TaxTMI 
TaxTMI 
2018 (12) TMI 110
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....invalid notice u/s. 148. 2. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the AO had erred in issuing the notice u/s. 148 inspite of the fact that there was no income chargeable to tax which had escaped assessment and while doing so he amongst others failed to appreciate that: a. The appellant had made a true and full disclosure of all material facts necessary for the assessment; b. The notice was issued only on the basis of the statements illegally recorded during the course of survey proceedings u/s. 133A; c. Report of Financial Investigation Unit in the case of a third party could not form basis to believe that there was income chargeable to tax which had escaped assessment in the case of the appellant; d. In the reasons recorded in writing for reopening of assessment, there is no mention that the notice was issued after taking approval u/s. 151 of the Act. 3. The learned Commissioner of Income Tax (Appeals) erred in disallowing the expenditure of Rs. 11,92,65,022/- inspite of the fact that the appellant has proved with evidence that the expenses were incurred wholly and exclusively for the p....
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....e statement recorded during survey executed by Mr. Parag Sanghvi and Mr. Vivek Suchanti. 7. On 05/03/2012 assessee got a letter from ACIT requiring assessee to file revised return as per Statement recorded during survey. On 12/03/2012 letter to ADIT bringing on record the affidavit and declaration of retraction. Again on 14/03/2012 assessee gave a letter to ACIT intimating that the statement recorded during survey was retracted and hence there was no requirement to pay any further taxes. 8. On 16/07/2012 AO issued notice u/s.148 and assessee filed return pursuant to notice u/s.148. Assessee also asked for the copy of the survey report. However on 25/09/2012, there was a letter of AO stating that survey report is confidential. Thereafter, AO submitted to the assessee copy of reasons recorded for reopening dated 12/07/2012. Assessee filed objection to reopening. 9. Before the AO on 08/03/2013 assessee filed three submissions dated 8/3/2013. First submissions with respect to sample contract with client Gremachlnfr. Ltd. Second Submissions with respect to Ledger A/c. of the Nine suspicious party. Third submission giving co-relation between client and suspicious vendor and subm....
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....hvi, CFO of the assessee company started giving statement before survey officials on 22.11.2011 from 10.45 am which was concluded at 07.00 pm in the evening. As per Ld. AR, inspite of the fact that he is not aware of the day to day publicity related work assigned by clients to be carried out by various departments of assessee company, he was forced to admit the pre typed statements wherein it was stated that no work is done for clients and these are mere accommodation entries. Inspite of the fact that he was not ready to give the statement till the arrival of Shri Vivek Suchanti, MD of assessee company, who was supposed to return Mumbai from Delhi, but gave the statement in view of the following reasons: a. Firstly survey officials were not ready to wait till the arrival of Shri Vivek Suchanti, MD of the assessee company and were in haste in getting the statement of Shri Parag Sanghvi so that the authorized officer allow the employees of assessee company to go home after office hours who were detained in office by survey team since morning. b. Secondly the survey team was consistently putting a lot of mental pressure torture so that he admit that assessee company ....
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....s at 11.45p.m. 22.11.16. As per Ld. AR, when Mr Suchanti was not available in office at 11.45 pm due to the fact that he arrived from Delhi at 12.10am only how the statement could have been recorded at 11.45 pm. This proves that the statement is ante dated and have been taken under undue pressure and force. In this regard our attention is drawn to the statement recorded of Shri Parag Sanghvi & Shri Vivek Suchanti, a perusal of which it is crystal clear that both the statements are same in verbatim. This proves that the survey team has taken the admission of both Shri Parag Sanghvi & Shri Vivek Suchanti by force. It is submitted that had it not been by pressure or force both the statement cannot be same in verbatim. This proves that the AO has taken the statement under undue force/pressure. Because of which there was no option left with Shri Parag Sanghvi & Shri Vivek Suchanti but to retract the admission made before survey team by filing an affidavit. As per learned AR, the reasons of the retraction affidavit of Mr Suchanti are as under. Shri Vivek Suchanti, MD in his affidavit retracted his statement because * No oath was administered to him prior to recording of statemen....
