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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SH. R. K. PANDA & SMT. BEENA A. PILLAI
PER BEENA A. PILLAI, J.M :
The present appeal has been preferred by assessee against order, dated 30.09.2013 passed by Ld. CIT(A)-XXXII for assessment year 2004-05 on following grounds of appeal: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned order u/s 147/143(3) and that too without assuming jurisdiction as per law and without complying with mandatory conditions as envisaged u/s 147 to 151 of Income Tax Act, 1961 and impugned order has been passed that too without recording valid reasons and without obtaining valid sanction as per law.
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That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in framing the impugned assessment u/s 147/143(3) is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.52,50,000/- on account of purchases of PGSM Software Module from M/s B.T. Technet Ltd. by treating the same as non-genuine and that too without independent application of mind and by recording incorrect facts and findings and without providing opportunity of cross examination. 4. That in any case and in any view of the matter, impugned disallowance and impugned assessment order are bad in law, illegal, unjustified, contrary to facts & law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed. 5. That the appellant craves to leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
The brief facts of the case are as under: Assessee filed its original return of income on 01.11.2004 declaring total income of Rs.18,91,694/-. Assessing officer framed assessment under section 143(3) on 22.12.2006 and assessed total income at Rs.25,99,300/- in hands of assessee. Aggrieved by assessment order, assessee preferred appeal before Ld. CIT(A), who reduced the assessed income to Rs. 19, 91, 990/-.
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In the meantime a search and seizure action took place at S.K. Gupta Group. Ld. AO records that during the course of search at 231, Gulmohar Enclave, one of the premises of Sh. SK Gupta, large number of incriminating documents were found. These documents included sale bills issued by M/s BT Technet Ltd., one of the companies of Sh. S.K. Gupta, to whom assessee had transaction for purchase of ‘PGSM Software’ worth Rs.52,50,000/- during year under consideration. It has been observed by Ld. AO that such bills of sales of PGSM Software to assessee were found pertaining to year under consideration from searched premises. Accordingly, jurisdiction over the case was transferred to circle. It has been recorded by Ld. AO that while concluding assessment proceedings of M/s BT Technet Ltd., it was proved on the basis of confessional statement of Sh. S.K. Gupta husband of Smt. Saroja Gupta, who was Director of M/s BT Technet Ltd., that no business activity other than accommodation entry business was being carried out by M/s BT Technet Ltd. Assessing Officer therefore, came to conclusion that there were reasons to believe that income, to that extent has escaped assessment and accordingly assessment was reopened in assessee’s case by issuing notice under section 147, with notice under section 148 of the Act on 27.01.2009. Ld. AO recorded reasons of reopening which has been reproduced hereunder: This is the case of a company who filled its return of Income for Asstt. Year 2004-05 at a figure of
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Rs.18,91,694/- on 01-11-04. The same was processed at the returned income u/s 143(1) (a) on 14-03-2005. Later on the case was picked up for scrutiny & the case was assessed u/s 143(3) of LT Act 1961 on 22- 12-2006 at a figure of Rs. 25,99,300/-. The assessed income has been reduced toRs.19,91,990/-after giving appeal effect to the order of the Ld. CIT (A), who passed the order on 19-08-2007. During the course of search & seizure action in S.K Gupta Group of cases it has been revealed that Shri Gupta, a Chartered Accountant by profession , is running/controlling a number of companies and is operating a number of banks accounts either by himself or in the name of his relatives and close associates. Shri S.K Gupta through the companies controlled by him was found to be engaged in the business of issuing accommodation bills on commission basis and also issuing entries for share capital. No evidence was found during the search that any substantial business activity was being carried on through these companies. .In fact, a large numbers of bills issued to various companies were found and seized from the premises of Shri Gupta and most of them were for providing professional/Consultancy services. It is pertinent to mention here that Shri Gupta in his statements recorded on Oath u/s 132/131 of the I.T Act had admitted that he was just issuing accommodation bills to various companies. It was also admitted by him that his companies were neither having the necessary competence nor the infrastructure to provide such professional/consultancy services .During the course of search at 231 Gulmohar Enclave, one of the premises of Shri S.K Gupta, various incriminating documents have been found. These documents also include the sales bills issued by M/s BT Technet Ltd, one of the group companies of Shri SK Gupta, to the assessee company i.e. M/s Schleicher India Ltd., the details of which are as under:-
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Annexure Page Bill Given To Particulars Invoice Dated Amount No issued No/Bill No
1,83,600/- A-2I 74 PGSM 4/7/03 BT Schleicher 2003- India ltd 04/06/GL/08 Technet Software Ltd Module A-21 73 4/7703 1,83,600/- BT Schleicher PGSM 2003- India ltd 04/06/GL/08 Technet Software Ltd Module
During the course of assessment proceedings of M/s BT Technet Ltd, statements of Shri S.K Gupta, Director and main person of the group were recorded. Based on these statements as well as other evidences brought on records, following inferences were drawn in said case
i. It is proved beyond doubt on the basis of documentary evidences, confessional statement of Shri. S.K Gupta, the main person controlling the state of affairs of the assessee, husband of Smt. Saroj Gupta, director of the assessee company and results of the assessment that assessee is engaged in the accommodation entry business and not doing any genuine sale & purchase as claimed in the final account statements annexed with return of income.
