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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
Consolidated Appeals (9)
ORDER
PER MANISH AGARWAL, AM :
The captioned appeals filed by the Revenue and by the assessee are arising from the respective orders of Ld. Commissioner of Income Tax (Appeals)-4, Kanpur [“Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [the Act] emanating from respective assessment orders passed by the Assessing Officer [AO] tabulated as under.
Assessment Passed under s. Nos. Kanpur, Order dated Order dated 17.02.2022 1. 873/Del/2022 18.10.2019 143(3) r.w.s. 147 (Revenue’s Appeal) of the Income Tax Act, 1961. 2 655/Del/2022 -do- -do- -do- (Assessee’s appeal) 10.03.2022 3. 1233/Del/2022 14.04.2021 143(3)/147 of the (Revenue’s Appeal) Income Tax Act, 1961 4. 656/Del/2022 -do- 14.04.2021 -do- (Assessee’s appeal) 5. 1234/Del/2022 -do- 23.08.2018 143(3) r.w.s. 153C (Revenue’s Appeal) of the Income Tax Act, 1961 6. 657/Del/2022 -do- -do- -do- (Assessee’s appeal) 23.02.2022 7. 874/Del/2022 -do- 143(3) of the (Revenue’s Appeal) Income Tax Act, 1961. 8. 658/Del/2022 -do- -do- -do- (Assessee’s appeal) 9. 875/Del/2022 -do- -do- -do- (Revenue’s Appeal)
First we take cross-appeals filed by the Revenue in ITA No. 2. 873/Del/2022 and the assessee in for AY 2012-13.
[Revenue’s appeal] [Assessee’s appeal] [Assessment Year 2012-13] 3. Both the appeals have common issues; therefore, they are taken together for consideration.
Brief facts of the case are that assessee company has filed its return of income on 30.09.2012 declaring total income at INR 7,55,65,980/-. The assessment was completed u/s 143(3) on 29.01.2015 at an income of INR 7,94,17,730/-. A search and seizure action was carried out on 28.04.2015 on M.K. Group of cases including the residential premises of the Director of the assessee and survey was carried out u/s 133A of the Act at the business premises of the assessee. Consequently, proceedings u/s 153C were initiated in the case of assessee. Looking to the complex nature of the documents seized, reference was made for special audit u/s 142(2A) of the Act and the Special Audit Report was received on 26.06.2018. Subsequently, following the judgement of Hon’ble Supreme Court in the case CIT v. Sinhgad Technical Education Society reported in 397 ITR 344 (SC), the proceedings initiated u/s 153C of the Act were dropped and based on the observations made in the Special Audit Report, reassessment proceedings u/s 148 of the Act were initiated. The AO after recording the reasons and taking the approval from the prescribed Authority, issued notice u/s 148 of the Act on 26.03.2019 and thereafter, considering the submissions made, had completed the re-assessment proceedings wherein total income of the assessee was re-computed at INR 10,48,89,183/- by making various additions/disallowances.
5. Against the said order, an appeal was filed wherein Ld. CIT(A) has allowed substantial relief to the assessee and confirmed the disallowance of INR 3,92,862/- made u/s 40(a)(ia) of the Act.
Aggrieved by the order of Ld. CIT(A), assessee as well as Revenue is in appeal before the Tribunal by taking following grounds of appeal:-
[Assessment Year 2012-13] (Assessee’s Appeal)
7. The assessee has raised following grounds of appeal:- 1. “That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order and ignoring the facts that no DIN was mentioned on the impugned assessment order is invalid in the eyes of law and is liable to be quashed.
2. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order in spite of the facts that the assessment should have been framed under section 153C of the Income Tax Act, 1961 instead of section 143(3) of the Income Tax Act, 1961, therefore the impugned assessment order is illegal, unsustainable in law and liable to be quashed.
3. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order despite the facts that the order under section 127 of the Income Tax Act, 1961 dated 13.07.2016 was passed without following the laid down the procedure as contemplated under section 127 of the Income Tax Act, 1961, therefore, the said order under section 127 of the Income Tax Act, 1961 is illegal, unsustainable in law and consequently the impugned reassessment order is also illegal, void ab- initio and liable to be quashed.
4. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that the Ld. A.O. recorded reasons on surmises conjectures on borrowed satisfaction and on mere change of opinion therefore the initiation of proceedings under section 147 is illegal and unsustainable in law and consequently the impugned reassessment order is void ab initio and liable to be quashed.
5. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that there is no averment in the reasons recorded that the income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment therefore the initiation of proceedings u/s 147 is illegal and unsustainable in law and consequently the impugned reassessment order is void ab initio and liable to be quashed.
6. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that there is no live link between the reasons recorded and the material available with the Ld. A.O. at the relevant time therefore the Ld. A.O. could not ber said to have reason to believe for initiation the proceedings u/s 147 of the Income Tax Act, 1961 and consequently the impugned reassessment order is illegal void ab initio and liable to be quashed.
7. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that the sanction purportedly obtained under section 151 of the Income Tax Act, 1961 is mechanical and non-est in the eyes of law therefore consequently impugned reassessment order is illegal and void ab initio and liable to be quashed.
8. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the addition/disallowance of Rs.3,92,862/- under section 40(a)(ia) of the Income Tax Act, 1961 made by the A.O. in the income of the appellant company, therefore, the disallowance is unsustainable in law and liable to be deleted.
9. That the impugned assessment order is without lawful jurisdiction, void ab-initio and liable to be quashed.
That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is much too high and excessive and deserves to be deleted.
11. That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is contrary to the principles of natural justice and equity and deserves to be deleted.
12. That any other relief or reliefs as your honour may deem fit in the facts and circumstances of the case be granted.”
In Ground of appeal No.1 raised by the assessee is not pressed 8. hence, dismissed.
Ground of appeal Nos. 2 to 7 and 9 to 11 raised by the assessee are legal grounds wherein the assessee has challenged the reassessment proceedings initiated u/s 148 of the Act.
10. Ld.AR for the assessee submits that sole basis for re-opening the assessment is Special Audit Report in the case of the assessee which is evident from the copy of the reasons recoded wherein AO has clearly stated that based on the Special Audit Report, it was found that certain payments were made on which no TDS was deducted u/s 194C/194J of the Act. Ld. AR submits that all the necessary details have already been examined during regular assessment proceedings and the order was passed u/s 143(3) of the Act. Ld. AR further submits that other issues on which satisfaction of escapement of income was recorded, no adverse inference was drawn after verification of the facts submitted by the assessee. Ld. AR submits that regarding non-payment of TDS on various expenses, in the original assessment proceedings carried out u/s 143(3) of the Act after inquiries and investigation, a sum of INR 2.20 lacs was disallowed by invoking the provision of Section 40(a)(ia) of the Act.
Ld. AR further submits that reassessment proceedings initiated u/s 148 of the Act is mere change of opinion therefore, re-opening done in the case of the assessee deserves to be hold bad in law. He submits that once the assessee has fully and truly disclosed all the material facts which are necessary for assessment, the re- assessment proceedings could not have initiated u/s 147 of the Act. For this, Reliance is placed on the judgment of Hon’ble jurisdictional High Court in the case of PCIT vs Light Car Pvt. Ltd. reported in [2017] 85 taxmann.com 331 (Allahabad). He further placed reliance on the judgement of Hon’ble Delhi High Court in the case of CIT vs Ansal Landmark Township reported in [2015] 61 taxmann.com 45. Ld.AR further submits that in this case, the methodology adopted for passing the order u/s 127 of the Act is not in accordance with law and has filed detailed written submissions which is placed on record. Regarding mechanical approval u/s 151 of the Act, ld. AR submits that ld. PCIT, Central, Kanpur has granted approval without applying his mind and therefore, he requested to quash the impugned reassessment order.
On the other hand, Ld. CIT DR for the Revenue submits that looking to the complexity of the material found and seized during the course of search, matter was referred for special audit u/s 142(2A) of the Act and based on the report of special auditor, re-assessment proceedings in the case of the assessee were initiated. Ld. CIT Dr submitted that assessee has violated the provision of section 40(a)(ia) of the Act and therefore, AO has rightly re-opened the assessment which deserves to be upheld.
12. Heard the contentions of both parties and perused the material available on record. It is seen that all these legal issues raised by the assessee before us in these Grounds of appeal were also taken before ld. CIT(A) who after considering the submissions made by the assessee, dismissed them by observing in para 6.3 to 6.4 of the order as under:-
6.3. “The Grounds of appeal no. (i) to (v) and additional grounds no. (ii) challenges the legality of initiation of proceedings under section 147 of the Income Tax Act, 1961. However from the records it has been verified that the AO has recorded reasons for initiating income escaping assessment proceedings u/s 147 of IT Act on the basis of information available with him and accordingly sanction under section 151 of the Income Tax Act, 1961 has been granted by Pr. CIT(Central), Kanpur in accordance with law. Thereafter notice u/s 148 of IT Act has been issued and the income escaping assessment proceedings have been completed u/s 147 of IT Act by following all the provisions of law and the order has been passed u/s 147/143(3) of IT Act on 18.10.2019. Under these circumstances, I hold that the proceedings under section 147 of the Income Tax Act, 1961 have been correctly initiated and completed as per law hence these Grounds of appeal are summarily dismissed. 6.4. In the additional ground of appeal no. (i), the appellant has objected the order passed u/s 127 of the IT Act dt. 13.07.2016. In this regard, it is observed that from the facts of the case as brought out by the appellant itself, it has been found that all the procedures as laid down by law appear to have been followed. Further since no appeal lies against the same in this office, hence this ground of appeal is hereby summarily dismissed.”
13. Before us, Ld.AR for the assessee reiterated the same arguments as were made before the ld. CIT(A) and failed to controvert the findings of Ld.CIT(A). In view of these facts we find no infirmity in the order passed by ld. CIT(A) on these issues, which is hereby uphold. Accordingly, Grounds of appeal Nos. 2 to 7 and 9 to 11 raised by the assessee are dismissed.
Ground of appeal
No.8 raised by the assessee is regarding disallowance of INR 3,92,862/- made by the AO u/s 40(a)(ia) of the Act for non-deduction of tax at source.
