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Facts
The appeals concerned an assessment year where the assessee, PICO Deepali Overlays Consortium, a consortium of three entities, entered into a contract for the Delhi Commonwealth Games 2010. The Assessing Officer (AO) made significant additions to the income, which were upheld by the DRP. The assessee appealed these additions.
Held
The Tribunal held that Deepali Designs Exhibits Pvt. Ltd. is a member of the assessee AOP for assessment purposes. The Tribunal allowed the appeal, setting aside various additions made by the AO/DRP including those related to cash and jewellery, bogus purchases, disallowance of expenses, and transfer pricing adjustments.
Key Issues
Whether Deepali Designs Exhibits Pvt. Ltd. is a member of the AOP, and the correctness of additions and disallowances made by the AO/DRP including those related to seized assets, bogus purchases, expenses, and transfer pricing.
Sections Cited
143(3), 144C, 153A, 92CA, 69A, 271(1)(C), 234A, 234B, 234C, 132(4A), 92, 92B
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Income Tax Appellate Tribunal, DELHI BENCH: ‘H’ NEW DELHI
Before: SHRI M BALAGANESH & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeals of assessee are against order dated 27.01.2022 of Learned Assessing Officer/Deputy Commissioner of Income Tax, Central Circle-17, New Delhi (hereinafter referred to as “Ld. AO") under Sections 254/153A/143(3) read with section 144C of the Income Tax Act, 1961 (hereinafter referred as “the Act”) for assessment year 2011-12.
Brief facts of case through are that the assessee Pico Deepali Overlays Consortium is an unincorporated consortium of three entities, i.e., PICO Hong Kong Limited (PHK), Deepali Design and Exhibits Private Limited (“Deepali Designs”) and PICO Event Marketing (India) Private Limited. The consortium was formed by an agreement date 19.12.2009 (hereinafter also referred as ‘original agreement’) in order to take certain contracts in relation with the Common Wealth Games held in Delhi in the year 2010. The agreement dated 19.12.2009 governs the inter se relationship between the members of the consortium, inter alia. The consortium of three members had successfully bid for the overlays contract and was awarded the contract. Common Wealth Games Organizing Committee (referred further as ‘CWGOC’) vide its Request for Proposal invited bids for the Appointment of Overlays Providers on Turnkey Rental basis for supply, installation, testing, & 518/Del/2022 commissioning, operation, maintenance, de-commissioning & removal of Games Overlays for Delhi 2010 Common Wealth Games to be held in Delhi. The Consortium submitted its Bid for the aforesaid RFP for Cluster I & VI whereby the consortium represented that it had the required experience and resources. Turnkey Agreement dated 2 June 2010 was entered between the CWGOC and the M/s Pico Deepali Overlays Consortium. The consortium through PHK, drew up accounts for the contract. The audited accounts were signed by Mr. Chung Chec Keong.
2.1 The assessee M/s. Pico Deepali Overlays Consortium filed its return of income for assessment year 2011-12 on 22.06.2012 in the status of AOP. The assessee has furnished replies showing assessee AOP was a consortium between Pico Hongkong Ltd. The assessee produced copy of audit report before the Deputy Director of Income Tax/Transfer Pricing Officer-11(7), New Delhi. 2.2 Ld. TPO passed order under Section 92CA(3) dated 27.01.2014. The original assessment proceedings were completed by Ld. AO under Section 153A/144/144C dated 30.05.2014 at assessed income of Rs.405,19,46,958/-. 2.3 Aggrieved with the addition, assessee filed appeal before Learned Commissioner of Income Tax(Appeals)-27, New Delhi which was dismissed vide order dated 23.12.2016. 2.4 The assessee M/s. Pico Deepali Overlays Consortium and one of assessee AOP members M/s. Deepali Design & Exhibits Pvt. Ltd. filed two appeals & 518/Del/2022 before the Income Tax Appellate Tribunal, New Delhi having and 1561/Del/23017 respectively. Hon’ble ITAT vide its order dated 19.09.2018 remanded the assessment to the file of the Ld. AO. 2.5 Revenue filed of 2019 before Hon'ble High Court of Delhi was decided vide order dated 30.07.2019. AOP member through M/s. Deepali Design & Exhibits Pvt. Ltd. filed Miscellaneous Application No. 14886 of 2019 for clarification/modification order dated 30.07.2019. 2.6 In accordance to order of Income Tax Appellate Tribunal, draft assessment order treating M/s. Deepali Design & Exhibits Pvt. Ltd. as member of AOP in M/s. Pico Deepali Overlays Consortium as member of AOP in “M/s. Pico Deepali Overlays Consortium” proposing certain variations was passed on 31.03.2021 and sent to the Ld. AO. 2.7 Against draft assessment order, the assessee filed Objection No. 222 dated 22.04.2021 before the Ld. DRP. One of the consortium members M/s. Deepali Design & Exhibits Pvt. Ltd. also filed an Objection No.221 dated 20.04.2021 before Ld. DRP. Directions of Ld. DRP were passed vide order dated 22.12.2021. 2.8 In compliance of directions of Hon’ble DRP, Ld. AO treated M/s. Deepali Design & Exhibits Pvt. Ltd. as member of AOP and passed the order dated 27.01.2022.
Being aggrieved, appellant/assessee filed above captioned appeals.
& 518/Del/2022 4. Grounds of appeal raised in are as under:
1. That on the facts and in the circumstances of the case and in law, the Ld. Deputy Commissioner of Income Tax, Central Circle-17 (hereinafter referred to as "Ld. AO") erred in assessing the total income at INR 55,65,28,711/- as against the returned income of INR 13,41,05,596/-, without acknowledging the bona-fide facts and circumstances of the case.
