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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 ..... argued about the major issue of reopening of assessment, on which additional grounds were also filed. After hearing the preliminary issue of jurisdiction, the arguments on issues on merits were continued on 5th August, 2016. As certain clarifications were required, the case was adjourned to 19-08-2016 as part-heard on that day. However, on 19-08-2016, Ld. CIT, who appeared in the earlier hearings, Shri B.V. Gopinath did not turn up for hearing and on his behalf, Ms. Hemalatha Devi, CIT-DR requested for adjournment. Vide a separate order sheet dt. 19-08- 2016, the case was posted on 23-08-2016 on which date, the Ld. CIT-DR appeared. After arguments were completed by Ld. Counsel for assessee, he refused to argue the case for Revenue by stating that he has recused himself on earlier occasion and walked away from the court without arguing the case. In these circumstances, as there is no other person to argue the case after having been heard the appeal in ITA No. 185/Hyd/2016 is heard 'ex-parte' qua the Revenue. Smt. Kiranmayee was authorized to represent the case at about 3.40 PM on 23-08-2016 through an authorisation received by fax from the Pr.CCIT, hence she is allowed to appear an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices u/s. 148 of the IT Act dt. 25-03- 2011. The reasons for reopening which are common for both the assessment years [except the assessment year and the dates of processing of the returns] are as under: "M/s. Maytas properties Ltd, was incorporated as M/s. Maytas Rajeswari Development Pvt Ltd, on 20-05-2005, and was later renamed 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. The company was floated by the promoters of M/s. Satyam Computer Services Ltd (M/s. SCSL). Viz., Shri B. Rama Raju. On 7th January, 2009, Sri B. Ramalinga Raju, Ex-Chairman of M/s.Satyam Computer Srvices Ltd(SCSL for shortcut) in his letter sent to the Board of Directors with a copy marked to SEBI has stated that Books of account of SCSL have been fudged for the last several years. He further stated that the revenues and profits were manipulated by falsification of accounts for the last several years. The sworn statement of Sri B. Rarnalinqa Raiu was recorded under section 131 of the LT. Act, 1961 on 21-02-2009 in the central prison, Chanchalguda, H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Rama Raju & others. It is believed that since the accounts of M/s. Satyam Computer Services Ltd, are doctored and fabricated, the accounts of M/s. Maytas properties Ltd.(Formerly Known as M/s. Maytas 'Hill County Ltd), which is closely connected do not reflect the true and correct financial results being under the same management and control. Further, Sri B. Ramalinga Raju is the Chairman and Sri B. Rama Raju is the CMD of M/s. Satyam Computer Services Ltd. Both the persons have been accused in a multi crore scam and are presently in judicial custody. The assessee company has been floated by the persons belonging to M/s. Satyam computer Services Ltd. group, Viz., B. Rama Raju, who had direct control over the affairs of the assessee-company. The Return of income filed by the assessee company for the A.Y.2006-07 has been processed u/s.143(1) of the I.T. Act, 1961 and it is believed that the assessee company in its return did not disclose the material facts as below: a) The facts relating the fudging and manipulation of accounts of the assessee company and transactions relating to SCSL, particularly with reference to transactions with other group companies like the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Addition (as discussed in Para 9.3) on account of purchase of Blakberry Phone i.e. Capital Expenditure debited to P&L A/c 8,400/- 04 Addition (as discussed in Para 9.3.4) with respect to fixed assets where bills not produced: 1,06,492/- 05 Addition under the head Trunk Road Cost (as discussed in Para 9.4) i.e. Entire amount of reimbursement made to LOCs and debited work-in-progress 2,49,06,130/- 06 Addition under the head HUDA Fees (as discussed in Para 9.5) 67,44,463/- 07 Addition under the head Other Works Contracts given by assessee (as discussed in Para 9.6) 82,24,731/- 08 Disallowance u/s. 40(a)(ia) of the Income Tax Act, 1961 made on account of Contractual payment made to MIPL (as discussed in Para 9.7) 10,91,41,612/- 09 Addition on account of Other Payments on which there is a non-deduction/short-deduction of TDS (as discussed in Para 9.8) (Rs. 92,05,972 + Rs. 27,62,698=Rs.11968670/0) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,30,53,852 07 The subject payment of Rs. 5,67,00,000/- (as discussed in Para 9.5.5) under the head other works contract works given by the assessee to M/s. Sarala Projects 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 Rs. 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 expenditure disallowed u/s. 37(1) and non-deduction of TDS u/s. 194C 31,10,908 13 Addition (as discussed in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to an extent of Rs. 2,49,06,130/- in AY. 2006-07 and Rs. 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 initiation of proceedings u/s. 147 are not valid. ii. The learned Commissioner of Income-tax (Appeals) ought to have seen that there are no financial transactions between the appellant and Satyam Computer Services Ltd; that there is no mention in the letter addressed by Sri B. Ramalinga Raju about the financial affairs of the appellant and no addition with reference to the reasons recorded was made in the re-opened assessment". Assessee's main contentions are that the proceedings initiated are not valid. Further, the reasons for reopening the assessment have no nexus with the additions made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 financial implications between the appellant company and Satyam Computer Services Ltd., which was not established in the assessment to justify the reopening. e) The reassessment completed u/s 143(3) rws 147 has no relationship at all for the reasons for reopening. f) The issues involved are similar. In view of the above, the appellant requests the Hon'ble ITAT to hold that the initiation of proceedings u/s 147 of the I.T. Act are not valid". 10. There are no arguments by the Revenue as the Ld. CIT- DR refused to argue on this issue, even though he was present in the court room on behalf of Revenue on 4th and 5th August, 2016. Ld. Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 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 assessee has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck as invalid. 13. We also rely on the decision of Sarthak Securities Co. P. Ltd. vs. ITO (2010) 329 ITR 110 wherein it has been held as follows : "That the formation of belief was a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer was required to form an opinion before he proceeded to issue a notice. The validity of reasons, which were supposed to sustain the formation of an opinion, was challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 taxmann.com 392 and also by Gujarat High Court in the case of Inductotherm (India) (p) Ltd. v. Dy. CIT in Special Civil Application 858 of 2006 dated 6.8.2012. Further, Bombay Bench in the case of Delta Airlines Inc. vs. ITO (International Taxation) (2013) 33 taxmann.com 192 (Mum.)" 17.2. Further, at page 485 it is stated as follows: "When the matter reached to the Tribunal the learned Judicial Member took e view that there was no fresh material to support the formation of the belief of the Assessing Officer that income chargeable to tax had escaped assessment and in the absence of any fresh tangible material, he came to the conclusion that it was not permissible for the Assessing Officer to reopen the assessment. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. We Order accordingly and allow ground No.1 of the assessee's appeal. 18. To conclude, (i) The recording of reasons before the issue of notice under section 148 has absolutely no nexus with the assessment made. (ii) That the assessment made under sec.143(3) cannot be reopened under sec. 148 beyond period of 4 years as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. (iii) The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost 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 the cost of the roads and fees paid to HUDA and other developmental activities are to be borne by assessee-company. We do not find any reason to disallow the expenditure, when assessee's project on 1/4th land is using those lands developed by 'land owning companies' as well as other companies. The total cost incurred by them was reimbursed by assessee to an extent of 25% which is same as that of land given for development to assessee. 13. On perusing these facts, which are placed on record during the course of hearing, we do not find any merit in the order of the AO and CIT(A) in disallowing the expenditure by reading in between the lines of the agreement. The agreement specifically provides for bearing the cost of roads and development fee payable to HUD ..... X X X X Extracts X X X X X X X X Extracts X X X X
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