KEANE INDIA LTD.,GURGAON vs. DCIT, NEW DELHI

O R D E R

PER R. K. PANDA, AM :

“Reasons recorded under section 148 of the I.T. Act, 1961.

Name and address of the assessee Keane India Limited PAN AABCK 7777 j Status Company AY 2002-03 Date of original/revised return 31.10.2002 Returned Income 27879/- Date of regular assessment n.a. Assessed Income n.a.

As per information received from ITO Ward 12(1), New Delhi dated 13.03.2009, during the course of assessment proceedings in the case of M/s G.A. Buildcon Pvt. ltd. for A.Y. 2001-2002, statement of Sh. Gajanand Aggarwal, Director was recorded on oath under section 131 of the I.T. Act, 1961. Sh. Gajanand Aggarwal has categorically stated that he is providing accommodation entries in the guise of bogus expenses to various companies including M/s Keane India Limited. Statement of Sh. Gajanand Aggarwal contained in the assessment order of M/s G.A. Buildcon Pvt. Ltd. for A.Y. 2001-2002 is enclosed. During A.Y. 2002-03 also Sh. Gajanand Aggarwal has provided such accommodation entries through M/s G.A. Buildcon Pvt. Ltd. During A.Y. 2002-2003 (F.Y. 2001-2002) M/s G.A. Buildcon Pvt. Ltd. has shown total receipts of Rs.1,49,68,877/- including Rs.8,15,000/- from M/s Keane India Limited Sh. Gajanand Aggarwal has categorically admitted that he has provided accommodation entries to M/s Keane India Limited. He has given back cash to these companies after receiving cheque from them. In the light of above information, and on the basis of statement of Sh. Gajanand Aggarwal, I have reason to believe that M/s Keane India Limited has booked bogus expenses for Rs.8,15,000/- which has been shown in books as Contractor payment to M/s G.A. Buildcon Pvt. Ltd. as per Form No.16A dated on 30.04.2002. Thus the assessee company has claimed excess deduction in form of expenses which is covered under clause (b) of explanation (2) of Section 147 of Income Tax Act, 1961. Accordingly notice under section 148 of the Income Tax Act is issued after talking necessary approval from the Additional Commissioner of Income Tax, Range-5, New Delhi as per section 151(2). Sd/- (Rajiv Kumar) Dy. Commissioner of Income Tax Circle- 5(1), New Delhi.”

Thereafter, he issued statutory notices u/s 143(2) and 142(1) to which the assessee filed the requisite details. Rejecting the various explanations given by the assessee, the Assessing Officer completed the assessment on a total income of Rs.6,15,51,950/- by making the following additions :-

Returned Income Rs. 27,879/- Add: Understated value of international Rs.6,04,82,785/- transaction as per TPO order Add: Disallowance u/s 14A as discussed Rs. 2,26,286/- Add: Bogus Expenditure Booked Rs. 8,15,000/- Rs.6,15,24,071/- Assessed Income Rs.6,15,51,950/-

“That on the facts and circumstances of the case and in law, the Learned Deputy Commissioner of Income Tax, Circle 5(1), New Delhi (hereinafter referred to as Ld Assessing Officer ‘AO') grossly erred in enhancing the returned income by Rs.5,93,39,236. Corporate Tax Matters

2. That the Ld AO erred in making an addition of Rs 8,15,000, paid to M/s GA Buildcon for Repair & Maintenance of office building, as unexplained expenditure. 3. That the Ld AO erred in disallowing an amount of Rs 226,286 u/s 14A of the Act. The said disallowance was based on a mere surmise, without any actual finding, that expenditure was actually incurred in earning of tax-free dividends. Transfer Pricing Matters 4. The Ld AO, on the facts and circumstances of the case and in law, erred in making a transfer pricing adjustment of Rs 5,82,97,950 to the income of the Appellant Company. 4.1 The Ld. AO erred in arbitrarily rejecting STS Inc., USA as the Tested Party. 4.2 The Ld AO erred in arbitrarily rejecting the comparable companies selected by Appellant Company without identifying any deficiency or insufficiency in the search process adopted by the Appellant Company. 4.3 The Ld AO acted in an arbitrary and highly subjective manner in adopting insufficient and inappropriate filters, resulting in to rejection of comparable companies viz. i) Arbitrarily rejecting companies whose turnover was less than Rs One crore ii) Applying arbitrary filter based on the ratio of Personnel Cost to Total Cost 4.4 The Ld AO grossly erred in not providing the Appellant Company with findings and results of the search/benchmarking undertaken by his office. This amounts to breach of natural justice and renders the transfer pricing assessment bad in law 4.5 The Ld AO erred in selecting functionally different companies (namely, Infosys Technologies Ltd.) as comparable to the Appellant Company. 4.6 The Ld AO erred in including Service Charges in the cost base of the software development expenses for determining the Arm's Length Price. 4.7 The Ld AO erred in not allowing the Appellant Company, an adjustment on account of differences in working capital investments vis-a-vis independent comparable companies. 4.8 The Ld AO erred in not allowing the Appellant Company, a low risk entity i.e. captive service provider, an adjustment towards differential in its risk profile. 4.9 The Ld. AO erred in not providing relief in accordance with second proviso to section 92C(2) of the Income Tax Act, 1961 (the ‘Act’). 4.10 The Ld. AO erred in rejecting use of multiple year data for benchmarking purposes. 4.11 The Ld. AO erred in initiating penalty proceedings u/s 271G of the Act for delayed submission of prescribed documentation per rule 10D of the Income Tax Rules, 1992. The grounds of appeal are notwithstanding each other. The appellant craves leave to amend, alter or add fresh grounds of appeal during the course of proceeding before your good self.”

