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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI SUCHITRA KAMBLE, & SHRI PRASHANT MAHARISHI
PER SUCHITRA KAMBLE, JUDICIAL MEMBER
This appeal is filed by the assessee against the order of the Ld.
CIT(A)-25, New Delhi, dated 27/02/2017, for Assessment year 2011-12,
Grounds of appeal are as under:-
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)j is bad, both in the eyes of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, is passing the order without giving assessee a proper and adequate opportunity of being heard in clear violation of principle of natural justice. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in enhancing the income of the assessee without giving any notice for the same.
4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the order passed under Section 147 read with Section 148 of the-Act, despite the fact that the same was bad in the eyes of law, as the conditions and procedures prescribed under the statute have not been satisfied and complied with. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the order passed by AO as the reassessment proceedings initiated by the learned AO are bad in the eyes of law, as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the order of the AO despite the fact that the order has been passed without disposing of the objection against reopening raised by the assessee. 6. (i)On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in disallowing an amount being 12.32% of the total expenses incurred by the assessee (ii) That the above disallowance has been made without bringing any material or evidence in this regard. (ii) That the disallowance has been made despite the assessee bringing on record all material & evidence to prove the genuineness-of expense.
The Commonwealth Games were held in New Delhi from the 3rd to the 14th of October 2010. The organization and the conduct of this mega event was controlled and supervised by the CWG organizing Committee (OC, CWG) specifically formed and authorized to deal with the various aspects relating to the organization of the event. The budget of the OC, CWG was estimated at about Rs. 2300 crores. Out of this amount, a sum of Rs. 600 crores was estimated to be spent on the execution of the ‘overlays’ contracts. These contracts were awarded to 04 different parties, with each party executing the work in respect of one or more of the seven clusters into which the sporting and training venues were dividend. M/s ESAJV D- Art Indo India Pvt Ltd was one such party who got the overlays contracts.
There were allegations in the public domain that the contracts for overlays work were awarded at high rates resulting into huge margins, which would not be disclosed to the Income Tax Department. A Search under Section 132 of the Income tax Act, 1961 was carried out at the premises of M/s ESAJV D- Art Indo Consortium and its associate entities on 19/10/10 at New Delhi.
During the course of the Search, various documents were found and seized.
During the course of post search inquiries, Survey action u/s 133 A of the Income Tax Act, 1961 was undertaken on 19/10/2010, in the case of the Assessee Company, as it was closely related to the M/s ESAJV D-Art Indo India Pvt. Ltd. The Assessee could not explain any direct or indirect expense in relation to sale or services provided to M/s ESAJV D-Art Indo India Pvt. Ltd. during the assessment proceedings. The Assessing Officer observed that the ratio of gross receipts from M/s ESAJV D-Art Indo India Pvt. Ltd. versus total receipts was 12.32% (22832100/185299274*100). It was held by the Assessing Officer that it was established that no sale or services was provided to M/s ESAJV D-Art Indo India Pvt. Ltd. by the Assessee, and disallowance of 12.32% of the expenses claimed was made.
4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The Ld. AR submitted that the assessee filed its return of income declaring income of Rs. 41,60,505/- on 20.09.2011. Subsequently, notice u/s 148 of the Act was issued to the assessee for A.Y. 2011-12 and in response to the same the assessee submitted that its return of income declaring income of Rs. 41,60,505/- filed on 20.09.2011 may be treated as return filed u/s 148. Thereafter, on request of the assessee, copy of the reasons recorded was supplied to the assessee vide order sheet entry dated 03.03.2014. The assessee has filed its objections on 09.04.2014 regarding reopening of the case and the same were disposed of without passing the speaking order. A survey action u/s 133A of the Act was carried out on 19.10.2010 at the business premises of assessee i.e. M/s Indo Office Solutions Pvt. Ltd. This survey was conducted consequent upon the search conducted at the business premises of M/s ESAJV D-Art Indo India Consortium and its associates on 19.10.2010 at New Delhi. The assessee company is one of the service provider to M/s ESAJV D-Art and M/s ESAJV D-Art has claimed an expenditure of Rs.2,28,32,100/- incurred for procuring following services from the assessee:
Sr. No. Nature of Contract Amount (Rs.) 1 Architect Service 22,06,000/- 2 Installation Charges 16,54,500/- 3 Warehousing Charges 11,58,150/- 4 Supervision Charges 27,57,500/- 5 Furniture on Rent 1,50,55,950/-
Total 2,28,32,100/- The Assessing Officer held that the assessee could not explain any direct or indirect expense in relation to sale or services provided to M/s ESAJV D-Art Indo India Pvt. Ltd. The ratio of gross receipt from M/s ESAJV D-Art Indo India Pvt. Ltd. Vs. Total receipts is 12.32% (2,28,32,100/1,85,29,927 * 100).