2. That on the facts and in the circumstances of the case and in law, the Ld. AO / Hon'ble DRP, erred in making a disallowance of INR 52,87,395/- on account of Cash & Jewellery seized during search proceedings, without appreciating the fact that the impugned cash/jewellery was not found at the premises not belonging to the appellant.
3. That on the facts and the circumstances of the case and in law, the Ld. AO / Hon'ble DRP erred in holding that the purchases made from Vijay Iron Works are bogus and thereby making an addition of INR 1,16,52,984/- in the returned income.
4. That on the facts and the circumstances of the case and in law, the Ld. AO / Hon'ble DRP erred in holding that the purchases made from Armstrong Wires and Engineering Pvt Ltd are bogus and thereby making an addition of INR 2,58,55,023/- in the returned income.
5. That on the facts and the circumstances of the case and in law, the Ld. AO / Hon'ble DRP erred in holding that the purchases made from Kirti Enterprises are bogus and thereby making an addition of INR 63,42,250/- in the returned income.
6. That on the facts and circumstances of the case and in law, the Ld. AO / Hon'ble DRP has erred in arbitrarily disallowing the expenses amounting to INR 29,86,27,579/- debited to profit & loss account.
7. That on the facts and circumstances of the case and in law, the Ld. AO / Hon'ble DRP and Transfer Pricing Officer (TPO) erred in computing the value of international transactions at nil and thereby making an addition of INR 7,46,57,884/- on account of Transfer Pricing additions.
8. That the Ld. AO / Hon'ble DRP has erred on facts and in law in raising a demand of INR 34,19,35,460/- including erroneous interest under & 518/Del/2022 Section 234A of INR 1,28,39,085, 234B of INR 18,54,53,450/- and 234C of INR 9,86,474/-.”
Grounds of appeal
raised in are as under:
1. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS EXERCISED A POWER AND JURISDICTION NOT VESTED BY LAW i. Having concluded that the draft assessment order was bad in law due to an unreasoned order; not having considered the detailed submissions of the assessee; having contravened express directions of the Hon'ble ITAT and the Hon'ble Delhi High Court etc. the Hon'ble DRP should have allowed the objections of the assessee. Instead, the Hon'ble DRP directed the matter back to the assessing officer for passing a fresh order. That the Hon'ble DRP does not have the power and jurisdiction to pass such direction/order. ii. That the Hon'ble DRP's order/directions are in excess of jurisdiction conferred under section 144C of the Income-tax Act, 1961 and other applicable provisions.
2. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO/DRP HAS ERRED ON FACTS AND IN LAW IN ALLEGING AND TREATING DEEPALI DESIGNS AND EXHIBITS PVT. LTD. ("DDEPL") AS A MEMBER OF THE ASSOCIATION OF PERSONS OF PICO DEEPALI OVERLAYS CONSORTIUM ("PDOC" OR "ASSESSEE"). i. In view of the facts and circumstances of the case, the AO/DRP has erred on facts and in law in wrongly deciding the preliminary issue of whether or not Deepali Designs Exhibits Pvt. Ltd." ("DDEPL") is a member of the Association of Persons ("AOP") of PICO Deepali Overlays Consortium. ii. That, the AO/DRP has erred on facts and in law in not considering the detailed submissions made by DDEPL clearly demonstrating that it is not a part of the AOP as alleged by the AO/DRP. iii. That, the final order passed by the AO u/s 254/153A/143(3) r.w.s 144C of the income tax act, 1961 ("the act") treating the & 518/Del/2022 DDEPL as member of AOP, in view of the directions of DRP is illegal, bad in law & without jurisdiction. iv. That clause 2.1(3), (5) and (6) of the agreement dated 01.06.2010 (which is the solitary basis for the AO to conclude that DDEPL is a member of the AOP) actually supports the case of the assessee and not that of the department. Further, the AO has ignored several other clauses of the contracts dated 19.12.2009 and 01.06.2010, and other documents which clearly establishes that DDEPL is not a member of the AOP. V. Without Prejudice, the AO has erred in law and on facts in treating the DDEPL as member of AOP.
3. THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 254/153A 143(3) R.W.S 144C OF THE ACT DATED 27.01.2022 AND THE ORDER PASSED BY THE DRP DATED 22.12.2021 AND THE ORDER PASSED BY THE TRANSFER PRICING OFFICER ("TPO") U/S 92CA(3) DATED 27.01.2021 AND ALSO THE ADDITIONS MADE THEREIN AND THE OBSERVATIONS MADE ARE ILLEGAL, BAD IN LAW, WITHOUT JURISDICTION AND VOID AB INITIO AND IN GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE.
4. THAT THE FINAL ASSESSMENT ORDER IS PURPORTEDLY PASSED ON 27.01.2022 WHEREAS THE SAME HAS BEEN SERVED ON DDEPL (AS ALLEGED MEMBER OF AOP) ON 08.02.2022. HENCE, THE SAME IS LIABLE TO BE QUASHED BEING BARRED BY TIME LIMITATION.
5. WITHOUT PREJUDICE TO OUR CONTENTION THAT DDEPL IS NOT A MEMBER OF AOP, THE AO HAS ERRED, IN LAW AND IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN ASSESSING THE INCOME OF THE ASSESSEE AT RS. 55,65,28,711/- INSTEAD OF THE RETURNED INCOME OF RS. 13,41,05,596/-.