15. Heard the contentions of both parties and perused the material available on record. From the perusal of assessment order passed u/s 143(3) placed at Pages 35 to 37 of the Paper Book, it is seen that the disallowance of INR 2.20 lacs was made on account of non- deduction of TDS on taxi hire charges. Further disallowance was made u/s 40(a)(ia) of the Act in the order passed u/s 147 of the Act for non-deduction of tax at source u/s 194J of INR 1,91,933/- towards consultancy charges and u/s 194C of INR 1,67,000/- for transportation charges and of INR 6,83,044/- for generator repair and maintenance expenses. It is also a fact that these payments were pointed out by the special Auditor as payments on which no TDS was made. As observed above, disallowance u/s 40(a)(ia) of Rs. 2.20 lacs was already made for non-compliance of provisions of section 194C therefore, to this extent no further disallowance could be made. Accordingly, we direct the Ao to reduce the amount already considered and disallowed u/s 40(a)(ia) of the Act in the order passed u/s 143(3) and remaining disallowance is hereby confirmed.
16. Further claim of the assessee is that in many cases the recipient had included this amount in their income and paid the taxes thereon, therefore, no disallowance could be made u/s 40(a)(ia) of the Act. Since, no evidence is filed before us in support of this claim, therefore, the same cannot be accepted at this stage. Regarding other claim of the assessee of making disallowance @ 30% of the default amount u/s 40(a)(ia) of the Act, we find that the amendment has Page | 9 come into statute by Finance Act, 2014 and applicable from 01.04.2015 therefore, this amendment is not applicable to the year before us. This view is supported by the judgement of Hon’ble Supreme Court in the case of Shree Choudhary Transport Company vs ITO [2020] 426 ITR 289 (SC) wherein Hon’ble Supreme Court has held that such amendment is prospective in nature and cannot be applied prior to AY 2015-16.
17. In view of the above, we hereby confirmed the disallowance of INR 1,72,862/- (3,92,862-2,20,000) u/s 40(a)(ia) of the Act. The Ground of appeal No.8 raised by the assessee is partly allowed.
In the result, appeal of the assessee is partly allowed.
[Assessment Year 2012-13] (Revenue’s Appeal) 19. The Revenue has raised following grounds of appeal:- 1. “On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of Rs. 2,82,38,711/- on account of disallowance of cash payment u/s 40A(3) of the IT Act. 1961 without considering the facts that bills and vouchers regarding purchase of meat/live stock as produced by the assessee during assessment proceedings are not proper as no signature was made on some vouchers further, in the instant case the alleged suppliers from whom it received raw material/meat/live stock are not producers and working like traders/brokers. Further, as per Circular Nos 04/2006 dated 29.03.2006, benefit of rule 6DD of Income Tax Rules, 1962 shall only be available to make cash payment to the producer of live stock, meat. Therefore, in the present case, the assessee was not fulfilling all the requisite conditions of Rule 6DD (e)(ii) of Income Tax Rules, 1962. Reliance is also placed on Ideal Tannery vs CIT (1979) 117 ITR
34. (All) Hence, the disallowance of part of purchases to avoid leakage of revenue is justified.
2. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition matte by Assessing Officer of Rs. 5,91,620/- on account of disallowance of business promotion expenses without considering the facts as brought out in the assessment order. It is categorically mentioned in the assessment order that some vouchers are self made and the payment was also made in cash and therefore, genuineness of these expenses could not be established.
3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of Rs 1,00,000/- on account of disallowance of tour & travelling expenses without considering the facts as brought out in the assessment order. It is categorically mentioned in the assessment order that some vouchers are self made and the payment was also made in cash and therefore, genuineness of these expenses could not be established.
4. That the appellant craves 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.”
Ground of appeal No.1 raised by the Revenue is with respect to the deletion of adhoc disallowance made of INR 2,82,38,711/- being 5% of total cash payment made out of the total purchases claimed by the assessee.
21. Heard the contentions of both parties and perused the material available on record. It is seen from the observations made in para 14 of the assessment order that the AO has not invoked the provisions of section 40A(3) of the Act as the assessee has not made any payment in violation to this section. However, for the reason that in some purchases vouchers, no signatures of the recipients were available on verification of the bills and vouchers, AO has made adhoc disallowance of INR 2,82,38,711/- being 5% of the cash purchases of INR 56,47,74,231/-. From the perusal of the order of Ld. CIT(A), we find that Ld. CIT(A) appreciated the facts that once the AO has not invoked the provisions of section 40A(3) of the Act and found that all the payments made in cash are in accordance and within the limits specified u/s 40A(3) of the Act, without specifying any instance or without bringing on record any vouchers where signatures of the recipients were missing, no adhoc disallowance could be made. Ld.CIT(A) has deleted the disallowance by making following observations in para 6.6 & 6.7 of impugned order:
6.6 “In the Ground of appeal no. (vii), the appellant has challenged the addition of Rs. 2,82,38.711/- being 5% of the cash payment of Rs. 56,47,74,231/-. In this regards the AO observes that on perusal of statement on records, it is found that the assessee has made payment through RTGS as well as cash to the persons from whom purchase is made. He states that it is not understandable as to why cash was paid to them in spite of the fact that they have maintained bank A/c. However, the assessee stated that the cash payment was made strictly on the insistence of the suppliers. The AO further states that on verification of some vouchers it is found that no signature was made. However the did not communicate these discrepancies to the appellant and made adhoc disallowance @5% of the total cash payment of Rs 56,47,74,231/-. However from the assessment order it is clear that the AO was convinced that the assessee has satisfied the relevant conditions of Rule 6DD of the Income Tax Rules 1962, still the AO disallowed a sum of Rs. 2,82,38,711/- being 5% of the Cash Purchases. The Ld AR of the appellant further argued that the AO made this disallowance on adhoc basis just to cover up possible leakages without pinpointing specific defects. I agree with the submissions of the appellant that no disallowance can be made on adhoc basis without pointing out specific defects, Various case laws relied upon by the appellant fully support this view. Under these circumstances, the addition of Rs 2.82.38,711/-deserves to be deleted. 6.7 Looking to the facts and circumstances of the case it is observed that no adhoc disallowance or any disallowance u/s 40A(3) of IT Act should be made when the appellant was fulfilling all the requisite conditions of Income-tax Rule 6DD(e) (ii) of IT rules 1962. Therefore this adhoc disallowance of Rs 2,82,38,711/- is hereby deleted. And hence the grounds of appeal relating to this disallowance are hereby allowed.”
