Standard Tele Towers Pvt. Vs DCIT (ITAT Delhi)
ITAT Delhi held that addition primarily on the basis of statements alone and no other corroborative evidence and that too without giving assessee an opportunity to cross examine the said persons is unsustainable in law and liable to be set aside.
Facts- On the basis of material available on record, AO after recording reasons about escapement of income issued notice u/s 148 to the assessee to the assessee on 30.03.2017. AO examined the P&L account of the assessee with regard to an amount of Rs. 27.55 crores incurred under the head job work charges (civil and others). On the basis of replies to the queries raised, AO issued show cause notice to the assessee that why the sum of Rs. 5.81 Cr. spent on job work for leveling of agricultural land for which the assessee company entered into an agreement with M/s. Dingle Buildcon Pvt. Ltd. and which was subsequently sub contracted to the alleged bogus entity controlled by Shri Anil Agarwal should not be disallowed and added to total income of assessee company.
AO observed that assessee has not furnished details of job work done during the year under consideration, therefore notices were issued to the four companies u./s 133(6) of the Act which were received back un-served. Thereafter, Ld. AO relying statements of Sh. Anil Agarwal, Director of M/s. Dingle Buildcon Pvt. Ltd. Sh. J.L.Kesarwani, Director of M/s. Dingle Buildcon Pvt. Ltd. and Sh. Pankaj Jain, G.M. of K-World concluded that the identity and genuineness of the transaction was not established and that assessee had failed to discharge its burden. Ld. AO observed that assessee had failed to produce Directors of the 4 companies to whom payment of Rs. 5.81 crores for leveling of agricultural land was claimed. Thus, the addition of Rs. 58102040/- was made.
Conclusion- Held that primarily on the basis of statements alone and no other corroborative evidence the Ld. AO has drawn the inferences without giving assessee an opportunity to cross examine the said persons, in spite of assessee raising specific request and at the same time Ld. AO has drawn adverse inference as mentioned in para (xiv) of para no. 9 of the assessment order, that assessee was asked to produce Directors of the four tainted companies but assessee failed to produce them and examine and thus, assessee failed to discharge its onus.
The bench is of considered opinion that on the contrary when assessee was saying that he had no transaction with the four tainted companies but had made payment to M/s Dingle Buildcon Pvt. Ltd. only and in the Para 8.1 of the assessment order AO mentions notices issued to these four tainted companies were received unserved, then the onus was on the AO to have certainly give opportunity to cross examine Shri Anil Aggarwal, who was allegedly operating these tainted companies.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The appeal has been preferred by the Assessee against the order dated 11.11.2019 of CIT(A)-8, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal no. 10304/17-18 arising out of an appeal before it against the order dated 28.12.2017 passed u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT, Circle-24(2), New Delhi (hereinafter referred as the Ld. AO).
2. Facts of the Case; Assessee company had filed return declaring loss of Rs. 10,45,903/- and the case was selected for scrutiny and order u/s 143(3) was passed at an income of Rs. 99,03,381/-. Addition of Rs. 1,09,49,284/- was deleted by Ld. CIT(A) by order dated 10.05.2013 in appeal no. 23/13-14. Subsequently, an information was received by Ld. AO from the office of DDIT (Inv.), Unit – V(2), New Delhi giving details and findings of search and seizure action carried out on K-World group on 05.04.20 12.
2.1 As per the information, the assessee company had awarded contracts during the F.Y. 2009-10 for leveling of agricultural land amounting to Rs. 5.81 crores to M/s. Dingle Buildcon Pvt. Ltd., one of the group concerns of K-World group which were further sub contracted by it to M/s. Seven Heaven Infrabuild Pvt. Ltd., M/s. Rachaita Buildcon Pvt. Ltd. , M/s. Ellora Buildcon Pvt. Ltd. and M/s. Anubhav Buildmart Pvt. Ltd. As per the information all these companies were controlled and managed by Sh. Anil Agarwal who was the entry operator who in his statement admitted that he is an entry operator and the companies being run by him. He also admitted that these companies are used for providing accommodation entries to his clients without any actual work being performed by these companies.
2.2 On the basis of material available on record, Ld. AO after recording reasons about escapement of income issued notice u/s 148 to the assessee to the assessee on 30.03.2017. Assessee filed objections against initiation of proceedings u/s 147/148 which were disposed off by order dated 6.11.2017. Ld. AO examined the P & L account of the assessee as on 3 1.03.2010 with regard to an amount of Rs. 27.55 crores incurred under the head job work charges (civil and others). On the basis of replies to the queries raised, the ld. AO issued show cause notice to the assessee that why the sum of Rs. 5.81 Cr. spent on job work for leveling of agricultural land for which the assessee company entered into an agreement with M/s. Dingle Buildcon Pvt. Ltd. and which was subsequently sub contracted to the alleged bogus entity controlled by Shri Anil Agarwal should not be disallowed and added to total income of assessee company. The assessee company claimed that it has no connection with the four sub contractors and assessee has not made any payment to these four sub contractors and that no expenditure is claimed on account of any payment to these four persons. It was also submitted that amount of Rs. 5,81,02,040/- against three bills of Dingle Buildcon Pvt. Ltd. has not been claimed as an expenditure. Since it is part of work in progress as evident from schedule 6 to balance sheet. Opportunity was also sought to cross examine Dingle Buildcon Pvt. Ltd.’s Director Sh. Anil Agarwal.
2.3 Ld. AO observed that assessee has not furnished details of job work done during the year under consideration, therefore notices were issued to the four companies u./s 133(6) of the Act which were received back un-served. Thereafter, Ld. AO relying statements of Sh. Anil Agarwal, Director of M/s. Dingle Buildcon Pvt. Ltd. Sh. J.L.Kesarwani, Director of M/s. Dingle Buildcon Pvt. Ltd. and Sh. Pankaj Jain, G.M. of K-World concluded that the identity and genuineness of the transaction was not established and that assessee had failed to discharge its burden. Ld. AO observed that assessee had failed to produce Directors of the 4 companies to whom payment of Rs. 5.81 crores for leveling of agricultural land was claimed. Thus, the addition of Rs. 58102040/- was made Ld.
3. Ld. CIT(A) had sustained the reasons to believe as stood recorded by Ld. AO. Further, on the basis of statements recorded u/s 132(4) of the Act he sustained the reasoning of the Ld. AO. Para 5 and 5.1 of his order, which are material are reproduced as below :-
“5. Ground numbers 5 and 6 relates to disallowance of Rs. 5.81 crore out of job work expenses. The main contention of the appellant before me was that the amount of Rs. 5.81 crore was not claimed as expenditure in Profit and Loss Account. While going through the audited Profit and Loss Account it has been observed that Rs. 27,55,47,550/- has been debited to Profit and Loss Account under the head ‘Job Work Charges (Civil & Other)’ which includes Rs. 5.81 crore. This is really astonishing to note that when expenditure is debited to Profit and Loss Account, how it can be said that the same has not been charged to the Profit and Loss Account. Anything which is debited to Profit and Loss account is a charge to revenue even if the same has been shown as “work in progress”.
5.1 Nothing has been submitted by the Appellant during the appellate proceedings to substantiate his claim for Rs. 5.81 crore under the head of ‘Job work’ charges. During the course of assessment proceedings assessee was required to produce directors of the company to whom payment was made, however the assessee failed to produce the directors of the company before AO. Even before me no details regarding expenses incurred on account of ‘Job work’ viz. copy of agreement executed with M/s. Dingle Buildcon Private Ltd, Khasra number and location of land where job work was done has been furnished before me. The appellant has not even submitted the area of land on which job work executed, nature of work, rate, how the amount of Rs. 5.81 crore has been arrived at, date when work was commenced, date on which the same was completed, details about material received at site, details of labour engaged at site by the Job worker, bill raised by the Job worker etc.”
4. The assessee is in appeal raising following grounds;
“1. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in holding that action u/s 14 7/148 has been legally taken.
2. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in holding that initiation of re assessment proceedings was fair and legal.
3. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in dismissing the ground of appeal of the assessee that action u/s 147/148 was legally incorrect in as much as there was no mention of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Hence 147 action is illegal and without any jurisdiction.
4. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in holding that addition of Rs. 5.81 cr. made by the AO was correct and justified.
5. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in rejecting the ground of the assessee that in reality there was no debit of expense of 5.81 cr since the same has been declared in the closing stock.
6. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in dismissing the appeal of the assessee.
7. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in holding that the expenses have been claimed by the assessee in the profit and loss account without considering and discussing the closing stock which includes the amount debited to the profit and loss account.
5. Heard and perused the record.
6. Arguments of Appellant.
Ground No. 1, 2 & 3; These grounds relate to erroneous assumption of jurisdiction while re-opening. Ld. Counsel submitted that the issue of reopening was already examined in the original assessment made u/s 143(3) where Ld. AO made addition of Rs. 1,09,49,284/- which was deleted by the Ld. CIT(A) vide order dated 10.05.2013. Revenue went in appeal to Hon’ble Tribunal which too dismissed the departmental appeal. Referring to PB 66-68 the assessment order dated 28.03.20 13 he submitted that one addition was made on the ground that assessee has not recognized the income in respect of receipt of Rs. 7,90,81,632/- with M/s Indu Project Limited. He referred to PB 69-73 which is the copy of appeal order from Ld. CIT(A) dated 10.05.2013 in which submission was made that for this work contract, expenses were also incurred which were shown in Work In Progress and neither expense nor revenue was recognised and such Work In Progress was carried as opening stock in next year and profit in relation to M/s Indu Project Limited was accounted for in AY 2011-12. This appeal was allowed. At PB 74-78 is the order of Hon’ble Tribunal in departmental appeal in which Hon’ble Tribunal on the same submissions dismissed the appeal of the revenue. He thus submitted that in view of the above facts, action of reopening is bad on the following counts:
i. The impugned matter was the subject matter of appeal and thus as per 3rd proviso to section 147 such matter could not be taken into for the purpose of the reopening as held in the case of Metro Auto Corporation vs. ITO & Ors., (2006) 286 ITR 618 (Bom).
ii. There was no income which was chargeable to tax in the instant case as the above orders would show that the expenses were part of closing Work In Progress and in this year there was no income resulting.
iii. It has been mentioned in the ‘reason’ recorded (PB 29-31) that Mr. J L Kesarwani, director of the M/s Dingle Buildcon Pvt. Ltd. and Sh. Pankaj Jain, G.M. (marketing & administration) of K-World group has admitted that the above expenditure in respect of such work was bogus and that contract received M/s Tele Tower was also bogus. Page 13-15 of the assessment order reproduces the statement of Mr. J L Kesarwani wherein there is no such admission as alleged.
(iv) There was no tangible fresh material with Ld. AO having live nexus to the belief that income chargeable to tax has escaped assessment. All that was available was some information from Ld. DDIT(Inv.), Unit V(2), New Delhi wherein allegation has been made that 4 entities namely, M/s Seven Heaven Infrabuild, M/s Rachaita Buildcon Pvt. Ltd., M/s Ellora Buildtech Pvt. Ltd. and M/s Anubhav Buildmart Pvt. Ltd. allegedly controlled by one, Sh. Anil Aggarwal are allegedly in the business of providing accommodation entries and the contract awarded by M/s Dingle Buildcon to these companies are bogus. However, this in itself is no material which could lead to belief that income chargeable to tax has escaped assessment in the hands of the assessee. It is pertinent to mention the said Sh. Anil Aggarwal and the companies allegedly controlled by him are stranger to assessee as assessee has neither entered into any transaction with any of entities mentioned by Ld. AO nor with said Sh. Anil Aggarwal. Moreover, there is no evidence brought on record to show that the work has been subcontracted by M/s Dingle Buildcon Pvt. Ltd. to the companies of Sh. Anil Aggarwal. Even if it has been so, then also, assessee cannot be held liable for the actions of a third person. Thus, it is humbly submitted that there was no material whatsoever with Ld. AO based upon which reasons to believe could be formed and the said reopening is merely on the basis of borrowed belief which is bad in law. He refered to PB 29- 31 which is the copy of reasons recorded. PB 34-39 is the copy of assessee ’s reply dated 30.1 0.2017 filed before Ld. AO on the above lines. PB 48-49 is the copy of assessee’s reply dated 21.12.2017 filed before Ld. AO submitting that assessee has no connection or relation whatsoever with the said subcontractors, no payment has been made to them and no expenditure has been claimed in respect of the said subcontractors.
(v) The case of assessee was originally assessed u/s 143(3) (PB 67-69) and the reassessment is initiated vide notice u/s 148 dated 30.03.201 7 (PB 28) and therefore, in the present case, limitation period for reopening was 4 year from the end of the relevant assessment year as per the 1st proviso to section 147 unless there is failure on part of assessee to disclose all material fact fully & truly. However, in the present case there is no failure on part of assessee to disclose all material fact fully & truly and further even in the reasons recorded (PB 29- 31) no specific allegation has been to this effect. Thus, in absence of a specific allegation the impugned reopening and re-assessment order so passed is barred by limitation and deserves to be quashed on this ground alone. He also refered to PB 48-49 is the copy of assessee ’s reply dated 21.12.2017 filed before Ld. AD submitting that there was no failure on part of assessee to disclose all material facts and further submitting that there is no specific allegation made in the reasons recorded as to what material facts has not been disclosed by assessee fully & truly and PB 51-63 is the copy of written submissions filed before Ld. CIT(A) submitting that reasons do not provide as to what are the facts which have not been disclosed by assessee.
6.1 Further reliance was placed on the following judicial decisions for the propositioin that such reasons based on incorrect fact cannot lead to valid reason and to the belief that income has escaped assessment:
