2018 (9) TMI 1686 - AT - Income Tax

Disallowance of expenses - genuineness of expenditure - dispute settled by Court of Arbitration - Held that - Payments have been made through banking channel. From the details of expenses incurred by JBPL, exhibited elsewhere, it can be seen that all the payments have been made to Haryana Town and Planning Department. Thus, being statutory payments, their genuineness cannot be doubted. It would not be out of place to refer here that initially a dispute arose between the appellant and JBPL in relation to expenditure and the dispute was settled by Court of Arbitration, which held that this is the liability of the appellant-company, which has been discharged by JBPL. Interestingly, while framing the assessment in the case of JBPL for assessment year 2014-15, the Assessing Officer of JBPL has categorically held that expenses incurred by it has been reimbursed by the appellant company and hence the liability of JBPL seized to exist and the same is taxable u/s 41(1)(a) of the Act. The assessment order under consideration is dated 24.02.2014 and that of JBPL was framed on 29.12.2016 which means that it was passed subsequent to assessment order of the appellant company. The Assessing Officer of JBPL, while framing the assessment order in its case, has taken a clue from the arbitration award. The above facts clearly show that there was a liability of ₹ 53 crores which was discharged by the appellant company and claimed it as expenditure which it is lawfully entitled for. Both the lower authorities have grossly erred in not appreciating the facts in true perspective while making disallowance. Considering the facts of the case in totality, in our considered opinion, the assessee is entitled for deduction of ₹ 53 crores. We accordingly direct the Assessing Officer to allow the same. - Decided in favour of assessee Addition on account of failure by the assessee to prove the identity, credit worthiness and genuineness of the unsecured loans and advances received - Held that - The undisputed fact is that the loan liability amounting to ₹ 2.66 crores is coming from earlier years and therefore, provisions of section 68 do not apply on the brought forward balances. In so far as unsecured loan of ₹ 1 crore is concerned, the same is received from another group Krrish Reality Ventures Pvt. Ltd which was also subjected search and whose assessment has also been framed by the same Assessing Officer and in its case, transaction has been accepted. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). - Decided in favour of assessee

Issues Involved:

1. Disallowance of expense of ?53,00,00,000/- claimed as per Debit Note issued by M/s Jasmine Buildmart Private Limited.
2. Legality of the Assessment Order under section 153B(1)(b)/143(3) considering the impugned year as the year of search.
3. Addition of ?3.66 crores on account of failure to prove the identity, creditworthiness, and genuineness of unsecured loans and advances.

Issue-wise Detailed Analysis:

1. Disallowance of Expense of ?53,00,00,000/- Claimed as per Debit Note:

The assessee contended that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ?53,00,00,000/- claimed as per the Debit Note issued by M/s Jasmine Buildmart Private Limited (JBPL). The appellant argued that the payments were made through proper banking channels. The Tribunal examined the documentary evidence and found that the appellant had entered into a development agreement with JBPL, which included an agreement for the appellant to reimburse certain project-related expenses incurred by JBPL. The Tribunal noted that these documents were found during the search and seizure proceedings, indicating their authenticity.

JBPL had incurred significant expenses related to External Development Charges (EDC), Infrastructure Development Charges (IDC), and other project-related costs, which were reimbursed by the appellant through banking channels. The Tribunal found that the payments made by JBPL to the Haryana Town and Planning Department were statutory and genuine. Additionally, the Tribunal referred to an arbitration award that confirmed the appellant's liability for these expenses. The Tribunal also noted that the Assessing Officer of JBPL had acknowledged the reimbursement of these expenses by the appellant in JBPL's assessment order.

Based on these findings, the Tribunal concluded that the appellant was lawfully entitled to the deduction of ?53,00,00,000/- and directed the Assessing Officer to allow the same.

2. Legality of the Assessment Order under Section 153B(1)(b)/143(3):

The appellant raised additional grounds challenging the legality of the assessment order passed under section 153B(1)(b)/143(3), arguing that the impugned year was not the year of search. The Tribunal admitted these additional grounds as they went to the root of the matter. The Tribunal noted that the search and seizure action was conducted on the Krrish Group on 09.11.2011, and the seized documents were received by the Assessing Officer on 29.08.2013. According to the proviso to section 153C, the date of receiving the documents should be considered as the date of search.

The Tribunal found that the Assessing Officer had incorrectly proceeded on the premise that the assessment year under consideration was the year of search. The correct assessment year should have been 2014-15, making the year under consideration one of the six assessment years to be considered in cases of search. The Tribunal noted that no notice under section 153C was issued to the assessee, which was mandatory for initiating proceedings. The Tribunal referred to similar cases within the Krrish Group, where the absence of notice under section 153C led to the quashing of the assessment orders.

Based on these findings, the Tribunal quashed the assessment order, declaring it void, illegal, and bad in law.

3. Addition of ?3.66 Crores on Account of Unsecured Loans and Advances:

The Revenue appealed against the deletion of the addition of ?3.66 crores made by the Assessing Officer due to the assessee's failure to prove the identity, creditworthiness, and genuineness of unsecured loans and advances. The Tribunal noted that ?2.66 crores of the loan liability were brought forward from earlier years and could not be added under section 68 for the year under consideration. The remaining ?1 crore was received from Krrish Reality Ventures Pvt. Ltd., a part of the Krrish Group, which was also subjected to search proceedings.

The Tribunal found that the identity of the creditor was established, and the transaction was accepted in the assessment of Krrish Reality Ventures Pvt. Ltd. Therefore, the Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the deduction of ?53,00,00,000/- and quashed the assessment order due to the absence of a mandatory notice under section 153C. The Tribunal dismissed the Revenue's appeal concerning the addition of ?3.66 crores, upholding the deletion by the Commissioner of Income Tax (Appeals).

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