Sahara India Power Corporation Limited Vs ACIT (ITAT Delhi)
ITAT Delhi held that as the original return was only processed u/s 143(1), AO can duly initiate re-opening of proceedings under section 147 of the Income Tax Act so as to bring the escaped income into tax.
Facts- The facts of the issue are that the assessee has challenged the proceedings under Section 147 of the Income Tax Act on various legal grounds, particularly the issue of notice under Section 148 even when the time limit for the proceedings under Section 143(3) of the IT Act had not expired.
In this regard, the submission of the assessee are that in this case the return of income was filed on 31.10.2005. The said return was processed under Section 143(1) of the Income Tax Act. Thereafter, on 02.02.2006 notice under Section 148 of the Income Tax Act was issued on the appellant.
As per the proviso to subsection (ii) of Section 143(2) AO had the power to issue a notice u/s. 143(2) of the Income Tax Act within a period of 12 months from the end of the month in which the return was furnished by the assessee. Since in this case the return was furnished on 31.10.2005 a notice under section 143(2) could have been validly issued by the Assessing Officer on the same return filed which was pending before him up to 31.10.2006. Instead of issuing a notice u/s. 143(2) AO had issued a notice u/s. 148 of the Income Tax Act. Therefore, there is no justification at all for initiation of the proceedings u/s. 147 of the Income Tax Act more particularly when the department had sufficient time available to make regular assessment of the appellant on the basis of return which was filed therefore, the notice issued u/s. 148 of the Income Tax Act is void ab-initio.
Conclusion- In the present case, the original return was only processed u/s 143(1) of the Act and there was no original assessment. The AO rightly recorded the reason that reopening of assessment so as to bring the escaped income into tax. There is no dispute with regard to this. The notice issued by AO u/s 147 r.w.s. 148 of the Act is not time barred on the reason that the AO has not initiated the proceedings by issue of notice u/s 143(2) of the Act.
We do not find any infirmity in reopening assessment by issuing notice u/s 148 of the Act though there was time available to issue notice u/s 143(2) of the Act to frame regular assessment and framing assessment u/s 143(3) r.w.s. 147 of the Act. Accordingly, we reverse the order of the Ld. CIT(A) on this issue and allow the Ground of Appeal of the Revenue.
FULL TEXT OF THE ORDER OF ITAT DELHI
The ITA No. 109/Pun/2007 & ITA 1155/Del/2009 are relate to assessment years 2003-04 & 2004-05 filed by the assessee directed against order of CIT(A) dated 23/10/2006 and 13/01/2009 respectively. The appeal in ITA No.5067/Del/2013 filed by revenue and C.O. 55/Del/2014 filed by the Assessee for the assessment year 2005-06 are directed against order of the CIT(A) dated 27/06/2013. Since the issues in all these assessment years are common in nature, hence, they are clubbed together, heard together and disposed of by this common order for the sake of convenience.
2. The grounds in assessment year 2003-04 in ITA No. 109/PUN/2007 filed by the Assessee are as follows:
1. That the Learned CIT(A) is not justified in confirming the addition of Rs.32,11,500/-made by the Learned Assessing Officer by treating the advance received by the appellant from Sahara India Commercial Corporation Limited as taxable receipt.
2. That the Learned CIT(A) has not correctly appreciated the facts and circumstances of the case, the terms of the agreement entered into between the appellant company and M/s. Sahara India Commercial Corporation Limited and the nature of work involved against which advance was received by the appellant company which in the hands of the appellant company was utilized for work in progress and there was no justification in subjecting the difference between the two amounting to Rs.32,11 ,500/- to tax as income.
3. That the Learned CIT(A) has failed to appreciate that there was no accrual of income till the work of preparation of feasibility reports, layout, plans etc. contracted with M/s. Sahara India Commercial Corporation Limited was complete in the hands of the appellant company as total investments made by sub-contracting and making payment to EDCL and EDCL-PPL the sub-contractors was in the nature of work in progress and, therefore, there was no justification in subjecting an hypothetical income which had neither accrued nor arisen to tax.
4. That the Learned CIT(A) is not justified in confirming the addition of Rs.27,625/- made by the learned Assessing Officer against the second aspect of the work as per agreement which –was subcontracted to Cummins Diesel Sales and Services (India) Limited.
5. That the Learned CIT(A) is wrong in holding that the difference between the total payment made and the total sum received tantamounted to income in the hands of the appellant company as the sum paid included advance also to the sub-contractors, therefore on the facts and circumstances of the case there was no justification in confirming the addition of Rs.27,625/- in the hands of the appellant.
