ITO 2(1)(1), MUMBAI vs. AAA TECHNOLOGIES P.LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, HON'BLE ACCOUNTANT MEMBER ITA NOs. 3454 & 3455/MUM/2017 (A.Ys: 2009-10 & 2012-13) Income Tax Officer – 2(1)(1) v. M/s. AAA Technologies Pvt. Ltd., 543, 5th Floor, 278 - 280, F-Wing, Solaris-1 Aayakar Bhavan, Saki Vihar Road M.K. Road, Opp. L & T Gate No. 6 Mumbai-400 020 Powai, Andheri (E) Mumbai – 400 072 PAN: AADCA 8858 Q (Assessee) (Respondent) C.O. No. 280/MUM/2018 [Arising out of ITA NO. 3454/MUM/2017 (A.Y: 2009-10)] M/s. AAA Technologies Pvt. Ltd., v. Income Tax Officer – 2(1)(1) 543, 5th Floor, 278 - 280, F-Wing, Solaris-1 Saki Vihar Road Aayakar Bhavan, Opp. L & T Gate No. 6 M.K. Road, Powai, Andheri (E) Mumbai-400 020 Mumbai – 400 072 PAN: AADCA 8858 Q (Assessee) (Respondent)

Assessee by : Shri Vipul Joshi Department by : Shri Abdul Hakeem M.

Date of Hearing : 02.05.2019 Date of Pronouncement : 17.05.2019

2 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., O R D E R PER C.N. PRASAD (JM) 1. These appeals are filed by the Revenue and cross objection by the assessee for the A.Ys. 2009-10 and 2012-13 against the order of the Ld. Commissioner of Income–tax (Appeals)-3, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 10.02.2017.

3 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., c. CIT v. Trend Electronics [379 ITR 456 (Bom.)] d. CIT v. IDBI Ltd. [(2016) 76 taxmann.com 227 (Bom.)]

4 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., assessee and by making disallowance of expenses of ₹.3,00,70,000/- towards professional fee. On a perusal of the Assessment Order, we find that there is no reference to any reasons recorded by the Assessing Officer for reopening the assessment. Nowhere in the reassessment order the Assessing Officer mentioned or discussed the reasons for which the reopening was made. The Assessing Officer completed the reassessment rejecting the contentions of the assessee on merits but did not discuss as to why the assessment was reopened. The Assessing Officer has not given any finding on as to why he has reason to believe income of the assessee had escaped assessment. The Ld. CIT(A) rejected ground raised by the assessee on validity of assessment by merely observing that the assessee ought to have sought suitable remedy at that stage by filing writ petition before the Hon’ble Bombay High Court. The Ld. CIT(A) upheld the reassessment on the ground that the assessee attended for the hearing and not objected for reopening. Even before us the Revenue could not produce any reasons recorded for reopening of assessment though opportunity was given. In the light of these facts, now let us examine the decisions relied on by the assessee challenging the reopening on the ground that in the absence of reasons, the reassessment order is bad in law.

5 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., 7. The Hon’ble Bombay High Court in the case of CIT v. Videsh Sanchar Nigam Ltd (supra) considered a situation where reasons recorded for reopening of assessment were furnished only after completion of assessment and their lordships held that in such situation reassessment order cannot be upheld with the following observations: “2. The finding of fact recorded by the Income Tax Appellate Tribunal is that in the present case the reasons recorded for reopening of the assessment though repeatedly asked by the assessee were furnished only after completion of the assessment. The Tribunal following the judgment of this Court in the case of CIT V/s. Fomento Resorts & Hotels Limited, Income Tax Appeal No.71 of 2006 decided on 27th November 2006 has held that though the reopening of the assessment is within three years from the end of relevant assessment year, since the reasons recorded for reopening of the assessment were not furnished to the assessee till the completion of assessment, the reassessment order cannot be upheld. Moreover, Special Leave Petition filed by the Revenue against the decision of this Court in the case of Fomento Resorts & Hotels Limited has been dismissed by the Apex Court vide order dated 16th July 2007.” 8. In the case of CIT v. Trend Electronics (supra) the assessee filed return of income which was processed u/s. 143(1) of the Act. Subsequently Assessing Officer initiated reassessment proceedings by issue of notice u/s. 148 of the Act. Assessee sought copy of reasons for reopening. Without furnishing reasons recorded, the Assessing Officer directed the assessee to file return of income. Assessee informed that original return of income filed be treated as return of income consequent to notice u/s.148 of the Act. Thereafter, Assessing Officer completed assessment u/s. 143(3) r.w.s. 147 of the Act. On these facts, the Hon’ble Bombay High Court held that the Revenue cannot be allowed to justify