THE AO/DRP HAS ERRED ON FACTS AND IN LAW IN NOT PROVIDING DDEPL ACCESS TO RELEVANT MATERIAL DURING THE REMAND ASSESSMENT PROCEEDINGS DESPITE MULTIPLE REQUESTS BY DDEPL. THE ADDITIONS/DISALLOWANCES & 518/Del/2022 MADE IN THE ASSESSMENT ORDER CANNOT BE SUSTAINED AS THE SAME HAVE BEEN MADE WITHOUT CONFRONTING THE MATERIAL ON THE BASIS OF WHICH ADDITION IS MADE. THE AO/DRP HAS ERRED ON FACTS AND IN LAW IN NOT ADHERING TO THE PRINCIPLES OF NATURAL JUSTICE AND GIVING ASSESSEE REASONABLE OPPORTUNITY OF HEARING.
THAT THE ASSESSMENT ORDER HAS BEEN PASSED COMPUTING THE SAME RECEIPT IN THE HANDS OF TWO SEPARATE PERSONS AND THEREFORE THE SAME AMOUNTS TO DOUBLE TAXATION. THE FACT HAS BEEN IGNORED THAT DDEPL HAS ALREADY DECLARED INCOME ON THE WORK EXECUTED BY IT IN ITS RETURN AND HAS PAID TAXES ON THE SAME. THE ASSESSMENT ORDER IN THE CASE OF DDEPL HAS ATTAINED FINALITY.
THAT THE REFERENCE MADE BY THE AO TO THE TPO SUFFERS FROM JURISDICTIONAL ERROR AS THE AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS 'NECESSARY OR EXPEDIENT' TO REFER THE MATTER TO THE TPO FOR COMPUTATION OF THE ARM'S LENGTH PRICE ('ALP'), AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT.
9. THAT THE AO/TPO/DRP ERRED IN NOT FOLLOWING THE DIRECTIONS GIVEN BY THE INCOME TAX APPELLATE TRIBUNAL ("ITAT") IN ITS ORDER DATED 11.01.2021 PASSED IN MISCELLANEOUS APPLICATION NO. 729/DEL/2019 IN INCOME TAX APPEAL NO. 4929/DEL/2018 WHEREIN IT WAS CATEGORICALLY HELD THAT THE AO SHALL PASS THE ASSSESSMENT ORDER AFTER GIVING THE ASSESSEE OPPOTURNITY OF HEARING ON ALL THE ISSUES PERTAINING TO MERITS AS WELL AS JURISDICTION.
10. THE AO/TPO/DRP ERRED IN NOT FOLLOWING THE DETAILED PROCEDURE AS LAID DOWN IN CHAPTER X OF THE ACT READ WITH THE RULES, FOR DETERMINING THE MECHANISM FOR COMPUTING THE ARM'S LENGTH PRICE, AND HAS NOT ALLOWED THE APPELLANT THE BENEFIT OF VARIOUS PROVISIONS AS STATED IN THE ACT AND THE RULES.
& 518/Del/2022 11.THAT THE OBSERVATIONS AND ADDITION/DISALLOWANCE ADE ARE UNJUST, ILLEGAL, ARBITRARY, BAD IN LAW, HIGHLY EXCESSIVE AND BASED ON SURMISE AND CONJECTURE.
THAT THE EXPLANATIONS GIVEN, EVIDENCE PRODUCED AND MATERIAL PLACED AND MADE AVAILABLE ON RECORD HAVE NOT BEEN PROPERLY CONSIDERED AND JUDICIALLY INTERPRETED AND THE SAME DOES NOT JUSTIFY THE ADDITION/DISALLOWANCES MADE. CORPORATE TAX ISSUES 13. ADDITION AMOUNTING TO RS.52,87,395/- MADE TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION U/S 69A OF THE ACT IS ILLEGAL, BAD IN LAW AND LIABLE TO BE DELETED: i. That, in view of the facts and circumstances of the case, the AO/DRP erred on facts and in law in making the addition under Section 69A of the Act of Rs. 52,87,395/- on the basis of basis of alleged cash and jewellery found and seized during the course of search and seizure of the search/survey proceedings. ii. That, in view of the facts and circumstances of the case, the AO/DRP has erred in not considering the submission that the seized material found during search does not belong to the Assessee and therefore, erred in making the addition in the hands of the Assessee. iii. That, in view of the facts and circumstances of the case, the AO/DRP has erred in making the entire addition in the hands of the Assessee without making any independent inquiries from the parties from whose premises the seized material and jewellery were found. In any case the said amount / jewellery stands explained.
THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE AMOUNTING TO RS. 4,38,50,257 ON ACCOUNT OF ALLEGED BOGUS PURCHASES MADE FROM VILAY IRON WORKS (RS. 1,16,52,984/-), ARMSTRONG WIRES & ENGINEERS PVT. LTD. (RS. 2,58,55,023) AND KIRTI ENTERPRISES (RS. 63,42,250). i. That, in view of the facts and circumstances of the case, the AO/DRP erred on facts and in law in making the & 518/Del/2022 disallowance amounting to Rs. 4,38,50,257 on the basis of alleged bogus purchases made by the Assessee from Viiay Iron Works (Rs. 1,16,52,984/-), Armstrong Wires & Engineers Pvt. Ltd. (Rs. 2,58,55,023) and Kirti Enterprises (Rs. 63,42,250). ii. That in the facts and circumstances of the case, the AO/DRP has erred on facts as well as in law in making the said disallowances without confronting the relevant material, if any, on the basis of which the said purchases have been alleged to be bogus and not genuine; iii. That in the facts and circumstances of the case, the AO/DRP has erred on facts as well as in law in making the said disallowances without affording the Assessee/DDEPL proper opportunity of hearing to explain the expenditures in question. The AO/DRP has failed to provide the relevant material despite repeated requests by DDEPL.
THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN DISALLOWING EXPENDITURE AMOUNTING TO RS. 11,50,000/- INCURRED BY ASSESSEE ON ACCOUNT OF PURCHASE OF TICKETS FOR COMMONWEALTH GAMES (CWG); i. That, in view of the facts and circumstances of the case, the AO/DRP erred on facts and in law in making the disallowance of expenditure incurred by the Assessee on account of tickets for CWG. ii. That, in view of the facts and circumstances of the case, the AO/DRP erred on facts and in law in holding that the said expenditure is not connected with the business of the Assessee and therefore, was not incurred for business.
DISALLOWANCE OF EXPENDITURE DEBITED TO P&L ACCOUNT - THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE AMOUNTING TO RS. 29,86,27,579/-; i. That, in view of the facts and circumstances of the case, the AO/DRP erred on facts and in law in making the disallowance of expenditure debited in the Profit & Loss Account.
& 518/Del/2022 ii. That, in view of the facts and circumstances of the case, the AO/DRP erred on facts and in law in making the said disallowance as the same is without any basis.
THE TPO HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THE TRANSFER PRICING ISSUES AFRESH IN LIGHT OF THE DIRECTIONS GIVEN BY THE ITAT VIDE ITS ORDER DATED 11.01.2021. TPO HAS ERRED IN PASSING THE SAME ORDER AS PASSED BY IT EARLIER BY ERRONEOUSLY CONSTRUING THE ITAT ORDER SETTING ASIDE THE ASSESSMENT FOR FRESH ADJUDICATION TO BE LIMITED TO THE ADDITIONS MADE UNDER SECTION 69A AND SECTION 37 OF THE ACT. HENCE THE SAID ORDER IS ILLEGAL AND BAD IN LAW.
TRANSFER PRICING ADJUSTMENT OF RS. 5,93,69,533 ON ACCOUNT OF PROCUREMENT OF OVERLAYS/EVENT MANAGEMENT SERVICES FROM ASSOCIATED ENTERPRISES("AE"): i. That, the AO/TPO/DRP has erred on facts and in law in making an adjustment of Rs. 5,93,69,533 on the 'international transaction on account of procurement of overlays/event management services from associated enterprises ("AE"). The said adjustment is illegal, bad in law and devoid of any merit. ii. That, the AO/TPO/DRP has erred in not accepting the applicability of TNMM and has rejected the same without any basis. The method adopted by the Assessee is correct and the same has been wrongly rejected by the TPO. iii. That, the benchmarking analysis of the Assessee is correct and in accordance with the provisions of the Act. iv. That, the AO/TPO/DRP has erred in adding the entire amount, the value of the transaction cannot be NIL. The said addition is illegal, excessive and also wrongly worked out/wrongly calculated.
TRANSFER PRICING ADJUSTMENT OF RS. 1,52,88,351 ON ACCOUNT OF REIMBURSEMENT OF EXPENSES:
& 518/Del/2022 i. That, the AO/TPO/DRP has erred on facts and in law in making an adjustment of Rs. 1,52,88,351 on the 'international transaction' on account of 'reimbursement of expenses from associated enterprises ("AE"). The said adjustment is illegal, bad in law and devoid of any merit. ii. That, the AO/TPO/DRP has erred in not appreciating that no benchmarking is required in the present case as it is a mere case of 'reimbursement'. iii. That, reimbursement is on cost to cost basis and thus in view of Section 92 and Section 92B of the Act, the AO/TPO/DRP has erred in making the said addition. iv. That, the AO/TPO/DRP has erred in adding the entire amount, the value of the transaction cannot be NIL. The said addition is illegal, excessive and also wrongly worked out/wrongly calculated.
THAT THE AO/TPO/DRP ERRED IN NOT PROVIDING PROPER AND ADEQUATE OPPORTUNITY TO ASSESSEE COMPANY TO PLACE THE MATERIAL ON RECORD TO SUBSTANTIATE ITS CLAIM.
THAT THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING.
22. THAT THE AO HAS ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN INITIATING PENALTY UNDER SECTION 271(1)(C) OF THE ACT.
THAT THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL
AT OR BEFORE THE TIME OF HEARING.”
6. The above referred appeals on the preliminary issue of whether Deepali Design Exhibits Pvt. Ltd. (DDEPL) is member of the AOP or not were heard. The Tribunal vide order dated 22.12.2023 held as under:
& 518/Del/2022 “38. In the result, it is held that appellant no.1 Deepali Designs Exhibits (P) Ltd. is a member of assessee AOP, Pico Deepali Overlays Consortium for the purpose of assessment of relevant A.Y. The respective grounds taken in appeal no. ITAs No. 518/Del/2022 arising out of issue no.2 decided against the appellant no.1 stand disallowed. Further, as affected party the appellant no.1 has right to file appeal on merits of additions in its own capacity and status.”
7. Learned Authorized Representative for the appellant/assessee in submitted that ground of appeal no.1 is general. 7.1 Regarding ground of appeal no.3, he submitted that consortium was formed by an agreement dated 19.12.2009. Common wealth games were held at the premises which do not belong to AOP but the assessee was Member of AOP. No addition could have been made in hands of AOP. 7.2 Regarding ground of appeal no.3, he submitted that each claim had been considered by Arbitral Award and actual payments were made. 7.3 Ground of appeal no.4 is regarding purchase of Armstrong at high rates. 7.4 Ground of appeal no.5 is regarding advance given to suppliers which was given in good faith because of the delay and advance was forfeited. 7.5 The Ground of appeal no.6 regarding blanket disallowance. The payment through cheque were made. TDS was deposited as is evident from page no.392 of Volume-I of paper books. All the payments were made through cheque. 7.6 Ground no.7 is regarding transfer prices. In second round, Ld. AO has merely said that there is no need to vitiate his earlier order since it has not been set aside. In fact, TPO in order dated 27.01.2021 page nos. 73 and 74 of paper & 518/Del/2022 books Volume I held that the issues are appearing in order of Ld. DRP regarding TP Report mentions TNMM method while Ld. AO took up the method and held services as nil. In fact, services were provided by PICO Hong Kong. Despite order having been set aside, TPO amended earlier order regarding international transactions on pages 77 and 78 of the paper books PICCO Hong Kong and PICO Thailand. 7.7 Ground no. 8 regarding interest is consequential in nature.
