AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 528
X X X X Extracts X X X X
X X X X Extracts X X X X
....223;s-length price of the international transaction determined by The Additional Commissioner Of Income Tax, Transfer Pricing Officer - I (2), New Delhi (The learned TPO) u/s 92CA (3) of the Act. The assessee has raised the following grounds of appeal:- "1. That the Assessing Officer erred on facts and in law in rejecting the cash method of accounting followed by the assessee and in concluding the assessment as per accrual/ Mercantile Method of Accounting. 2. That the Assessing Officer erred on facts and in law in making an addition of Rs. 35,85,00,000/- (being the value of alleged illegal gratification paid by the assessee) to the total income of the Assessee. 2.1 That the Assessing Officer erred on facts and in law in arriving at the finding that a sum of Rs. 35.85,00,000/- was paid by the Assessee to the officials of Organizing Committee, Commonwealth Games, 2010 ("OC") and Delhi Development Authority ("DDA") in as much as there was no material on record to suggest that the Assessee has made any payment illegal or otherwise to the officials of OC and/or DDA. 2.2 That the Assessing Officer erred in placing reliance on the seized papers being Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d upon for treating the arm‟s length price of the international transactions entered into by Assessee with its Associated Enterprise as NIL as against Rs. 58,43,94,894/-. 3.6 That the TPO has erred on facts and in law in summarily, without any cogent reason rejecting the substantial and detailed submissions, documentinformation furnished by the Assessee in support of its computation of arm's length price. 3.7 That the order passed by the I PO is nonspeaking, arbitrary and vague any therefore liable to be set aside on this ground alone. 3.8 That the TPO has erred on facts and in law in completely ignoring and disregarding the substantial and detailed submissions, documents and information furnished by the Assessee in support of its computation of arm's length price. 4. That the Assessing Officer has erred on facts and in law in making addition of Rs. l1,22,32.956/- (being the value of seized invoices) to the total income of the Assessee. 4.1 That the Assessing Officer erred on facts and in law in making a substantive addition of Rs. l1,22,32,956/- in spite of a specific finding that such addition has to be made on protective....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in law in making an addition of Rs. 2,14,59.000/- to the total income of the assessee by invoking the provisions of Section 69C Section 37 of the Act. 6. That the Assessing Officer has erred on facts and in law in making addition i: Rs. 31.71,400/- (Rs. 25,84,342/- being the value of purchases from M s Nitin Enterprises plus Rs. 5,87,058/- being the value of purchases from M/s Garg Road Lines) to the total income of the Assessee. 6.1 That the Assessing Officer erred on facts and in law in making a substantive addition of Rs. 31.71.400/- in spite of a specific finding that such addition has to be made on protective basis only. The following sub-grounds are without prejudice to the above ground 6.1 above. 6.2 That the addition of Rs. 31,71.400/- made by the Assessing Officer is against the principles of natural justice as the copies of the allegedly incriminating material/ documents purportedly collected by the Assessing Officer from third parties and relied upon in the impugned assessment order were not supplied to the Assessee in spite of repeated requests made by the Assesse both in writing and otherwise. 6.3 That the addition of Rs. 31,71.400/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7.5 That the Assessing Officer erred on facts and in law in summarily rejecting e original bills produced by the Assessee by treating the same as bogus, without any cogent reason. 7.6 That the Assessing Officer erred on facts and in law in making an addition of Rs. 1,03,15,369/- to the total income of the Assessee by invoking the provision , of Section 37 of the Act. 8. That the Assessing Officer has erred on facts and in law in making addition of Rs. 5,39.23,60.3/- (being the value of expenditure on travelling & conveyance) to the total income of the Assessee. 8.1 That the Assessing Officer erred on facts and in law in making a substantive addition of Rs. 5,39,23,603/- in spite of a specific finding that such addition has to be made on protective basis only. The following sub-grounds are without prejudice to the above ground 8.1 above. 8.2 That the addition of Rs. 5.39,23,603/- made by the Assessing Officer is against the principles of natural justice as the copies of allegedly incriminating material/ documents collected by the Assessing Officer from third parties and relied upon in the impugned assessment order were not suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... much as there was no material whatsoever on record to suggest that any of the original bill produced by the assessee is bogus, let alone material to show assessee‟s alleged involvement in practice of receiving bogus bills. 9.3 That the Assessing Officer erred on facts and in law in doubting/ challenging the valid and legitimate business rationale/ purpose of the Assessee in incurring the expenditure on professional services. 9.4 That the Assessing Officer erred on facts and in law in summarily rejecting the original bills produced by the Assessee by treating the same as bogus, without any cogent basis. 9.5 That the Assessing Officer erred on facts and in law in making an addition of Rs. 4,90.08,835/- to the total income of the Assessee by holding that the said amount represents expenditure not allowable under Section 37 of the Act. 9.6 That the Assessing Officer erred on facts and in law in making an addition of Rs. 4,90.08,835/- to the total income of the Assessee by invoking the provisions of Section 40A(2)(b) of the Act in as much as no finding whatsoever has been recorded by the Assessing Officer to suggest that the expenditure incurre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the value of balance sheet item of advance recoverable to the total income of the assessee. 14.1 That the Assessing Officer has erred on facts and in law in totally disregarding the fact that the value of Advance Recoverable only represents the amount of credit refund available for VAT payments, Customs Duty payment. CENVAT Credit for Service Tax and other miscellaneous advances for hotels, etc. which are neither an item of income nor an item of expenditure for the Assessee. 14.2 That the Assessing Officer has erred on facts and in law in making a huge addition of Rs. l1,58,75.146/- without indicating any statutory provision of the Act based on which such erroneous addition has been purported to be made. 15. That the Assessing Officer has erred on facts and in law in making addition of Rs. 4.65.78,484/- being the value of balance sheet item of Sundry Creditors and Rs. 6.98.13.499/- being the value of balance sheet item of Other Liabilities, to the total income of the Assessee. 