ii. Since assessee has failed to produce any regular books of account, sale & purchase expenses vouchers, the book results shown by the assessee are liable to be rejected by Waking recourse to provisions of section 145 (3) of IT Act 1961.
iii. The assessee has not been successful in establishing that any genuine business activity was being carried out other than the accommodation entry business. No physical evidence of supporting infrastructure was found by the investigation wing at
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the time of search nor the same has been adduced before the undersigned. iv. The assessee has not produced any confirmations from the debtors and creditors to whom bills have been issued and bills have been procured. v. The assessee failed to provide documentary evidences in the form of rent deeds/receipts and other expenses vouchers and bills, which could establish the genuine credentials of the assessee as a genuine software design & development and other JT related services provider to the genuine customers. Even the big corporates like Reliance Industries Ltd, NUT, HCL Group, FIITJEE, Mothersons Sumi Innovative & Design Ltd, ASL Insurance Brokers Pvt Ltd, Accord Insurance, Allianze Securities, Link Engineer Ltd Pashupati Fabrics etc, who themselves are having their own infrastructures for IT related requirements, have approached the assessee as well as its other related group companies for getting accommodation bills. But surprisingly none of them had any corroborative evidence other than the sale bills or in some cases a general agreement, without any supporting evidences of software development. Even assessee had no supporting documents of purchase or outsourcing, where from it could issue sale bills to these corporate or other desirous companies/concerns. (i) The assessee has failed to correlate its surrender income, in different assessment years, with the actual deficiencies of the business relevant to accommodation entry business on account of providing accommodation sale bills, expenses bills in the form of job work charges, advertisement charges, web designing charges and providing investment entries. (ii) The assessee has infact indulged in accommodation entries business and has not done any genuine business. So the income of the assessee from the accommodation entry business, is computed @ 2%, net rate on sale turnover and investment
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turnover in view of the assessee's statement coupled with prevalent market condition for such entries. No further to be allowed, as this is the net rate. In view of the above findings in the case of M/s BT Technet Ltd it is clear that the assessee is not made any genuine expense in the so called purchase of PGSM software module and rather took accommodation bills to the tune of Rs.1,05,00,000/- .By doing so the assessee has inflated its expenses, so as to reduce its income. As such 1 have reasons to believe that this income of Rs. 1,05,00,000/- has escaped assessment, so in order to bring the same and also any other income chargeable to tax which has escaped assessment and which comes to the notice subsequently, proceedings are initiated under section 147/148 of IT Act 1961.
During the assessment proceedings, assessee was required to justify transaction with evidences like agreement for getting software from M/s BT Technet Ltd., need of software and details of applications of software for assessee’s business. Assessee was also asked to give names and addresses of all the persons from assessee’s side as well as M/s BT Technet who were associated with purchase/development and installation of said software from conceptual stage till stage of making final payment. It has been alleged by Ld. AO that, as assessee did not provide any evidence which could prove that assessee had in fact made genuine purchases, and had not taken any accommodation entry from M/s BT Technet Ltd., Ld. AO made addition of Rs.52,50,000/-, which was claimed as expenditure by assessee.