8. Learned Authorized Representative for the appellant/assessee in ITA N. 518/Del/2022 submitted written submissions as under: “1. ADDITION AMOUNTING TO RS.52,87,395/- MADE TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION U/S 69A OF THE ACT IS ILLEGAL, BAD IN LAW AND LIABLE TO BE DELETED. FACTS AND LEGAL ARGUMENTS AGAINST THE ADDITION PROPOSED BY THE ASSESSING OFFICER i. At the outset it is submitted that out of the seven instances listed in the table at page 12 of the draft assessment order, only one address belonged to PDOC during the relevant financial year i.e. A-27/15 Khanpur Extension Delhi. All other addresses does not belong to assessee though in all the entries from 1 to 7 the name of the assessee i.e. PDOC has been mentioned. iii. The table below contains the details of the name of the persons/entities along with their respective addresses and the details of the seized material recovered therefrom: iv. Upon examination of the copy of Panchnama, statement(s) of various persons recorded during the course of search proceedings and post search proceedings along with other relevant seized material provided to DDEPL, it is submitted that the premises mentioned by the AO do not belong to PDOC ("the Assessee") but to some other parties who were & 518/Del/2022 also searched along with PDOC, details of which are as under: a) Cash and jewellery shown at S.no. 1 being cash of Rs. 1,45,750/-and jewellery of Rs. 10,47,5951- was found at 1318 Punjabi bagh, New Delhi which is residence of Mr. Vinay Mittal who is director of M/s Deepali Designs & Exhibits Pvt. Ltd. in the hands of her mother i.e. Smt. Saroj Mittal. Copy of letter submitted at the time of assessment proceedings along with assessment order has been submitted here with in support of above. (P No. 1051 of Volume IV and P. No. 1061-1065 of Volume IV) b) Cash found amounting to Rs. 9,20,0001- at 26 A, Firoz Shah Road, New Delhi out of which cash amounting to Rs.6,00,000/. was seized, the stated property is residence of Mr. Sudhanshu Mittal, who is owner of M/s Delhi rent & Decorators and was assessed separately. The fact that Mr. Sudhanshu Mittal is residing at the stated property and is a partner of Delhi Tents & Decorators is supported by his statement. c) Cash found and seized amounting to Rs. 4,98,000/- was found at 26 A, Firoz Shah Road, New Delhi which is residence of Mr. Sudhanshu Mittal, who is owner of M/s Delhi tent & Decorators and was assessed separately. d) Cash found amounting to Rs. 6,50,000/- out of which cash amounting to Rs. 6,00,000/- was seized, was found at A 27/15, Khanpur Extension, Delhi which is the office address of PICO group of companies. Since M/s Deepali Design & Exhibits Pvt limited do not have any access to the books of account of Pico Deepali Overlays Consortium, in absence of which, we can not throw any light on it. e) Cash found and seized amounting to Rs. 1,55,000/- was found at G-7, Dhawan Deep Building, Jantar Mantar Road, New Delhi which belongs to Mr.
& 518/Del/2022 Sudhanshu Mittal, who is owner of M/s Delhi Tent & Decorators and was assessed to tax separately. The fact that that stated property was used by him for carrying out his business activities Copy of statement of Mr. Sudhanshu Mittal is supported by his statement. f) Cash found and seized amounting to Rs. 5,79,050/- was found at R-29, Vikas Marg, Shakarpur, Delhi is Registered office address of M/s Delhi Tent & Decorators which belongs to Mr. Sudhanshu Mittal who was assessed separately. g) Cash amounting to Rs. 12,92,000/- was found at 9, Printing Press Area, Wazirpur, New Delhi which was office address of M/s Deepali design & Exhibits Pvt. Ltd. who is alleged member of PDOC. The said cash was considered in its hands while framing its assessments. Copy of letter submitted at the time of assessment proceedings along with assessment order has been submitted here with in support of above. (P No. 1053 of Volume IV and P. No. 1066-1095 of Volume IV) iv. In view of the above-mentioned facts, which is duly supported by material on record as well as statements recorded during the course of search and survey proceedings, it is submitted that the AO has erred on facts as well as in law in making the entire addition in the hands of the Assessee. It is further submitted that the submissions made in this behalf have not been rebutted by the AO and the AO has incorrectly observed that there is no supporting material placed on record to show that the premises on which the search was conducted and from the where the majority of the cash and jewellery in question were seized, do not belong to the Assessee. v. In this regard, it is submitted that the finding of the AO is contradictory to the provisions of Section 132(4A) of the Act which creates a legal presumption of ownership in favour of the person from whose possession or control the seized material is found. It is therefore submitted that the AO has failed to rebut the legal presumption in this behalf and has wrongly made the addition in question in the hands of the Assessee. vi. It is further submitted that the AO has wrongly invoked the provisions of Section 69A of the Act to make addition in the instant case as the same are not applicable to the facts of the present case. Section 69A of the Act reads as under: "69A. Unexplained money, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year." It is submitted that the necessary conditions for making an addition u/s 69A of the Act are that Assessee is 'found' to be the owner of any money, bullion, jewelry or other valuable article and such money, bullion, jewelry or valuable article is not recorded in the books of account, if any. The Section categorically states that the provision is applicable in case the Assessee is 'found to be owner of such sum and the use of the term 'found' indicates that such sum has not declared as income by the Assessee himself. This is also supported by the phrase "not recorded in the books of account, if any" used in the said provision, essentially implying that this Section is meant to tax 'undisclosed income'; the source and nature of which remains unexplained to the satisfaction of the AO. For making an addition under this section, it is necessary that the listed articles are not recorded in the books of account of the Assessee, if any. vii. It is further submitted that, as elaborated in the preceding paragraphs, the Assessee is not even 'found to be the owner of the seized material and therefore, the AO has erred on facts as well as in law in making the addition u/s 69A when the said provisions are not applicable to the facts of the present case. viii. The said facts were also brought to the notice of Hon'ble DRP in the proceedings. (P. No. 564-567 of Volume II)
& 518/Del/2022 In light of the above noted facts and circumstances of the present case and also the legal position, it is submitted that the AO has erred on facts and in law in invoking the provisions of Section 69A of the Act to make the addition amounting to Rs. 52,87,395/- and therefore, the same is illegal, bad in law and liable to be deleted.
2. THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE AMOUNTING TO RS. 4,38,50,257 ON ACCOUNT OF ALLEGED BOGUS PURCHASES MADE FROM VIIAY IRON WORKS (RS. 1,16,52,984/-), ARMSTRONG WIRES & ENGINEERS PVT. LTD. (RS. 2,58,55,023) AND KIRTI ENTERPRISES (RS. 63,42,250). We were not given relevant survey documents pertaining to those additions despite numerous requests at the time of remand proceedings. Since M/s DDEPL did not have access to the books of account of the consortium, due to which we are handicapped to contest additions on merit.” From the legal perspective also this addition of Rs. 1.16 Cr. having being made under section 69C is also incorrect as the facts clearly bear that this is not a case where the allegation is that the assessee has no corresponding source for the procurement of supply on hire. The AO himself states that the expenditure of Rs. 1.16Cr. is as per the books of accounts of the assessee. Thus, invocation of section 69C is totally erroneous.
3. DISALLOWANCE OF EXPENDITURE DEBITED TO P&L ACCOUNT THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE AMOUNTING TO RS. 29,86,27,579/-. We were not given relevant survey documents pertaining to those additions despite numerous requests at the time of remand proceedings. Since M/s DDEPL did not have access to the books of account of the consortium, due to which we are handicapped to contest additions on merit.
THE TPO HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THE TRANSFER PRICING ISSUES AFRESH IN LIGHT OF THE DIRECTIONS GIVEN BY THE ITAT VIDE ITS ORDER DATED 11.01.2021. ΤΡΟ HAS ERRED IN PASSING THE SAME ORDER AS PASSED BY IT EARLIER BY ERRONEOUSLY CONSTRUING THE ITAT ORDER SETTING ASIDE THE & 518/Del/2022 ASSESSMENT FOR FRESH ADJUDICATION TO BE LIMITED TO THE ADDITIONS MADE UNDER SECTION 69A AND SECTION 37 OF THE ACT. HENCE THE SAID ORDER IS ILLEGALAND BAD IN LAW.
5. TRANSFER PRICING ADJUSTMENT OF RS. 5,93,69,533 ON ACCOUNT OF PROCUREMENT OF OVERLAYS/EVENT MANAGEMENT SERVICES FROM ASSOCIATED ENTERPRISES("AE") 6. TRANSFER PRICING ADJUSTMENT OF RS. 1,52,88,351 ON ACCOUNT OF REIMBURSEMENT OF EXPENSES 7. THAT THE AO/TPO/DRP ERRED IN NOT PROVIDING PROPER AND ADEQUATE OPPORTUNITY TO ASSESSEE COMPANY TO PLACE THE MATERIAL ON RECORD TO SUBSTANTIATE ITS CLAIM. We were not given relevant TPO reports and survey documents pertaining to additions of Transfer pricing on international transactions despite numerous requests at the time of remand proceedings. Since M/s DDEPL did not have access to the books of account and TPO reports of the consortium, due to which we are handicapped to contest additions on this ground on merits.”
Learned AR for the Department submitted that AOP is artificial person. Member represents AOP. Search of AOP Member were carried out. All the material found in searched person was seized and relied. Members of AOP had to explain the documents. No efforts were made by AOP and its Members to explain the recoveries of documents, cash and jewellery etc. 9.1 The issue of whether Deepali Design Exhibits Pvt. Ltd. (DDEPL) is part of AOP or not has been discussed in detail by the AO in his order u/s 254/15A/143(3) r.w.s. 144C dated 27.01.2022. The AO in para 9 of his order(from page 8 to page 11) has relied on many documents and has also made & 518/Del/2022 reference to the CBDT Circular 7/2016 on 07.03.2016 for coming to the conclusion that M/s whether Deepali Design Exhibits Pvt. Ltd. (DDEPL) is member of the AOP i.e. Pico Deepali. 9.2 The assessee has mainly relied upon on the Addendum to the consortium agreement dated 01.06.2010 signed between 3 AOP partner i.e. M/s Pico Hongking Ltd., Pico Event marketing (India Pvt. Ltd.) and whether Deepali Design Exhibits Pvt. Ltd. (DDEPL) and made the contention that after this addendum they were no longer a part of the AOP. Also the assessee has placed reliance on CBDT Circular 7 of 2016 in order to emphasis on the point that they should not be considered a part of the AOP, in line with the above Circular. From the perusal of the documents/paper books and the assessment records, the following points are mentioned which clearly shows that DDEPL continue to be a part of the AOP: “1. The Common Wealth Games Organization Committee (CWGOC) has awarded the contract to the consortium M/s Pico Deepali Overlays Consortium on 02.06.2010, which was based on the joint bid made by the consortium for getting contracts. The Turnkey contract clearly mentioned that all liabilities/rights are of consortium only. Further all the payments will be made to the common bank account of the consortium. Thus this contract was awarded based on the bid submitted by the consortium /AOP of which DDEPL was a member and accordingly now for performance of all works related to such bid made by consortium/AOP, the asseessee cannot claim that they are no longer a part of the AOP.
2. From the perusal of the addendum agreement to the consortium agreement, it is seen that there are several conditions which proves that the M/s DDEPL continues to be a part of AOP only. Also facts of the instant case are different from the conditions mentioned in Circular NO. 7/2016 issued by the CBDT with regard to attributes in EPC/Tunkey & 518/Del/2022 projects which makes the consortium partners, not a part of AOP. The comparative analysis of the terms and conditions of the addendum/agreement of consortium members vis a vis conditions stipulated in Circular no. 7/2016 are discussed below:-
(i) The condition of para 2(4) talks of distribution of new contracts awarded by CWGOC. Being pertinent the same is reproduced below"- 2(4) In the event there are any new contracts awarded by CWGOC Delhi 2010 to the Consortium, the works in the new contract equivalent to 20% in value minus 23% to be paid to PHK shall be awarded to Deepali only after this has been mutually agreed by the parties, having regard to the capacity and capability of the respective Members to fulfill the scope of the new contracts. The net amount after deduction of the 23% is inclusive of the 10.3% service tax but excludes any tax deducted at source. Deepali shall provide PHK on demand any tax certified reasonably required by PHK (including but ort limited to anything related to the 10.3% service tax)
9.3 From above, it is clearly seen that M/s DDEPL continues to be entitled for any new contract equivalent to 20% in value awarded by CWGOC. Thus even for speculation, if the contention of assesse is accepted that they are no longer a part of AOP then it is really baffling to understand why the consortium/AOP will award 20% of the future contracts to M/s DDEPL. This condition for getting a share in future contracts in itself proves that M/s DDEPL continues to be a part of the consortium/AOP. This shows there continues to be unified and common management for controlling the affairs of the AOP and against the condition no. 3d of circular no. 7/2016.
& 518/Del/2022 (ii) Para 2(6) of the addendum talks of supervision of the contracts. Being pertinent the same is reproduced below:- 2(6) The parties intend that each Member shall carry out its own works peacefully, subject to the supervision and project management of Deepali by the Common Representative and his staff to ensure that the entire scope of works is delivered in good order to the CWGOC Delhi 2010. The above para clearly specifies that M/s Deepali is responsible for supervising and managing the entire project and their role of supervision and managing the work is not confined to the work specifically allotted by the AOP/consortium m/s DDEPL. This again shows that there is unified and common management for controlling and managing the affairs/work awarded to entire consortium and against the condition as mentioned no. 3c & 3d of circular no. 7/2016. (iii) para 2(5), which is reproduced below, talks of obtaining necessary registration for the JV. (5) Deepali shall expeditiously help to obtain all necessary registrations of the JV with allrelevant authorities of tax and all other purposes, but without prejudice to PHK or PEMI's right to do the same. The JV shall pay all legally required registration fees. The above para also proves the facts that all the consortium members were working together and not responsible only for their specified work. The addendum clearly says that M/s Deepali is responsible for obtaining all necessary register for the entire work /contracts obtained from CWGOC and their responsibility does not end with their individual work. This also proves that the fact that common men and materials are used for supervising the entire work and the assessee contravenes the condition stipulated in para 3c of the circular. (iv) para 2(3) of the addendum which is reproduced below, talks of sharing of profits. (3) Amounts received by the JV on contracts with the CWGOC Delhi 2010 in respect of work performed by Deepali, within the scope of work described in Appendix 2 (including anyvariations), minus 23% shall be paid to Deepali and the remainder shall belong to PHK. The net amount after deduction of the 23%is inclusive of the 10.3% service tax but excludes any tax deducted at source. Deepali shall provide PHK on demand any tax certificates & 518/Del/2022 reasonably required by PHK (including but not limited to anything related to the 10.3% Service Tax). Though the above condition gives a specified share of M/s DDEPL but it also makes responsible for providing tax certificates required by M/s Pico Hongkong. This condition cannot be there only to facilitate convenience in billing, as this also shows that all the money from the CWGOC is received only by consortium/AOP and then further distribution takes place and close coordination between members of AOP. The assessee does not fulfil the condition as mentioned in para 3a of the circular. Also M/s DDEPL says that they no longer remain part of AOP because they have 0% share as per clause 2.1 of addendum agreement. However clause 2.1 has to be read in conjunction with clause 2.3 & 2.4 wherein the share of profit is clearly mentioned. Further clause 2.1 talks of residual profit and as M/s Pico Hong Kong was made responsible for common representation, accordingly this residual profit clause doesn't in any way becomes the determining factor for treating DDEPL as a member of AOP or not. (v) M/s DDEPL continues to be a part of AOP and in fact the following amendment by addendum makes it amply clear that Deepali's representative will always remain on the board of the consortium/DOP. The article 9.1b was added to the addendum agreement which is reproduced below:- 3.7 Article 9.1(b): (a) Add: "Deepali's representative on the Board may not be removed from the Board without Deepali's consent." To the end of the first sentence, which begins with "The Board of the JV consists of:" As the board of AOP/consortium is responsible for taking all decisions related to the works awarded by the CWGOC, accordingly, it is humbly submitted that as Deepali's representative continues to be on board even after the addendum agreement, this itself proves the fact that M/s DDEPL was completely involved in managing and overseeing the complete work/contract accordingly & 518/Del/2022 the constitution of the board itself proves that there was a common control, supervision and management of the entire work/contract. This concept of common Board of managing the affairs of the work of consortium cannot be called only to facilitate inter-se coordination and shows unified approach/management for controlling the entire work which is clearly contravenes condition 3d of the circular. (vi) The assessee has further stated that the turnkey contract was also separately executed by Deepali. This ciaim clearly contradicts the conditions of turnkey agreement awarded by CWGOC which clearly makes the consortium responsible for execution of all projects awarded to consortium and it doesn't talk of any individual execution and subsequently responsible for performance of such part contract.