15.1 That the Assessing Officer erred on facts and in law in arriving at the finding that the Sundry Creditors & Other Liabilities are bogus merely because confirmation let....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Brunet (Director of Assessee) had in fact duly furnished a confirmation letter regarding Rs. 7,00,000/- given as unsecured loan to the Assessee. 17.4 That the Assessing Officer erred on facts and in law in ignoring the fact that Mr. Binu Nanu (Director of Assessee) had in fact duly furnished a confirmation letter regarding Rs. 27,10,000/- (Rs. 27,00,000/- plus Rs. l0,000/-) given as unsecured loan to the Assessee. 17.5 That the Assessing Officer erred on facts and in law in making an addition of Rs. l,05,10,000/- to the total income of the Assessee by invoking the provisions of Section 68/ Section 68 of the Act. 18. That the Assessing Officer has erred on facts and in law in making addition of Rs. 30,32,55,951/- (being the alleged difference between the purported target cost and consideration to be received from OC), to the total income of the Assessee. 18.1 That the addition of Rs. 30,32.55.951/- made by the Assessing Officer on account of the alleged difference between the purported target cost and consideration to be received from OC has led to duplicative addition as the entire consideration received/ receivable by the Assessee from OC has al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of Rs. 34.10,40,959/- made by the Assessing Officer is against the principles of natural justice as the copies of the allegedly incriminating material/ documents collected by the Assessing Officer from third parties and relied upon by the Assessing Officer in the assessment order were not supplied to the Assessee in spite of repeated requested. 19.4 That the addition of Rs. 34,10,40,959/- made b) the Assessing Officer is against the principles of natural justice as the Assessing Officer-failed to provide to the Assessee the opportunity to cross examine the relevant officers of other vendors whose prices have been relied upon in the assessment order for making the addition of Rs. 34,10,40,959/- to the total income of the Assessee. 19.5 That the Assessing Officer erred on facts and in law in disregarding the material and relevant details submissions/ documents and information furnished by the Assessee and has instead erroneously relied on extraneous considerations for making addition of Rs. 34,10,40,959/- to the total income of the Assessee. 19.6 That the Assessing Officer erred on facts in not appreciating the nature of Assessee's business by trea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....receipts of Rs. 180,14,77,159/- in spite of the specific direction of the DRP that the total income of the assessee cannot exceed 100% of the gross receipt. 22. That the Assessing Officer has erred on facts and in law in initiating penalty proceedings under section 271 (1 )(c) of the Act. 23. That the Assessing Officer has erred on facts and in law in initiating penalty proceedings under section 271G of the Act." 2. The brief facts of the case are related to XIX addition of Commonwealth games held in New Delhi from 3/10/2010 to 14/10/2010. The organization and conduct of this mega event was controlled and supervised by The Commonwealth Games Organizing Committee (OC, CWT) specifically formed and authorised to deal with the various aspects relating to the smooth organization of the above event. The budget of this committee was estimated at about INR 2300 crores. Out of this amount, the sum of INR 600 crores were estimated to be spent on the execution of the overlays contracts. These contracts were awarded to four different parties with each party executing the work in respect of one or more of the seven clusters into which the sporting and training venues were d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orted on various aspects related to the Commonwealth games 2010. The fifth report of the committee has dealt with various aspects related to the overlay contracts. The report has also commented that the organizing committee has paid differential rates two different contractors for the same items and paying of hire charges for the same items has resulted in huge loss to the exchequer. It was apprehended that the huge margins are not to be disclosed by the assessee to the income tax Department. Therefore, search u/s 132 of The Income Tax Act was carried out at the residence and business premises of M/s GL Litmus Events Private Limited and the Meroform group on 19/10/2010 at New Delhi and Noida. Survey under section 133A of The Income Tax Act was also carried out along with the search actions. During the course of search and survey, various documents were found and seized. Statements of Shri Binu Nanu were recorded on 19/10/2010 and on 16/12/2010. Statement of Mr. Sebastian Brunet, Director of GLLE, was also recorded on 19/10/2010. 8. Meanwhile on 05/01/2011 an FIR No.RC-DAI-2011-A-0001 was filed under section 154 Cr.P.C by CBI for criminal conspiracy, cheating, and abuse of offici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s by the OC, CWG led to the Ministry of Youth Affairs & Sports, vide its letter dated 19/05/2011, to instruct that payments of bills to the overlays vendor, including assessee could not be held to be legitimate dues and hence it would not be appropriate to release the said amount due to them. Further in the event of absolutely no payments being released, the Appellant Company on 12/07/2011, issued notice to OC, CWG whereby listing out its bills, it invited discussion from OC, CWG regarding the disputes and differences in order to reach a mutually agreeable solution. Again, since there was no response from OC, CWG, another letter dated 23/08/2011 was issued to OC, CWG, requesting it to refer the disputes to its Chairman and CEO for their resolution. Finally the OC, CWG vide its letter dated 25/08/2011 appraised the Appellant Company that the contract relating to overlays was under investigation of various agencies including the CBI and an FIR had also been lodged in which assessee was cited as an accused for suspected offences of criminal conspiracy, cheating and abuse of official position. It was informed to the Appellant Company by Ministry of Youth Affairs & Sports vide its lette....
X X X X Extracts X X X X
X X X X Extracts X X X X
