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TMI Blog2014 (9) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... egal issues have not been dealt in detail by the CIT(A) - there was inadequate opportunity to the assessee at the level of the CIT(A) for making the enhancements of income – thus, the matter is to be remitted back to the AO for fresh adjudication. Addition of bogus purchases disallowed - Held that:- CIT(A) has made certain observations while confirming the disallowance which were not confronted with the assessee - CIT(A) has not made anything clear with regard to the names of the suppliers whose premises were covered in search operation - What evidences were gathered with regard to the accommodation entries is also not clear - The issue regarding the non-substantiating the purchases by the sister concerns was never confronted to the assessee – thus, the matter is to be remitted back to the AO for fresh adjudication. Deduction u/s 80IB - profit derived from Jammu Unit – Opportunity of being heard not provided - Held that:- The issue was decided without providing adequate opportunity of being heard to the assessee - adverse observations were also not confronted with the assessee – thus, the matter is to be remitted back to the AO for fresh adjudication. Deduction u/s 80IA – ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28.4.2010 and the assessments for A.Y. 2004-05 to 2009-10 were finalized u/s 143(3)/153A of the Income Tax Act, 1961 on 29.12.2011 and assessment for AY 2010-11 was made u/s 143(3), wherein the claim made u/s 80IA and 80IB were disallowed. Preliminary expenses were also disallowed. In some of the years additions were also made on account of rotating entries of purchases of assets of the companies and bogus purchases. Disallowances were also made for not allowing deduction u/s 10A of the Act. Most of the grounds in all these appeals are common. However, in certain years some grounds are different, however, for the sake of convenience and brevity all these appeals are being disposed off by this common order. The grounds of appeal for assessment year 2004-05 in ITA No. 4888/D/2013 read as under: 1) (A) 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 disallowing the deduction u/s 80IA amounting to ₹ 3,88,42,563/- as claimed by the assessee and that too by recording incorrect facts and findings and without considering the submissions of the assessee and without bringing any advers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice, more so when such disallowance could not have been made in the proceeding u/s 153A. 4. That having regard to the facts and circumstances of the case, the 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 143(3)/153A without assuming jurisdiction as per law, more so when no incriminating material was found and seized as a result of search and without obtaining requisite approval as per law and without complying with the other mandatory conditions envisaged under the Act. 5. That in any case and in ay view of the matter action of ld. AO in framing the impugned assessment order is contrary to law and facts, void ab initio, beyond jurisdiction and the same is not sustainable on various legal and factual grounds. 6. Without prejudice to the above grounds, additions/disallowances could not be made in the present appeal because no incriminating material has been found as a result of search. 7. That having regard to the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in charging interest 234A and 234B of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AO fully and has further erred in enhancing the income of assessee is bad in law and against the facts and circumstances of the case and beyond the scope and jurisdiction of the impugned assessment order. 5. That having regard to the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in assuming jurisdiction to enhance and has erred in enhancing the income of ₹ 1,94,51,000/- on account of alleged unaccounted cash and that too by recording incorrect facts and findings and without considering the submissions of the assessee and without bringing any adverse material on record and without observing the principles of natural justice, more so when such enhancement could not have been made in the proceeding u/s 153A. Grounds no. 4 5 of ITA No. 4894/D/2013: 4(A) That having regard to the facts and circumstances of the case, the ld. CIT(A) has erred in law and facts in not reversing the action of ld. AO in deleting the disallowance of ₹ 24,73,12,669/- fully on account of interest expenses u/s 36(1)(iii) and has further erred in sustaining the disallowance to the extent of ₹ 1,61,83,397/- and that too by recording incorrect fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by AO on account of alleged low profit by rotating entries of purchase/sales within group companies. Grounds of ITA No. 5162/D/2013: 1. The order of ld. CIT(A) is not correct in law and facts; 2. On the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of ₹ 16,90,09,870/- made by AO on account of alleged low profit by rotating entries of purchase/sales within group companies. Grounds of ITA No. 5163/D/2013: 1. The order of ld. CIT(A) is not correct in law and facts; 2. On the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of ₹ 122,55,97,901/- made by AO on account of alleged low profit by rotating entries of purchase/sales within group companies. Grounds of ITA No. 5164/D/2013: 1. The order of ld. CIT(A) is not correct in law and facts; 2. On the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of ₹ 68,66,567/- made by AO on account of disallowance of expenses relating to External Commercial Borrowing (ECB); 3. On the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of ₹ 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, the ld. CIT(A) has erred in law and on facts in not reversing the action of ld. AO in making addition of ₹ 1,05,455/- on account of transaction made with M/s XL Telecom Energy Ltd. (Purchases/Sales) by wrongly observing it as sham transaction and impugned addition has been made that too without considering the facts and circumstances of the case and without giving adequate opportunity of hearing. 2. That in any case and in any view of the matter, action of ld. CIT(A) in not reversing the action of ld. AO in making the impugned addition of ₹ 1,05,455/- is bad in law and against the facts and circumstances of the case 3. That the cross objector craves the leave to add, amend, modify, delete any of the grounds of cross objection before or at the time of hearing. 8. After hearing arguments, counter arguments and rejoinders raised by ld. AR, Shri Gupta and by ld. CIT(DR) with respect to the various grounds in various years, we decide the issues as under: 1. With regard to the disallowance of preliminary expenses aggregating to ₹ 667532/- which is issue in all the assessment years it was argued that no incrementing document was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such interest. The assessee has not transferred any funds to its sister concerns but these were debits as a result of sale in the ordinary course of business. The amount was not a loan. Further, the payments made against these purchases were not out of interest bearing borrowed funds. He pleaded that such disallowance should not have been made. On the other hand, ld. CIT(DR) relied on the order of the authorities below and pleaded that such contentions were not raised before the AO as well as before the CIT(A). He pleaded to sustain the addition. After hearing both the sides and considering the submissions made and also looking to the page 1 to 7 of the paper book submitted before the CIT(A), we are of the view that true nature of transaction was not ascertained by authorities below. The true nature of transaction and legal contentions on this issue has not been considered by the authorities below. Therefore, in the interest of justice and equity, we find it appropriate to restore the issue in both these years to the file of the AO to be decided afresh after providing adequate opportunity of being heard to the assessee. 3. The other issue raised in these appeals is on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted before us that if purchases were not verifiable in the hands of sister concerns, then how could the addition be made in the hands of assessee company. It was also submitted that there was no incrementing material which could have indicated anything with regard to bogus purchases in the hands of the assessee company. It was also submitted that total addition was of about ₹ 21 crores approximate, out of which purchases to the tune of 14.53 crores were from M/s R.H. Impotech Pvt. Limited; The sister concerns has not purchases any material from this party. Therefore, how these purchases from this party can be treated as bogus is the hands of assessee. The payment has been made by cheques only. Ld. CIT(DR) relied on the order of the AO and the CIT(A). We have heard both the sides, we find that CIT(A) has made certain observations while confirming this disallowance which were not confronted with the assessee. The CIT(A) has not made anything clear with regard to the names of the suppliers whose premises were covered in search operation. What evidences were gathered with regard to the accommodation entries is also not clear. The issue regarding the non-substantiatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th law after providing adequate opportunity of being heard to the assessee. 6. The other issues raised in assessee s appeal is with regard to not allowing deduction u/s 80IB amounting to ₹ 2,69,907/- for A.Y. 2004-05, ₹ 69,48,759/- for A.Y. 2005-06, ₹ 26,99,907/- for A.Y. 2006-07, ₹ 6,34,080 for A.Y. 2007-08, ₹ 32,60,237/- for A.Y. 2008-09, ₹ 29,61,812/- for A.Y. 2009-10 and ₹ 80,19,160/- for A.Y. 2010-11 aggregating to ₹ 2,72,23,862/-. This disallowance was in respect of profit derived from Jammu Unit. It is submitted that appellant manufacture routers, modems by assembling components purchased from several sources. It was submitted that the assessee has been allowed deduction u/s 80IB in the A.Y. 2004-05, 2005-06 2006-07, where the orders were passed u/s 143(3) of the I.T. Act. No incrementing material was found with regard to the claim of deduction u/s 80IB during the course of search. It was also pleaded that no opportunity was given by the ld. CIT(A) before making adverse observations in respect of profit and loss account showing different amount of profit. The ld. AR draw our attention to various pages of the paper book to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 43 of the appeal order that copies of balance sheet and profit loss account of Tulip Connect though are bearing signatures of two directors and the seal of the company but the same has not been signed by the auditor and, therefore, such new kind of claim by filing photocopy of C.A. Certificate in Form No. 10CCB would not be correct. 3. Ld. CIT(A) has mentioned at page 69 in para 18 of the appeal order that annual reports of the assessee show that it offers many kinds of services and he has made description of such services which according to him do not qualify for deduction u/s 80IA. 4. Ld. CIT(A) has mentioned in para 19-26 at page 69-73 of the appeal order that trial balance filed by the assessee showed the income stream as 80IA income and non 80IA income, consolidated account of cost of goods and does not show the break up. He has also referred the seized material showing the share of DOT. 5. Ld. CIT(A) has mentioned in para 28 at page 75 of the appeal order that assessee was requested during the appeal proceeding to make available the copies of the sales-tax/VAT and service tax returns, which were not made available. In reply, it is submitted that this requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized does not mention Tulip Connect only is mentioned in the case of plant and machinery and thus assessee, according to ld. CIT(A), has changed its accounts and further that similar discrepancies have been noticed in the case of the ledger accounts of copies of other sister concerns filed during the appeal proceeding and those contained in seized annexures. 11. Ld. CIT(A) has mentioned in para 3 at page 92 of the appeal order that the appellant has not given any specific date as the commencement date for its new undertaking both during search proceedings and during assessment proceeding and also about the closure of EDICS undertaking. In reply, it is submitted that ld. CIT(A) has not mentioned in this para that such date of commencement was asked from the assessee and yet was not given. There is no mention of any precise data etc. in the appeal order. 12. Ld. CIT(A) has mentioned at para 9 at page 94-95 of the appeal order that mere technical note without any supporting documents cannot be an evidence to establish that the appellant started a new undertaking Tulip Connect and there has to be agreement, tender acceptance letter, logistics involved etc. Ld. CIT(A) has fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on 02.11.2004. 21. Ld. CIT(A) has mentioned in para 3(xi) at pge 106-107 of the appeal order that only photocopies of the purchase orders were given and original were not produced. Therefore, their authenticity is in doubt. 22. Ld. CIT(A) has mentioned in para 1 of 3 (xii) at page 107 of the appeal order that the letter of intent (LOI) from M/s Air Liquide North India P. Ltd. dt. 07.09.2005 includes scope written as 128 KBPS radio-frequency link between New Delhi to Alwar with uptime of 99% , thus, alleging that this service is same as was being provided by the appellant during F.Y. 2003-04, more so when there is no mention of providing internet or VPN Services. 23. Ld. CIT(A) has mentioned in para 2 of 3(xii) at page 107 of the appeal order that there is letter from the appellant dt. 19.12.2005 to M/s Mirza Tanners Ltd. Noida, wherein the appellant s introduction (reproduced at page 107 of the appellate order) has absolutely no mention of the appellant being provider of VPN Services and all the features mentioned by the appellant were provided even during F.Y. 2003-04 under the name EDICS. 24. Ld. CIT(A) has mentioned in para 3(xii)(3) at page 108 of the appeal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king. 28. Ld. CIT(A) has mentioned in para-4 at page 109-110 of the appeal order that installation of towers as claimed by the assessee could not establish anything as towers were under EDICS also. 29. Ld. CIT has mentioned in para-5 at page 110 of the appeal order that assessee was already using leased line/bandwidth under EDICS also and, therefore, how can it be said that by incurring expenditure on lease line/bandwidth, assessee has commenced new undertaking. 30. Ld. CIT(A) has mentioned at page 110-111 of the appeal order that the note on Tulip Connect and EDICS submitted by the appellant gives a list of different types of ISPs as Dial up ISP, DSL, ISP, Cable/Fiber-Optic ISP, Wifi ISP and Satellite ISP but it does not say to which category the appellant belongs to or whether it provides all the types of services and if so where and when and to whom such services had been provided and the same has not been provided earlier before the AO nor during the appellate proceedings. 31. Ld.CIT(A) has mentioned at page 111-112 of the appeal order that the claim of the appellant that EDICS business did not require license/permission from DOT is not correct. 32. Ld.CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 2009 - ₹ 1300/- 36. Ld. CIT(A) has mentioned in para 2(vi) at page 148 of the appeal order as under: The only activity if it all can be called as being carried out with the aid of power (as required u/s 80IB (2) (iv) is soldering of connector to the PCB Board, which cannot be termed, in the given circumstances of the case, as a manufacturing process carried on with the aid of power. No expenses relating to generator work debited in the P L account. 37. Ld. CIT(A) has mentioned in para 2(vii) at page 148 of the appeal order as under: The total number of employees who were actually working at the premises was only six as against 11 mentioned in the attendance register. Even here the survey party also noted that only two of the employees were employed for the purpose of assembling activity. 38. Ld. CIT(A) has mentioned in para 2(viii) at page 148 of the appeal order as under: It was also noted that the total salary actually paid and received by the employees working in the unit was 7.14 lacs as against ₹ 11.15 lacs debited in the P L account of the said premises. 39. Ld. CIT(A) has mentioned in para 7 at page 152 153 of the appeal orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otings of the 38 hearings held between 27/02/2013 to 13/06/2013 containing 37 pages is enclosed herewith for reference. I may recall here that due to the conduct of the appellant and the complexity of the issues involved, the undersigned had approached the Hon ble High Court of Delhi to do away with the time limit fixed by Hon ble High Court which was vehemently opposed by the appellant and the Hon ble Court gave only one month s extension. When the dead line was approaching, I had moved the Hon ble High Court to further extend the time by 1 more month which again was also opposed by the appellant. It was the appellant who had filed the appeal and was allowed several opportunities to lead evidences in support of grounds raised. It has been stated by the appellant, in the note forwarded by the CIT(DR), that issue of deduction u/s 80IA was taken by CIT(A) for the first time which is contrary to the facts on records. I had only brought into the order the evidences which were already part of the assessment records and which were lead by the appellant during the appeal proceedings. The adverse observations referred to in the said appellant s note are observations on the evidences whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee from where the assessee was required the details to be submitted before the CIT(A). In our considered view in such a short period the required/asked details could not have been collected by the assessee to comply the query raised by CIT(A). We have also considered the synopsis which has been reproduced in the earlier paras. Certain requirements of confronting the assessee were not specifically met by the CIT(A) by giving specific opportunity on these issues. We have also gone through the order sheet entries recorded by the CIT(A) on day to day basis. In considering all these aspects we are of the view that for making such a huge addition for not allowing deduction u/s 80IA of the Act, which was allowed in some of the assessment years while framing the assessment u/s 143(3) of the Act a detailed and adequate opportunity needs to be provided to the assessee. In our considered view this entire issue requires thorough enquiries at the level of the AO. Having regard to the totality of facts and circumstances of the present case and considering the nature of business and the requirement of the enquiries to be conducted on the various aspects of the issue we hold that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue to the AO s file for a fresh adjudication as per law. The AO shall provide adequate opportunity of being heard to the assessee before finalization of the issue. 11. In all the assessment years under appeal except the assessment year 2005-06 the Revenue also raised the issue relating to addition on account of reduction in profit by rotating purchase and sales within the group companies which was deleted by the CIT(A). Ld. DR submitted that AO has made the addition based on evidences and pleaded that CIT(A) was not justified in deleting the addition. After hearing both the sides, we find it appropriate to set aside this issue also to the file of the AO for deciding afresh as per law after providing adequate opportunity of being heard to the assessee. 12. The other issue in the revenue s appeal relevant for A.Y. 2009-10 and 2010-11 is with regard to deleting the disallowance made by the AO in respect of expenses relating to external commercial warrant (ECB) and deleting the disallowance of interest equal to the gain on by back of Foreign Currency Bond (FCB). After hearing both the sides from this issue we find it appropriate in the interest of justice and equity to rem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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