ACIT, NEW DELHI vs. M/S. KULDIP SINGH DHINGRA (IND.), NEW DELHI

PER M. Balaganesh, AM

1. The order of Ld. CIT(A) is not correct in law and on facts.

2. On the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 2,27,51,586/- on account of undisclosed consultancy fee. 3. On the facts and circumstances, the case, the CIT(A) has erred in holding that the income pertains to the company who raised the invoice and not the assessee despite the fact that there was no documentary evidence to establish that any consultancy service was provided by it.

4. On the facts and circumstances of the case, the CIT(A) has erred in holding that the income does not pertain to the assessee despite the statement of payee stating that the service was provided by the assessee and invoice was raised by the company at the behest of the assesee.

5. On the facts and circumstances of the case, the CIT(A) has erred in holding that the statement of the payee, recorded on oath has no relevance.

3. The only effective issue that emanates from the grounds of Revenue is as to whether an addition in the sum of Rs.2,27,51,586/- on account of undisclosed consultancy fee could be assessed in the hands of the assessee herein.

Paints (Overseas) Ltd. is one such foreign company which is 100% subsidiary of U.K. Paints India Ltd. Parallelly, a survey u/s 133A of the Act was also conducted on U.K. Paints (Overseas) Ltd. on 17/09/2011. The first notice u/s 153A of the Act in respect of search conducted on 16/09/2011 was issued on the assessee on 22/05/2013. The assessee filed its return of income in response to such notice on 12/06/2013. Notice u/s 143(2) of the Act was issued for the said return on 30/09/2013. The last date for completion of assessment u/s 153A of the Act in respect of search conducted on 16/09/2011 was 31/03/2014 i.e. two years from the end of the financial year, in which the search was conducted and concluded in terms of section 153B of the Act. The Ld. AR before us, submitted that no assessment was framed u/s 153A of the Act for the AY 2007- 08 on or before 31/03/2014 in respect of search conducted on 16/09/2011 in the hands of the assessee.

The assessee filed its return on 05/11/2013 in response to notice issued u/s 153A of the Act. The assessment u/s 153A r.w.s 143(3) of the Act for the AY 2007-08 was framed on 30/03/2015 after adding a sum of Rs.2,27,51,586/- on account of undisclosed consultancy income in the hands of the assessee. This addition was made based on an invoice which was raised by M/s U.K. Paints (Overseas) Ltd. for USD $ 515909 (equivalent to Rs.2,27,51,586/-) on unrelated Indian company M/s ERA Construction India Ltd. This invoice was duly impounded on 16/09/2011 from the office premises of the U.K.

Paints Ltd. at 38, DDA Commercial Complex, Zamrudpur, at the time of survey proceedings u/s 133A of the Act on the said concern. We find that the assessee had duly submitted that this invoice had been duly recorded and accounted in the books of M/s U. K. Paints (Overseas) Ltd. prior to date of search and seizure itself. Accordingly, the assessee had submitted before the AO that the said invoice which was impounded during survey conducted on 17/09/2011 in the office premises of U.K. Paints (Overseas) Ltd. would not become incriminating material to be used in the search assessment framed in the hands of the assessee herein. We find that the assessee had pleaded that in any case, this invoice had already been accounted in the books of the U.K. Paints (Overseas) Ltd. as consultancy income and there is no question of making any further addition in the hands of the assessee in respect of very same sum of Rs.2,27,51,586/-. In fact, the assessee had also given proper explanation with reason as to how the said invoice was found at the time of survey by stating that M/s U.K. (Overseas) Pvt. Ltd. was outsourcing its book keeping activity to the office of M/s U. K. Paints India Ltd. which is parent company. The documents of overseas company and books of accounts, bank statements were kept in the premises in India.

Therefore, this invoice which was raised by U.K. Paints (Overseas)

Pvt. Ltd. on unrelated Indian party was found in the said office premises at the time of survey/search. The assessee had further pleaded that in any case, this document was only found in the premises of U.K. Paints Overseas Pvt. Ltd. and the presumption in terms of section 132(4A) and Section 292C of the Act would be only in favour of U. K. Paints (Overseas) Ltd. and not the assessee. In any case, the assessee had also pleaded that even if any addition need to be made pursuant to this invoice which was found on 17/09/2011, the assessee could have at best been proceeded only u/s 153C of the Act and not u/s 153A of the Act.

Accordingly, the Ld. CIT(A) had directed the Ld. AO to conduct further enquiry in the remand proceedings. We find that in the remand report, the AO had categorically submitted that no documentary information was provided by the M/s ERA Construction India Ltd. by way of formal agreement executed between them either with the assessee herein or U. K. Paints (Overseas) Pvt. Ltd. In the said remand report, the Ld. AO had also stated that the invoice for Rs.2,27,51,586/- was raised by M/s U.K. (Overseas) Ltd. on ERA Construction India Ltd. The assessee has also filed a rejoinder to the remand report submitted by the Ld. AO. We find that the Ld. CIT(A) after considering the remand report of the Ld. AO and the rejoinder given by the assessee had deleted the addition by observing as under:-

“4.2.5 I have considered the submissions of the appellant, the first question that needs to be addressed is whether the addition could have been justifiably be made u/s 153A. There were two searches on the appellant. The first search was conducted in November, 2011 on the appellant. The document in question viz., the invoice was impounded from the office premises of U.K. Paints group, of which the appellant is the Managing Director. Thus to say that the office premises at 38, DDA Commercial Complex, Zamrudpur is not the premises of the appellant but of U.K. Paints Overseas Ltd. is an erroneous distinction. No doubt the document has been recovered in a survey at the premises, was conducted along with the search and seizure action at the appellant’s residence. This document was recovered in the survey before the completion of the search at the residence premises and in conjunction with the search. The distinction made by the appellant is hypertechnical. To my mind, this constitutes evidence recovered in the course of the search. Having said that, it docs however look like the document in question is only an invoice which has already been recorded in the books of U.K. Paints Oversea Ltd. Nothing in the document per se suggests that the document was false or that the income pertains to Shri Kuldip Singh Dhingra and not to U.K. Paints Overseas Pvt. Ltd. Therefore this document cannot be said to be incriminating itself. The only other material relating to this addition is the statement of Sh. U.S. Bharana, MD of the lira Constructions group. This statement was recorded on an independent survey made on 02.12.2011. Nothing in this statement, as reproduced by the A.O. in the assessment order indicates that the services were rendered by Sh. Kuldip Singh Dhingra for which the received would as income in his own hands. The only grounds on which the addition has been made in the appellant’s hands is that Sh.H.S. Bharana had stated that he had requested assistance of the appellant; however, by itself this does not prove that the appellant provided consultancy services on his own account. No evidence is available to this effect also. The fact that a copy of this invoice was found in the office premises of the appellant is also not evidence against the appellant, since the premises is also the office of UK Paints Ltd, which is the holding company of UK Paints Overseas P. Ltd , and the appellant is the MD of both. The appellant is the MD of UK Paints Overseas Ltd., the company in whose books the transaction appears in the regular course of its business. The documents forwarded by the A.O. in the Remand Report, in the form of the Offer Document for the FCCB issue also does not mention the name of the appellant as a consultancy provider for the FCCB issue. Therefore, I am of the view that there is no evidence to pin this consultancy income on the appellant. Consequently, the addition made in the hands of the appellant has to be deleted.”

Order pronounced in the open court on 23/01/2020.