D. M/s DDEPL has further stated that they have filed their ROI for A.Y. 2011-12 and disclosed its receipts from its scope of work of the contracts received as part of consortium from Common Wealth Games Organising Committee. The assessee has also stated that assessment order in the case of M/s DDEPL was also passed on 21.03.2013 and the entire receivable/receipts from its scope of work were brought to tax. It is submitted that as the assessee i.e. M/s DDEPL is part of the consortium /AOP accordingly its receipts should be charged in the hands of the AOP only and not individually. The law has been clearly laid down by the Hon'ble Supreme Court in the case of ITO vs. Ch. Atchaiah 84 taxmann 630 (Supreme Court) copies submitted during the course of hearing wherein it is clearly held that for income of the AOP, only AOP has to be taxed and merely because some member of AOP has shown the income individually and also been taxed individually, this cannot prevent the AO to tax AOP with respect to that income which is part of AOP only. It is also submitted that in the financials/ ROI filed by the AOP, it has shown total receipts as well as total expenses from the contracts receipts from CWG and it also contains all expenses incurred on behalf of the AOP even by the individual members also.”
From examination of record in light of aforesaid rival contentions, it is crystal clear that ground of appeal no.1 of is general in & 518/Del/2022 nature. Ground of appeal
no. 2 is regarding disallowance of Rs.52,87,395/- on account of cash and jewellery seized during search is without appreciating the fact that cash and jewellery were not found at premises belonging to appellant/assessee M/s Pico Deepali Overlays Consortium. Undisputedly, the consortium is not a legal entity. Consortium was responsible for the activities undertaken during Common Wealth Games held from 03.10.2010 to 14.10.2010. The recovery of cash and jewellery were seized from premises which did not belong to the member of AOP, therefore, impugned additions in hands of AOP being illegal are set aside. Accordingly, ground of appeal no. 2 is allowed.
11. Ground of appeal nos. 3 and 4 are regarding bogus purchases made from M/s. Vijay Iron Works and M/s. Arms Strong Wire and Engineering Pvt. Ltd. It is a fact that all the payments were considered by Arbitral Award and actual payments were made through banking channel. Therefore, observations of Ld. AO and Ld. DRP holding purchases as bogus and making additions being unsustainable are set aside. Therefore, ground of appeal nos. 3 and 4 are allowed.
12. Ground of appeal no.5, challenging bogus purchases were from M/s. Kirti Enterprises Supplier regarding written of advances because of delay were unjustly made. Therefore, addition of Rs.63,42,250/- holding the purchases made from Kirti Enterprises as bogus is set aside. Accordingly, ground of appeal no.5 is allowed.
& 518/Del/2022 13. Ground of appeal no.6 regarding disallowing of expenses amounting to Rs.29,86,27,579/-. The disallowance was made despite the fact that payments were made through cheque and TDS was deducted as referred in page no.392 Volume
2. Ld. AO failed to appreciate that all the payments made through cheque and TDS was deducted which was accounted for. The assessee had filed return of income from work of contracts received as part of consortium. The entire receipts were brought to tax. The receipts are to be charged in hands of the AOP only. The Financials and Return of Income by AOP show total receipts as well as expenses on behalf of AOP. M/s. Deepali Design Exhibits Pvt. Ltd. continues to be a part of AOP i.e. Pico Deepali Overlays Overlays Consortium. Resultantly, addition of expenses being arbitrary and illegal is set aside. Ground of appeal no.6 is allowed.
14. Ground of appeal no.7 regarding transfer pricing, it is a fact that Ld. AO had restricted himself to his earlier order which was, in fact, set aside. All the issue were left open. Reference to order in Miscellaneous Application dated 11.01.2021 is important. Ld. DRP had TNMM Method. Ld. AO took CUP method and held nil as Intra-Group Services. Undisputedly, services were provided by PICO Hong Kong. Despite order being set aside, Ld.TPO maintained the same. Reference to TP Study Report at pages 2272 to 2323 and Event Management 2080 is important. Ld. TPO wrongly held no disallowances were filed, in fact, details were filed, Ld. TPO used CUP Method without & 518/Del/2022 comparable data. In direct expenses which is at page no. 399 of paper books and balance sheet at page no.
Therefore, Ld. AO and Ld. DRP as well as Ld. TPO in computing value of international transaction as nil and making an addition of Rs.7,46,57,884/- on account of transfer pricing is set aside. Accordingly, ground of appeal no. 7 is allowed.
15. Ground of appeal no. 8 being consequential, does not require any adjudication.
16. The above findings of ground of appeal no. 1 to 8 of shall apply to the grounds of appeal in