point Infratech Ltd. HDFC 882600001116 STANDARD 2 Silver Point Infratech Ltd. 32205508182 CHARTERED 3 Silver Point Infratech Ltd. HDFC 803500001807 I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited.
The amount of bogus billing in respect of Silver Point Infratech Ltd. along with financial year and amount of transaction from credit/debit side of bank accounts as revealed from the investigation are given below: Sl. Name of the Bogus Billing Financial From No. Company (in Rs.-approx) Year Silver Point 2009-10 to From credit side of bank 1 775 Crores Infratech Ltd. 2013-14 account for bogus billing From Debit Side of bank Silver Point 2009-10 to account for share capital, 2 163 Crores Infratech Ltd. 2013-14 share premium, unsecured loan, advance etc.
Among the beneficiaries, the company M/s. Kolkata Marine & Engineering Services Private Limited (PAN: AADCK 6706 D) is one of them and had booked bogus expenses with the help of paper company M/s. Silver Point Infratech Ltd./ Anubhav Infrastructure Ltd. which is as stated above controlled and managed by Sri Sanjay Drolia. The assessee company M/s. Kolkata Marine & Engineering Services Pvt. Ltd. had booked bogus expenses amounting Rs. 38,76,420/- in aggregate during the F.Y. 2010-11 to 2011-12 by routing his own undisclosed cash through different bank accounts of company M/s. Silver Point Infratech Ltd. They are (i) HDFC-A/cs. 882600001116 & 803500001807 (ii) STANDARD CHARTERED-A/c. 32205508182.
Since, the above information furnished by the Investigation Wing, Kolkata is only indicative in nature and not specifically assessee-wise separate investigation and verification for each assessee, as alleged in the report is necessary. Further this office, on the basis of above report, had re-opened the case of the assessee for AY 2010-11, wherein during the re-assessment proceedings, the assessee admitted that it had transactions with the alleged party M/s. Silver Point Infratech Ltd. during the AY 2014-15. Therefore, on the basis of the above observations as well as the finding from the records available in this office in respect of the said assessee M/s. Kolkata Marine & Engineering Services Pvt. Ltd., I have sufficient reason to believe that the assessed company has furnished inaccurate particulars of income and income chargeable to has escaped assessment for the assessment year 2014-15 within the ambit of the provisions contained in section 147 of the Act and as such, I am personally satisfied that it is a fit case for reopening u/s 147 of the IT Act, by way of issuance of notice u/s 148 of the IT Act.” 11. We, further find that in the notice dated 07.09.2018, ld. AO for question nos. 8 & 9, asked about the transaction made by the assessee company with M/s. Silver Point Infratech Ltd. during the year and complete details of such transaction, amount involved and mode of payment. In reply the assessee vide letter dated 04.10.2018 submitted a copy of ledger account of M/s. Silver Point Infratech Ltd. depicting the details of bills raised, TDS deducted and payments made through Bank of Baroda on two occasions. Copy of invoice was also placed before the ld. AO along with copy of bank account. Thereafter, on 21.12.2018 detailed reply was given specifically with regard to the alleged transaction of Rs. 38,76,000/- (inclusive of service tax of Rs. 4,26,420/- not I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited. forming part of profit & loss account). Details were filed with the service tax registration number of the service provider, copy of service tax return form, details of services provided by the provider and also it was stated that the assessee has discharged the primary onus casted upon it and thus the said expenditure cannot be held to be unexplained expenditure u/s 69C of the Act. Along with the reply dated 21.12.2018, copy of relevant agreements with M/s. Indus Towers Ltd. in relation to which M/s. Silver Point Infratech Ltd. was engaged to render maintenance services, copy of purchase order raised upon M/s. Silver Point Infratech Ltd. dated 04.09.2013, details of the sites in relation to which M/s. Silver Point Infratech Ltd. rendered services and all these details were put before the ld. AO who has examined the same.
Hon’ble jurisdictional High Court in the case of CIT Vs JL Morrison (I) Ltd. [2014] 46 taxmann.com 215 (Calcutta) dated 15.05.2014 in relation to the exercising of revisionary power u/s 263 of the Act has held that if the AO has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. Hon’ble Court has also held that if the records of the assessment including the order sheets go to show that appropriate enquiry was made and the assessee was heard from time to time, the order was passed with application of mind and the AO took a possible view then the Commissioner will not have any jurisdiction to exercise power u/s 263 of the Act.
Having gone through the facts of the case as referred above and the judicial precedence we find that the ld. AO has made a finding after calling for relevant documents to scrutinize the issue of the alleged expenditure of Rs. 38,76,420/- incurred by the assessee for the services provided by M/s. Silver Point Infratech Ltd. and this shows that a complete detailed enquiry was conducted by the ld. AO and after due application of mind accepted the genuineness of the expenditure and ld. PCIT made no further enquiry himself to demonstrate as to how the ld. AO erred in accepting the genuineness of expenditure claimed by the assessee. Thus, in our view, neither the order of the ld. AO is erroneous nor prejudicial to the interests of the Revenue and, therefore, we find no merit in the observation of the ld. PCIT setting aside the I.T.A. No.: 131/Kol/2021 Assessment Year: 2014-15 Kolkata Marine & Engineering Services Private Limited. order of the ld. AO u/s 147 r.w.s. 143(3) of the Act. We, therefore, quash the impugned order passed u/s 263 of the Act and restore the order passed by the ld. AO dated 22.12.2018. Hence, all the grounds raised
by the assessee are allowed.
13. In the result, the appeal filed by the assessee is allowed. Kolkata, the 17th May, 2022. Sd/- Sd/- [Rajpal Yadav] [Manish Borad] Vice President Accountant Member Dated: 17.05.2022 Bidhan (P.S.) Copy of the order forwarded to:
1. Kolkata Marine & Engineering Services Private Limited, P-28, Phase-III, Kasba Industrial Estate, Kasba, Kolkata-700 107.
2. Pr. Commissioner of Income Tax-1, Kolkata. 3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.