6. The assessee has also filed an application under Rule 11 of ITAT Rules for admission of the following additional grounds :-

“Subject: - Application under Rule 11 of ITAT Rules for Additional Ground of appeal. The appellant seeks admission of additional ground of appeal by modifying the original ground no 4.5 filed earlier, which reads as under.- 'The Ld AO erred in selecting functionally different companies (namely, infosys Technologies Ltd.) as comparable to the Appellant Company.” The said ground does not bring out the dispute correctly. It appears to seek exclusion of only one of the comparable, namely, Infosys Technologies Ltd (Infosys). This is an inadvertent mistake. What was intended was to cite Infosys Technologies Ltd. as an example only. In fact the appellant in addition to Infosys seeks exclusion of several companies selected by TPO despite material differences for which no reasonably accurate adjustment can be made. Hence, the additional ground as per Annexure-I, which may kindly be admitted. It is submitted that the modified ground of appeal no. 4.5 brings out the basic grievance of the appellant company. The modified ground can be decided on the basis of information, which is in public domain and on record. No further evidence is needed for adjudicating it. It is humbly prayed that the modified ground of appeal may kindly be admitted for adjudication. Alternatively, it may be treated as additional ground of appeal and admitted accordingly keeping in view the judgment of Hon'ble Delhi High Court in Hydrocarbons India Ltd.(63 DTR 15), and that of the Special Bench Mumbai Decision in All Cargo Global Logistic Ltd. 16ITR (Trib.) 380. In Reuters India P. Ltd. [2016] 69 taxmann.com 187 (Bom) the Hon'ble High Court of Bombay has held: "We note that the entire purpose of determining the ALP is to ensure that there is no Base Erosion and Profit Shifting. The tax proceedings are not adversarial in nature and there can be no estoppal in pointing out the correct facts before the Appellate Authority particularly when all facts are on record. " The complete text of the judgment is annexed at Annexure-2. A legal note on the proposition that there is no estoppel to law is also placed at Annexure-3. In view of the above it humbly prayed that the additional ground may kindly be admitted.”

7. Ld. counsel for the assessee submitted that the additional ground so raised by the assessee is nothing but modification of the original grounds no.4.5 filed earlier. He submitted that the above additional grounds bring out the basic grievance of the assessee which can be decided on the basis of information which is already in public domain and on record and no further evidences are needed for adjudicating it. Relying on various decisions, he submitted that the additional grounds should be admitted for adjudication.

8. After hearing both the sides and considering the fact that all material facts are already available on record and no further evidence is needed for adjudicating it, the additional grounds raised by the assessee are admitted for adjudication.

9. Ld. counsel for the assessee at the outset raised a preliminarily objection relating to the initiation of re-assessment proceedings by the Assessing Officer as per ground no.1. He submitted that the Assessing Officer while re-opening the assessment for assessment year 2002-03 has relied on the undated assessment order of M/s G.A. Buildcon Pvt. Ltd. for assessment year 2001-02.

He has relied on the statement of Shri Gajanand Aggarwal, director of M/s G.A.

Buildcon Pvt. Ltd. recorded on 12.12.2008 by another Assessing Officer during the course of assessment proceedings of M/s G.A. Buildcon Pvt. Ltd. for assessment year 2001-02 and not recorded while completing the assessment for assessment year 2002-03. There is no admission by Mr. Aggarwal at any point of time that he has provided accommodation entries to the assessee during assessment year 2002-03. No opportunity of cross-examination was given by the Assessing Officer to examine Mr. Aggarwal. The Assessing Officer also did not examine Shri Aggarwal while disposing of the objections. He submitted that the Assessing Officer failed to record any valid reason for issuance of notice u/s 147 of the I.T. Act and no evidence was available in his position to record such reasons. Referring to para- 2 of the reasons recorded, he submitted that the source of information is not known. Referring to page 89 of the Paper Book, which is the letter addressed to the Assessing Officer on 06.08.2009, he submitted that the assessee company has categorically requested the Assessing Officer to provide the copy of the statement of Shri Gajanand Aggarwal, director of M/s G.A. Buildcon Pvt. Ltd. which was recorded on oath. Referring to Question No.5 put to Shri Gajanand Aggarwal which has been reproduced by the Assessing Officer in the body of the assessment order of M/s G.A. Buildcon Pvt. Ltd. at page 2, he submitted that the Assessing Officer himself is asking the assessee to provide the details of bank account maintained during the year i.e. A.Y. 2001-02 in the instant case.