Thereafter, the Assessing Officer made an addition of Rs. 6,34,380/- in total income of the assessee company by disallowing 12.32% of the total administrative expenses and selling overheads on ad-hoc basis. On appeal before the CIT(A), the CIT(A) disregarded the submissions of the assessee regarding non-application of mind by the Assessing Officer in reopening of the assessment and on merits have confirmed and even enhanced the additions made by the Assessing Officer by holding that the disallowance should be made at 12.32% of the entire expenditure and not only the administrative expense and selling overheads and thus disallowance is sustained to Rs. 2,21,75,360/-. As regards to Ground No. 1, the same is general in nature. As regards to Ground No. 2, relating to no notice u/s 143(2) was issued to the assessee, the Ld. AR submitted that in the present case, the Assessing Officer framed the assessment without issuing of statutory notice u/s 143(2) of the Act. Therefore, the assessment framed is bad in law. In this regard, the Ld. AR relied upon the decision of the Hon’ble Supreme Court in case of ACIT vs. Hotel Blue Moon (2010) 321 ITR 362.
The Ld. AR further relied upon the following decisions: i) CIT vs. Motor General Finance Ltd. 254 ITR 449 (Del.) ii) Kuber Tobacco Products vs. DCIT 117 ITD 273 (SB) iii) CIT vs. Jai Shiv Shankar Traders 383 ITR 448 (Del) iv) Alpine Electronics vs. DGIT 341 ITR 247 v) ITO vs. Gravity Systems Pvt. Ltd. (ITA No. 5626/Del/2012) order dated 16.03.2017 Thus, the Ld. AR submitted that the assessment order framed is bad in law.
6. As regards to Ground No. 3 relating to enhancement of income by the CIT(A) without show cause notice, the Ld. AR submitted that the CIT(A) has enhanced the income of the assessee without giving the notice u/s 251(2) of the Act. The CIT(A) on merits have confirmed and even enhanced the additions made by the Assessing Officer by holding that the disallowance should be made at 12.32% of the entire expenditure and not only the administrative expense and selling overheads as made by the Assessing Officer. The CIT(A) further held that the above calculation will lead to disallowance of a higher amount, but such calculation does not amount to enhancement of income for which separate notice u/s 251(2) had to be given. The Ld. AR submitted that it is a settled proposition of law that the CIT(A) cannot make enhancement to the income of the assessee without issuing show cause notice u/s 251(2) of the Act. Further, the CIT(A) cannot make enhancement on the issue which does not arise out of the order of assessment. The Ld. AR relied upon the decision of the Tribunal in case of Ramesh Kumar Pabbi vs. ACIT (ITA No. 5594/Del/2014). The Ld. AR also relied upon the decisions of the Hon’ble Delhi High Court in case of CIT vs. Sardari Lal and Co. 251 ITR 864 as well as the decision of the Tribunal in case of Bikram Singh vs. DCIT (2016) 48 ITR 689. Thus, in light of the above, the Ld. AR submitted that the enhancement made by the CIT (A) is untenable in law.