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....rrect and true answers were given. * That the statement was taken under stress, panic and duress and various threats by the officers IT department, he was pressurized to accept certain allegations under oath. He succumbed to these pressures and signed the statement that was already printed prior to his reaching office awaiting his signatures. * He therefore retracted the statement that the deposition was not without undue influence but was without his free consent/will in fact the statement was signed after succumbing to undue pressures. 16. From the series of events narrated above it was submitted that the AO has merely disallowed expenses on the basis of admission made before survey team by Shri Vivek Suchanti & Parag Sanghvi without bringing on record any adverse or cogent evidence. Here it is vehemently submitted that the statement has got no evidentiary value and addition cannot & should not be sustained in view of the following further facts and submission: 17. Shri Vivek Suchanti has already stated that different transaction has been carried out for the clients of assessee company by vendor companies and the parties after verification of the work done....
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....ment by a/c payee cheques only.. * Vendors falls under the status "Company" having valid Company Identification Number issued by Registrar of Companies. 20. As per Ld. AR, once the above Statutory Compliances have been fulfilled it proves that the vendors have proper identity i.e. Name, Address, PAN, Service Tax Number, CIN (in case they are companies). 21. Assessee had furnished before lower authorities the Name, Address, PAN, Service Tax Registration Number, CIN (in case they are companies] of vendors. Moreoever, during the course of assessment assessee company explained the process of assigning work to vendors The process of assigning work to vendors was explained as under: * The assessee company finalizes the modus operandi with their clients to whom they are rendering publicity campaign services. * Trained company officials of assessee company are deployed to supervise the publicity campaign, (i) * The work done by the vendors are then get verified and approved by clients for whom assessee company is rendering publicity campaign services. * Finally the assessee company receives payment from their clients and in turn disburse t....
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....en done for the clients for which vendors have raised bills on the assessee company, payment has been made by a/c payee cheques and in turn assessee company has raised bills on its clients and assessee company has received the payment. 25. Point No. 11 of duly notarized affidavit given by Shri Om Prakash Paharia on 19.03,2013 state as follows: "Based on the aggregate amounts to be paid to the persons who had carried out the work, my associates Mr, Jayesh Shah and Mr. Dinesh Pareek would ask Mr. Rajendra Bhimrajka to make the payments after collecting payments from appellant company for which he used to raise bills on appellant company. On receipt of payments by cheque frem appellant company Mr. Rajendra Bhimrajka would make payments to the various service providers." 26. The manner in which the publicity campaign is being carried out, it is clear that there is no occasion for the assessee company to know Shri Rajendra Bhimrajka therefore the assessee company does not know or have any direct contact with Mr. Rajendra Bhimrajka. Therefore the statement of Shri Rajendra Bhimrajka has no relevance for disallowing the expenses, so incurred by the assessee companies. 27....
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....so furnished before the lower authorities. 32. The assessee company has provided the information like copy of bills, supporting for services rendered, name of clients to whom service rendered, details of work carried at rural and moffusil areas. 33. We also observe that the Service Tax Audit of assessee company has been conducted for Financial Year 2008-2009, 2009-2010, 2010-2011, 2011-2012 and 2012-2013 by Service Tax Department. During the said service tax audit reconciliation of service tax returns with books of accounts for above mentioned financial years has been done and no discrepancy of whatsoever nature has been pointed by the service tax department. 34. Reliance was placed by Ld. AR on the following judicial pronouncements, wherein it is held that unless corroborative evidence are found during the course of survey, search and seizure action addition cannot be made merely on the basis of statement recorded. 35. Apex Court in the case of Andaman Timber Industries v. CCE (2015) 281 CTR 241 (Bom)(HC) and Kishanchand Chellaram v. CIT (1980) 125 ITR 713 (SC) held that the department is bound to give the assessee an opportunity to controvert evidence and cross examin....
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....nd opportunity of cross examination is provided to the assessee no adverse inference should be drawn against assessee. 40. Our attention was invited to the statement of consumption of services as placed on record, according to which assessee has proved consumption of services rendered by the vendors which was filed before AO vide statement dated 08/03/2013. Our attention was also invited to the net profit declared by the assessee on the projects where suspicion parties were involved and it was highlighted that net profit during these years were higher as compared to the projects where suspicion parties were not involved. Hence, where all primary details regarding vendors has been provided by the assessee, consumption has been proved, payments are through banking channels and receipts are not doubted by the AO, then expenses cannot be disallowed merely because service providers have not appeared. For this purpose, reliance was placed on following judicial pronouncements. (i)) Babulal C. Borana vs. ITO (2006) 282 ITR 251 (Bom.) (HC) Where the identity of the persons from whom goods are purchased has been explained, payment are made by A/c. payee (cheques, transactions are....