Second paragraph of 'Reasons' states that M/s GA Buildcon Pvt. Ltd. showed receipt Rs.1,49,68,877 including Rs. 8,15,000 from the assessee during F.Y.

2002-03. Apart from the fact that it is factually incorrect, there is no reference to it in the statement of Shri Gajanai Agarwal, which was communicated to him.

The source of this information is not known. In fact payment made to him was Rs. 7,88,374/- £ 8,15,000- TDS of 16,624 & another bill of Rs. 1,54,500. He submitted that the Assessing Officer disallows payment of Rs. 8,15,000 to M/s GA Buildcon Pvt. Lt on the basis of the impugned statement, but he accepts the expenditure of Rs. 1,54,500 on repairs vide bill dt. 01.12.2001 from the same contractor this year. He submitted that the deduction under section 10A available to the assessee company for the impugned A 2002-03 is more than the alleged escaped income. Thus, there was no possible motive for seeking accommodation entries.

He submitted that statement recorded during the proceeding for assessment year 2001-02 does not lose its evidentiary value for other assessment year if the facts for other assessment year is covered by the said statement. Therefore, it would be wrong to presume that the reopening is based on finding of assessment year 2001-02. Therefore, the decision relied on by the ld. counsel for the assessee in the case of Jamila Ansari (supra) and the decision of the Hon’ble Delhi High Court in the case of CIT vs. Mesco Ltd. reported in 288 ITR 219 are not applicable to the facts of the case as the reopening has neither been mechanically done nor on the basis of earlier assessment year/assessment order.

He accordingly submitted that the re-assessment proceedings should not be quashed on jurisdictional issue.

Act, which has been extracted in the preceding paragraphs, it is noted that there is no allegation by the Assessing Officer that there was any omission or failure on the part of the assessee to disclose material facts in the return. It is also borne out from the reasons recorded that the reopening of the assessment was based on the statement of Shri Gajanand Aggarwal recorded during the course of assessment proceedings of M/s G.A. Buildcon Pvt. Ltd. for assessment year 2001-02. A perusal of the assessment order of M/s G.A. Buildcon Pvt. Ltd., copy of which is placed at page 90 of Paper Book, Volume- 1 shows that the Assessing Officer at page 3 of the order has mentioned “Apparently, the assessee has simply provided accommodation entries to number of beneficiaries, who have booked certain expenses in their books wherein no actual expenditure has ever taken place”. Although the statement of Shri Gajanand Aggarwal has been recorded by the Assessing Officer in the assessment order of M/s G.A. Buildcon Pvt. Ltd., the same nowhere shows that the Shri Gajanand Aggarwal had alleged to have given accommodation entries for assessment year 2002-03 to the assessee. It is pertinent to mention here that the assessment order of M/s G.A. Buildcon Pvt. Ltd., copy of which is placed at page 92-93 of the Paper Book, Volume- 1 does not bear any date. Therefore, we find merit in the submission of the ld. counsel for the assessee that the basis of reopening of the assessment on the basis of undated order passed u/s 143(3) r.w.s. 148 in the case of M/s G.A. Buildcon Pvt. Ltd. cannot be the basis for reopening of the assessment especially when there is no admission by Shri Gajanand Aggarwal that he has provided accommodation entries to M/s Keane India Pvt. Ltd. for assessment year 2002-03. It is also an admitted fact that the Assessing Officer of M/s G.A. Buildcon Pvt. Ltd. has never confronted M/s Keane India Pvt. Ltd. or any other so called beneficiary with the statement of the director or even examined them with reference to the said statement for assessment year 2001-02. Since the notice was issued by the Assessing Officer u/s 148 of the I.T. Act relying solely on the statement of Shri Gajanand Aggarwal recorded by another officer for different assessment year i.e. A.Y. 2001-02 without examining himself the said director in respect of assessment year 2002-03, therefore, we find merit in the submission of the ld. counsel for the assessee that in absence of any other tangible material in the hands of the Assessing Officer, the reopening of the assessment is bad in law. Since the formation of belief that income has escaped assessment in the instant case is not on the basis of reasons but on the basis of surmises drawn from vague information and since in the reasons recorded by the Assessing Officer, there is no allegation that there was any omission or failure on the part of the assessee to disclose material facts in the return, therefore, the notice issued u/s 148 in the instant case has to be held as bad in law. Merely because the statement was recorded on 12.12.2008 while making assessment for assessment year 2001-02, the same cannot be presumed that the said party was also issuing bogus accommodation entries for assessment year 2002-03. It has been held in various decisions that for the purpose of issuing notice u/s 148, the facts of one assessment year cannot be imported in another assessment order without due verification. In the instant case the assessment for assessment year 2002-03 has been reopened on the basis of an undated assessment order for assessment year 2001-02. In view of the above, we find merit in the argument of the ld. counsel for the assessee that the re-assessment proceedings initiated by the Assessing Officer is not as per law. We, therefore, quash the re-assessment proceedings initiated by the Assessing Officer. Since the assessee succeeds on this legal ground therefore the other grounds raised by the assessee become academic in nature and therefore, they are not being adjudicated.