Nussli Switzerland Ltd. Vs ACIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal allowed the appeal of Nussli Switzerland Ltd. for Assessment Year 2011-12 by holding that the mandatory prior approval under section 153D of the Income-tax Act, 1961 was mechanical and demonstrated total non-application of mind. The appeal arose from the order dated 29.12.2017 of the CIT(A)-43, New Delhi, relating to an assessment order dated 30.05.2014 passed under section 144C read with sections 153A/143(3). The assessee had filed its return on 30.09.2011 declaring a loss of Rs.12,68,46,434/-. A search and seizure operation had been conducted on 19.10.2010. The assessee was one of the contracted parties engaged in work relating to development of sports venues for the Commonwealth Games held in Delhi in October 2010. Based upon enquiries and documents found and seized during the search, the Assessing Officer ultimately determined total income at Rs.432,19,54,890/-, which also included a transfer pricing adjustment under section 92CA.
The assessee had raised numerous substantive grounds challenging, inter alia, additions under section 69C, disallowances under section 37, the transfer pricing adjustment, rejection of the books of account and charging of interest under sections 234B, 234C and 234D. By way of additional grounds, however, the assessee challenged the assessment itself on the ground that requisite valid prior approval under section 153D had not been obtained and that the purported approval, if any, was mechanical and without application of mind. Since this issue went to the root of the assessment, the assessee requested that it be adjudicated before the other grounds.
The Tribunal first noticed a basic infirmity in the assessment order. At page 46, the Assessing Officer referred to an approval under section 153D dated 30.05.2014. The Tribunal found that no such approval had been accorded on that date. The actual approval by the Additional CIT, Central Range-04, Meerut was dated 14.03.2014. Thus, according to the Tribunal, the Assessing Officer had either quoted an incorrect date or substituted the date of the assessment order itself as the date of approval.
The Tribunal then examined the approval dated 14.03.2014 on its own terms. It found nothing in the approval showing whether the approving authority had considered seized documents, examined the appraisal report or considered the material upon which the additions to the assessee’s income had been proposed. Further, in the column relating to “Approval u/s”, the Additional CIT had mentioned sections “153A/144/144C”. The Tribunal treated these features as demonstrating total non-application of mind.
The Tribunal referred to the parameters stated by the jurisdictional Delhi High Court in Agroha Finance concerning what constitutes a valid statutory approval and observed that none of those parameters were reflected in the approval dated 14.03.2014. It therefore concluded that the approval under section 153D was vitiated because it had been accorded mechanically and without application of mind. Consequently, the Tribunal set aside and quashed the section 153D approval and, as a result, also set aside and quashed the assessment order dated 30.05.2014 under sections 143 read with 153A.
Since the assessee succeeded on this foundational legal ground, the Tribunal did not adjudicate the numerous remaining grounds concerning the substantive additions and disallowances. Those grounds were treated as academic and kept open. The assessee’s appeal was accordingly allowed.
Cases Discussed
- Agroha Finance — referred to for the parameters identified by the jurisdictional High Court concerning what constitutes a valid statutory approval; the Tribunal found those parameters absent from the approval dated 14.03.2014.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been preferred by the assessee against order dated 29.12.2017 of the ld. Commissioner of Income Tax(Appeals)-43, New Delhi, (hereinafter referred to as the (ld. CIT(A)), arising out of assessment order dated 30.05.2014 passed u/s 144C r.w.s. 153A/143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2011-12. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
2. The appellant assessee has raised following grounds of appeal:-
AGAINST ORDER U/S 144C r.w.s. 153A/143(3) OF THE INCOME TAX ACT, 1961
1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 144C r.w.s. 153A/143(3) and that too without assuming jurisdiction as per law and without obtaining valid approval as per law for making the impugned order.
1.1. That Ld. CIT(A) has erred in law in not quashing the assessment order on the ground that no valid prior approval u/s 153D of the Act has been received by the AO and in any case purported approval was without application of mind and therefore order of assessment is invalid.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of Rs.69,02,01,038/- fully as made by Ld. AO by treating it as alleged unexplained expenditure u/s 69C and further erred in sustaining the same to the extent of Rs.3,51,58,051/- by observing as under and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice:-
i. Out of addition of Rs. 32,34,483/- Ld. CIT(A) confirmed the addition of Rs.30,03,377-,
ii. Out of addition of Rs. 45,00,000/- Ld. CIT(A) confirmed the addition of Rs.10,47,600/-
iii. CIT(A) confirmed the addition of Rs. 3,11,07,074/- and that too without discussing the issue at all.