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....d Net Profit before tax on account of lowering of gross profit Margin in various Assessment Years as compared to earlier assessment years when there was no such allegation of bogus billing was as below Particulars Average of earlier 5 years A.Y. 2007-08 A.Y. 2008-09 A.Y. 2009-10 A.Y. 2010-11 A.Y. 2011-12 Sales 35.74 crores 113.64 crores 156.39 crores 101.04 crores 129.40 crores 116.63 crores Increase in sales as compared to average sales of earlier 5 years - 218% 338% 183% 262% 226% Gross Profit 12.99% 9.87% 9.25% 12.91% 12.31% 14.48% Net profit Before Tax 2.28% 5.27% 5.69% 4.01% 5.51% 4.96% Increase in net profit before tax as compared to average of earlier 5 years - 2.99% 3.41% 1.73% 3.22% 2.68% 45. As per learned AR one can see from the above chart that because the assessee company had lowered its gross profits margin the assessee company has managed to increase its sales by 218% in Assessment Year 2007-08 ie from Rs. 35.74 Crores to Rs. 113.64 Crores and even after lowering its margin the assessee company ....
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....ce, retraction being on affidavit was legal and valid and was not belated. Further \ retraction was supported by explanation of impounded ' documents to the Survey team. The impounded document did not contain any information which was not recorded in the books of accounts. Hence, retraction cannot be said to be an afterthought. 48. The CIT(A) observed that statement given at the time of survey was not out of fear/ coercion. In reply to the same, it was contention of learned AR that circumstantial evidences itself indicates that there was a hurry in taking statements of Managing Director in the middle of the night by keeping female employees at the office premises waiting which is on record and this itself shows that there was an atmosphere of fear and coercion to get statements as desired by the department . 49. CIT(A) has held that assessee has not appeared before the AO on various occasions. In reply assessee submitted that during the assessment, the assessee Company had produced relevant primary details of vendor like Name, Address, PAN, Service Tax Registration No before the AO during assessment proceedings & also all the payments made to the said vendor company are b....
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....ntered into with clients for the said assignment. We found that sample copy of client agreements alongwith vendor bills had been submitted by assessee via letter dated 20/03/2013. From the record we also found that an affidavit of Shri Omprakash Paharia was also filed wherein he has mentioned that areas .(He has mentioned in his affidavit that Concept group of companies was regularly in need of persons in semi urban rural and mofussil areas for execution of their clients work assignment & that he used to be contacted by the officials of concept group & his associates would help them in finding service providers and his associates used to coordinate with persons identified by them and ask them to execute the work for clients of the assessee. 52. It was also brought to our notice that Assessing Officer has not questioned Shri Om Prakash Paharia as to whether he has assigned work to the above entity. The affidavit of Shri Omprakash Paharia has not been found false. Hence, the expenses incurred by assessee cannot be disallowed outrightly. AO has not examined Shri Omprakash Paharia. In this respect proposition laid down by the Hon'ble Supreme Court in the case of Mehta Parikh & Co., ....
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....dence to the assessee & grant opportunity of cross-examination. Secondary evidences cannot be relied on as if neither the person who prepared the documents nor the witnesses are produced. The violation of natural justice renders the assessment void. The Dept cannot be given a second chance". 55. We also observe that the statement of Parag sanghvi on which assessing officer relies was later on retracted by stating the above statement was made under fear /coercion. Hence the above statement which was given at the time of survey has no evidentiary value in the absence of any corroborative materials having been brought on record by the AO. Retraction statement of CFO is also placed in the paper book. 56. Our attention was invited to the statement of Shri Vivek Suchanti wherein Shri Vivek Suchanti had answered that there was no Unaccounted cash and that expenses were wholly and exclusively incurred for the purpose of business & that necessary contemporary evidence by way of bills /vouchers are maintained by middlemen agents were also available in the office premises however the answer given by Mr Vivek Suchanti was wrongly mentioned in statement of oath, the declaration of which h....
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....he CBDT instruction No. 286/2/2003 dt. 10/3/2003. In his statement of oath Mr parag Sanghvi has stated his responsibility in the group is to keep and maintain books of account he has no where stated that he is aware of day to day publicity related work signed by clients. How can he know whether the company is dealing with bogus companies as his duty is to record the vendor company bills which comes to him after due authorization & verification by field executives & make payments when asked by authorized officials to do so. The survey officials should have waited till the arrival of Mr Vivek Suchanti who looks after overall management of business activities. 60. Even as per the boarding pass Mr. Vivek Suchanti reached Mumbai Airport at around 10:35 pm. After collecting his baggage etc.,which normally takes around 15-20 minutes he would have come out from airport ie by 10.55 pm .and if he takes eastern Free Way route it normally takes 1 hr and western express highway route it takes 1 hr 10 minutes that at night time there is heavy traffic on the said routes because of trucks passing through so it proves that the assessing officers claim that he could reach office by 11.15 or 11:30....
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....ssessment year 2007-08 to 2011-12 when compared to average profits of earlier 5 years in which no disallowance has been made on account of Accommodation bills. 65. Statement of profitability of earlier 5 years in which no disallowance has been made on account of accommodation bills wherein the average profitability which company has earned in earlier 5 years ie for Assessment Year 2002-03 to 2006-07 comes to 12.99% & average Net profit before tax comes to 2.28% is as below. Particulars Assessment Year 2002-03 Assessment Year 2003-04 Assessment Year 2004-05 Assessment Year 2005-06 Assessment Year 2006-07 Average 5 years Sales 24.34 Crores 27.28 Crores 32.47 Crores 32.86 Crores 6 1.74 Crores 35.74 crores Gross 16.22% 14.82% 12.29% 12.61% 11.48% 12.99% profit Net Profit before Tax 2.69% 0.47% 1.88% 0.77% 3.94% 2.28% 1) Statement of profitability for Assessment year 2007-08 to 2011-12 is as under Particulars Assessment Year 2007-08 Assessment Year 2008-09 Assessment Year 2009-10 Assessment Year 2010-11 ....
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.... tax % when compared with average net profit before tax of earlier 5 years has increased by 1.73% ie from 2.28% to 4.01%. Assessment Year 2010-11 69. The sales for the Assessment year 2010-1I when compared with Average sales of earlier 5 years has increased by 262% ie from Rs. 35.74 crores to Rs. 129.40 Crores however gross profit % has decreased by 0.68% % ie from 12.99% to 12.31% but one can see that net profit before tax % when compared with average net profit before tax of earlier 5 years has increased by 3.22% ie from 2.28% to 5.51%. Assessment Year 2011-12 70. The sales for the Assessment year 2011-12 when compared with Average sales of earlier 5 years has increased by 226% ie from Rs. 35.74 crores /-to Rs. 116.63 Crores & gross profit % has increased by 1.49% % ie from 12.99% to 14.48% & net profit before tax % when compared with average net profit before tax of earlier 5 years has increased by 2.68% ie from 2.28% to 4.96%. 71. However we observe that the net profit before tax for all the Assessment Years has increased when compared with average of net profit of earlier 5 years which shows that even after lowering its profit margin the company was ....
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....6,49,53,233.00 16,73,812.00 Net Billing debited to P&L A/c 11,03,12,005.00 14,14,86,428.00 7,76,20,390.00 8,25,40,720.00 6,32,79,421.00 Average Gross profit Of Earlier 5 Years Average Gross Profit (Rs) (a) 12.99% 1,43,28,908.60 12.99% 1,83,78,290.69 12.99% 1,00,82,451.80 12.99% 1,07,21,574.98 12.99% 82,19,640.64 Gross Profit As Per P&L A/c 9.87% 9.25% 12.91% 12.31% 14.48% Gross Profit Already Offer in the P&L Account (b) 1,08,84,670.00 1,30,85,466.18 1,00,17,936.96 1,01,58,783.03 91,60,478.62 Net Difference (a) - (b) 34,44,238.59 52,92,824.51 64,514.84 5,62,791.94 (9,40,837.98) 73. In view of the above chart we direct the AO to restrict addition to the extent of lower profit shown by assessee in case of Concept Communication Ltd., as under:- A.Y. Amount (Rs.) 2007-2008 34,44,238.59 2008-2009 52,92,824.51 2009-2010 64,514.84 2010-2011 5,62,791.94 74. In the A.Y.2011-12, the gross profit shown by the assessee was 14.48% as against average gross profi....