6. That in any view of the matter the Learned CIT(A) has not correctly appreciated the facts and circumstances of the case, the terms of MOU between the appellant company and M/s. Sahara India Commercial Corporation Limited, the nature of work which was executed pursuant to the agreement and the explanations submitted during the course of assessment proceedings as well as appellate proceedings and is wrong in confirming the additions made by the Ld. Assessing Officer.
7. That the order passed by the Learned CIT(A) is without proper opportunity and bad in law.
8. That the order passed by the Learned CIT(A) is against the merits, circumstances and legal aspects of the case.
9. That the appellant craves leave to add, alter, amend or withdraw any or all the grounds of appeal on or before the date of hearing.
3. The grounds in assessment year 2004-05 in ITA No. 1155/Del/2009 filed by the Assessee are as follows:
1. That the learned CIT(A) is not justified in confirming the addition of Rs 40,48,500/-made by the Learned Assessing officer by treating the advance received by the appellant from Sahara India Commercial Corporation Limited as taxable receipt.
2. That the Learned CIT(A) has not correctly appreciated the facts and circumstances of the case, the terms of agreement entered into between the appellant company and M/s Sahara India Commercial Corporation Limited and the nature of work involved against which advances was received by the appellant company which in the hands of the appellant company was utilized for work in progress and there was no justification in subjecting the difference between the two amounting to Rs 40,48,500/-to tax as income.
3. That the Learned CIT(A) has failed to appreciate that there was no accrual of income till the work of preparation of feasibility reports, lay-out, plans etc. contracted with M/s Sahara India Commercial Corporation Limited was complete in the hands of the appellant company as total investment made by sub-contracting and making payment to EDCL and EDCL-PPL the sub-contractors was in the nature of work in progress and, therefore, there was no justification in subjecting an hypothetical income which had neither accrued nor arisen to tax.
4. That the Learned CIT(A) is not justified in confirming the addition of Rs 7,541/- made by the Learned assessing officer against the second aspect of the work as per agreement which was sub contracted to Cummins Diesel Sales and Service (India) Limited.
5. That the Learned CIT(A) is wrong in holding that the difference between the total payment made and total sum received tantamounted to income in the hands of the appellant company as the sum paid included advance also to the sub-contractors, therefore on the facts and circumstances of the case there was no justification in confirming the addition of Rs 7,541/- in the hands of the appellant.
6. That in any view of the matter the Learned CIT(A) has not correctly appreciated the facts and circumstance of the case, the terms of MOU between the appellant company and M/s Sahara India Commercial’ Corporation Limited, the nature of work which was executed pursuant to the agreement and the explanations submitted during the course of assessment proceeding as well as appellant proceedings and is wrong in confirming the addition made by the Ld. Assessing Officer.
7. That the order passed by the Learned CIT(A) is without proper opportunity and bad in law.
8. That the order passed by the Learned CIT(A) is against the merits, circumstance and legal aspects of the case.
9. That the appellant craves leave to add, alter. Amend or withdraw any or all the grounds of appeal on or before the date of hearing.
4. The grounds in Revenue’s appeal for assessment year 2005-06 in ITA No. 5067/DEL/2013 are as follows:
1.“The CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case the Ld. C1T(A) has erred in cancellation of assessment order passed by AO in response to proceedings initiated u/s 148 of IT Act whereas at the same time he has uphold the addition on merit and treated the initiation of proceeding u/s 147/148 as void, which was taken by AO well within the time and well founded.
3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
5. The grounds in Assessee’s Cross Objection for assessment year 2005-06 in C.O. No. 55/Del/2014 are as follows:
“1. That the ld. CIT(A) is fully justified in canceling the order passed under section 143(3) read with section 147 of the Income Tax Act on the facts and circumstances of the case as well as in law.
2. That without prejudice the ld. CIT (A) is not justified in confirming the action of the Assessing Officer in subjecting to tax on hypothesis by making up 10% over the payment made by the respondent to various parties for power project work amounting to Rs.3,00,19,717/- which was debited to work in progress and treating the same as income of the respondent of the year under appeal.
3. That without prejudices the ld. CIT(A) has erred in law and on facts of the case in making up payment of Rs. 4,47,52,000/- made to EDCL-PPL and subjecting the said mark up of Rs. 44,75,200/- to tax on hypothesis and surmises without any material on record.
4. That without prejudices the ld. CIT(A) has erred in law and on facts and circumstances of the case in recasting the income and expenditure account of the respondent and working out profit of Rs.78,43,649/- as against Rs.5,58,927/- shown by the respondent.
5. That without prejudices the ld. CIT(A) has erred in law and on facts of the case in not appreciating that the agreement entered into by the appellant with M/s. Sahara India Commercial Corporation Limited stood terminated with effect from 30.09.2005 and consequent thereto no income has accrued to the appellant which has been subjected to tax on hypothesis and surmises.