22. Before us, the Revenue has failed to controvert the findings of Ld. CIT(A) by bringing on record any contrary material. It is further seen that in the re-assessment order, the AO has failed to specify any single payment in cash which was not incurred for the purpose of business or for which the material was not purchased. The AO has accepted the trading results declared by the assessee and also the no reason is given as to why 5% of the total cash purchases could be disallowed. Assessee disclosed all the details of the payments made and further in the special audit report no instance of payment in violation to section 40A(3) was pointed out which has been considered and for which any disallowance was made by the AO.. Disallowing out of expenses was mere ad-hoc disallowance, not based on finding of bogus expenses claimed. Expenses were not fully verifiable due to nature of payments made and as observed above the trading results were accepted.
23. It is further seen that no incriminating paper was found as a result of search with respect to the cash purchases made nor any satisfaction of escapement of income of such cash purchases was reached in the reasons recorded for reopening the assessment. The payments to few individuals were doubted however, no adverse inference was taken on such payments by the AO after making verification of the records. In view of these facts, we find no error in the order of ld. CIT(A) in deleting the adhoc made and accordingly, we uphold the order of Ld. CIT(A). Therefore, Ground of appeal No.1 raised by the Revenue is dismissed.
Ground of appeal No.2 raised by the Revenue is with respect to the deletion of disallowance of INR 5,91,620/- out of business promotion expenses and Ground of appeal No.3 is with respect to deletion of disallowance of INR 1,00,000/- out of tour & travel expenses.
25. Heard the contentions of both parties and perused the material available on record. From the perusal of the assessment order, we find that AO has made the disallowance solely for the reason that personal nature of expenses cannot be ruled out and there were certain self-made vouchers prepared for payment of these expenses. Therefore, the genuineness of these expenses was not fully accepted by the AO. Ld. CIT(A) has deleted these disallowances by making following observations in para 6.8 & 6.9 of the order:-
6.8 “In the Ground of appeal no. (viii), the appellant challenges the adhoc disallowance of Rs. 5,91,620/- being 5% of business promotion expenses of Rs. 1,18,32,402/-. In this regard the AO observes that on perusal of expenses under the head business promotion expenses. It is found that the assessee has incurred expenses of Rs. 1,18,32,402/- during the year under consideration as against last year expenses of Rs.66,62,976/. This year the total sale was made at Rs. 504,57,85,607/-and in immediate preceding year, the total sale was at Rs.228,59,31,053/-. In the assessment proceeding, the appellant submitted that the business promotion expenses of Rs. 80,81,979/- were incurred through credit cards by the directors namely Mr. Shuab Ahmed Qureshi and Mr. Qaise Hussain Qureshi on travelling, lodging, boarding and entertainment of foreign customers. It was also clarified that these expenses are in nature of hotel expenses and token courtesy extended to the buyers in India and Abroad to maintain good business relation. It was further submitted that these expenses are incurred in strict confidence, by directors themselves to maintain secrecy of customers etc. both within and outside the Company. These expenses are below 0.16% of the turnover. However the AO concluded that the personal nature of expenses of directors cannot be ruled out and hence to cover up possible leakage disallowance @5% of such business promotion expenses was made. However the AR submits that all the expenses are genuine business expenses, these expenses are incurred through credit cards and the same are duly recorded in the books of accounts. which are audited and the trail of expenses is kept so that no personal/non business expense could be done by any director or employee of the company. Therefore no such disallowance should be made on adhoc basis without pointing out specific defects in these expenses and in the books of accounts at large. I have carefully perused the findings of the AO and the submission of the AR, various case laws relied upon by the AR fully support the submission of the appellant that no adhoc disallowance can be made when no specific defect could be found by the AO. Under these circumstances, the disallowance of Rs 5,91,620/- is hereby directed to be deleted. The Grounds of appeal relating to this disallowance are hereby allowed. 6.9 In the Ground of appeal no. (ix), the appellant challenges the adhoo disallowance of Rs. 1,00,000/- out of total claim of tour and travelling expenses of Rs 22,05,818/-The AO observes that last year expenses of Rs. 14.93.1217 were incurred under ther head of tour and travels expenses, however the same is increased to Rs. 22,05,818/-However the AR submitted that no specific defect could be pointed out by the AO and this disallowance has been made on purely on adhoc basis. The AR submits that turn over of this year has substantially increased in comparison to last year and it has become Rs 504,57.85.607/- as against the last years turn-over of Rs. 228,59,31,053/It has further been submitted that no expense under the head of tour and travel has been incurred other than business purpose and the AO could not disprove this premise and hence the disallowance on adhoc basis is uncalled for. I have carefully perused the findings of the AO and the submission of the AR, various case laws relied upon by the AR fully support the submission of the appellant that no adhoc disallowance can be made when no specific defect could be found by the AO. Under these circumstances, the disallowance of Rs. 1,00,000/- is hereby directed to be deleted. The Grounds of appeal relating to this disallowance are hereby allowed.”