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Aggrieved by assessment order passed, assessee preferred an appeal before Ld. CIT(A). Assessee challenged jurisdiction of Ld. AO in invoking provisions of section 147, on the ground that alleged seized materials were from third party i.e Sh. SK Gupta and that notice issued under section 148 was bad in law and without application of mind. Assessee also challenged addition on merits on various counts. 5. Ld. CIT(A) upheld validity of reassessment proceedings and also confirmed addition made by Ld. AO. 6. Aggrieved by order passed by Ld. CIT(A), assessee is in appeal before us now. 7. Ld. Counsel submitted that assessee is engaged in business of installing, maintaining, procuring, buying, selling and letting on hire, importing, exporting or otherwise deal in system and application software of all and any kind, as computer hardware and accessories, communication, process control and office automation and high-end security equipments. It has been submitted that, core business is of building defence infrastructure for government of India. He submitted that it was at instance of Ministry of Home Affairs, Government of India that assessee had supplied “Complete laptop-based 16 channels PGSM interceptor system”. 8. Ld. Counsel submitted that original assessment for year under consideration was completed on 22.12.2006 under section 143(3) of the Act. Thereafter, assessment was reopened vide notice under section 147 of the Act, dated
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27.01.2009. Ld. Counsel challenged reassessment proceedings on 3 counts: i) it has been submitted that assessee has not been served with notice under section 143(2) of the Act which is evident from reply received in lieu of RTI application, dated 27.01.2014 and that assessing officer has not discharged its onus of establishing that income has escaped assessment by way of materials on record. He placed reliance upon the decision of Hon’ble Delhi High Court in the case of DCIT vs Society of World Wide Inter Ban, Financial Telecommunication reported in 323 ITR 249 and decision of Hon’ble Delhi High Court in the case of Pr.CIT vs. Sri Jai Shiv Shankar Traders Pvt.Ltd., reported in 383 ITR 448; ii) it has been submitted that the reasons for reopening is based on borrowed satisfaction as there is neither material in possession of assessing officer nor there is any independent application of mind. It has been submitted that assessment has been reopened merely on the statement of Sh. S.K. Gupta. Ld. Counsel placed his reliance upon decision of this Tribunal, Amritsar Bench, in the case of ITO vs. Arun Kumar Kapoor reported in 140 TTJ 249; iii) it is submitted by Ld. Counsel that reopening cannot be permitted on the basis of documents
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found during the course of search. He submitted that if the action under section 147 is permitted on the basis of material found in the course of search, then provisions of section 153 would be redundant. He placed reliance upon the decision of (Lucknow decision). He placed reliance on the decision of this Tribunal, Lucknow Bench in case of Jyoti Pat Ram vs ITO reported in 92 ITD 423.
Ld. counsel submitted that in reasons recorded assessing officer has relied upon two alleged sale bills, issued by M/s BT Technet Ltd., to assessee being Annexure-A 21 for purchase of ‘PGSM Software’ module for an amount of Rs.1,83,600/-. Whereas assessee had actually purchased said software by way of invoice dated 20.12.2003, amounting to Rs.52,50,000/-, on which TDS under section 194C at the rate of 2.1% was also debited. 10. Ld. Counsel further submitted that entire reassessment proceedings has been neither validly initiated nor concluded therefore, needs to be quashed. 11. Per contra Ld. DR submitted that assessee has not filed any return in response to notice issued under section 147 of the Act. He submitted that assessee has not filed even a letter for treating original returns filed in lieu of notice issued under section 147 of the Act. He submitted that notice issued is within the period of 4 years and assessing officer was competent enough to issue such
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notice. Ld. DR submitted that on perusal of reply dated 27.02.2014, issued by assessing officer in response to RTI application, it cannot be said that no notice under section 143(2) has been issued as reassessment proceedings are maintained in a support file by assessing officer. He further submitted that Ld. AO has not expressed such notice to be not issued. He thus argued that assessing officer has rightly assumed jurisdiction in reopening assessment in case of assessee before us. Ld. DR placed reliance upon orders passed by authorities below. 12. In reply to submissions of Ld. DR, Ld. Counsel submitted that assessee filed returns in response to notice under section 147. Ld. Counsel placed reliance upon letter dated 27.11.2009 placed at page 100 of paper book, wherein details in respect of purchase of software from BT Technet, along with audited report and acknowledgement of return for assessment year under consideration has been submitted to have been tendered. He further argued that, even if it is assumed that no return in response to notice under section 147 has been filed, then assessing officer could not have completed re assessment. He submitted that merely because in the reassessment order, there is no mention regarding filing of returns in lieu of notice under section 147, it cannot be assumed that no returns have been filed by assessee in response to notice under section 147 of the Act.