6. That the ld. CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs.1,38,04,350/- under section40(a)(ia) of the Income Tax Act and concurring with the observation of the Assessing Officer that the deduction of payment will be available to the respondent in the subsequent year, i.e. A.Y.2006-07.
7. That the Id. CIT (A) has erred in law and fact and circumstances of the case in not treating the amendment brought by the Finance Act 2008 to be in the nature of curative amendment having retrospective effect and thereby confirming the addition under section 40(a) (ia) of the Income Tax Act.
8. That the respondent craves leave to add, alter, amend or withdraw any or all the grounds of cross-objection on or before the date of hearing.”
6. First, we will take up Assessee’s appeals in ITA Nos. 109/Pun/2007 & 1155/Del/2009 for assessment years 2003-04 & 2004-05. As the issues involved in both the Appeals are identical, for the sake of convenience we will consider the facts in the assessment year 2003-04.
7. The facts of the case from the assessment order are that the assessee entered into contract with Sahara India Commercial Corporation Ltd. (SICCL) which is developing and managing Amby Valley project near Lonavala for energy management and maintenance of the above referred valley effective from the month of September 2002. The return of income was filed at Rs.4,68,545/-on account of interest from FDRs against which an expenditure of Rs.4,02,057/- was claimed. The assessee had already entered into a MOU with Energy Development Corporation Ltd. (EDCL) on 05/04/2002. The said agreement was further entered into with EDCL Power Project Ltd. w.e.f. 01/11/2002 wherein it was stated that M/s SICCL was developing a township in the state of Maharashtra and it had entered into an agreement with the assessee for assessing, planning, designing procuring, constructing and managing generating stations, existing and future, their operations and maintenance, transmission and distribution of electricity in Amby Valley and all its future projects. The assessee also entered into a contract with Cummins Diesel Sales & Services India Ltd (CDSSL) for providing after sales services to Cummins Engines and parts thereof and diesel generating sets fitted with Cummins engines installed in Amby Valley from 5’h July 2002. It was seen by the Assessing Officer that advance of Rs.21,05,000/- was given to M/s CDSSL while a bill of Rs.2,49,645/- was shown as payable under the head current liabilities and provisions. The assessee filed a revised return on 11/03/2005 declaring an additional income of Rs.1,82,875/. It was stated that the necessity of revising the return had arisen because during the finalization of accounts for the A.Y.2004-05, it was noticed that certain income which related to A.Y.2003-04 had incorrectly been received and accounted for in A.Y.2004-05. The Assessing Officer, however did not agree that the revised return was filed during the finalization of the accounts of A.Y.2004-05 as the return for that assessment year had already been filed on 1.12.2004 whereas the revised return was filed on 11.3.2005. Later on, the additional income declared in the revised return was explained in so far as a bill dated 1.10.2003 was raised by the assessee on SICCL “being the services rendered for period 5.3.2003 to 4.4.2003 for the operations and maintenance of DG set at Amby Valley as per the contract between the SICCL and SICCL”. An amount of Rs.19,25,000/- was increased to 109.5% and the amount was arrived at Rs.21,07,875/-. It was stated that a bill was raised by M/s Cummins Diesel Sales and Services during the year 2002-03 amounting to Rs.19,25,000/- and since the assessee was to receive 10% of the total project as per clause 8 of the agreement between assessee and SICCL the amount was increased and the prior period income(net) of Rs.1,82,875/- was shown over and above the income already declared in the assessment year under consideration.
8. The Assessing Officer verified from CDSSL and found certain discrepancies in the amount of payments made to them. According to CDSSL an amount of Rs.21,02,042/- was received by them in view of various invoices raised by them whereas in the balance sheet an advance of Rs.21,05,000/- was shown to M/s. CDSSL (incorrectly shown as Rs.2,08,00,000/- by the Assessing Officer in para 7 of the assessment order). It was stated by the assessee that M/s. CDSSL was to be paid Rs.2,75,000/- per month and mobilization advance ofRs.2 lakhs which was to be adjusted from the 7thRA bill of Rs.20,000/- per month. The total amount said to have been paid as per page 7 of the assessment order was Rs.21,05,000/-. The Assessing Officer wondered as to how Rs.2,49,645/- was shown as expenditure payable in the balance sheet and as to how the assessee had arrived at a figure of Rs.19,25,000/- while working out additional income. The Assessing Officer further noted that since bill of Rs.21,07,875/- has been issued to SICCL, the same is not reflected in the amount receivable from SICCL and M/s SICCL is not shown as sundry debtors in the books of SICCL. On the basis of the above, the Assessing Officer stated that these payments were reflected as advance in the return while those were not advances but payments made on account of bills raised by M/s CDSSL as M/s CDSSL furnished the details of 7 invoices raised amounting to Rs.2,75,000/-each. It was held that assessee was entitled for minimum consultancy charges of 10% on Rs.21.02,042/-. An addition of Rs.27,625/- was made to the income of the assessee.
