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Income Tax Appellate Tribunal, DELHI BENCH “I-2”, NEW DELHI
Before: SHRI R. K. PANDA & SHRI KULDIP SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I-2”, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.5880/Del/2011 Assessment Year : 2002-03 Keane India Ltd., DCIT, Circle- 5(1), Unitech Trade Centre, New Delhi. Sector- 43, Sushant Lok, Vs. Gurgaon.
PAN : AABCK7777J (Appellant) (Respondent)
: Assessee by Shri S. D. Kapila, Adv. Shri R.R. Mourya, Adv. Department by : Shri H. K. Choudhary, CIT-DR Date of hearing : 30-01-2018 Date of pronouncement : 23-04-2018
O R D E R PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 25.10.2011 passed by the Assessing Officer u/s 144C(5)/143(3) of the I.T. Act, 1961 for the assessment year 2002-03. 2. Facts of the case, in brief, are that the assessee is a subsidiary of Keane Inc. USA, and is engaged in the business of software development, integration and maintenance through various units located in different parts of the country. It has developed units at Noida, Hyderabad and Gurgaon apart from office at Delhi. It filed its return of income on 31.10.2002 declaring income of
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Rs.27,879/-. The above return was accepted through intimation u/s 143(1) of
the I.T. Act, 1961 on 31.03.2004. Subsequently, the Assessing Officer
reopened the assessment by issue of notice u/s 148 after recording the following
reasons :-
“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.”
3 ITA No.5880/Del/2011
The assessee objected to the reopening of the assessment before the
Assessing Officer. However, the Assessing Officer rejected such objections.
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/-
The assessee approached the DRP against the draft assessment order
passed by the Assessing Officer u/s 144C(1) and challenged the proposed
additions. The DRP directed the TPO to re-compute the adjustment made vide
order u/s 92CA(3) of the I.T. Act. The TPO vide order dated 09.08.2011 while
giving effect to the direction of the DRP re-computed the adjustment u/s
92CA(3) at Rs.5,82,97,950/-. The Assessing Officer, thereafter, passed the final
order on 25.10.2011 determining the total income at Rs.5,93,67,115/-.
Aggrieved with such order of the Assessing Officer/TPO/DRP, the
assessee is in appeal before the Tribunal by raising the following grounds :-
“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
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That the Ld AO acted without jurisdiction in initiating re-assessment proceedings u/s 147/148 of the Act which renders the re-assessment proceedings invalid and bad in law. 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.”
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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.”
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
6 ITA No.5880/Del/2011
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.
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.
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
7 ITA No.5880/Del/2011
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.
Referring to Question No.7, he again drew the attention of the Bench to
the Question put to Shri Gajanand Aggarwal regarding maintenance all the bank
accounts in the same bank or other bank either new or joint account in the case
of the company. Referring to Question No.11 put to Shri Gajanand Aggarwal,
he again drew the attention of the Bench to the answer given by Shri Gajanand
Aggarwal regarding the credits appearing in the bank account being contract
receipts from various parties for the assessment year 2001-02. Referring to
Question No.17, he drew the attention of the Bench to the query raised by the
8 ITA No.5880/Del/2011
Assessing Officer, according to which, the assessee was required to furnish
copy of complete set of ITR filed for assessment year 2002-03. He submitted
that prior to Question No.17 put to Shri Gajanand Aggarwal, he was not asked
to give any details for assessment year 2002-03. Referring to page 3 of the said
assessment order, he submitted that the Assessing Officer in the last paragraph
at page 3 has mentioned “Apparently, the assessee has simply provided
accommodation entries to prove all beneficiaries, who have booked certain
expenses in their books wherein no actual expenditure has ever taken place”.
He submitted that the statement of the director of M/s GA Buildcon Pvt.
Ltd. is self-serving as the said company wants to reduce its tax liability by
offering one percent of actual receipts as income. He never produced the book
of a/c or return of GA Buildcon, as promised, before his A.O.
Referring to the statement of Gajanand Aggarwal, he submitted that it is
vague, inconsistent, self-contradictory and not supported by external evidences
like field enquiry. He submitted that in his reply to Question No. 11 he has
categorically stated that the receipts in the two current accounts maintained then
by the company with Corporation Bank & Oriental Bank of Commerce earlier
represent "these receipts are for this year and for earlier year". The expression
"this year" clearly refers to Financial Year 2000-01 relevant to Assessment Year
2001-02.
9 ITA No.5880/Del/2011
The ld. counsel for the assessee submitted that it is now settled law that
validity of notice U/S 148 is to be tested on the basis of reasons and reason
alone. The impugned reasons rely on an untested statement and the conclusion
of the Assessing Officer in M/s GA Buildcon Pvt. Ltd. for the A.Y. 2001-02 for
issuing notice u/s 148. The impugned notice therefore lacks bonafide as it is not
based on an iota of evidence or facts relating to F.Y. 2001-02 relevant to A.Y.
2002-03. There is nothing in the reasons to indicate that assessment, if any, was
made on G Buildcon P. Ltd. for A.Y. 2002-03. Even later, the AO/DRP do not
make reference to any such assessment order to or any statement of a director of
GA BuiIdcon P. Ltd. recorded in connection with its receipts for A.Y. 2002-03.
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
10 ITA No.5880/Del/2011
alleged escaped income. Thus, there was no possible motive for seeking
accommodation entries.
He submitted that the formation of belief that income has escaped
assessment is not on the basis of reasons but on the basis of surmises drawn
from vague information. There is no allegation in the reasons that there was any
omission to disclose material facts in the return. Relying on the decision of the
Hon’ble Delhi High Court in the case of Orient Craft Ltd. reported in 354 ITR
536, he submitted that the basic condition that there must be bonafide and
specific reasons for issuing notice u 148 is as much applicable to reopening an
assessment u1s 143(1) as it is for assessment u 143(3).
Referring to the decision of the Hon’ble Allahabad High Court in the case
of Jamila Ansari reported in 225 ITR 490, he submitted that for the purpose of
issuing notice u/s 148, facts of one assessment year must not be imported into
another assessment year without due verification. The 'reason to believe' is not
the same as reason to suspect. The Hon'ble Delhi High Court in Mesco
Laboratories Ltd. (288 ITR 219) has held that notice u/s 148 issued on the basis
of order of settlement commission for the Block Period, including immediately
preceding year, to be invalid.
He accordingly submitted that the 'reason to believe' has no rational nexus
with the facts of the case for F.Y. 2001-02. At best, it is 'reason to suspect',
which is not a sufficient.
11 ITA No.5880/Del/2011
Ld. DR on the other hand heavily relied on the order of the
DRP/Assessing Officer. He submitted that Shri Gajanand Aggarwal in his reply
to Question No.11 has clearly stated that the entries are bogus. Referring to
Question No.12 of the said statement, he submitted that he would get 1%
commission as stated by him. He submitted that his statement should be read as
a whole for all the years and no specific year has been given. He submitted that
the statement was recorded during the financial year 2008-09 and not
assessment year 2001-02. In-fact, Shri Gajanand Aggarwal has accepted the
business of providing accommodations entries by accepting cheques and giving
cash back is not for any specific year but for all the years. He submitted that
considering the entire facts, the Assessing Officer has applied the contents of
the statement of Shri Gajanand Aggarwal recorded during the assessment year
2001-02 and facts of booking expenses in the relevant assessment year 2002-03
by the assessee in the name of M/s G.A. Buildcon Pvt. Ltd.. Therefore, the
action of the Assessing Officer cannot be said to be mechanical in nature for
reopening the case.
So far as argument of the ld. counsel for the assessee that some more
payment made by M/s G.A. Buildcon Pvt. Ltd. apart from 8,15,000/- has not
been disallowed by the Assessing Officer is concerned, he submitted that the
same does not make the reasons recoded as invalid as the additional payment or
bills might have been submitted during the assessment proceedings. In any case
12 ITA No.5880/Del/2011
disallowance of Rs.8,15,000/- based on entries in the books of account
considered as accommodation entries is sufficient basis for reopening the case.
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.
We have considered the rival arguments made by both the sides, perused
the orders of the Assessing Officer/DRP/TPO and the Paper Book filed on
behalf of the assessee. From perusal of the reasons recorded u/s 148 of the I.T.
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
13 ITA No.5880/Del/2011
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
14 ITA No.5880/Del/2011
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
15 ITA No.5880/Del/2011
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.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 23rd day of April, 2018.
Sd/- Sd/- (KULDIP SINGH) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23-04-2018. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The DRP-I, New Delhi 4) The DR, I.T.A.T., New Delhi By Order //True Copy// Assistant Registrar ITAT, New Delhi