6 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., failure to furnish the reasons for reopening assessment on plea that

assessee had asked for reasons recorded only once. It was also held that

failure to furnish recorded reasons for issue of reopening notices to

assessee before completion of assessment would make the

reassessment order passed in pursuance of such notice is bad in law. In

holding so the Hon’ble Bombay High Court held as under: -

“2. Following questions of law are urged by revenue for our consideration: “1) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in applying the ratio of the Apex Court in GNK Driveshafts (India) Ltd. Vs. ITO 259 ITR 19 (SC) when the facts are contrary to the facts of the instant case? 2) Whether on the facts and in the circumstances of the case and in law, the Tribunal had ignored the fact that in the proceedings before the AO in subsequent hearings prior to assessment, the firm had neither sought for the reasons recorded, since by interference, they were already aware of the same?” 3. The respondent-assessee filed it's return of income for the Assessment Year 200809 declaring total income of Rs.7.67 lakhs. This return of income was processed under Section 143(1) of the Act accepting the returned income. 4. On 26 March 2010, the Assessing Officer initiated reassessment proceedings by issuing notice under Section 148 of the Act seeking to reopen the assessment for the Assessment Year 2008 09. On receipt of notice, the respondent-assessee by letter dated 28 April 2010 sought copy of recorded reasons for reopening of assessment in respect of notice dated 26 March 2010 under Section 148 of the Act. The Assessing Officer by letter dated 29 April 2010 directed the respondent-assessee to file it's return of income and also informed the respondent-assessee that the reasons would be furnished after the return of income is filed. The respondent assessee thereafter by letter dated 7 May 2010 informed the Assessing Officer that return of income filed on 29 September 2008 under Section 139 of the Act be treated as the return of income consequent to notice under Section 148 of the Act. The Assessing Officer thereafter completed the reassessment proceedings on 30 December 2010 under Section 143(3) r/w 147 of the Act without having given a copy of the reasons recorded for issue of reopening notice dated 26 March 2010 to the respondent-assesse. 5. Being aggrieved, the respondent-assessee preferred an appeal to Commissioner of Income Tax (Appeals) (the 'CIT(A)'). However, the appeal

7 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., was not entertained by the CIT(A) who confirmed the action of the Assessing Officer and order dated 30 December 2010. 6. A further appeal was preferred by the respondent to the Tribunal. The impugned order of the Tribunal records the undisputed fact that the respondent-assessee had sought for reasons for reopening notice dated 26 March 2010 from the Assessing Officer. The reasons were admittedly not furnished to the respondent-assessee before the completion of the reassessment proceedings. The impugned order places reliance upon the decision of Apex Court in GNK Driveshafts (India) Ltd. Vs. ITO1 wherein it has been specifically provided that the Assessing Officer is bound to furnish reasons for issuance of reopening of notice when sought for by the assessee. Further, reliance was placed upon the decision of this Court in CIT Vs. Videsh Sanchar Nigam Ltd.2 wherein this Court has held that failure to furnish the recorded reasons for issue of reopening notices to the assessee before completion of the assessment proceedings would make the reassessment order passed in pursuance of such a notice bad in law. In the above circumstances, the appeal of the respondent-assessee was allowed by the Tribunal. 7. Mr. Pinto, the learned Counsel for the revenue submits that the respondent-assessee had only asked for reasons once and did not further ask for reasons. Further he submits that as the respondent-assessee had participated in the proceedings before the Assessing Officer, it must be implied that reasons were furnished. 8. We find that the impugned order merely applies the decision of the Apex Court in GNK Driveshafts (India) Ltd. (supra). Further it also follows the decision of this Court in Videsh Sanchanr Nigam Ltd. (supra) in holding that an order passed in reassessment proceedings are bad in law in the absence of reasons recorded for issuing a reopening notice under Section 148 of the Act being furnished to the assessee when sought for. It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. Reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment. These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as

8 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. We also do not appreciate the stand of the revenue, that the respondent assessee had asked for reasons recorded only once and therefore seeking to justify non-furnishing of reasons. We expect the state to act more responsibly. 9. In view of the fact that the order of the Tribunal has only applied the settled position of law in allowing the respondent assessee's appeal. No substantial question of law arises for our consideration”.

passed reassessment order without supplying copy of reasons recorded

and completed the reassessment disallowing depreciation on assets

leased out by the assessee. The Ld. CIT(A) affirmed order of the

Assessing Officer and the Tribunal held that non-supply of reasons in

support of the re-opening of assessment would make the order passed

thereon bad in law. The Hon’ble High Court held as under: -

“2. The Revenue has urged the following question of law for our consideration: (A) “Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in quashing the reassessment proceedings even though the assessee was aware of the reasons of reopening and also participated in the Assessment proceedings?” (B) “Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in deleting the depreciation disallowed by the Assessing Officer on the 'leased' assets?” 3. Re.: Question (A) (i) For the Assessment Year 199394, the regular assessment was completed by an order dated 26 March 1996 u/s. 143(3) of the Act. Thereafter, on 9 December 1996, the Assessing Officer issued a notice u/s. 147 read with Section 148 of the Act, seeking to reopen the assessment for the Assessment Year 199394. On receipt of notice, the Respondent-Assessee sought from the Assessing Officer a copy of reasons recorded for issuing reopening notice dated 9 December 1996. However, the same was not supplied. The Assessing Officer, in fact passed an Assessment Order on 26 March 1999 consequent to the impugned notice for re- assessment dated 9 December 1996 without supplying the copy of the reasons recorded.