7. As regards to Ground Nos. 4 and 5 relating to non-disposal of objection against re-opening of reassessment proceedings raised by the assessee by way of speaking order and non-application of independent mind by the Assessing Officer, the Ld. AR submitted that in the present case, notice u/s 148 of the Act dated 17.03.2014 was issued to the assessee for AY 2011-12 and in response to the same on 20.02.2014 (within specified time) the assessee submitted that the return of income declaring income of Rs.41,60,505/- filed on 20.09.2011 may be treated as return filed u/s 148 of the Act. Thereafter, on request of the assessee copy of the reasons recorded was supplied to the assessee vide order sheet entry dated 03.03.2014. The assessee has filed its objections on 09.04.2014 within time regarding re-opening of the case. The Assessing Officer did not pass any speaking order for disposing the objections filed by the assessee and straightway passed the assessment order on 30.03.2015. The fact that no order disposing of the objections raised by the assessee was passed by the Assessing Officer is very much evident from the Assessment Order. It is a well settled law that the Assessing Officer is duty bound to dispose of the objections to reasons submitted by the assessee by passing a speaking order. In this regard reliance is placed on the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO 259 ITR 19 (SC) wherein the Hon’ble Apex Court held that the assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. This issue is also dealt by the Tribunal in case of Nimitaya Hotel & Resorts Ltd. Vs. ITO to 1832/Del/2014 dated 01.04.2019. In the present case, the Assessing Officer has ample time available for disposal of objections as the assessee has filed the objection on 09.04.2014 whereas the assessment order was passed on 30.03.2015. The Ld. AR relied upon the following decisions: i) Surendra Kumar Jain vs. Pr. CIT W.P.(C) 593/2019 dated 29.07.2019 (Del HC) ii) KSS Petron Pvt. Ltd. Vs. ACIT ITA No. 224 of 2014 order dated 03.10.2016 (Bom HC) iii) Aarti Industries Ltd. Vs. DCIT (ITA No. 592 & 593/Mum/2018 order dated 29.05.2019) Mum. Tri.
Further, the Ld. AR submitted that the Assessing Officer while recording the reasons for reopening of the assessment has went ahead in haste and has recorded the reasons without application of mind. The same can be observed from the plain reading of the following paragraphs:
M/s Indo Office Solutions Pvt. Ltd. has also claimed to have provided supervision services to the assessee. However, it failed to provide any supporting documents in respect of same.
As per the contract for supply of furniture, 10% of the contract amount had to be paid as advance whereas the remaining 90% had to be paid after completion of the project. While the claimed furniture was supplied on 10.09.2010 and 11.09.2010, a single invoice for the entire contract value was raised on 01.09.2010 i.e. even before the contract had been executed.
In respect of the warehousing charges, it was found that the amount charged by M/s Indo Office Solutions Pvt. Ltd. from the assessee company was ten times the amount that it is presently charging from its tenants fro the same premises.
Firstly, from the perusal of the reasons recorded by the Assessing Officer it appears that the Assessing Officer has recorded the reasons as the ESAJV D-Art is the assessee company where as in the present case Indo Office Solutions Pvt. Ltd. is the assessee company. Further, reopening has been made despite the fact that the assessee has disclosed all the receipts from M/s ESAJV D-Art and there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment.
Thus, the initiation is bad in law. The Ld. AR relied upon the decision in case of Sabharwal Properties Industries Pvt. Ltd. vs. ITO (2016) 382 ITR 547 wherein the Hon’ble High Court held that it is well settled law that the reasons recorded for reopening the assessment have to speak for themselves. They have to spell out that (i) there was a failure of the assessee to disclose fully and truly all the material facts necessary for the assessment and (ii) the reasons must provide a live link to the formation of the belief that income had escaped assessment. The Ld. AR submitted it is a trite law that the re-opening of assessment cannot be done on the basis of vague reasons recorded by the Assessing Officer without application of independent mind. The Ld. AR relied upon the following decisions:
(i) Pr. CIT vs. RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Del HC) (ii) Pr. CIT vs. Meenakshi Overseas (P) Ltd. 395 ITR 677 (Del HC) (iii) Sunil Agarwal vs. ITO (Del Tri.) Thus, the Ld. AR submitted that reopening of assessment is untenable in law.
8. As regards to Ground No. 6 relating to no additions can be made on merits of the case, the Ld. AR submitted that the Assessing Officer in obdurate manner made ad-hoc disallowance of Rs.6,34,380/- at the rate of 12.32% of the total Administrative expenses and selling overheads on ad- hoc basis merely on the whims and fancies. The CIT(A) enhanced the additions made by the Assessing Officer by holding that the disallowance should be made at 12.32% of the entire expenditure and not only the administrative expense and selling overheads without giving any justification for the same. The Assessing Officer perceived that the income is not genuine and therefore, the expenses are bogus. The assessee has filed the copy of ledger account of M/s ESAJV D-Art Indo India Pvt. Ltd. claiming that amount received from M/s ESAJV D-Art Indo India Pvt. Ltd. is disclosed in the books, Form 16A and Bank Statements of the assessee company. During the assessment proceedings, assessee has also submitted the comparative chart of business receipts and net profit the crux of the comparative chart is as under:-
FY Turnover (Rs. Lacs) NP% 2009-10 2194.55 0.71% 2010-11 1852.99 2.18%
2011-12 1179.62 1.13% The Ld. AR submitted that in the year under consideration the NP rate is highest in three years. Since NP is 2.18%, making addition at 12.32% of the expenses is not tenable in law. The Ld. AR further submitted that there is no allegation by the Assessing Officer that the assessee had not made payments for such expenditure. All the expenses are fully vouched and were verifiable. The assessee has been maintaining regular books of accounts duly audited under Section 44AB of the Act which have not been doubted or rejected by the Assessing Officer. The additions are merely on the suspicions and lacks evidence. The same are bad in law in the light of the judgment of the Hon’ble Supreme Court in the case of Umacharan Shaw & Bros vs. CIT 37 ITR 271 (SC) wherein it is settled law that suspicion however strong it is cannot take place of the evidence. Further the Ld. AR relied upon the decision of the Hon’ble Supreme Court in case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288.
9. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
We have heard both the parties and perused all the relevant material available on record. As regards Ground No. 1 is general in nature, hence it is dismissed. As regards Ground No. 2, the contentions of the Ld. AR that there is failure on part of issuance of statutory notice u/s 143(2) of the Act that does not seem tenable as the Assessing Officer has mentioned in the Assessment Order that notice under Section 143(2) has been issued to the assessee. The Assessee in fact participated in the Assessment Proceedings and got the fair opportunity of hearing to represent the case. Therefore, Ground No. 2 is dismissed. As regards to Ground No. 3, prior to enhancement, no reasonable opportunity was granted to the assessee as
per the requirement of Section 251(2) of the Income Tax Act, 1961. Thus, the contentions of the Ld. AR to that extend are sustainable and Ground No. 3 is allowed. As regards to Ground No. 4 and 5, the non-disposal of the objections filed by the Assessing Officer against re-opening of reassessment proceedings, the case law cited by the Ld. AR that of Surendra Kumar Jain vs. Pr. CIT W.P. (C) 593/2019 & CM No. 2670/2019 order dated 29.07.2019 passed by the Hon’ble Delhi High Court is precisely applicable in the present case. The Hon’ble High Court held as under:
5. In the present case, the AO has not chosen to dispose of the objections, filed by the Petitioner against the reopening of the assessment but has proceeded to the stage of passing the reassessment order itself.
In most an identical fact situation in Smt. Kamlesh Sharma v. B. L. Meena, Income-Tax Officer (Supra), where the AO did not pass any speaking order but straightaway passed an assessment order, and simultaneously rejected the contention of the Petitioner, this Court observed:
“3. We are of the opinion that in view of the language of the Supreme Court in GKN Driveshafts [2003] 259 ITR 19 the Assessing Officer should have rejected the objections, if he thought it appropriate to do so, before passing the final order and not simultaneously.
This position was reiterated by this Court in Sita World Travels (India) Ltd. v. CIT (@004) 140 Taxman 381 (Del).
5. We cannot appreciate how, in spite of the clear language used by the Supreme Court as well as this Court, the Assessing Officer did not comply with the requirement of law.”
This Court has, therefore, no hesitation in setting aside reassessment order dated 29th December, 2018 for the Assessment Year AY 2011-12. Consequently, a direction is issued to the AO to once again take up for consideration, the Petitioner’s objections to the reopening of the assessment for the aforementioned AY and dispose of those objections by a reasoned order not later than four weeks from today. The said order shall be communicated to the Petitioner not later one week thereafter.
Thereafter, the AO will proceed in accordance with law as far as the reassessment proceedings are concerned.
It will be open to the Petitioner to seek appropriate remedies if his objections to the reopening of the assessment are rejected by the AO.”
In the present case as well, the Assessing Officer has not disposed off the objections of the assessee filed at the initiation of assessment proceedings.
Thus, in light of the decision of the Hon’ble Delhi High Court in case of Surendra Kumar Jain (supra) we are also of the opinion that the objections filed by the assessee should have been disposed off by the Assessing Officer at the initial stage and then should have proceeded with the completion of the Assessment. Therefore, we remand back the issue of disposing off the objections to the file of the Assessing Officer to first deal with the objections of the Assessee, and thereafter passed an appropriate order itself. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Thus, Ground No. 4 and 5 are partly allowed for statistical purpose. We are not commenting on the merit of the issue raised by the Assessee. Therefore, Ground No. 6 is not dealt herewith.
In result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 17/09/2019.