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We have produced the submissions advanced by both sides in the light of records placed before us and judgments relied upon by Ld. Counsel. 14. Admittedly in the present case assessment has been reopened on the basis of search and seizure action at the premises of SK Gupta Group Companies. At this juncture, we agree with submissions made by Ld. Counsel that on receipt of information received on the basis of search and seizure operation, assessing officer should have followed procedure under section 153C, instead of reopening the assessment u/s 147. Further it is observed that the reopening has been done on the basis of reasons recorded on incorrect facts. That being so the reasons are in fact no reasons at all. This view find support from the decision of Hon’ble Punjab and Haryana High Court in the case of CIT Versus Atlas Cycles Industries reported in 180 ITR 319. On these counts itself notice issued under section 147 of the Act initiating reassessment would not stand the test of law. 15. Further on merits, material based on which assessment has been reopened are two invoices, amounting to Rs.1,83,000/- issued by M/s BT Technet Ltd, whereas assessee has purchased from M/s BT Technet Ltd., PGSM Software Module vide invoice dated 20/12/2003. The said invoice has been placed at page 127 of paper book. On perusal of page 129 of paper book it appears that Ministry of Home Affairs, Government of India required supply of
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“Complete laptop-based 16 channels PGSM interceptor system” and the purchase orders including the terms and conditions were called for from assessee. Further, at page 130–133 of paper book Ministry of Home Affairs, Government of India has intimated specifications required in the interceptor system. At page 134 of the paper book Customs Duty Exemption Certificate has been placed, which depicts goods being purchased by Ministry of Home Affairs from assessee, which is followed by bill of entry at page 135 of the paper book. It has been further submitted that assessee has not entered into any other transaction with BT TechNet Ltd. On perusal of the books of accounts it is observed that assessee had only one transaction of value amounting to Rs.52,50,000/- made with M/s BT Technet Ltd. 16. On perusal of orders of authorities below it is observed that assessing officer has relied heavily on the statement of Sh. SK Gupta regarding the receipt of accommodation entries by assessee, based on which expenditure claimed by assessee amounting to Rs.52,50,000/- has been added to income of assessee. It has been contended by Ld. Counsel that assessing officer had at no time has confronted with the statement of Sh. SK Gupta or any other member of his group including his wife Mrs. Saroja Gupta. Further it is pertinent to note at this juncture that Ld. AO disallowed expenditure claimed by assessee amounting to Rs. 52,50,000/-, however has not
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made any addition in respect invoices mentioned in reasons recorded. 17. In our opinion assessing officer could have confirmed purchase of software provided by M/s BT Technet Ltd., from Ministry of Home Affairs who was buyer. Ld. Counsel placed his reliance upon a chart reproduced at page 27 of order of Ld. CIT(A) wherein all the purchases from M/s BT Technet Ltd., has been listed. It is submitted that except for alleged PGSM Software Module, rest of purchases has not been disputed by the authorities below. 18. Further at para 2.1 of assessment order assessing officer himself mentions that purported transaction for purchase of PGSM Software module from M/s BT Technet Ltd., was provided vide bill dated 25.05.2004. In our considered opinion, this cannot be correct as actual invoice is dated 28.12.2003 a copy of which is placed in paper book. If we go by bill dated 25.05.2004 as observed by Ld.AO, alleged transaction would fall in the previous year relevant to assessment year 2005-06 and not in the year under consideration. 19. It appears that assessing officer has proceeded with preconceived notion by blindly accepting statement of Sh. SK Gupta and entire finding is based on mere surmises and conjunctures without any application of mind. At this juncture it is pertinent to observe that reasons recorded are based on inferences of Ld. AO without there being any
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materials on record to support such inferences. In view of above discussions addition made by Ld.AO stands deleted. Accordingly grounds raised by assessee on legal as well as on merits stands allowed. In result appeal filed by assessee stands allowed. Order pronounced in the open court on 24th March, 2017.
Sd/- Sd/- (R. K.PANDA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 24.03.2017 @m!t