9 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., (ii) Being aggrieved, the Respondent Assessee carried the issue in appeal to the Commissioner of Income Tax (Appeals) (CIT(A)). In its appeal, the Respondent-Assessee inter alia challenged the jurisdiction of the Assessing Officer to complete the assessment on a reopening notice under Section 148 of the Act without having supplied the copy of the reasons in support of the impugned notice to the Appellant and also on merits i.e. depreciation on leased assets. By an order dated 19 December 2003, the CIT(A) dismissed the Respondent Assessee's appeal to the extent it related to the lack of jurisdiction with the Assessing Officer to complete the assessment on a reopening notice without having furnished a copy of the reasons in support thereof to the Assessee. (iii) Being aggrieved, the Respondent carried the issue in appeal to the Tribunal. The Tribunal in the impugned order records the fact that it is an undisputed position that in spite of repeated requests made by the Respondent Assessee, the Assessing Officer did not supply its reasons in support of the reopening notice under Section 148 of the Act. On the aforesaid facts, the impugned order of the Tribunal by placing reliance upon the decisions of this Court in Siesta Steel Construction (P.) Ltd. vs. K.K. Shikare1 , CIT vs. Fomento Resorts and Hotels Ltd.2 and upon the decision of its co-ordinate bench in case of Tata International Ltd. vs. DCIT3 concluded that the non-supply of reasons in support of the reopening notice would make the order passed thereon bad in law. Consequently, the impugned order allowed the appeal on issue of jurisdiction and in that view the issue on merits became academic. (iv) Mr. Malhotra, Counsel for the Revenue, submits that the Respondent Assessee was aware of the reasons for the reassessments. Thus, there was no violation of the principles of natural justice. In the above view, it is submitted that the question as framed be admitted for consideration. (v) We find that the question as framed proceeds on the basis that the Respondent Assessee was aware of the reasons for re-assessment. The only basis for the aforesaid submission is the submission made by the Revenue before the Tribunal that the Respondent Assessee is a public sector institution who was aware that search action has been initiated on certain lessees in respect of transactions with IDBI i.e. Respondent-Assessee. On the basis of the above, it is to be inferred that the reason for re-assessment was known to the Respondent Assessee. The supply of reason in support of the notice for reopening of an assessment is a jurisdictional requirement. The reasons recorded form the basis to examine whether the Assessing Officer had at all applied his mind to the facts and had reasons to believe that taxable income has escaped reassessment. It is these reasons, which have to be made available to the Assessee and it could give rise to a challenge to the reopening notice. It is undisputed that the reasons recorded for issuing reopening notice were never communicated to the Respondent Assessee in spite of its repeated requests. Thus, the grievance of the Revenue on the above count is unsustainable. (vi) An alternative submission is made on behalf of the Revenue that the obligation to supply reasons on the Assessing Officer was consequent to the decision of the Apex Court that GKN Driveshafts (India) Ltd. vs. Income-tax Officer4 rendered in 2003 while, in the present case, the reopening notice is dated 9 December 1996. Thus it submitted at the time when the notice under Section 148 of the Act was issued and the time when assessment was completed, there was no such requirement to furnish to the assessee a copy of the reasons recorded. This submission is not correct. We find that the impugned order relies upon the decision of this Court in Seista Steel Construction (P.) Ltd. (supra) when it is held that in the absence of supply of reasons recorded for issue of reopening notice the assessment order would be without jurisdiction and needs to be quashed. The above view as taken by the Tribunal has also been taken by this Court in CIT vs. Videsh Sanchar Nigam Ltd.5 viz. non-supply of reasons recorded to issue a

10 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., reopening notice would make the order of Assessment passed thereon bad as being without jurisdiction. (vii) In the above view, the question (A) as framed does not give rise to any substantial question of law. Thus, not entertained.

following question has been raised before the Hon’ble Karnataka High

Court and the High Court answered the question as under: -

“Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the reassessment order by holding that the assessing authority had not supplied the reasons for re-assessment even though the assessee was made aware of the crux of the case and assessee was provided sufficient opportunity of hearing and assessee had actively contested the case before assessing authority?”