....09 of The Companies Act, 1956. Thus, accordingly, Return was filed on cash basis at an income of Rs. 5,23,39,490/- Assessee declared income under the head income from business or profession. It was alleged therein that the Appellant regularly maintained books of account on accrual basis, Return of income on cash basis was rejected. Against the returned income of the assessee of INR 52339490/- , the learned AO passed the draft assessment order on 27/3/2014 determining the total income of the assessee of INR 10,45,48,31,720/-. There were 25 different type of additions which are made by the learned assessing officer amounting in all INR 10,45,48,31,721/-. During the course of assessment proceedings, reference u/s 92CA (1) was made by the learned assessing officer to the learned transfer pricing officer to determine arm‟s the price of the international transaction undertaken by the assessee. The assessee submitted that there were no international transactions between the assessee and its associated enterprises. However the learned transfer pricing officer found that assessee has entered into 5 different types of international transactions as under :- serial number Details o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... followed by the assessee. The learned assessing officer noted in the show cause notice dated 9/1/2013 that the assessee company has been regularly maintaining books of account on accrual basis as is evident from the financial statements filed by the company under the companies act and the books of account seized during the course of search. He noted that even for the income tax purposes the company has followed the accrual basis of accounting initially as is evident from form number 3 CEB filed by the assessee company. He further noted that in that form, it is stated that the international transaction are as per books of accounts which have been duly examined by the auditor for the purposes and therefore it shows that the assessee has been following the mercantile system of accounting and only to defer the tax payments switched to the cash system of accounting. In para number 12 (D), he further noted that assessee has initially claimed to have maintained its books of accounts in cash basis. The books of accounts for the financial year 2010 - 11 of the assessee analyzed during the post-search proceedings, which were reflective of the actual payments and receipts only and did not gi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee. He further relied upon the provisions of section 5 of the income tax act and submitted that cash systems of accounting as well as the mercantile system of accounting both are recognized for the purpose of the computing total income of the assessee. He further referred to the provisions of section 145 of the income tax act which lays down that the business income is required to be computed in accordance with the cash or Mercantile system of accounting regularly employed by the assessee, therefore, submitted that it is open for an assessee to follow either cash system of accounting or Mercantile system of accounting in computing its business income. He further submitted that it is a settled position of law that the option of choosing a system of accounting rests with the assessee and the tax authorities cannot interfere with such a choice with respect to the system of accounting. He relied upon the decision of the honourable Supreme Court in case of CIT vs. Macmillan & Co 33 ITR 182 wherein it has been held that the choice of the method of accounting lies with the assessee. He further referred to the decision of the honourable Supreme Court in case of INVESTMENT LTD VS. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the appellant to maintain the non-complicated cash method of accounting, wherein income was recorded only when it is received and expenses were recorded only when it is paid. He further justified the cash system of accounting stating that owing to the nature of the industry being the service industry in which the appellant company operated and that too with the government agencies, the invoices and bills raised on the various projects are subject to final settlement and in many cases, they are subject to revision and even rejection. He further stated that when the services rendered, which is intangible in nature, there is always a possibility of disputes and negotiation, thus giving rise to the element of uncertainty in the acknowledgement and receipt of those invoices, and thus the final income figures are always uncertain. He further referred to the facts of the case of the appellant and stated that assessee was awarded the contract for the value of INR 77.63 crores for one cluster and INR 72.36 crores for another cluster. According to the terms of the contract, the bills were raised from 22/6/2010 until 12/10/2010. He said stated that invoices of INR 80.21 crores were raised b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ims of the appellant and raised counter claim of recovery of INR 70.18 crores along with the interest on the claim that the agreement became void ab initio due to criminal conspiracy/fraud. He therefore submitted that the organizing committee has not only denied all the remaining balance as legitimate dues but has raised counterclaims for the recovery. He further referred to the original award dated 23/2/2018 passed by the arbitral tribunal, the final corrected arbitration award dated 14/05/2018 wherein the claim of the assessee with respect to the balance of the bill was mostly accepted, and the counterclaims of the organizing committee were rejected. However, he submitted that the above award is still pending finalization as the writ petition has been filed by both the parties before the honourable Delhi High Court. Therefore, he stated that that the bills pending payment are still not acknowledged and accepted as dues by the organizing committee. He therefore submitted that only the payment received of INR 70.18 crore was only the acknowledged due and thus the real income of the appellant. He therefore submitted that dues to the tune of INR 72.13 crores not even being acknowledg....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the draft assessment order at page number 4 where the assessing officer stated that the books of accounts for the financial year 2010 - 11 of the assessee were analyzed during post search proceedings were therefore reflective of the actual payments and receipts only. Therefore, he submitted that the learned assessing officer has also recognized that the assessee is maintaining the books of accounts on cash basis. He further submitted that mere filing a form number 3 CEB , the accrual figures do not established that for the tax purposes appellant maintained books of account as per the accrual method of accounting. With respect to the order of the learned dispute resolution panel, he submitted that the learned dispute resolution Panel held that various discrepancies in the books of accounts as noticed by the learned assessing officer justified the order of ld AO. He dealt with the 1st observation with respect to the print out of an email dated 16/6/2010 and stated that these document is not found from the office of the assessee and therefore it does not belong to the assessee but