2024 (3) TMI 1199 - AT - Income Tax

Validity of assessment order passed u/s 153C/143(3) against Settlement Commission order - as submitted assessee JV had carried out one single contract during the relevant year and that the Settlement Commission had finally settled the taxable income for AY 2013-14 qua such contract undertaken for UMC and that the final assessment order pursuant thereto had been passed by the AO, thus no further income in relation to the same contract could be again re-assessed by the AO - HELD THAT - Section 153A or 153C of the Act, is overriding only Sections 139, 147, 148, 149, 151 153 of the Act. As rightly pointed out by the Ld. AR, it does not override the specific provision of Section 245-I of the Act, which provides that the orders passed by the ITSC shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in that Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force. In this regard, we take note of the legal maxim expressio unius est exlcusio alterius, which means that express mention of one is the exclusion of other GVK Industries Ltd 2011 (3) TMI 1 - SUPREME COURT . Since Section 153A overrides only the specific provisions, as stated hereinabove, then it clearly means that provisions of Section 245-I has been excluded and that it has not been overridden by Section 153A of the Act. We therefore hold that the AO erred in law by reopening the assessment for AY 2013-14 and made addition u/s 153C of the Act, which assessment had already been concluded and settled by ITSC, Mumbai, whose order had attained finality. Thus orders passed u/s 153C/153A/143(3) is held to be impermissible in law and is accordingly all additions made therein also stands deleted. - Decided in favour of assessee. Bogus purchases - payments made to the thirty (30) vendors were fake - HELD THAT - Analysis and the inference drawn by the AO is found to be actionable. This analysis was however only the starting point of investigation. The Revenue however ought to have brought on record further corroborative material to support their analogy that the entire value of these payments had come back and remained unaccounted in the hands of the assessee. We take note of the fact that, the assessee had provided the relevant supporting evidence such as invoices, ledgers, proof of payments etc. which it was ordinarily required to substantiate the genuineness of these purchases. Also, there was no statement made by any Directors of the assessee Group averring that these payments found noted on these loose papers were not genuine. However, at the same time, none of these parties complied with the enquiries made by the AO. None of them provided their work orders, financials, audit reports, details of expenses incurred, bank statements etc. to justify the work done for the assessee. Amongst the thirty (30) parties, Shri Gursahani who represented six (6) parties attended the enquiry and admitted to undertaking work viz., providing labour to the assessee but was unable to provide any of the details as sought by the AO and the reason given by him was theft, for which copy of FIR was provided. The fact however remains that, independent enquiries from the vendors could not be made. Overall therefore, we are in agreement with the Ld. CIT(A) to the extent that the assessee was unable to fully discharge the genuineness of these payments made to the thirty (30) vendors. Estimation of income on Bogus purchases - Only the profit element embedded in the payments ought to be assessed to tax and that on the given facts, the disallowance of entire value of purchases was unwarranted. Following the above order of ITSC and having regard to the fact that the same contract was continued in the relevant AY 2014-15, we hold that the profit of the assessee for the year is to be estimated at 8% of the contractual receipts. The Ld. AR had pointed out to us that, the assessee had offered 8% of contractual receipts in the return of income filed u/s 153C of the Act. The AO is accordingly directed to verify this contention and ensure that the total income is finally assessed at 8% of the contractual receipts for the relevant AY 2014-15. With these directions, these grounds are disposed off. Disallowance of contractual payments - AO had disputed the genuineness of the contractual payments made by the assessee to IDCC - HELD THAT - IDCC had regularly filed their service tax returns and VAT Audit reports and that it had fully discharged its service tax and VAT liabilities levied on their invoices to the credit of the Government. Having perused the financials of IDCC, we note that it has reported substantial turnover in excess of several hundred crores in AYs 2013-14, 2014-15 2015-16 respectively. The audited financials reveal that IDCC is a fully functioning company engaged in rendering contractual services. CIT(A) is also noted to have taken cognizance of the income declared by IDCC across various assessment years of the appellate order, which showed that IDCC was declaring substantial income each year and therefore lacked the characteristics of a paper/shell entity as alleged by the AO. It is further noted that the AO was unable to find any defect in any of these documents. Even before us, the Revenue was unable to point out any specific infirmity in these evidences furnished by the assessee and IDCC, which demonstrated the genuineness of the payments made towards sub-contract charges. Payments made to IDCC was genuine and the AO is held to be unjustified for disallowing the same. Unexplained cash credit in the hands of the assessee JV - principle of telescoping - protective addition - HELD THAT - Same income should not be taxed twice i.e. once at the time of generation and thereafter at the time of application for routing back into the business. The said principle would equally apply where the cash generated by business concerns are routed through partners/directors - JV partners had disclosed income in the hands of the assessee JV before the ITSC, Mumbai and such additional income represented the intangible addition / secret profit, which applying the judicially approved principle of telescoping, could be set off against any unexplained money/investment found by the Revenue. Since the additional income offered to tax in earlier years was sufficient to cover such cash investment alleged to have been made by JV partners, no separate protective addition was required to be made in the hands of assessee JV. Accordingly, the appeal of the Revenue is dismissed.

Summary

Issues Involved:

1. Legal validity of the assessment order for AY 2013-14.
2. Disallowance of bogus purchases for AYs 2014-15 and 2015-16.
3. Disallowance of sub-contract payments to IDCC for AYs 2014-15 and 2015-16.
4. Protective addition of unexplained cash credit for AY 2017-18.

Summary:

1. Legal Validity of the Assessment Order for AY 2013-14:

The Tribunal held that the assessment year covered by an order of settlement cannot be reopened under sections 148, 153A, or 153C. The assessee had already settled its income for AY 2013-14 with the Income-tax Settlement Commission (ITSC), which had attained finality. The AO's action of reopening the settled income was deemed impermissible in law. Consequently, the impugned order dated 30.12.2019 passed u/s 153C/153A/143(3) was quashed, and all additions made therein were deleted. Ground No. 2 of the assessee's appeal was allowed, rendering other grounds academic and dismissed as infructuous.

2. Disallowance of Bogus Purchases for AYs 2014-15 and 2015-16:

The AO had disallowed the entire value of purchases from thirty vendors, suspecting them to be bogus. The Ld. CIT(A) upheld the finding of bogus purchases but restricted the addition to 15% of the contractual receipts, considering only the profit element. The Tribunal agreed with the CIT(A) that the entire value of payments could not be disallowed and that only the profit element embedded in the payments should be taxed. It directed the AO to assess the profits of the assessee at 8% of the contract receipts for both AYs 2014-15 and 2015-16, following the ITSC's earlier order.

3. Disallowance of Sub-Contract Payments to IDCC for AYs 2014-15 and 2015-16:

The AO disallowed payments made to IDCC, suspecting them to be bogus. The Ld. CIT(A), after analyzing the evidence, concluded that the payments were genuine and deleted the disallowance. The Tribunal upheld the CIT(A)'s findings, noting that the AO's interpretation of the seized documents was incorrect and that the payments were substantiated by contemporaneous evidence. The appeal of the Revenue on this ground was dismissed.

4. Protective Addition of Unexplained Cash Credit for AY 2017-18:

The AO made a protective addition of Rs. 8,00,00,000/- as unexplained cash credit based on certain seized documents. The Ld. CIT(A) allowed the telescoping benefit of additional income offered in earlier years against this cash investment. The Tribunal upheld the CIT(A)'s decision, applying the principle of telescoping, and held that no separate protective addition was required. Consequently, the appeals of both the Revenue and the assessee on this ground were dismissed.

Conclusion:

All the appeals of the Revenue were dismissed. The appeal of the assessee for AY 2013-14 was allowed, for AYs 2014-15 and 2015-16 were partly allowed, and the appeal for AY 2017-18 was dismissed.