2.1. That in any case and in any view of the matter, action of Ld. CIT(A) in sustaining the action of Ld. AO in making addition of Rs.3,51,58,051/-u/s 69C, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.32,05,60,423/- by treating it as alleged unexplained expenditure u/s 69C and further erred in holding that assessee has earned an extra cumulative profit relied upon on comparative quotations that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
3.1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that in any case, the provisions of section 69C of the Act are not applicable especially when the expenses have been duly recorded and payment has been made from the books of accounts of the appellant and further, Ld. CIT(A) has also failed to appreciate crucial fact the vendors have also accounted for the said expenditure as income in their return of income and accepted as such.
3.2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.32,05,60,423/-u/s 69C, is bad in law and against the facts and circumstances of the case.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of Rs. 5,25,00,000/- fully as made by Ld. AO by not allowing the management consultancy fee paid u/s 37 and further erred in sustaining the same to the extent of Rs.1,47,62,000/- and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
4.1. That the learned CIT(A) has confirmed the addition without appreciating the facts that the Ld. Assessing officer has made the addition without granting any fair and meaningful opportunity and therefore the impugned addition so framed in a highly biased manner deserves to be deleted as such.
4.2. That in any case and in any view of the matter, action of Ld. CIT (A) in sustaining the action of Ld. AO in making addition of Rs.1,47,62,000/-u/s 37, is bad in law and against the facts and circumstances of the case.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.46,59,22,136/- on the total purchases and services made by M/s. Comfortnet Traders(I) Pvt. Limited on behalf of the appellant, including mark up of 20% by treating it as alleged unexplained expenditure u/s 69C and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
5.1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that in any case, the provisions of section 69C of the Act are not applicable especially when the expenses have been duly recorded and payment has been made from the books of accounts of the appellant and further, Ld. CIT(A) has also failed to appreciate crucial fact the vendors have also accounted for the said expenditure as income in their return of income and accepted as such.
5.2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.46,59,22,136/-u/s 69C, is bad in law and against the facts and circumstances of the case.
6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.2,19,27,355/- on account of licence fee paid for using the brand name “Nussli” by treating the same as non business expenditure and making addition u/s 69C and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
6.1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that in any case, the provisions of section 69C of the Act are not applicable especially when the expenses have been duly recorded and payment has been made from the books of accounts of the appellant and further, Ld. CIT(A) has also failed to appreciate crucial fact the vendors have also accounted for the said expenditure as income in their return of income and accepted as such.
6.2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has fail to appreciate that M/s. Nussli Invest has recorded the licence fee as income in their return of income and double addition is untenable in law.
6.3. That in any case and in any view of the matter, action of Ld. CIT (A) in confirming theaction of Ld. AO in making addition of Rs.2,19,27,355/-u/s 69C of the Act, is bad in law and against the facts and circumstances of the case.
7. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. A in making addition of Rs.2,89,45,143/- on account of salaries / remuneration paid to employees by treating it as alleged unexplained expenditure u/s 69C and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
7.1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that in any case, the provisions of section 69C of the Act are not applicable especially when the expenses have been duly recorded and payment has been made from the books of accounts of the appellant and further, Ld. CIT(A) has also failed to appreciate crucial fact the vendors have also accounted for the said expenditure as income in their return of income and accepted as such.
7.2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has fail to appreciate that the addition may not be initiated only on the basis of statement recorded during the course of search proceedings.
7.3. That in any case and in any view of the matter, action of Ld. CIT (A) in confirming the action of Ld. AO in making addition of Rs.2,89,45,143/-u/s 69C, is bad in law and against the facts and circumstances of the case.
8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the addition of Rs. 6,40,83,107/- out of amount of expenses of Rs.22,06,26,095/-against the payment made by the Head office of the Appellant, relating to expenses incurred by them on behalf of the appellant and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
8.1. That in any case and in any view of the matter, action of Ld. CIT (A) in sustaining the addition of Rs.6,40,83,107/-u/s 69C, is bad in law and against the facts and circumstances of the case.
9. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming action of Ld.AO in making an aggregate addition of Rs.89,32,03,950/- by treating it as alleged unexplained expenditure u/s 69C and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
9.1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that in any case, the provisions of section 69C of the Act are not applicable especially when the expenses have been duly recorded and payment has been made from the books of accounts of the appellant and further, Ld. CIT(A) has also failed to appreciate crucial fact the vendors have also accounted for the said expenditure as income in their return of income and accepted as such.
9.2. That in any case and in any view of the matter, action of Ld. CIT (A) in confirming the action of Ld. AO in making addition of Rs.89,32,03,950/-u/s 69C, is bad in law and against the facts and circumstances of the case.
9.3. That having regard to the facts and circumstances of the case, Ld. CIT(A) also erred in confirming the action of the Ld. AO in rejecting the books of accounts of the assessee and that too without any basis, material and evidence brought on record.
10. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.12,68,46,434/- by not allowing the loss claimed by the assessee u/s 37 and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
10.1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that the returned loss claimed in the return of income can not be disallowed especially when the return of income has been filed before the due date of filing of return and all other conditions also stood duly complied with.
10.2. That in any case and in any view of the matter, action of Ld. CIT (A) in confirming the action of Ld. AO in making addition of Rs.12,68,46,434/-u/s 37, is bad in law and against the facts and circumstances of the case.
11. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 19,62,79,381/- by treating it as alleged Transfer Pricing Adjustment and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
11.1. That in any case and in any view of the matter, action of Ld. CIT (A) in confirming the action of Ld. AO in making addition of Rs.19,62,79,381/-as transfer pricing adjustment is bad in law and against the facts and circumstances of the case.
12. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B, 234C and 234D of Income Tax Act, 1961.
3. The assessee has raised following additional grounds of appeal:-
1. That having regard to the facts and circumstances of the case, the impugned assessment order passed by Ld. AOu/s 144C/153A/143(3) is bad in law as the same has been passed without obtaining the requisite approval in terms of section 153D and in any case approval, if any, is mechanical without application of mind and is no approval in the eyes of law.
2. That in any view of the matter and in any case, the approval u/s 153D is bad in law.
4. The ld. Counsel for the assessee, Shri Rakesh Gupta, Sr. Advocate, requested for adjudication of its additional grounds of appeal first in preference to the other grounds of appeal raised. It was submitted that the issue of validity of approval u/s 153D raised through additional grounds of appeal goes to the root of the matter and hence deserves priority adjudication.
5. The ld. Counsel for the assessee invited our attention to the brief factual matrix of the case. It was submitted that the Return of Income declaring loss of Rs.12,68,46,434/- was filed by the assessee on 30.09.2011. The ld. Counsel further submitted that a search and seizure operation was conducted upon the assessee on 19.10.2010. As per the brief background of the matter, common wealth games were held in Delhi in October, 2010. The appellant assessee was one of the contracted parties to execute work concerning development of sports venues for common wealth events. Based upon the enquiries conducted, documents found and seized, the ld. Assessing Officer made additions to the returned income and finally determined total income of the assessee at Rs.432,19,54,890/- which also included transfer pricing adjustment u/s 92CA. The ld. Counsel drew our attention to the last page no.46 of the assessment order evidencing that the assessment order had the approval of Additional CIT, Central Range-4, New Delhi dated 30.05.2014 under section 153D of the Act. In furtherance of his arguments, the ld. Counsel drew our attention to the approval dated 30.05.2014 (supra) reproduced hereunder:-
6. Heard rival submissions in the light of material available on record.
7. The principal challenge raised by the appellant assessee is that the impugned approval u/s 153D is a mechanical approval bereft of any application of mind and hence deserves to be quashed. Citing references to the orders of the Tribunal as well as of the Hon’ble jurisdictional High Court, Shri Rakesh Gupta, argued that the assessment order u/s 153A r.w.s. 143(3) dated 30.05.2014 deserves to be quashed.
8. The ld. CIT-DR, Shri Mahesh Kumar, vehemently argued in favour of the approval u/s 153D of the Act submitting that no blame can be attached to the same being a mechanical approval. It was also suggested that the amendment has now taken place and also that Revenue has referred the issue to the special bench.
9. At the outset, we have noted from page-46 of the order of the ld. Assessing Officer that he has referred to some approval u/s 153D dated 30.05.2014 which was in fact never accorded. The correct date of the approval u/s 153D given by Ld. Addl. CIT, Central Range-04, Meerut was 14.03.2014. Thus, the order of the ld. Assessing Officer suffers from the basic infirmity of quoting wrong date of approval or rather substituting the date of assessment order as the date of approval u/s 153D of the Act.
10. Upon perusal of the impugned approval dated 14.03.2014, we have noted that the same does not alludes as to whether, the approval was accorded after consideration of any seized documents, examination of appraisal report etc. resting upon which the additions were made to the assessee’s total income. The charge of a mechanical approval is also evident from the fact that in the column concerning ‘Approval u/s’ the Addl. CIT has mentioned sections ‘153A/144/144C’. Thus, a case of total non-application of mind is abundantly made out. We have noted that the Hon’ble jurisdictional High Court in the case of Agroha Finance laid down parameters as to what will constitute a valid approval. We have noted that none of them have been found in existing approval dated 14.03.2014. Accordingly, we are of the considered view that the approval under section 153D dated 14.03.2014 was vitiated by virtue of being a mechanical approval accorded without any application of mind and therefore the same is set-aside and quashed. Accordingly, the assessment order u/s 143 r.w.s. 153A dated 30.05.2014 is also set-aside and quashed.
11. As the assessee has succeeded qua its additional ground of appeal on the issue of legal infirmity of approval u/s 153D, all other grounds raised by the assessee including those on merits of the addition have become academic in nature and hence been kept open.
12. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 29th July, 2026.