it belongs to the person who sent this mail i.e. Sri Binu Nanu only. Even otherwise, he stated that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es which has been raised by the learned dispute resolution panel for rejecting the books of accounts are baseless. He further submitted that in order to invoke the provisions of section 145 (3) of the act and to disturb the existing system of accounting , assessing officer must necessarily expresses dissatisfaction about the correctness or completeness of the accounts of the assessee and also note that such system of accounting was not regularly followed by the assessee in which event alone the assessing officer can exercises jurisdiction and make an assessment as provided under section 144 of the income tax act. He further submitted that before the rejection of the books of accounts and necessary opportunities required to be given to the assessee where by the learned assessing officer has to afforded opportunity to the assessee to contradict the materials upon which the assessing officer wants to reject the books of accounts. He submitted that no such opportunity is given. Even otherwise, he submitted that when the books of accounts of the assessee are rejected then the only option available with the learned assessing officer is to estimate the proper profit of the assessee on rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing committee and the Delhi development authority which does not get reflected in the books of accounts. He further referred to the difference in the bills debited in the books of accounts and the bills found during the course of search showing huge difference. Therefore, he submitted that the provision of section 145 clearly shows that assessee has not followed the cash system of accounting. He further referred to the decision of the honourable Supreme Court in case of British paints India Ltd 188 ITR 44 wherein it has been held that it is the duty of the learned assessing officer to consider whether the books disclose the true state of accounts and the correct income can be deduced therefore more not. He further stated that the books of accounts of the assessee are not reliable at all and therefore this books of accounts have to be rejected under section 145 (3) of the income tax act. 22. The learned authorised representative countering the arguments of the learned departmental representative vehemently stated that the assessee has produced all the bills before the assessing officer and therefore there is no discrepancy in the books of accounts. Further with respect to the sum....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... This is subject to the provisions of subsection (2) of section 145 of the income tax act. Further, provisions of section 145 (3) also provides that where the assessing officer is not satisfied about the correctness or completeness of accounts of the assessee or where the method of accounting provided in subsection (1) has not been regularly followed by the assessee , has not been computed in accordance with this standards notified under subsection (2), the assessing officer has to make an assessment in the manner provided under section 144 of the income tax act. On plain reading of the above section, it is clear that section 145 provides for computation of income u/s 28-29 based on the books of account and method of accounting regularly followed by the assessee. However, the assessing officer, if he is not satisfied with the correctness or completeness of the books, he may reject them and estimate the income to the best of his judgment in accordance with the provisions of section 144 of the income tax act. It is also if it is the option of the assessee to follow cash method of accounting or mercantile method of accounting and income tax authority had no option or jurisdiction to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee must be judged in the light of the reality of the situation. (6) Under section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income-tax Officer, the income cannot be properly deduced there from, the computation shall be made in such manner and on such basis as the Income-tax Officer may determine." Therefore accordingly, principle emerges that the method of accounting adopted by the taxpayer consistently in regularly cannot be discarded by the revenue on the view that he should have adopted a different method of keeping accounts but the concept of real income is certainly applicable in judging whether there has been an income or not and such principle must be applied with care and within their recognized limits. It is further held that the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation and if the method of accounting employed by the assessee, real income of the assessee cannot be properly deduced there from, the income tax officer may determine the income as per his wisdom. Further, the honourable Supreme Court in c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the same method of accounting is regularly employed by the assessee during this year as well as in subsequent years. Therefore it can be said that assessee is following this method of accounting regularly hence it is "regularly employed" by the assessee. 27. It is also apparent that assessee is a company and therefore the provisions of the Companies act apply to it. Thus, to comply with the provisions of section 209 of the companies act 1956, where it is provided that the assessee company must maintain its books of accounts to be presented before the shareholders as well as before the Ministry of corporate affairs, it should comply the accrual method of accounting. Such mandate of the company law is definitely required to be complied by the assessee and therefore it maintains its books of account for such purposes employing accrual method of accounting. The honourable Supreme Court in 240 ITR 355 in case of United commercial Bank vs. Commissioner of income tax ( supra) at page number 365 has held that for determining the real income, the entries in the balance-sheet required to be maintained in the statutory form, may not be decisive or conclusive. At page number, 366 of the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its operations with the limited vision of completing the said venture, therefore the cash method of accounting employed by the assessee was the most suitable and easiest method wherein income was recorded only when it is received and expenses were recorded only when it is paid. On careful perusal of the provisions of section 145 (1) of the act, we do not find any distinction with the nature of the business for method of accounting to be employed regularly. Further, the assessee stated that as assessee is in a contract business there are always possibility of disputes and negotiation giving rise to the element of uncertainty in acknowledgement of and receipt of the invoices, that is subject to certain deductions or adjustment is always, it would be futile to record an income, which has not accrued to the assessee. The learned AR further stressed upon the facts of the case and stated that in assessee‟s case this has happened as the bill is raised in those years have not realized till date and are facing the protracted litigation for indefinite period. The learned AO is canvassing the accrual method of accounting only for the reason that the activities of the assessee are not ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ately INR 11 crore for which no bills are available. To substantiate this learned AO has tabulated on page number 6 - 9 of the draft assessment order, details of 92 parties where there is a difference in the bills found during the course of search as well as bills recorded in the books of accounts. In fact the assessee has recorded the total bills of INR 38,77,38,567/- whereas the bills found during the course of search are only INR 27,55,05,611/-. The contention of the assessee raised before the learned dispute resolution panel was that that the search party found other bills but seized only those bills, which were of the amount of above INR 100,000. Therefore, it is not of fact that no bills were found for a sum of INR 11 crores. The AR further stated that as per the direction of the learned DRP the appellant did produce before the assessing Officer the original remaining bills for verification which were rejected by the learned assessing officer stating that the above bills cannot be relied upon as the assessee company was involved in the practice of receiving bogus bills. In fact, on careful analysis of the finding of the learned assessing officer, it is apparent that assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Oliver of GL events France , whereas there is a working of a sum of INR 35.85 crore as is expenses on account of organizing committee and Delhi development authority. Such email is placed at para number 5.2 of the direction. The copy of the email is produced at page number 6 of the order of the learned dispute resolution panel. At page number 7 of the direction, another document that is seized from the residential premises of Mr. Binu Nanu is also placed. According to the learned dispute resolution panel those documents speaks a lot about the money paid/payable for obtaining the contracts. The learned dispute resolution panel in para number 5.4 has noted that that it is evident from the above two documents that for taking contract for CWG from organizing committee in Delhi Development Authority the assessee has paid the sum of INR 27 Crore for contract value of INR 16 5,00,00,000, 120 crores from organizing committee and INR 45,00,00,000 from Delhi development authority, 15% of the contract value to organizing committee and 4.5% of the contract value to Delhi development authority. Therefore, the learned dispute resolution panel was also of the view that above sum has been shown in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sing officer has straight way rejected these bills stating that assessee is engaged in the practice of receiving bogus bills. Without finding any of the bills recorded in the books of accounts of the assessee as bogus, the whole argument of the learned dispute resolution panel and the learned assessing officer , with respect to method of accounting employed by the assessee cannot be sustained. The correct methodology should have been to find out the bogus bills by the assessee, if any, and then to disallow those expenses under section 69C of the income tax act. The addition u/s 69C of the income tax act can be made irrespective of any of the accounting method followed by the assessee. Therefore, for this reason the books of accounts and method of accounting employed by the assessee cannot be rejected. iv. The next reason that has been given by the learned assessing officer is that that there is a negative cash balance in the books of accounts of the assessee of INR 1,22,696/-. During the course of search, daily cashbook of the assessee company was found. Based on this it was found that on 09/04/2010 - INR 15,000/-, on 18/05/2010 - 2767/- and on 08/10/2010 - INR 1 04929/- a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld that that it is incorrect to say that the assessing officer is bound to accept the system of accounting regularly employed by the assessee, the correct method which had not been questioned in the past as there is no estoppels in this mattes and the AO is not bound by the method followed in the earlier years. On careful analysis of the decision of the honourable Supreme Court at page number 0049 it is held as under :- " the question to be determined by the assessing officer in exercise of his power under this provision is whether or not income can properly be deduced from the accounts maintained by the assessee, even if the accounts are correct and complete to the satisfaction of the officer and the income has been computed in accordance with the method of accounting regularly employed by the assessee. What is to be determined by the officer in exercise of his power is a question of fact, i.e. , whether or not income chargeable under the act can properly be deduced from the books of accounts, and he must decide the question with reference to the relevant material and in accordance with the correct principles." 34. Honourable Supreme Court further held at page number ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t case, the learned assessing officer has not shown any reason for which if an assessee follows cash basis of accounting, the profits cannot be deduced correctly. Even otherwise, the real income of the assessee is required to be taxed. In the present case assessee itself has shown that though it has raised the bills but some of the bills have not been received till now because of protracted litigation which itself proves that even in the mercantile system of accounting such income has not accrued. Nothing more could have been shown as an income then what is received by the assessee. It is not the case of the revenue that assessee has not shown income what has been received by it. It is also not the case of the revenue that expenditure claimed by the assessee has not been paid. In view of this, both receipts and outflow of cash are undisputed. In view of this, we are of the view that the cash method of accounting, which is followed by the assessee for the impugned assessment year as well as subsequently, cannot be rejected and the income of the assessee should not be computed on mercantile method of accounting. Accordingly, ground number 1 of the appeal of the assessee is allowed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....certain persons to whom payments appear to have been made. These details indicate payments to few of the DDA Engineers, few field officers & officials of the Accounts Section. Payments to consultants also find mention in the Annexure at page 6. When Shri BinuNanu was asked to explain the contents of all these documents during the course of search, he had evaded doing the same. Subsequently, no details in respect of the same were submitted during the course of post search inquiries. Shri BinuNanu was again asked to appear before the undersigned vide notice u/s.133(1) of the IT Act, 1961 dated 17.01.2014 and show cause for imposing penalty u/s.272A(1)(C) for non-compliance to the notice issued u/s.133(1) in this case on 05.02.2014. However, Shri BinuNanu never appeared for the hearing in this case till date." "31.......The contents of the said pages were held to be are corroborated by the details entered in diary marked as Annexure A-2 seized from the same premises. On these pages the following amounts are mentioned: Total contracted amount from OC 200 Crores Expenses 15% 30 Crores Total contracted amount from DDA 40 Crores Expenses 5% ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsidered view that there is no merit in adding Rs. 27.00 crores again after making addition of Rs. 35.85 crores. Similar finding has to be given by the AO in each repetitive addition/disallowance, if any, after carrying out the verification work as directed above for ascertaining the quantum of additions/disallowance repetitively made in the draft assessment order. In view of the above, we find merit in the addition of Rs. 35.85 crores separately u/s 69C as the assessee who paid this sum at the time getting contracted/releasing fund has not debited this as expenditure on that date in its stated books of account. Consequentially, the grounds of objection A-11 and A-28 get disposed of. 6.4 While analyzing this case, we are surprised to note that in a case where the default of sections 37, 40A(3), 40(a)(ia), 43B, etc. etc. get duly established from the books of accounts, then the income of the assessee would go even more than 100% of the gross receipts, but in a case where the assessee has not maintained books of account or maintained books of account in such a way where the expenditure have been entered in books of account after splitting payments to overcome the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rally the argument of spending any money on alleged gratification also fails, as the bogus billing is stated to be the sources of the illegal gratification. iv. Even otherwise, rough loose sheet talks about the expenses and how it can be correlated as illegal gratification is not known. v. The date of email is 16/6/2010. The organization committee granted the request for proposal on 16/1/2010. Later of intent was issued on 18/05/2010 wherein the value of the contract finalized that of Rs. 156,73,00,000. He therefore stated that how the email dated 16/6/2010 can contain estimated figures when the contract for work was already awarded. vi. He further referred to the handwritten note where the figures 15, 120, 18 and 20 are mentioned. He submitted that the contract values even if it is presumed are not the same. vii. He further submitted that the email though contained date however the loose sheet does not have any date, name of the payee, name of the payer and the details of payment et cetera therefore this is a dumb document, which cannot be used against the assessee. He further stated that the document also does not contain any signature. viii. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en found and the seized paper clearly shows that assessee has to pay the sum of money to the official of organizing committee as well as the DDA. 42. The ld AR in rejoinder stated that, assessee is not a party to the mail, No evidences are found during the course of search, and Arbitral Tribunal award says that there is no such evidence of illegal gratification brought on record. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have carefully considered the only two seized documents one email dated 16/6/2010 and another loose sheet containing handwritten notes. It is first to be observed that the said loose sheet appears to be a printout of an e-mail. The email id was "[email protected]". It thus stands clear that email is pertaining to Sri Binu Nanu and addressed to GLLEvents France. The second documents are the handwritten note of some calculations. The said loose sheet contains some cancellations and recalculations proving without doubt that it contained noting. However rough loose sheet talks about "expense." The expenses were linked by revenue as illegal gratification. However, in both these documents it is nowhere ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made to OC and DDA, which were recouped from the contract value through the bogus billings. The ld. A.O. has not pointed to any specific instance of a single bogus bill found in the search on the Appellant Company. Thus, the whole modus oprandi of the assessee alleged by the revenue merely remains on the paper and not at all investigated by it. Revenue has just chosen to make a statement based on Shunglu Committee report etc, that the Appellant paid illegal gratifications to obtain the Contracts and that the same were recouped by bogus billing. Such statements without any evidence is absolutely cannot be used for making disallowance. Further it is allegation by the ld. A.O. started with the Shunglu Committee Report following which the Search action under the Income Tax was initiated on the Appellant group on 19/10/2010 and the FIR dated 05/01/2011 was filed against the Consortium u/s 154 Cr.P.C by CBI for criminal conspiracy, cheating and abuse of official position against the Assessee and other persons. Next CBI raid was conducted and payment of all pending bills to the Appellant was all stopped. Following all this, the Appellant approached the Arbitral Tribunal wherein along wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing GLLE could not be held to be legitimate dues "until the investigations by the Central Bureau of Investigation (CBI) are complete". It was thus directed that it would thus not be appropriate to release the said amount due to them. Further OC, CWG vide its letter dated 25/08/2011 appraised the Appellant Company that the contract relating to overlays was under investigation of various agencies including the CBI and an FIR had also been lodged in which GLLE was cited as an accused for suspected offences of criminal conspiracy, cheating and abuse of official position. It was thus informed it would not be appropriate to release the said amount due to them. Thus following the above, payments not being received, the Appellant and the OC both approached the Arbitral Tribunal on 19/12/2013 wherein claims for outstanding amounts were made by GLLE (Claimant) and counter claims by the OC, CWG, (Respondent) before the said Arbitral Tribunal. The Arbitral Tribunal, based on the Claims and the counter claims filed by the Claimant and the Respondent