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TMI Blog2016 (11) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... pleting the project which was approved in various individual companies and agreements specifically provide for the cost to be borne by assessee-company. Accordingly, it has made debit entries in the Books of Account, crediting those companies to an extent of 25% of the amount of cost on roads and the HUDA fees paid. Considering the agreements and the entries in the Books of Account, we are of the opinion that this expenditure is allowable as part of project cost. We are also not sure how the expenditure debited to project cost could be disallowed and brought to tax when the project is not complete and assessee was estimating a proportionate income to the extent of the project completed. In view of that, we are not in a position to approve the orders of the AO even on the merits of the additions made. - Decided in favour of assessee - ITA No. 185/Hyd/2016, 285/Hyd/2016, 186/Hyd/2016, 286/Hyd/2016 - - - Dated:- 30-9-2016 - Shri D. Manmohan, Vice President And Shri B. Ramakotaiah, Accountant Member For Assessee : Shri S. Rama Rao, AR For Revenue : Smt. M. Kiranmayee, Sr. Standing Counsel for Dept. (for ITA Nos. 186, 285 286/Hyd/16) ORDER Per B. Ramakotaiah, A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate action on the erring officer. 3. We have perused the documents placed on record including Paper Books upto 218 pages in 4 volumes and also the written submissions. For the sake of record, the appeals in AY. 2006-07 are considered in detail. 4. Briefly stated, assessee is in the business of real estate and has undertaken property development in the impugned years. Assessee-company was incorporated originally as M/s. Maytas Rajeswari Development Pvt. Ltd., on 20-05-2005 and was later re- named as Maytas Hill County Pvt. Ltd., w.e.f. 28-12-2005 and as Maytas Hill County Ltd., w.e.f. 20-12-2007. Subsequently, its name was again changed as Maytas Properties Ltd., w.e.f. 31-12- 2007. After completion of the assessments but before the appeal was decided by the Ld.CIT(A), the company s name was once again changed to Hillcounty Properties Ltd w.e.f. 16-08-2013. Even though the same was acknowledged by the CIT(A) in the header of the impugned orders, but in the cause title of the order, the name of the appellant was stated as M/s. Maytas Properties Ltd., only. However, the approval for second appeal was granted in the name of Hillcounty Properties Ltd., and the appeals were prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial statements showing inflated cash and bank balances, data on interest, data of income generated, investments and receipts and also suppressing the liability status of the company. He got forged monthly bank statements, bank balances, purported transfer of funds and FDRs. 327 companies were floated by him along with his brothers Sri B. Rama Raju and Sri B. Suryanarayana Raju and his near relatives in the guise of carrying out agricultural activities. The funds were mobilized by the above companies from various NBFCs by pledging the shares of family members. The proceeds were thus converted into assets through the said companies into assets. He and his brother Sri B. Rama Raju obtained money from 37 of such companies and also repaid 15 out of 37 companies, by deceiving the Board of Directors of SCSL. There is further information that some of the funds advanced to M/s. SCSL have not been recorded in the books of SCSL at the behest of Sri B. Ramlinga Raju and that certain transactions entered in the books of SCSL are not recorded in the accounts of the group companies like the assessee company. The entire set of unrecorded transactions by SCSL and group of companies and individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts will have a bearing on the company's own financial affairs, its consequent income and assets position. I have, thus, reason to believe that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for AY 2006-07 and also that it resulted in escapement of income chargeable to tax, which is likely to amount to Rs. One lakh or more given the volume of the transactions as stated above, within the meaning of section 147 read with section149 of the 1.1. Act, 1961. For the above detailed reasons, it is proposed to issue notice to the assessee under section 148 of the I.T. Act to reopen the assessment in the assessee's case for the assessment year 2006-07 for bringing to tax the income chargeable to tax which has escaped assessment . 6.1. Thereafter, considering assessee s objections in reopening, which were rejected, the AO referred the accounts to Special Audit u/s. 142(2A) in both the assessment years and completed the assessment by making various additions in the respective assessment years. As against the loss of ₹ 1,55,46,052/- returned by assessee, the total income was determined at ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction/short-deduction of TDS (as discussed in Para 9.8) (Rs. 92,05,972 + Rs. 27,62,698=Rs.11968670/0) 1,19,68,670/- 10 Disallowance u/s. 43B of the Income Tax Act, 1961 (as discussed in para 9.9) 93,325/- 11 Expenditure Disallowance u/s. 37(1) for not having incurred for the purpose of business (as discussed in para 9.10) 5,17,892/- Total Addition: 16,73,51,635 7. Similarly in AY. 2007-08 as against the income of ₹ 98,43,780/- declared by assessee, the following additions are made totalling to ₹ 2,11,67,31,975/- . COMPUTATION OF INCOME TAX ALONG WITH INTEREST Rs. Income/Loss Declared by the assessee for the AY. 2007-08: 96,43,760 Add: 1 Addition on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects Pvt. Ltd., is not an expenditure incurred for the purpose of business of the assessee, hence disallowed 5,67,00,000 08 Addition (as discussed in para 9.6.4) on account of short recognition of revenue 15,64,02,468 09 Addition (as discussed in para 9.7.3) on account of non- apportionment of statutory and consultancy charges on amenities 2,33,24,429 10 Disallowance (as discussed in para 10.1.2) of expenditure amounting to ₹ 11,19,243/- has been debited to P L A/c that belongs to the earlier accounting period 11,19,243 11 Disallowance u/s. 40(a)(ia) (as discussed in para 10.3.2) of contractual payments made to MIPL 58,54,03,397 12 Addition (as discussed in para 11.1.2) on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .40A(3) and confirmed substantial disallowance of cost of trunk road claimed by assessee in both the years along with HUDA s fees paid as not relating to assessee s business. In some of the issues like disallowance of expenditure on account of other works, non-deduction of tax, CIT(A) directed the AO to examine and these were allowed by the AO in the consequential orders, after due examination. 8.1. In 2007-08 also, the CIT(A) has given similar relief and Revenue is in appeal on those issues. Assessee is in appeal on one major issue of disallowance of cost of roads claimed which was to an extent of ₹ 2,49,06,130/- in AY. 2006-07 and ₹ 1,30,53,852/- in AY. 2007-08. There are other grounds of payment to HUDA which is similar to the above disallowance. 9. In assessee s appeals in addition to the grounds on merits of amounts confirmed by Ld. CIT(A), assessee has raised grounds relating to action of the AO in initiating proceedings u/s. 147 of the Act. Assessee also raised following additional grounds in support of main grounds on the issue of reopening: Additional Grounds of Appeal: i. The learned Commissioner of Income-tax (Appeals) ought to have held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect financial results as it was under the same management and control. For the reasons mentioned above, the Assessing Officer initiated proceedings u/s 147 and issued notice u/s 148 of the I.T.Act. Similar notices were issued to other concerns of Satyam Group. The question of validity of initiation of proceedings uj s 147 was decided by the Hon'ble ITAT vide consolidated order in ITA No.1233/Hyd/2011 dated 31.12.2013. In the said order, the Hon'ble ITAT held as under: a) The Hon'ble ITAT held that no valid reasons to reopen the assessment of the company were recorded as the reopening was merely to examine the veracity and financial implications between the appellant company and Satyam Computer Services Limited. The Hon'ble ITAT at para 16 of the said order held that there is no reason to believe that the income of the assessee had escaped assessment. b) The Hon'ble ITAT also observed that if there is any reason recorded, the same is not based on a tangible material. c) The recording of reasons before the issue of notice u/s 148 has no nexus with the assessment made. d) The reopening was on wrong foundation of reasoning of the financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: [Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:] [Provided [also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lead to reopening of assessment to bring it to tax as escaped income . However, as already stated herein above, the reasons for reopening are for examining the fraudulent transactions undertaken by the promoter, Shri B. Ramalinga Raju and his company Satyam Computer Services Ltd. However, there is no such addition made. In view of that, bringing to tax any other income does not arise as held by various decisions of this forum and also by the Hon'ble High Courts. The Co-ordinate Bench in the case of 1233/Hyd/2011 M/s. Rohini Biotech (P) Ltd., and others dt. 31-12-2013 has held as under: 12. We also find that CIT(A) erred in holding that the Assessing Officer had valid reasons to reopen the assessment of the assessee-company to examine the veracities and financial implications between the assessee company and M/s. Satyam Computer Services Limited. We rely upon the decision of the Hon'ble Supreme Court in the case of Ganga Saran Sons' P. Ltd. vs. ITO and others (supra) for the proposition that if there is no rational nexus between the reasons and the belief', so that on such reasons the A.O. cannot have reason to believe that any part of the income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic interpretation to the words 'reasons to believe' failing which, section 147 would give arbitrary power to Assessing Officer to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The A.O. has no power to review; he has the power to reassess. But reassessment has to be taxed on fulfilment of certain pre- conditions and if the concept of 'change of opinion' is removed, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the A.O. Hence, the A.O. has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief 17.1. Further, para 32 at page 483 in the case of S. Ranjit Reddy (supra) reads as follows: Same view was taken by the Third Member Mumbai Bench in the case of Telco Dadajee Dhackajee Ltd. vs. Dy. CIT, ITA.No.4613/Mum/2005, dated 12th May, 2010. Further same view was taken by Delhi High Court in the case of CIT vs. Orient Crafts Ltd. (2013) 29 taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen referred to the decision of Hon'ble Supreme Court in the case of Keluinator of India Ltd. (supra) wherein it was held that there should be tangible material to come to the conclusion that income had escaped assessment. Relying on the said decision, it was held by the Third Member that while resorting to section 147 even in a case where only an intimation had been issued u/ s 143(1)(a), it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment. Since there was no such tangible material before the AO from which he could entertain the belief that income of the assessee chargeable to tax had escaped assessment, the Third Member held that reassessment proceedings initiated by the Assessing Officer were liable to be quashed on the ground that there was no tangible material before the Assessing Officer even though the assessment was completed originally u/ s. 143(1). In our opinion, the Third Member decision of the Tribunal in the case of Telco Dadajee Dhackjee Ltd. (supra) is squarely applicable in the present case and respectfully following the same, we hold that the initiation of rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision, which applies on all fours, we have no hesitation in holding that the assessment completed has no nexus with the reasonings given for reopening of assessment. On that reason, proceedings are held as bad in law. 12. Even on merits, Ld. CIT(A) has considered the law on the points and gave substantial relief on many of the issues, on which Revenue has come in appeal. We do not find any merit in those grounds raised by Revenue as those findings of Ld. CIT(A) are in tune with the findings of the ITAT in various cases and law on the issue. Not only that, on the issues referred to the AO for examination, AO has allowed the claims in the consequential order. The only major issue contested in assessee s appeal is with reference to disallowance of the cost of the roads and fees paid to HUDA. Even though, AO relied on the agreement to state that the agreement was subsequent to the laying of the road and the amount cannot be claimed as an expenditure in assessee s business along with the fees paid to HUDA, on perusal of the agreement with the fourteen land owning companies, who gave 85.90 acres out of the total area of 374 acres (24.96%) for development, it was specified that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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