…

“5. Having heard the learned counsels for the parties, we are satisfied that no substantial question of law arises in the present appeal filed by the Revenue in as much as the recording of reasons for reassessment under Section 147/148 of the Income Tax Act or non-communication thereof to the assessee does not amount to a mere procedural lapse. In view of the aforesaid Supreme Court decision in GKN DRIVESHAFT’s case, it goes to the root of the matter and renders the reassessment order passed by the assessing authority without recording such reasons and communicating the same to the assessee, as being without jurisdiction.

11 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., the assessing authority, but despite the specific requests, the assessing authority did not comply with the said request and supplied the reasons to the assessee. That casts a doubt even on fact of the recording of the reasons in the contemporary period by the assessing authority. The fact that such reasons are supplied before the learned Tribunal only for the first time was enough for by the learned Tribunal to hold that in view of the decision of the Hon’ble Supreme Court, the assessing authority lacked the jurisdiction in invoking the reassessment proceedings and therefore, the impugned reassessment order deserves to be quashed. 8. The decision relied upon by the learned counsel for the Revenue is distinguishable on facts. The order which was to be passed by assessing authority as preliminary objection of assessee, once the assessee has raised the objection to such reassessment proceedings, the meeting of such objections in the main reassessment order, could be procedural aspect of the matter, but the recording of the reasons before the initiation of the reassessment proceedings and communication thereof to the assessee is sine qua non, as held by Hon’ble Supreme Court and that goes to the root of the matter and confers or deprives the assessing authority of the jurisdiction to undertake such reassessment proceedings, as the case may be. 9. In the present case, admittedly, such reasons were not supplied to the assessee during the contemporary period before going ahead with the reassessment proceedings. Therefore, the Tribunal in our opinion was perfectly justified in quashing such reassessment order. 11. The special leave petition filed against this decision of the Hon’ble

Karnataka High Court is dismissed by the Hon'ble Supreme Court in PCIT

v. V. Ramaiah [103 taxmann.com 202].

provided reasons to the assessee before completion of assessment nor

he has discussed the reasons in the Assessment Order for reopening the

assessment. Even before us the Revenue could not produce the reasons

for reopening the assessment.

which are squarely applicable to the facts of the case, we hold that the

12 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., reassessment made u/s. 143(3) r.w.s. 147 of the Act for the A.Y. 2009-10 is null and void. Thus, the reassessment order is quashed. Since the reassessment order passed u/s. 143(3) r.w.s 147 of the Act is quashed, the appeal filed by the Revenue for the A.Y. 2009-10 will not survive and the same is dismissed as infructuous.

13 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., Tribunal in the case of F.S. Sondhi & Co. (India) Pvt. Ltd., [49 taxmann.com 180]. The Assessing Officer disallowed insurance policy premium of ₹.5,00,000/- claimed by the assessee as allowable deduction. On appeal the Ld. CIT(A) on examining the policies taken by the assessee and taking note of the fact that the policies were originally taken in the name of the employees but was later assigned to the assessee company, the company is paying the premium and not the employees and in case employee expires it is the assessee company who will earn the sum assured, he deleted the disallowance.

14 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., appeal dismissing the appeal of the assessee and sustaining the disallowance made by the Assessing Officer which was affirmed by the Ld. CIT(A) in respect of the premium paid towards commission insurance policy. The Ld. Counsel for the assessee submits that subsequently the Tribunal by order dated 31.08.2015 recalled its order dated 21.04.2014 and disposed of the appeal in ITA.No. 117/ASR/2010 by order dated 27.11.2015 allowing the appeal of the assessee and deleting the disallowance made in respect of the premium paid toward Keyman Insurance Policy. Copy of the order dated 27.11.2015 is placed on record.

15 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., 21. Briefly stated the facts are that, the Assessing Officer while completing the assessment noticed that assessee claimed expenses of ₹.9.57 crores under the head professional fee. Assessee was asked to justify the expenses claimed. Assessee furnished the details of professional fee received as well as paid during the current Assessment year. Assessee in its submissions made, it was brought to the notice of the Assessing Officer that it had entered into MOU with various parties for rendering Information Technology System Audit and Information Security Service Overseas. As per the MOU it has been agreed that these foreign parties could use assessee’s name to get work and execute themselves for which they will pay small fee up to 1% of the contract as mutually decided. It was contended that the foreign parties have got the contract and executed themselves and the assessee let them to use only the company’s name. It was also submitted that instead of showing net amount receivable as income assessee has shown gross amount of contract as professional receipt and after retaining its share of fee out of the said contracts receipts the remaining professional fee was shown as paid and therefore, it was submitted that the net income would remain the same and would not affect the profit and loss account of the assessee company. It was also explained that this was done as part of best practice and transparency and as advised by its auditors/consultants.

16 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., 22. Not convinced with the submissions of the assessee, the Assessing Officer observing that the assessee was unable to explain the expenditure under the head professional fee, and since assessee himself admitted the fact that the contracts have been executed by the foreign parties, the assessee has not actually incurred any expenditure towards professional fee, the Assessing Officer came to the conclusion that the assessee has failed to prove that the expenditure claimed is incurred wholly and exclusively for the business purpose and accordingly the said expenditure was disallowed and added back treating the said expenses as bogus expenditure. On appeal the Ld.CIT(A) considering the submissions of the assessee, the evidences furnished in the course of the assessment proceedings before him and the remand report of the Assessing Officer deleted the disallowance.

17 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., foreign parties for execution of the work overseas and therefore since assessee has not incurred any expenditure the claim made by the assessee for expenses was rightly denied by the Assessing Officer.

Ld. Counsel for the assessee submitted that due to hard labour, the company has created a niche for itself in this field over the period of time. Referring to Page Nos. 38 to 44 of the Paper Book the Ld. Counsel for the assessee submits that the assessee company received professional fee from the following clients during the year. (i) Many public sector banks like State Bank of India, SIDBI, Exim Bank, Allahabad Bank, Syndicate Bank, Punjab National Bank, National Housing Bank, Indian Overseas Bank, Central Bank of India, etc.

18 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., (ii) Government undertakings like, ONGC, NTPC, MMTC, Bombay Port Trust, etc. (iii) Government Departments, like Navy, Anti - Corruption Bureau, Director General of Shipping, etc. (iv) Government Departments of State of Maharashtra, State of Gujarat, like State Election Commission, State Boards, etc.

19 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., using the Assessee's name/goodwill. He submits that the most important aspect of the arrangement was that the Assessee's role was only to allow the concern to use its name/goodwill while prospecting clients and nothing more. More specifically, the Assessee was not at all concerned with actual procurement of the assignment by the said concern, much less with execution of the assignments. The Assessee neither was involved directly, or indirectly, with income and corresponding expenses concerning the assignments nor was it even in knowledge of the actual amount of income and expenses. Naturally, therefore, there was no question of the Assessee receiving any professional fees on account of such assignments or with the corresponding expenses incurred while executing such expenses. The assignments were procured by the clients on their own and the incomes were received as well as the expenses were incurred by the clients directly in their own name, without any recourse to the Assessee. The Assessee was only provided with the calculation to arrive at the amount of entitlement at 0.50% and nothing more. This entire arrangement was confirmed, and fully clarified, by M/s.Arrowtech Computers Trading, LLC.

20 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., company reflected the entire contract value on the receipt side and, after reducing the entitlement at the decided rate of 0.50% therefrom, the balance amount of 99.50% was shown as expenses under the head "Professional Fees", as one consolidated figure, thereby arriving at the same result of the commission at the rate of 0.50% as income. In other words, the figure of the expenses debited was nothing but a balancing figure, just to align with the actual and real income accruing to the Assessee, that is, at 0.50% of the contract value. Even this aspect was clarified by the Chartered Accountants in their opinion. As such, the Assessee was not even concerned, or involved with, either the contract receipt or the contract expenses. The name 'Professional Fees paid' was assigned to the expenses only by way of the balancing book entry and, in no case, represented any actual credit or payment of contract charges to anybody, either on fact or in law.

21 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., (iii) Confirmation letter to foreign parties [Page No. 47 to 51 of the Paper Book] (iv) MOU’s with all the five foreign parties [Page No. 52 to 61 of the Paper Book] (v) Note on professional fees [ Page No. 66 to 67 of the Paper Book] (vi) Correspondence with overseas clients confirming that they have got the contracts and executed by them overseas and assessee is only to receive a small portion of the said contract fee. [Page No. 161 to 165 of the Paper Book] (vii) Show cause notice by Assessing Officer dated 03.03.2015 for disallowance u/s. 40(a)(ia) on account of non-deduction of TDS [Page No. 35 & 36 of the Paper Book] and Submissions of assessee vide letter dated 09.03.2015 [Page No. 166 & 167 of the Paper Book]

22 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., submits that thereafter, there was no query raised by the Assessing Officer. Not a single notice thereafter was issued asking any explanation about the expenses. The Assessing Officer never indicated whether and how the replies filed by the Assessee were not sufficient or proper. All details called for by the Assessing Officer were provided to him and all the notices sent by the Assessing Officer were duly complied. The Assessing Officer did not invoke the provisions of section 144, 145, 271(1)(b), etc. This means that the Assessing Officer was satisfied with the submissions of the Assessee. It is also important to note that the Assessing Officer did not make any independent verification or enquiry of his own, but simply made the disallowances purely on conjunction and surmises and on the basis of vague and general averments. The Assessing Officer did not even bring on record any material either to disprove or rebut the information and explanations brought on record by the Assessee or to support its action.

23 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., (iii) Registration documents and credentials of M/s. Arrowtech Computers Trading LLC [201-219] i.e License copy, Contract certificates, etc. (iv) Information Technology (Amendment) Act, 2008 [220-221] (v) Various appointment letters/appreciation letters/ certificates from various institutions [222 - 314] (a) Empanelment letter of Ministry of communications and Information Technology [223 - 226] (b) Trade Marks Registration [228 - 232] (c) Certificate of Appreciation from, ISACA from year 2005 to 2014 [233 -241] (d) Empanelment letter of Reserve Bank of India [245 - 247] (e) Empanelment letter of Ministry of Communication & Information Technology [248 - 249] (f) Empanelment letter of National Highway Authority of India [250] (g) Empanelment letter of Telecom Regulatory Authority of India [251 - 252] (h) Empanelment letter of National Informatics Centre Services Inc. [253 -258] (i) Empanelment letter of Government of Maharashtra [259] (j) Agreement between SBI and Assessee for carrying out audit [260 - 263] (k) Certificate of registration under ISO 9001:2008 [264] (l) Certificate International Achievers Award for Business Excellence, etc. (vi) Chartered Accountant's opinion dated 21.03.2009 on recording of the transactions in the books [315-316].

dated 21.11.2016 filed the above documents so as to admit the same as

additional evidences as per rule 46A of the Rules, 1962 r.w.s. 246A of the

Act. The Ld.CIT(A) by letter dated 23.11.2016 required the Assessing

Officer to furnish the comments/objections/report regarding admissibility

of additional evidences. Further, the Assessing Officer was required to

examine the additional evidences on merits and submit report u/s. 250(4)

of the Act. The Assessing Officer furnished remand report dated

13.01.2017.

24 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., 33. Ld. Counsel for the assessee submits that the Assessing Officer in the remand report took note of confirmation filed by Arrowtech. Not disputed/controverted. Took note and acknowledged the documents evidencing existence of M/s. Arrowtech and its credential. Not disputed/controverted. It is undisputed that the Assessee had not rendered any professional services. Assessing Officer observed that the Assessee has taken two contradictory views in respect of its claim of expenditure. As also, the opinion taken of the Chartered Accountant was of a very general nature. In the circumstances these evidences cannot be admitted as additional evidences u/r 46A of the IT Rules. Assessing Officer observed that the argument regarding no proper opportunity was granted, not disputed/controverted. Ld. Counsel for the assessee submits that it is very important to note that the Assessing Officer did not dispute the evidences brought on record. As such, he did not doubt the existence and genuineness of the evidences placed before him.

25 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., remand report not only regarding admissibility of additional evidence but also on merits of the case, Para 5 shows that the Assessing Officer had totally misunderstood and mis-appreciated the entire arrangement/agreement between the Assessee and M/s. Arrowtech. The Assessee was not concerned with the amount of income earned by M/s.Arrowtech nor was it in knowledge of any such amount. The very purpose of remand was to get the facts and evidences verified. The Assessing Officer did not adversely comment upon them and did not find necessary to call further detail/explanation from the Assessee. At Para 6 of Remand Report, the Assessing Officer himself acknowledged that the rest of the documents evidence existence of M/s Arrowtech and its credentials. He has also acknowledged that 'it is undisputed that the Assessee had not rendered any professional services'. This shows that Assessing Officer himself accepted that the Assessee had not rendered any professional services. Therefore, the question of revenue does not arise at all. As regards the reliance placed by the Assessing Officer on book entries, this issue also has been clarified sufficiently, for which the Assessing Officer had no answer. In any case, it is a very well settled legal position that entries in books of accounts are not conclusive to decide nature of a transaction. What is important and relevant is substance of a

26 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., transaction and not its form. Reliance, in this regards, is placed on certain decisions as follows: (i) Kedarnath Jute v/s. CIT - [82 ITR 363, 367 (SC)] (ii) Sutlej Cotton - [116 ITR 1, 5 (SC)] [For income] (iii) CIT v/s. India Cement - [75 ITR 191,195 (SC)] (iv) CIT v/s. ShoorjiVallabhdas - [46 ITR 144 (SC)] (v) CIT v/s. Central Provinces Manganese - [112 ITR 734 (Bom)] (vi) ACIT v/s. Buckau Wolf- [157 ITR 751 (Bom)] (vii) CIT v/s. Century Enka Ltd. - [239 ITR 804 (Cal)] (viii) Tamilnadu Brick & Tile Mfg. Industrial Services Co-op. Society Ltd. v/s. CIT - [265 ITR 332 (Mad)] (ix) Pullangode Rubber Produce Co. Ltd. v/s. State of Kerala [(1973) 91 ITR 18 (SC)] (x) S. Arjun Singh v/s. CIT - [(1989) 175 ITR 91 (Del)] (xi) Nirmala G. Mehta v/s. A. Balasubramaniam - [269 ITR 1 (Bom)].