9. Regarding the contract given to EDCL/EDCL Power Project Ltd. to whom advance of Rs.2,08,00,000/- and Rs.1,13,15,000/- had been given for services already referred above as on 31/3/2003, it was stated that the bills which were raised by EDCL/EDCL Power Project Ltd. on the assessee were for various feasibility reports, assessment of the power requirement, setting up of transmission and distribution network, their plans and layouts etc. It was stated that the work carried out was in the nature of WIP in the hands of the assessee asthe assessee company was to be reimbursed only 10% of the actual expenditure incurred pursuant to clause 8 of the agreement of the assessee with SICCL. Till such time the work was completed, the assessee was not in position to know as to what was the total expenditure on the project and, therefore, the entire expenses in relation thereto stood capitalized by the assessee under the head WIP. It was stated that due to accounting mistake the payment made to EDCL were shown as advance but the mistake stood rectified in the subsequent year where these payments have been transferred to WIP. The Assessing Officer, however, did not agree to the contention of the assessee and after referring to the terms and conditions between the assessee and SICCL that the assessee shall be reimbursed all its actual expenses incurred for operation and maintenance of existing facilities on actual basis and shall be paid consultancy charges also came to the conclusion that income had actually accrued to the assessee. The Assessing Officer found that no payment had been made by SICCL to assessee since the assessee had not raised any bills on SICCL. He proceeded to reject the contention of the assessee that the amount can be received only when the final reports are submitted by the assessee to SICCL since in the contract there was no mention that the payment will be made only on completion of the project and that SICCL will not make any payment on non fulfillment of the agreement. Non raising of the bill by the assessee, according to the Assessing Officer, does not entitle the assessee to claim the same as WIP. The Assessing Officer also gave an illustration wherein he mentioned the case of M/s Raj Promoters and builders who were contractors of SICCL and sub contractors of Gora Projects Ltd., a contractor of SICCL. M/s Raj Promoters & Builders have issued running bills to Gora project ltd. and also to SICCL. The Assessing Officer was also aware that assessee though closely related to SICCL were independent legal entities. CDSSL & EDCL/ EDCL PPL had already raised bills on assessee. It meant that certain amount – of work had already been crystallized and was quantifiable. As to why no bill had been raised by the assessee especially when no mobilization advance had also been received was instrumental in persuading the Assessing Officer to hold that the assessee had not raised any bills on SICCL only to reduce the incidence of income during the year. The discussion on the issue was summarized as under:
“SIPCL is a contractor of SICCL SIPCL has sub contracted the work to Cummins and EDCL
Cummins and EDCL raised bills of work done by them for SIPCL SIPCL has made the payment to Cummins and EDCL
For the bill raised by Cummins, SIPCL has raised the bill on SICCL and shown income on it @ 10%
However, SIPCL had not raised any bill for work done by EDCL/EDCL PPL on SICCL
Once EDCL/EDCL PPL and Cummins (sub contractors of SIPCL) have raised a bill on it, it has to raise a running bill to SICCL as per agreement of contract. WIP shall be in respect of any work for which Cummins and EDCL has not raised the bill but they have done the work. However, there is no such pending work for which bill is yet to be raised by sub-contractors. Non issue of the bill by SIPCL does not entitle the assessee to claim the same as WIP.”
10. On the basis of above, it was held that assessee has not shown the income which has actually accrued to it. As per the contract between SICCL and the assessee the assessee is entitled to consultancy charges subject to maximum of 10%. The assessee had made payments of Rs.3,21,15,000/- to EDCL/EDCL-PPL. The Profit & Loss account and balance sheet were re-casted by the Assessing Officer as given on page 13 of the assessment order and the income was assessed at Rs.34,88,488/-.
11. The facts in assessment year 2004-05 are similar that of Assessment Year 2003-04 except the differences in the denominations.
12. The crux of the various grounds raised by assessee in the Assessment Year 2003-04 are with regard to treating of the advance paid to SICCL – Rs.21,05,000/-, EDCL Power Corporation – Rs.2,08,00,000/- and EDCPL – Rs.1,13,15,000/-. The lower authorities are of the opinion that amount advanced the said parties are towards the work done by them on behalf of the assessee in respect of contract undertaken by assessee with SIPCL. The ld. AO found that SIPCL is a contractor of SICCL and observed as under:
