TaxTMI 
TaxTMI 
2019 (4) TMI 1572
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.... The Ld. CIT(A) erred in upholding the action of the Id Assessing Officer in making additions on the basis of statements of various persons recorded during the course of survey under Section 133A of the Act on 13.03.2013 without appreciating the fact that such recorded statement does not have any legal sanctity and cannot be relied upon. The Ld. CIT(A) erred in upholding the reopening of the assessment despite the fact that all the details were before the Id Assessing Officer during the original scrutiny assessment proceedings for which order u/s 143(3) of the Act was passed on 31.01.2013. The Ld. CIT(A) erred in upholding the disallowance of depreciation on astrological fees (Architectural Fees) amounting to Rs. 1,04,67,3177- despite the fact that: * The payments were made for the services provided; * The recipient had offered the same to tax; * The work was evidenced by various e-mails / maps; * The Hon'ble Settlement Commission in the appellant's own case had vide order dated 30.09.2015 held the same to be allowable; * TDS @ 10% have been deducted; * Service tax was paid; * There is no evidence that services were not provided. 4.The Ld. CIT....
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....ith the assignment of successfully implementing various Projects of the company. Shri Anand P Nair was the President of the applicant company during 2006-07. The assessee gave details of services done by Mr Nair, sample emails, maps and drawings done by him. The assessee submitted all payments were by cheque after deducting TDS. Mr Nair had offered the same to tax. The assessee submitted confirmation. The assessee submitted that in its own case, the Hon'ble Settlement Commission had held the payments to Shri Anand Nair were genuine. The assessee submitted that Mr Nair had paid service tax in Amnesty Scheme under category "Management Service". 5.5 The ld. CIT(A) did not accept the submission of the assessee. The CIT(A) observed that the assessee had capitalized the fees paid to Mr Nair as part of the 100 klpd block of assets which was part of Plant & Machinery. However, the assessee could not establish which part of the 100 klpd plant the payment related to. Further, an MOU was entered into by Mr Nair and Mr Amit Dahanukar and his wife Mrs. Shivani Dahanukar is in connection with Astrological Fees. The MOU proved that Mr Nair was providing the Dahanukar family with Astrologica....
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....t consultant and the fees have been booked as Income in the books of Mr Nair and applicable Income Tax was paid. The ld AR submitted that Mr Anand Nair has offered the entire amount received to tax in his income tax returns. The payments were made by account payee cheque and TDS u/s 194J at the rate of 10% was deducted. Confirmation of Mr Anand Nair was submitted. The Settlement Commission in the case of Shri Anand Nair have at internal page 14-15 have held that the income received from Appellant has been properly taxed in hands of Anand Nair. The Ld. AR further pointed out that the order of Settlement Commission is neither challenged by the assessee nor by the department, therefore, the same has become final. The ld. Senior Counsel argued that since payment to Mr. Anand Nair was accepted Genuine by Income Tax Department in Asst Year 2012-13 & 2013-14 by the department, with-out any change in the facts and circumstances in this year, the same cannot be considered non-genuine. The issue has already reached finality. Thus, the issue is a covered issue already decided in favor of the assessee. 5.8. With regard to, nature of payment as "Astrology Fees", it was submitted that this....
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....he payments were on the higher side and did not commensurate with the services provided. No formal agreement was there. The nomenclature of the payment of "Astrological Fees" showed that it was of personal nature. The subsequent agreement between director and the assessee clearly established fact that it is purely personal in nature and it was further supported by the conduct of assessee. The AO as well as the ld CIT(A) brought out enough materials to prove that expenditure is nothing to do with business activity of the assessee. The assessee failed to prove nexus between payment and services rendered by Mr. Nair. The AO never questioned genuineness of payment, but questioned nexus between such huge payment and services rendered, therefore, there is no reason to deviate from the findings of the lower authorities and their orders should be upheld. 7. We have heard both the parties, perused materials available on record and gone through the orders of the lower authorities. The dispute in this case is the deductibility of payment to Mr Anand Nair. It is observed that Mr Nair was President of the assessee company in 2006. The assessee has submitted copy of profile of Mr Nair from....