27 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., Assessee. At Para 7 of the Remand Report, the Assessing Officer mentions that two contradictory views in respect of the claim of expenditure were taken by the Assessee. Here also, the Assessing Officer totally misunderstood/misappropriated not only the Assessee's submissions but also the evidences placed on record by the Assessee. There was absolutely no contradiction. It was only that by adopting two alternative methods of accounting, the same result was arrived at. The opinion of Chartered Accountant has been brushed aside mechanically, in a most casual and cryptic way. The same was not at all general in nature, as alleged. In any case, only a Chartered Accountant is qualified to comment about the method of accounting, as he is an expert of the field, especially when the Assessing Officer had not pointed out any specific defect in the opinion of the Chartered Accountant.

28 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., which was the payment. It is a well settled legal position that there cannot be a part acceptance and a part rejection arising from the same document/statement/transaction. Reliance, in this regard, was placed on certain decisions as follows: (i) Glass Lines Equipments Co. Ltd. v/s. CIT - [(2002) 253 ITR 454 (Guj)] (ii) Chander Mohan Mehta v/s. ACIT (Investigation) - [(1999) 71ITD 245 (Pune)] (iii) ACIT v/s. Vasantlal C. Mehta - [(2001) 77 ITD 76 (Rajkot)] / [(2001) 72 TTJ (Rajkot) 93] (iv) ITO v/s. Ghanshyambhai R. Thakkar - [(1996) 88 taxman (Ahd) 651 (v) Ramanlal P. Chordia v/s. ACIT - [(2004) 87 TTJ (Pune) 713] Followed: Chander Mohan v/s. ACIT - [(1999) 71 ITD 245 (Pune)] (vi) ACIT v/s. Chandresh Kumar Maheshwari - [(2009) 29 SOT 58 (Jodh) (URO)]

In other words, as in the instant case, the Department cannot be permitted to tax the entire income, even in absence of any proof of accrual and/or receipt, and at the same time to disallow the corresponding expenses on the ground of no proof of accrual/payment. Conversely, if the entire expenses are held to be non-genuine on the ground of no details, on the same logic and corollary, the income also should not be recognized, as the very same ground/reason gets equally applicable to the receipt as well. Importantly, the Assessing Officer himself has accepted and recognized the fact that "it is undisputed that the assessee had not rendered any professional service ".

29 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., consultancy charges nor were they involved in any such transaction. Most importantly, there was no obligation on its part to pay anybody or to give anybody any consultancy charges. In fact, there was no relationship as a payer and payee, as a debtor and creditor at all. As such, the question of deducting tax at source to such nonexistent entity simply does not arise. Even otherwise, there arises no TDS liability, if the payee is non-resident and no income accrued in India and the payments were made outside India. Ref. GE India Technology P. Ltd. v. CIT [(2010) 327 ITR 456 (SC)].

30 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., 40. We have heard the rival submissions, perused the orders of the Authorities below. It is not in dispute that the assessee company is in to the Information Technology System Audit and Allied Consultancy Services. It is also not in dispute that the assessee accounted revenues from foreign parties and after retaining a portion contract receipts as fees/commission the assessee claimed the professional fees as expenses. Assessee has entered into MOU with the foreign parties for lending its name to the foreign parties and the foreign parties shall obtain contracts and execute themselves in the name of the assessee and the assessee as per the MOU assessee is entitled for only a small portion of 1% of the contract receipts.

31 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., 42. The Assessing Officer chose to disallow the alleged payments made to the non-resident but chose to tax the receipts from the same parties. The fact is that the Assessee neither provided nor received any services to/from overseas parties. It had only lent his name to the non-resident parties, for which assessee had to earn income by way of commission. It was mutually decided that the Assessee would lend its name for which it was entitled to 0.50% commission. The fact that no services were rendered by the non-resident has been accepted by the Assessing Officer in his remand report. From the records it is clear that no actual remittance was done to the non-resident. However, from accounting purposes, the Assessee had made disclosure of the entire income/expenditure relating to the non–residents as income/expenditure in its Profit and Loss Account. Only based on such disclosure, the Assessing Officer had sought to disallow the alleged expenses. Ideally, the Assessee ought to have disclosed only the net commission receivable @ 0.50%. If the Assessing Officer was of the view that the expense was non-genuine, he ought to have considered the receipts to be non-genuine as well and excluded from the tax net. The Assessing Officer had chosen to disallow only the expenses but at the same time taxed the receipts. The Assessing Officer cannot take contrary stands for payments and receipts which relate to the

32 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., same parties. It is a well settled principle that no income can be earned without any expenditure.