It is further seen that in the assessment order passed u/s 143(3) dated 29.01.2015, AO has made disallowance of INR 36,31,737/- out of business promotion expenses, power and fuel, vehicle and bus and diesel expenses. It is also seen that those additions have been accepted by the assessee and no further appeal was preferred. Once disallowance has already been made towards the expenses further disallowance made without considering the to the earlier disallowance tantamount to double addition. The Assessing Officer is not competent to decide the business expediency of incurring any expenditure. It is relevant to note that we are dealing with a case of a private limited company. It is a settled legal position that there can be no disallowance of any expenditure on account of personal use by the directors of the company. There is no dearth of the judgments and the Tribunal orders on this aspect of the matter. The hon'ble Gujarat High Court in several cases including Sayaji Iron and Engg. Co. v. CIT reported in [2002] 253 ITR 749 (Guj) and Dinesh Mills Ltd. v. CIT reported in [2004] 268 ITR 504 (Guj) held that there can be no disallowance of expenses by considering the personal use of the assets by the directors. It has further been held that this disallowance cannot be sustained by treating the, expenditure as for non-business purpose. The Delhi Bench of the Tribunal in Deputy CIT v. Haryana Oxygen Ltd. reported in [2001] 76 ITD 32 (Delhi) has also taken similar view. Under these circumstances, we are therefore of the considered opinion that the learned Commissioner of Income-tax (Appeals) was justified in deleting this addition. The impugned order is accordingly upheld on this issue. Grounds of appeal No. 2 & 3 raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
(Assessee’s Appeal) [Assessment Year 2013-14] 28. Now we take cross-appeals filed by the Revenue in and the assessee in for AY 2013-14. Page | 16
The Revenue has raised following grounds of appeal:-
1. “On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of Rs. 6,07,64,411/- on account of disallowance of cash payment u/s 40A(3) of the LT Act. 1961 without considering the facts that the assessee had not filed the complete addresses of the suppliers/sellers and therefore, the genuineness of the purchase cannot be verified. Further the conclusion of the Ld. CIT(A) that no adhoc disallowance or any disallowance u/s 40A(3) of IT Act should be made when appellant was fulfilling all the requisite conditions of Income Tax Rule 6DD(e)(ii), is also not acceptable as in the instant case some of the alleged suppliers from whom it received raw material/meat/live stock were not producers and working like traders/brokers. Also, the assessee could not produce confirmations of all the suppliers to verify that the cash purchases were genuine. Hence, the disallowance of part of purchase to avoid leakage of revenue is justified.
2. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of Rs. 8,43,877/ on account of disallowance of business promotion expenses without considering the facts as brought out in the assessment order. It is categorically mentioned in the assessment order that the assessee company has not produced bank account's statement, cheques details and any other documentary evidences in respect of these expenses like bills/vouchers during the assessment proceedings and therefore, genuineness of these expenses could not be established.
That the appellant craves 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 assessee has raised following grounds of appeal:-
1. “That the reference for Special Audit under section 142(2A) of the Income Tax Act, 1961 was invalid, therefore, the initiation of proceedings under section 147 on the basis of Special Audit Report is unsustainable in law and consequently the impugned reassessment order is unsustainable in law and liable to be quashed.
2. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order despite the facts that the order under section 127 of the Income Tax Act, 1961 dated 13.07.2016 was passed without following the laid down the procedure as contemplated under section 127 of the Income Tax Act, 1961, therefore, the said order under section 127 of the Income Tax Act, 1961 is illegal, unsustainable in law and ☐ consequently the impugned reassessment order is also illegal, void ab-initio and liable to be quashed.
3. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the addition/disallowance of Rs.4,38,480/- under section 40(a)(ia) of the Income Tax Act, 1961 made by the A.O. in the income of the appellant company, therefore, the disallowance is unsustainable in law and liable to be deleted.
4. That the impugned assessment order is without lawful jurisdiction, void ab-initio and liable to be quashed.
That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is much too high and excessive and deserves to be deleted.
6. That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is contrary to the principles of natural justice and equity and deserves to be deleted.
That any other relief or reliefs as your honour may deem fit in the facts and circumstances of the case be granted.”
31. Before us, both parties have accepted that the facts involved in the issues raised in the cross-appeals filed by assessee and revenue are identical to the facts in above decided cross appeals for AY 2012- 13 in & 655/Del/2022, except for the amounts of additions/disallowances.
As admitted by both the parties, the facts and circumstances of the present appeals and observations made by the AO and Ld. CIT(A) in both the assessment years are identical therefore, by following the observations made by us while dismissing the appeal of the assessee as well as Revenue in [Assessee’s appeal] and 873/Del/2022 [Revenue’s appeal] for AY 2012-13 which are Mutatis Mutandis applied to the facts of the present case, all the grounds of appeal taken in both the cross-appeals filed by the Revenue and the assessee are dismissed.
In the result appeal of the assessee and of the revenue are dismissed.
& 874/Del/2022 (Revenue’s Appeal)
& 658/Del/2022 (Assessee’s Appeal) [Assessment Years 2015-16 & 2016-17]
Now we take cross-appeals filed by the Revenue in & 874/Del/2022 and the assessee in & 658/Del/2022 for AYs 2015-16 & 2016-17 respectively.
In assessee’s appeal for AY 2015-16 in in Ground of appeal No.6, the assessee has challenged the validity of approval granted u/s 153D of the Act.
Before us, ld. AR of the assessee submits that in the present case, approval was granted by Ld. Adl. CIT, Central Range, Meerut vide letter dated 23.08.2018 which is mechanical approval and common for 02 (two) assessment years. Ld. AR submits that Ld. Adl. CIT granted approval for AY 2015-16 & 2016-17 in terms of letter No. Addl. CIT/CR/MRT/Approval/153D/2018-19/1114 dt. 23.08.2018 which is mechanical approval as no separate approval for each individual Assessment Year was given rather combined approval was given by a single order for both the assessment years.
Ld.AR further submits that from the perusal of the approval, it could be seen that Adl. CIT while granting approval has referred to the discussions made on the same date in his chamber, and further stated that he has considered the assessment records. It was pointed out that the mandate of law u/s 153D is that the approval should be granted by independent application of mind after considering the material on record for each assessment year separately. Further the approval was granted on the same day i.e. on the same day when the same was sought by the AO. The reliance in this regard was placed on the order of the Hon’ble Delhi High Court in the case PCIT vs. Sapna Gupta (2023) 147 taxmann.com 288 (All) and PCIT vs. Shiv Kumar Nayyar (2024) 163 taxmann.com 9 (Delhi). Further, the ld. counsel has relied the judgement of the Hon’ble Delhi High Court in the case PCIT vs. Anuj Bansal (2024) 165 taxmann.com 2 (Delhi) and decision of the coordinate Bench of ITAT Delhi in the case MDLR Airlines Pvt. Ltd. vs. DCIT, dated 24.04.2024 in & 1421/Del/2023, to contend that in case of mechanical approval u/s 153D of the Act, the assessment is liable to be quashed.
On the other hand, Ld. CIT-DR for the Revenue supports the orders of lower authorities and submits that the Ld. Addl. CIT has granted approval after due consideration of the material available before him. Therefore, ld. CIT DR requested that the approval granted was valid approval.
Heard the contentions of both the parties and perused the material available on record. Before going further, we first consider the approval granted by Ld. Adl. CIT, Central Range, Meerut in the case of assessee which is reproduced as under:
The Additional CIT, Range Meerut while granting approval, needs to examine all the material including the assessment records, full appraisal report and seized material pertaining to each Assessment Year with reference to the additions proposed by the AO for which approval is sought and the draft assessment order and after considering all the material should accord the approval. It is further provided that approval has to be granted for each assessment year separately. From the perusal of the approval letter as reproduced above, it is seen that common approval was given for both the assessment years vide single order.
The Hon’ble Delhi High Court in the case of Shiv Kumar Nayyar in [TS-343-HC-2024-Delhi] has held that the approval u/s 153D of the Act has to be granted for each Assessment year independently. The relevant observations of the judgement of Hon’ble High Court are as under:-
"11. A plain reading of the aforesaid provision evinces an uncontrived position of law that the approval under Section 153D of the Act has to be granted for "each assessment year" referred to in clause (b) of sub-section (1) of Section 153A of the Act. It is beneficial to refer to the decision of the High Court of Judicature at Allahabad in the case of PCIT v. Sapna Gupta [2022 SCC OnLine All 1294] which captures with precision the scope of the concerned provision and more significantly, the import of the phrase- "each assessment year" used in the language of Section 153D of the Act. The relevant paragraphs of the said decision are reproduced as under:- "13. It was held therein that if an approval has been granted by the Approving Authority in a mechanical manner without application of mind then the very purpose of obtaining approval under Section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the "approval" as contemplated under 153D of the Act, requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power. *** 19. The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under Section 153A." [Emphasis supplied] 12. It is observed that the Court in the case of Sapna Gupta (supra) refused to interdict the order of the ITAT, which had held that the approval under Section 153D of the Act therein was granted without any independent application of mind. The Court took a view that the approving authority had wielded the power to accord approval mechanically, inasmuch as, it was humanly impossible for the said authority to have perused and appraised the records of 85 cases in a single day. It was explicitly held that the authority granting approval has to apply its mind for "each assessment year" for "each assessee" separately.
Reliance can also be placed upon the decision of the Orissa High Court in the case of Asst. CIT v. Serajuddin and Co. [2023 SCC OnLine Ori 992] to understand the exposition of law on the issue at hand. Paragraph no.22 of the said decision reads as under:- "22. As rightly pointed out by learned counsel for the assessee there is not even a token mention of the draft orders having been perused by the Additional Commissioner of Income- tax. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained in the above cases, the mere repeating of the words of the statute, or mere "rubber stamping" of the letter seeking sanction by using similar words like "seen" or "approved" will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of section 158BG of the Act, it would equally apply to section 153D of the Act. There are three or four requirements that are mandated therein, (i) the Assessing Officer should submit the draft assessment order "well in time". Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind ; (ii) the final approval must be in writing ; (iii) the fact that approval has been obtained, should be mentioned in the body of the assessment order." [Emphasis supplied] 14. During the course of arguments, learned counsel for the assessee apprised this Court that the Special Leave Petition preferred by the Revenue against the decision in the case of Serajuddin (supra), came to be dismissed by the Supreme Court vide order dated 28.11.2023 in SLP (C) Diary no. 44989/2023.
A similar view was taken by this Court in the case of Anuj Bansal (supra), whereby, it was reiterated that the exercise of powers under Section 153D cannot be done mechanically. Thus, the salient aspect which emerges from the abovementioned decisions is that grant of approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority, rather it must reflect an appropriate application of mind.
In the present case, the ITAT, while specifically noting that the approval was granted on the same day when the draft assessment orders were sent, has observed as under:- "10. We have gone through the approval granted by the ld. Addl. CIT on 30.12.2018 u/s 153D of the Act which is enclosed at page 36 of the paper book of the assessee. The said letter clearly states that a letter dated 30.12.2018 was filed by the ld. AO before the ld. Addl. CIT seeking approval of draft assessment order u/s 153D of the Act. The ld. Addl. CIT has accorded approval for the said draft assessment orders on the very same day i.e., on 30.12.2018 for seven assessment years in the case of the assessee and for seven assessment years in the case of Smt. Neetu Nayyar. It is also pertinent in this regard to refer to pages 68 and 69 of the paper book which contains information obtained by Smt. Neetu Nayyar from Central Public Information Officer who is none other than the ld. Addl. Commissioner of Income-tax, Central Range-S, New Delhi, under Right to Information Act, wherein, it reveals that the ld. Addl. CIT had granted approval for 43 cases on 30.12.2018 itself. This fact is not in dispute before us. Of these 43 cases, as evident from page 36 of the paper book which contains the approval u/s 153D, 14 cases pertained to the assessee herein and Smt. Neetu Nayyar. The remaining cases may belong to some other assessees, which information is not available before us. In any event, whether it is humanly possible for an approving authority like ld. Addl. CIT to grant judicious approval u/s 153D of the Act for 43 cases on a single day is the subject matter of dispute before us. Further, section 153D provides that approval has to be granted for each of the assessment year whereas, in the instant case, the ld. Addl. CIT has granted a single approval for all assessment years put together."
Notably, the order of approval dated 30.12.2020 which was produced before us by the learned counsel for the assessee clearly signifies that a single approval has been granted for AYs 2011-12 to 2017-18 in the case of the assessee. The said order also fails to make any mention of the fact that the draft assessment orders were perused at all, much less perusal of the same with an independent application of mind. Also, we cannot lose sight of the fact that in the instant case, the concerned authority has granted approval for 43 cases in a single day which is evident from the findings of the ITAT, succinctly encapsulated in the order extracted above."
The Hon'ble Orissa High Court in the case of ACIT vs Serajuddin & Co. 454 ITR 312 (Orissa) had an occasion to examine substantial question of law on the propriety of approval granted under s. 153D of the Act. The Hon’ble Orissa High Court made wide-ranging observations towards the manner and legality of approval under s. 153D of the Act. The Hon'ble High Court inter-alia observed that the approval under s.153D of the Act being mandatory, while elaborate reasons need not be given, there has to be some indication that approving authority has examined draft orders and finds that it meets the requirement of law. The approving authority is expected to indicate his thought process while granting approval, held that it is not correct on the part of the Revenue to contend that the approval itself is not justifiable. Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself. The Hon'ble High Court inter-alia observed that there is not even a token mention that draft order has been perused by the Ld. Addl. CIT. The approval letter simply grants approval. In other words, even the bare minimum requirement of approving authority having to indicate what thought process involved leading to the aforementioned approval has not been provided. As explained, the mere repeating of words of the Statue or mere rubber stamping of the communication seeking sanction by using similar words like 'approval' will not, by itself, meet the requirement of law. The Hon'ble Court made reference to manual issued by the CBDT in the context of erstwhile section 158BG of the Act and observed that such manual serves as a guideline to the AOs. Since it was issued by CBDT, the powers of issuing such guidelines can be traced to section 119 of the Act. The Hon'ble High Court also held that non-compliance of requirement of section 153D of the Act is not a mere procedural irregularity and lapse committed by Revenue may vitiate the assessment order. The SLP filed against the aforesaid judgement in the case of ACIT vs Serajuddin & Co. was dismissed as reported in (2024) 163 taxmann.com 118 (SC).
The hon’ble Delhi High Court in the case of PCIT vs Anuj Bansal in (Delhi) has held that the approval granted under s. 153D of the Act, if granted mechanically, will vitiate the assessment order itself.
Recently the Hon’ble Third Member at ITAT, Delhi in the case of Dheeraj Chaudhary Vs. ACIT in to 6160/Del/2018 after considering all the judgements relied upon by the ld. CIT DR and further after detailed analyzing the provisions of section 153D, power and independence of assessing authority and the CBDT manual referred by the revenue has held that the common approval granted for various year and for various assessee without making any reference to the material seen is mechanical approval and cannot sustained in the eyes of law. A reference is also made the CBDT manual issued in respect to the procedure to be followed in this regard. The relevant observations of the Hon’ble Third Member are as under:
I noted that the common thread discussed by Hon’ble Orissa High Court in the case of Serajuddin & Co. (supra), by Hon'ble Delhi High Court in the case of Anuj Bansal (supra) and by Hon’ble Allahabad High Court in the case of Sapna Gupta (supra) is that the requirement of previous approval of assessment by the Additional CIT/Joint CIT in terms of provisions of Section 153D of the Act being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty formality. Needless to say that before granting approval, the Additional CIT/Joint CIT, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer and the approval must reflect the application of mind to the facts of the case. The CBDT itself recognized the importance of this provision and the above laid down principle and hence issued Manual of Office Procedure in February, 2023 in exercise of powers under Section 119 of the Act. Vide Para 9 of Chapter 3 of Volume-II (Technical), a clear procedure is devised i.e., how an approval is to be granted for draft assessment for passing of assessment order in search cases. According to the Manual, the Assessing Officer should submit the draft assessment order for such approval well in time along with docketed in the order sheet, a copy of the draft assessment order, covering letter filed in the relevant miscellaneous records folder. Even, it is noted that due opportunity of being heard should be given to the assessee by the supervisory officer giving approval to the proposed block assessment, at least one month before the time barring date. It is further noted that once such approval is granted, it must be in writing and filed in the relevant folder indicating above after making due entry in the order sheet. This is the mandate provided in the office manual of the Department. In view of above, I am of the view that the ‘approval’, as mandated u/s 153D of the Act, signifies a product of human thoughts based on the given set of facts and interpretation of the applicable law. It provides equality in treatment and thus prevents bias, prejudice and arbitrariness. It also prevents and avoids inconsistent and divergent views. The power of approval to the specified authority i.e., Superior authority has been envisaged with the objectives that no illegality or biasness, to either of the sides i.e., the assessee or the Revenue, remains.
In the present case before me, the above procedure is not at all followed as is evident from the proposal sent by the Assessing Officer as reproduced in Paragraph 10. It means that the approval granted is mechanical in manner and without application of mind by the approving authority i.e., by the Additional CIT.
Such mechanical approval cannot be sustainable in law in the light of judicial dicta available. The approval memo is totally silent on the issues involved and has granted omnibus approval without any thoughtful process being discernible. A single approval u/s 153D has been accorded in respect of two Assessment Years through single order on the request of the AO made on the very same day vide letter dt. 23.08.2018 as could be seen from the first para of the approval order as reproduced above. Thus, applying the ratio of judgements delivered as noted above, the assessment order based on ritualistic approval stands vitiated and thus quashed by allowing ground of appeal No. 6 taken by the Assessee.
Accordingly, we allowed Ground of appeal No.6 raised by the assessee for AY 2015-16.
Similarly in AY 2016-17 in for AY 2016- 17, assessee in Ground of appeal No.3 raised the issue of validity of approval u/s 153D of the Act.
As we have already allowed the assessee’s legal ground taken with respect to the validity of the approval granted u/s 153D of the Act and quashed the assessment order in AY 2015-16 in which are Mutatis Mutandis applied to the facts of present assessment year. Thus, following the same observations, we hold the approval granted u/s 153D as invalid in this year also and accordingly quash the assessment order. The ground of appeal No. 3 taken by the assessee is thus allowed.
Since we have allowed the legal grounds of appeal taken by the assessee in both the appeals for AY 2015-16 and AY 2016-17 and quashed the assessment orders for both the assessment years, the remaining grounds of appeal in assessee’s appeal for both the years and the revenue’s appeal for both the assessment year require no adjudication.
In the result, both appeals of the assessee are allowed and both appeals of the Revenue are dismissed.
Before us, both parties have accepted that the issues raised in this appeal are identical to the issues raised in assessee’s appeal for Ay 2012-13 i.e. & 655/Del/2022 for AY 2012- 13, except for the amounts of additions/disallowances.
As admitted by both the parties, the facts and circumstances existed in the present year and observations made by the AO and submission made by the assessee are also common, therefore, by following the observations made by us while dismissing the appeal of the Revenue in [Revenue’s appeal] for AY 2012-13 which are Mutatis Mutandis applied to the facts of the present case, the appeal filed by Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
In the final result, all appeals of the Revenue in 1233, 1234, 874 & 875/Del/2022 [AYs 2012-13, 2013-14, 2015- 16, 2016-17 & 2017-18] respectively are dismissed and appeals of the assessee in 656, 657, 658/Del/2022 [AYs 2012- 13, 2013-14, 2015-16 & 2016-17] respectively are also dismissed.
Order pronounced in the open Court on 19.12.2025.