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....co-ordinated with various agencies for implementation of the project by deputing his employees at sites for quality checking and bill verification." At para 9.7 on page 24 of the Settlement Commission order, the Hon'ble Settlement Commission has given a finding as under: "Another issue raised by the Department is regarding the Astrology fees paid by the applicant company to Mr Nair. Mr Nair is a qualified architect and is also a management consultant as averred by the AR. The fees paid by the applicant company has been booked in the books of Shri Nair, hence we are of the considered opinion that no interference is called for." 8. We further noticed that total management consultancy fees paid across a period of four years is not exceeding 9% of the total project cost. During the Assessment Year 2010-11 and Assessment Year 2011-12, the following payments were made to Shri Anand Nair: Date of capitalization Amount (Rs) Depreciation claimed (Rs) Project name Project Start Date Project End date Total 23.11.2009 5,79,79,977/- 1,01,46,496/- 50 Klpd April 2008 November 2009 Rs. 62.51 CroreS 15.03.2011 11,00,00,000/- 1,92,50,....
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.... services. The MOU is how to sell the Dahanukar family's stake in M/s Tilaknagar Industries Ltd at a significantly high price. At Question 27 of the statement of Mr Amit Dahanukar dated 15.03.2013, Mr Dahanukar was asked about the MOU unearthed during the survey. Mr Dahanukar states that these pages are a written agreement between himself, his wife and Anand Nair wherein Mr Anand Nair was retained by him & his wife for astrological, design, strategic thinking and marketing insights, and networking consultancy services for their benefit. Thus, it was clear that the MOU was not for Tilaknagar Industries Ltd but was for the Dahanukar family's benefit. The assessee company was not a party to the MOU. Further, Shri Anand Nair has paid service tax on the fees received from the assessee under the head "management consultancy fees". Thus, if it was really Astrology Fees, what was the need for Mr Nair to pay service tax on the same, that too under an Amnesty Scheme; i.e. without any enforcement such as search and survey. Shri Anand Nair is an unrelated party, therefore, the payment cannot be disallowed u/s 40A(2)(b) of the Act. The ld. AO has not examined Mr Anand Nair at all either by issu....
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....uch income of Rs. 80 crors appx. This shows that the assessed income was significantly high. Further Shri Anand Nair is an individual and not a corporate. Normally in case of non-genuine payments, the party who issues bill, never make any tax payment. Thus, the transaction lacks the basic characteristics of a hawala transaction. However, in this case, Mr Nair is offering income for tax @ 30%. Without any evidence to prove otherwise, the payment to Mr. Nair can-not be considered non-genuine. There is no dispute that Shri Anand Nair has offered the Architect / Professional fees to tax in his personal return of income. Hence, disallowance of the fees in the hands of the assesseet would lead to double disallowance. The Hon'ble Supreme Court in Laxmipat Singhania vs. CIT [72 ITR 291, 294] observed that "it is the fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice." The same income cannot be taxed twice; once in the hands of one person and again in the hands of another person; or for that matter, in the hands of the same person in two different assessment years. In other words, same income cannot be doubly taxed. The view....
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....house for outstation employees who came to Mumbai. The AO was of the view that it was a sham transaction. The flats were taken on rent for Rs. 2 lakhs a month ie Rs. 1 lakh per flat. Subsequently, the flats were sold for Rs. 38 lakhs each in 2011-12 to one Mrs Anita Mohan, sister of Mr Anand Nair. He, therefore disallowed entire rent payment of Rs. 26,96,640/-. The assessee challenged the above disallowance before CIT(A). Before the CIT(A) it was submitted that the rent agreement was for 3 years. The payment was by account payee cheque and TDS was deducted. The assessee gave list of employees staying there and contended that the guest house was cheaper than a hotel. The contention of the assessee could not find favor from CIT(A). The ld. CIT(A) upheld the disallowance of rent as she observed that the guest list was not for financial year 2009-10. The CIT(A) further held that this is another generous payments to Shri Anand Nair. 12.3. The ld. Senior Counsel argued that, Shri Anand Nair is not a related party. The payments were made to Shri Anand Nair by account payee cheque. TDS was duly deducted u/s 194I of the Act. The rent was offered to tax in the hands of Shri Anand Nair. [ ....
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.... size of flat and the locality, we are of the view that rent payment of Rs. 1,00,000/- per month for two flats appears to unreasonable and excessive. Further, the AO did not brought on record any comparable cases of similar nature or find out market rate prevailing at that time. Therefore, we are of the considered view that this issue needs to be reexamined by the AO in light of our aforementioned observations and hence, we set aside this issue to the file of AO and direct him to consider afresh after affording an opportunity of hearing to the assessee. 14. Ground No 5 challenges the disallowance of housekeeping charges paid to J S Trading of Rs. 26,96,640/-. The house keeping charges was paid with respect to two flats at Vakola, Mumbai [total area 1,212 sq feet] pursuant to a Housekeeping agreement entered into on 1/4/2008 for a period of three years. Pursuant to the agreement, upfront payment of Rs. 72 lakhs was paid. The AO disallowed amount on the ground that it was a sham transaction. The housekeeping charges of Rs. 2 lakhs per month was too high an amount. No ordinary person would pay upfront fees of Rs. 72 lakhs. Subsequently, the flats were sold for Rs. 38 lakhs each ....
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.... daily removal of garbage, dusting, acid cleaning, mopping, washing carpets etc, weekly services of washing / scrubbing floor area, removal of dust, windows, polishing, shampooing, pest control etc. further, since the flats were used in the guest house, housekeeping was essential service. JS Trading is not a related party. The said housekeeping charges were offered to tax in the hands of M/s JS Trading. Applicable TDS has been deducted. Applicable service tax haven been paid. Under the house keeping agreement, JS Trading will provide housekeeping services mentioned at Schedule 1 on page 170 of the Paper Book which includes cleaning, maintenance of sanitary works, removal of garbage, polishing, pest control etc. Whether the expenditure is justified/reasonable or not has to be seen from the businessman point of view and AO cannot step in the shoes of Assessee as held by the Hon'ble Supreme Court in Hero Cycles (P) Ltd. vs. CIT (2015) 379 ITR 347 (SC). Therefore, we are of the view that the lower authorities were erred in treating housekeeping charges as non genuine payments. But, considering the size of flat, we are of the view that housekeeping payment of Rs. 1,00,000/- per month fo....
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....has claimed depreciation on architectural and management consultancy fees paid to Mr Anand Nair to the tune of Rs. 1,92,50,000/-. 20.1 This ground of appeal is same as Ground No 3 of the Assessee's appeal for Assessment Year 2010-11 in ITA 5818/Mum/2016, but for figures. Since, we have already decided the issue of depreciation on Astrology fees paid to Mr. Nair in favour of assessee in ITA. No. 5818/Mum/2016, for similar reasons we decide ground No. 2 of this appeal in fvaour of assessee and accordingly, direct the AO to allow depreciation as claimed by the assessee. In view of the above, we are of the view that the payment of fees to Mr Anand Nair was genuine. The assessee has rightly capitalized the same under the head Plant and Machinery. Hence, Ground No 3 of the Assessee's appeal is allowed. The assessee is entitled to relief of depreciation claimed of Rs. 1,92,50,000/-. 21. Ground No. 3 is general, not pressed, hence, dismissed. 22. In the result, assessee appeal is partly allowed. ITA 6321/Mum/2016-AY.2011-12 23. This appeal was filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals) - 47, Mumbai {hereinafter called ....
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....f the parties was M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. From 2010 onwards, M/s Triochem Sucrotech Engineering & Projects Pvt Ltd was constructing a grain based refinery for the assessee at Shrirampur, Nasik. The assessee had capitalized the cost of the refinery in its books of accounts for the first time during Assessment Year 2011-12. 25.3 The ld Assessing Officer held that the assessee has booked bogus capitalization in respect of purchases from M/s Triochem Sucrotech Engineering & Projects P Ltd. to the extent of Rs. 26,25,14,887/- and received back cash to the extent of Rs. 24.24 crores. Accordingly, the AO had made addition on account of cash back received of Rs. 22.43 Crores in Asst Year 2010-11 & of Rs. 1.81 crores in Asst Year 2011-12. The AO further held that depreciation on such inflated capitalization of Rs. 26,25,14,887/- can-not be allowed. Holding so, the ld. AO computed the average rate of depreciation claimed to be 9.65%. Accordingly, he disallowed depreciation of Rs. 2,53,32,686/- (i.e. 9.65% of Rs. 26,25,14,887/-) in respect of capitalization related to M/s Triochem Sucrotech Engineering & Projects P Ltd. The ld Assessing Officer also disallowe....
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....133A on M/s. Triochem. In the statement recorded from Shri. Nitin Deshpande during the survey, he admitted to the debiting of bogus expenses to the tune of Rs. 24.24 crores. The AO dismissed the argument of Shri. Nitin Deshpande that this amount was passed on to M/s. Tilaknagar Industries. In the assessment order of M/s. Triochem the AO rejected their argument that the supplementary contract was without substance and was put in place only to enable siphoning off funds for being passed on to M/s. Tilaknagar Industries, pointing out the various clauses of the supplementary agreement which enumerated the additional modifications and enhanced specification of the instrumentation originally proposed. In the course of assessment of M/s. Triochem the AO noted that there was no evidence that it was coerced into agreeing into signing an inflated contract. He also rejected the assertion that the bogus purchases were done at the behest of M/s. Tilaknagar Industries. The statements of Shri. S. K. Jain and Shri. Suresh Parikh were also analyzed by the AO in the assessment order of M/s. Triochem and he concluded that these statements have been only given to accommodate M/s. Triochem as the conce....
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.... neither challenged the above addition on account of cash back received of Rs. 1.81 crores nor challenged the above findings of CIT(A) with reference to transaction with Triochem. Thus, the above findings of CIT(A) has remained un-challenged and final. 28. We find that the Ld. CIT(A) has dealt with the issue related to depreciation disallowance in ground number 6 of Grounds of appeal (para 5.4, Sub paras 5.4.1 to 5.4.4). The relevant portions of the orders are reproduced below: "5.4 In Ground No. 6, the appellant has challenged the disallowance of depreciation amounting to Rs. 9,43,44,570/-. During the course of assessment proceedings, the AO noted that the increase in gross block of P&M during the year included fictitious assets acquired during the year as also the inflated cost of the project executed by M/s Triochem. The AO also observed that the inflation of the cost of the project executed by M/s Triochem was worked out to Rs. 26,25,14,887/- which included purchase of computers of Rs. 3,64,86,410/- on which depreciation @50.45% worked out to Rs. 1,84,07,393/-. Further the AO noted that in the preceding years, the computers/peripherals has been treated as Plant and mac....
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.... interference. This finding was not at all challenged by the department. While dealing with Ground No. 6 of the assessee appeal before CIT(A), specific reference was given under para 5.4 for disallowance of depreciation in respect of transaction with Triochem. The Ld.CIT (A) has analysed each and every party alleged to be bogus and her analysis was so minute that she has even identified a payment of Rs. 92,81,009/- in respect of one party whereby such payment was debited in P&L account and directed to be disallowed over and above the addition made by AO. The Ld. DR could not pint out any other infirmity in the order of CIT(A), but, simply argued that no express finding was given in respect of transaction with Tricohem, therefore, matter may be set aside to CIT(A). In view of our findings hereinabove, we are of the considered opinion that the ld. CIT (A) has adequately dealt with this issue and we do not find any infirmity whatsoever in the order of CIT(A). Accordingly, Ground No. 1, sub grounds (i, ii & iii) of departmental appeal are dismissed. 31. Ground No 1(iv) of the Department Appeal challenges the deletion of the disallowance u/s 14A of the Act by the ld. CIT(A) of Rs.....