33 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., submissions of the assessee deleted the disallowance observing as

under:

“9.8. I have carefully considered the facts of the case and the contentions of the assessee. The dispute relates to disallowance of professional fees paid to non- resident parties. In this case, the assessee has found paid professional fees of Rs 9,55,20,000/- to some non-resident parties. At the same time, the assessee has received professional fees of Rs. 9.60 Crores from the same parties. The AO has chosen to disallow alleged payment made to the non-resident parties but has chosen to tax the receipts from the same parties. 9.9 The fact is that the assessee has not provided or received any services. It has only lent its name to the non-resident parties, for which it has to earn commission/royalty. It was mutually decided that the assessee has lent its name for which it was entitled to 0.5% commission. The fact that no services were rendered by the non-residents has been accepted by the AO in his remand proceedings. From the records, it appears that no actual remittance was done to the non-resident. However, from an accounting standpoint, the assessee has made disclosure of entire income/expenditure relating to the non-residents. Based on this disclosure, the AO has sought to disallow the alleged 'bogus expenses'. 9.10 I am not in agreement with the stand of the AO. In fact, the assessee has disclosed significant receipts and payments in its Profit & Loss account. However, ideally, the assessee ought to have disclosed only the net commission receivable @0.5%. If the AO was of the view that the expenses were non-genuine, the AO ought to have considered the receipts to be non-genuine as well and excluded them from the tax net. The AO has chosen to disallow only the expenses but at the same time to tax the receipts. The AO cannot take contrary stands for payments and receipts which relate to the same parties. It is a well established principle that income can be earned without any expenditure. 9.11 Though one may take a view that technically the expenses may not satisfy the requirement of Section 37(1) of the I T Act. However, the broader picture is that the assessee has not incurred any expenses at all. It has merely earned a small commission income from the foreign parties in lieu of using its name. That commission income has been duly offered to tax by the assessee in its return of income by way of netting the receipt and expenditure incurred by the non-resident businessman. 9.12 The main reason for the AO disallowing the expenses was due to the wrong disclosure by the assessee in its books of accounts on the advice of tax professional. The Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v CIT [1997] 227 ITR 172 (SC) has held that the treatment of an income in the books of accounts cannot override the provisions of the Income Tax 1961. Thus, the expenses cannot be disallowed merely due to wrong presentation in its books of accounts. 9.13 As per Section 195 of the I T Act, TDS is only deductible where the income is chargeable to tax in India. In this case, no services were rendered and thus the TDS is not deductible u/s 195 of the I T Act in view of the Supreme Court decision

34 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., of GE India Technology P Ltd v CIT (2010) 327 ITR 456 (SC). It was only due to CA advice that the assessee has presented its financials in such a manner. Fact is that the assessee has passed the journal entry only on the advise of tax advisor and no actual payment was made to the non-residents. Thus, I am of the view that such expenses are not to be disallowed u/s 4o(a)(i) of the IT Act. 9.14 The AO has also disallowed the payment on the ground that the assessee failed to discharge the burden of proof. On a perusal of the scrutiny records, it appears that the AO has not asked the assessee on any occasion to proved the genuineness of the expenses. Even in the notice u/s 142(1) of the IT Act, 1961, the AO has asked the. assessee to show cause as why the amounts should not be disallowed u/s 4o(a)(i) of the I T Act. Without giving the assessee an opportunity to prove the genuineness of the expenses, the AO has proceeded to straight away disallow the same. The AO has proposed to tax the receipts but at the same time disallow the expenses incurred in respect of the same parties. In view of the above, the disallowance made by the Id AO is not called for. At best, what can be taxed is the commission income of Rs 4,80,000/- which has already been offered to tax by the assessee. Thus, the disallowance of professional fees of Rs. Rs. 9,56,74,000/ is hereby deleted. In view of the above, Grounds No 4 and 5 are allowed.”

Revenue. There is considerable force in the submissions of the assessee and we are in complete agreement with the findings and the decision of the Ld. CIT(A) in holding that the professional fee debited by the assessee

cannot be treated as bogus expenses, especially when the Assessing Officer agrees that the assessee has not rendered any services and has accepted the receipts shown by the assessee in the profit and loss

account. Having accepted the receipts shown by the assessee in the profit and loss account, the Assessing Officer should not have disallowed the expenses debited in the profit and loss account. Facts goes to show

that the assessee was only rendering its name for the foreign parties for execution of contracts at overseas by the foreign parties for a small

35 ITA NOs. 3454 & 3455/MUM/2017 C.O. No. 280/MUM/2018 M/s. AAA Technologies Pvt. Ltd., consideration. Therefore, at the most what can be taxed is the commission income which the assessee had already offered to tax in the return of income. In the circumstances, we do not see any infirmity in the order of the Ld.CIT(A) and thus we uphold the order of the Ld.CIT(A) and reject the grounds raised by the Revenue.

Order pronounced in the open court on the 17th May, 2019 Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 17/05/2019 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum