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TMI Blog2018 (8) TMI 2004X X X X Extracts X X X X X X X X Extracts X X X X ..... is invalid and accordingly, we cancel the assessment made u/s 147 r.w.s.143(3) and dismiss the appeal of the revenue. Deferred revenue expenditure disallowance - Assessee not produced any corroborative evidence of expenditure - In the absence of bills, nature of payment, to whom it was paid etc., the AO doubted the genuineness of the expenditure and accordingly disallowed a sum - CIT-A deleted addition - HELD THAT:- Keeping in view of the nature of business and accrual of income and period of the scheme, we hold that Ld.CIT(A) has rightly held that under special circumstances, the law allows such expenditure to be amortized and to be claimed in coming years to avoid distortion of profits. The assessee is earning commission on purchase of ornaments from VEPL on redemption of purchase plans.The assessee also has not claimed the expenditure in the earlier years and there was no double claim or duplication of the claim. Since the assessee is claiming business expenditure on a rational basis, spreading the expenditure over life time of the schemes and the fact is that the assessee is canvassing for purchase plan schemes and the expenditure in question was business expenditure, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that income chargeable to tax has escaped assessment, issued the notice u/s 148 on 26.09.2014 after recording the reasons. In response to the notice issued u/s 148, the assessee submitted a letter dated 07.11.2014 stating that it had already filed the return of income for the assessment year 2010-11 on 12.03.2013 and requested to treat the same as the return in response to the notice issued u/s 148. The assessee also filed the return of income for the assessment year 2010-11 electronically on 11.03.2015 admitting nil income. Subsequently, the AO issued notice u/s 143(2) of the Act and completed the assessment on total income of ₹ 12,00,02,396/- and raised the demand of ₹ 6,56,30,550/-. 3. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and challenged the assessment on legal grounds as well as grounds on merit. The assessee raised the grounds with regard to the validity of the assessment made under section 147 r.w.s. 143(3) and also raised the grounds on merit. The assessee s contention before the Ld.CIT(A) was that the information received by the AO, from the investigation wing, Mumbai is not capable of forming any belief and whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to complete the assessment. Therefore, the Ld.CIT(A) relied on the interpretation given by the Hon ble High Court of Delhi in the case of Haryana Acrylic Manufacturing Company (2009) [308 ITR 38 (Del)], wherein Hon ble Delhi High Court held as under : 1) Any deviation from G.K.N.Driveshafts (India) Ltd. would entail nullifying the proceedings. 2) The requirements discussed by the Supreme Court are integral part of the safeguards inbuilt for lawful re-assessment and transparent manner. 3) If safeguards are flouted, it would invalidate the exercise of jurisdiction u/s 147/148 of the Act. The Ld.CIT(A) also relied on the following decisions and held that the assessment made u/s 147 r.w.s. 143(3) is invalid. a) Asian Paint Ltd. 296 ITR 96 (Bom) b) IOT Infrastructure and Eng.Services Ltd. (2010) 329 ITR 547 (Bom) c) Allana Cold Storage (2006) 287 ITR 1 (Bom) d) Bharat Jayantilal Patel (2015) 378 ITR 596 (Bom) (SC) a) Nandlal Tejmal Kothari (1998) 230 ITR 943 (SC) b) Gujarat Fluorochemicals Ltd. (2008) 15 DTR (Guj) 1 c) Videsh Sanchar Nigam Limmited (2012) 340 ITR 66 (Bom) d) Trend Electronics (2015) 379 ITR 456 (Bom) e) Safetag International India Pvt. Ltd. f) Fomento Resorts and Hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of the direction given by Hon ble Supreme Court s decision in the case of G.K.N.Driveshafts (India) Ltd., and completion of assessment is against the principles of natural justice, hence the assessment made u/s 147 r.w.s. 143(3) is invalid. The Ld.AR also relied on the decision of this Tribunal in the case of M/s Sri Sarvaraya Sugars Ltd. Vs. Jt.CIT vide ITA No.294,295 and 576/Viz/2014. 7.1. We have considered the arguments of both the parties and gone through the orders of the authorities below. In this case, the AO has issued notice u/s 148 and in response to which the assessee has filed the reply and also requested for the reasons recorded for reopening the assessment. Subsequently, on receipt of communication from the AO vide letter dated 14.11.2014 to supply the reasons, after filing the E-return of income, the assessee had complied with the communication and accordingly filed the Ereturn of income on 11.3.2015. As requested by the assessee and communicated by the AO, the AO is duty bound to supply the reasons recorded for reopening the assessment. Since there was already a letter from the assessee requesting for reasons on 07.11.2014 and a communication from the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 8. We find that the impugned order merely applies the decision of the Apex Court in GKN Driveshafts (India) Ltd. (supra). Further it also follows the decision of this Court in Videsh Sanchar Nigam Ltd. (supra) in holding that an order passed in reassessment proceedings are bad in law in the absence of reasons recorded for issuing a reopening notice under Section 148 of the Act being furnished to the assessee when sought for. It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. reopening of reasons to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment. 9.2. In the instant case, the AO had issued notice u/s 148 and the assessee has complied with the notice and requested for reasons. The AO completed the assessment without communicating the reasons. Therefore, the facts of the case are similar to that of the decision of Hon ble Bombay High Court relied upon by the Ld.AR cited supra. Respectfully following the decision of Hon ble Bombay High Court, we hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees are working with these schemes. The assessing officer viewed that the assessee had made the investment in Vaibhav Empire Private Ltd. (VEPL) thus held that the expenditure was capital in nature. However the Ld.CIT(A) observed that business of the assessee is to run the schemes for customers and supply the funds to the VEPL and in turn VEPL pays the referral commission to the assessee for the funds provided. The expenditure was incurred for the purpose of the business and the same is business expenditure. The assessee is having a running account with VEPL and held that under special and unavoidable circumstances, the law allows such expenditure to be amortized and to be claimed in the coming years to avoid distortion of profits. The Ld.CIT(A) followed the decision of Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Limited Vs. CIT (225 ITR 802) and the decision of Hindustan Aluminium Corporation Ltd. Vs.CIT (144 ITR 474) of Kolkata High Court and deleted the addition. 11. Aggrieved by the order of the CIT(A), the revenue is in appeal before us. During the appeal hearing, the Ld.DR submitted that the expenditure was related to the earlier years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase plans and the total expenditure related to the year under consideration, the collections made on redemptions, the total expenses to be claimed, total expenses actually claimed, short claimed etc. in page No.14 and 15 of the paper book. The assessee submitted that the assessee had incurred the expenditure upfront and written off the expenditure over a period of life time of the schemes. The expenditure was not capital expenditure and argued that it is revenue expenditure. The Ld.CIT(A) has given a finding that the assessee has maintained the vouchers and furnished all particulars. The assessee is having a running account with VEPL on all the schemes. Though the assessee has incurred expenditure in the initial years as upfront payment it is a rationale to spread over the expenditure over the life time of the schemes, since the income accrues on redemption. The Ld.CIT(A) has given a categorical finding that the expenditure is revenue expenditure. We also observe from the facts submitted before us that the expenditure is in the nature of revenue. Though the expenditure is to be claimed in the year in which it was incurred, we are of the view that in deserving cases the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.Rule 8D of I.T.Rules, as held by Hon ble Madras High Court in the case of Redington (India) Ltd. (supra). The CIT (A) allowed the appeal of the assessee placing reliance on the decision of this Tribunal in the case of M/s Radhakrishna Automobiles Pvt. Ltd. in I.T.A.No.511/Vizag/2017 dated 22.11.2017. Respectfully following the view taken by this Tribunal in the case cited supra, we hold that there is no case for disallowance of expenditure relatable to earning of exempt income u/s 14A r.w.Rule 8D of I.T.Rules in the absence of exempt income in the year under consideration. Accordingly, the appeal of the revenue on this ground is dismissed. 16. Ground No.3, 4 and 6 are related to the assessment of deemed dividend u/s 2(22)(e) of the Act. During the assessment proceedings, the AO found that the assessee has received a loan of ₹ 4,31,53,812/- from M/s Vaibhav Empire Pvt. Ltd.(VEPL) Since the assessee is having controlling share in the company and the company M/s VEPL is having accumulated profits, the AO held that the loan taken by the assessee from VEPL is a deemed dividend u/s 2(22)(e) of I.T.Act, accordingly assessed the sum of ₹ 1,51,39,860/- as deemed dividend u/s 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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