respectively, framed the following Issues which included amongst other issues that "8. Whether the contract between the parties is vitiate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Verma as motivated to favour the Claimant and the other three overlay providers and indicative of collusion and corruption is flawed as no worthwhile evidence has been led before us in support of the same. On the basis of the affidavit of RW1 it was argued by learned counsel for the OC CWG that the allegations were made on the basis of Shunglu Committee Report, CAG Report and FIR lodged by the CBI. In this regard we were referred to question no.100 and answer of RW-1 thereto: "Q 100 Is your allegation of collusion based only on the fact that Mr. Verma did not mechanically agree with recommendations of six-membercommittee recorded at page 70 of Vol R-4 and, while performing his duty, gave his opinion as to why he felt those recommendations may compromise on the time factor and may not be achievable as recorded in para 7.7, pg. 70 by the six members committee itself? A. After the games were over, Shunglu Committee and FIR lodged by the CBI have raised these issues and my statement in para 6 of my affidavit dated 30/05/2014 is based on the same." 55. When RW-1 was asked to show even one paragraph from Shunglu Committee Report or CAG Report that r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e before us to bring home the allegations of fraud, collusion, mala-fides, cartelization, corrupt practices etc., levelled against the Claimant. Since these findings are based on failure of the OC CWG to adduce before us evidence of the nature mentioned above they shall not be construed as affecting the investigation of the case initiated on the basis of FIR lodged by the CBI against the Claimant, the other three Overlays providers and Mr. V.K. Verma. 61. Scrutiny of the evidence on record, particularly cross examination of RW1 negates the accusations of fraud, corrupt practices, collusion and cartelization levelled against the Claimant. 62. In view of the aforesaid discussion we hold that the OC CWG has failed to prove issue no.8. Therefore, issue no.8 is decided against the OC CWG." 45. Thus from all of the above, it clear that the Arbitration Tribunal has clearly negated the accusations of fraud, corrupt practices, collusion and cartelization leveled against the Appellant Company (Claimant). Also it is to be seen that from the award above, it is derived that the said accusation against the Appellant was purely and solely based on the Shungl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... M/s G L Events Meroform based on the experience of M/s G L Events Services, France. Later, the partners of the Consortium as per the terms of the contract formed an Indian company named G L Litmus Events Pvt Ltd for execution of the contract awarded by OC, CWG in India. As it was not possible for a France Company to directly conduct overlays activities in India and therefore it was undertaken by forming an Indian Company. The contract was provided by the consortium to the company at cost-to-cost basis without any mark up. As It is apparent from above that contract of overlays was awarded to M/s G L Events Meroform whose place of business is France and an Indian Company named G L Litmus Events Pvt Ltd (appellant) was formed by the partners of consortium only to manage the event and related activities in India. Had the event been managed by M/S G L Events Meroform, all the equipments, professional, expatriates, consumables and technical services would have been deployed by it from France directly, but, the event was being managed by the appellant which was acting as Special Purpose Vehicle (SPV) and therefore, these equipments, professional, expatriates, consumables and technical se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of Arm‟s Length Price of the international transaction undertaken by the appellant with its Associated Enterprise. The Ld. TPO issued notice u/s 92CA (2) and 92D (3) of the Act on 02.01.2013 and asked the appellant to furnish various details and documents. The appellant vide letter dated 14.2.2014 submitted the reply to the aforesaid notice along with details and documents. Subsequently on 15.01.2014, the Ld. TPO issued show cause notice in which, based on the above comments of the auditor given in form 3CEB, he proposed to treat the arm‟s length price of the international transactions at NIL. The appellant submitted reply to the above notice vide letter dated 20.1.2014 along with the Transfer Pricing study Report. Assessee applied Transactional Net Margin Method (TNMM) as the most appropriate method selecting three comparables and holding that as the margins of the comparable is less than the margins of the assessee, its International transactions are at arm‟s length price. Thus, it was submitted in the reply that in view of the transfer pricing study all the international transactions were at the arm‟s length. The Ld. TPO after rejecting the above tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e bills of the original supplier are enclosed and produced before him. He submitted that determination of ALP of such purchases at nil is devoid of any merit. 52. He further referred to the rental expenditure of INR 349054107 which are paid to associated enterprise for equipment taken on lease. He submitted that various equipments were taken only is our tents including flooring, doors, ramps, grandstand seating et cetera and portable facilities, containers holding, office facilities, furniture said fittings et cetera. He further referred that the rental charges were paid as well the equipment lease agreement. He further stated that it couldn‟t be anybody‟s case that without these equipments the appellant could have completed the contract undertaken by it. All these were items were essentially to complete the work assigned to it and evidence are there to show that such items were in fact provided and transported to the appellant by its associated enterprise. He further referred to the fact that there is shipment freight of INR 25.41 crores, the custom duty of INR 8.96 crores, which has been incurred by the assessee for import of these equipments. He therefore stated t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the experience of its holding company therefore the appellant was taking special administrative, financial, legal and technical assistance from that company and for that the appellant has paid 2.5% of its annual net sales before tax to the associated enterprise. He further referred to the agreement and stated that the services have been rendered by the associated enterprise on need basis and they are not shareholder services or duplicative in nature resulting into direct benefit to the assessee and therefore their determination of the prize at arm‟s-length at Rs. Nil by the learned transfer-pricing officer is incorrect. 55. He further referred to the reimbursement of expenses of Rs. 33193514 made by the assessee to its associated enterprise relating to the travelling, viz, consumables, insurance, telephone expenses and other expenses incurred by its associated enterprise on behalf of the appellant. He submitted that these expenses are to be reimbursed by the appellant to the AE as these are the expenditure for the purpose of the event which is organized in India and same may been reimbursed without any cost but on actual is. He further submitted that that such expenditu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st in the current year and therefore only 2 parties remained as a comparable company whose average margin using the current year data was 6.19% as against the margin of the appellant at 12.57%, which is much higher than the margin of the comparables and therefore even using the current year data the transaction of the assessee are at arm‟slength. He further submitted that assessee has given a detailed transfer pricing study report to the learned transfer pricing officer stating that transactional net margin method is the most appropriate method , however the learned to TPO has held that only the cup method is the most appropriate method but no data was provided by the learned transfer pricing officer. He stated that the learned transfer pricing officer determines the arm‟s-length price of the transaction of INR 5 854392894/- as Rs. Nil only. In view of this, he submitted that the method adopted by the learned transfer pricing officer for determining the arm‟s-length price of the international transaction at Rs. Nil only is not sustainable. Even otherwise, he submitted that the complete data is available before the coordinate bench and therefore the coordinate benc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er-pricing officer for determining the arm‟s-length price of a transaction at nil as has been done by the learned transfer-pricing officer in this case. It further held that considering the facts of this case, it is also clear that the payment for intragroup services is not wholly and exclusively for the purpose of the business in terms of section 37 (1) of the income tax act. In view of these facts, the learned dispute resolution panel further directed the learned assessing officer disallowed the same u/s 37 (1) of the act on protective basis to avoid double taxation. It was further held that consequent to this finding, the disallowance of the entire expenses made by the learned assessing officer should be further reduced by INR 5 84346638/- to avoid double taxation. Accordingly, the learned dispute resolution panel noted that as the learned assessing officer has been directed to disallow the above expenditure completely, The adjustment of the arm‟s-length price will result into double addition and therefore protectively there were upheld the transfer pricing adjustment also. However we are concerned here with whether the transfer pricing adjustment made by the learned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....along with the date of invoice and amount at which the TVs were purchased by them. Hence, it is evident from the invoice that that the associated enterprise had charged the amount at cost without any mark up from the appellant. 60. Second transaction of Rental Expenses of Rs. 34,90,54,107/- include the rent paid to associated enterprises for the equipment taken on lease. Various equipments taken on lease are tents (including flooring, doors, ramps), grandstand seating (under structure and seats), portable ablution facilities, containers, scaffolding, office facilities, furniture and fixtures, fittings and equipments, carpeting, partitioning, ceilings, audio-visual equipment, electrical, power generators, IT & T, HVAC, public address system, security, signage elements, fencing, flag poles, fire equipment, security equipment and other commodities which may be requested as part of the Main Contract or the other Contracts. Further, equipment also comprises of TV screens, fences and other commodities that may be requested as part of main contract or the other contracts. The rental charges were paid as per the Equipment Lease agreement, which is enclosed at page 93-112 of paper book V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....letion of the contract required highly skilled manpower, which had vast experience in organizing such big events. The appellant being new was not having such work force. The AEs on the other hand were having vast experience of organizing events like Common Wealth Games, G20 summit Meetings, Cannes Film festivals, organizing more than 300 trade shows all over the world, etc and having operations in more than 19 countries with employee strength of more 3500, did have these expertise. The appellant, therefore, utilized services of the employees of the AEs and paid them the service charges as per the aforesaid agreement. It is not the case of AO/ TPO that such big events can be organized without the help of the skilled manpower. There is enough evidence to show that such experienced personnel of the AEs came to India and rendered services to the appellant. Further, the flight expense incurred for travelling of technical and specialized workers from abroad to India and back to abroad also clearly specify that the contractual manpower service have been taken by the appellant from associated enterprise. This is also supported by Copies of Flight bills placed at page 64-71 of paper book VI....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issued show cause notice to the appellant vide letter dated 15.01.2014. The appellant, vide reply dated 20.01.2014, submitted the Transfer Pricing Study Report placed at page 34-92 of paper book VI. The Ld. TPO rejected the TP documentation only because the same was not corroborated with statutory certificate. In this regards, it was submitted that the statutory certificate in form 3CEB was already furnished before the Ld. TPO wherein the auditor had clearly held that he was unable to determine the price and method due to limitation and significance of the matter. The Form 3CEB was prepared based on accrual figures and was filed before the Ld. AO on 30.03.2012 in order to avoid the penalty. As the appellant has stated in its submission that it was following cash basis of accounting, the provision of transfer pricing are not applicable for the year under appeal. Therefore, the transferpricing document was not prepared at that time. Thus, the TP Study report was prepared after the certification of Form 3CEB which was nothing but an addendum to Form 3CEB. Anyway, the TP documentation was submitted to the Ld. TPO as a part of reply to Show Cause notice that was rejected by the Ld. TPO....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... designing, constructing and decorating pavilions in exhibitions and trade fairs. It takes the job on a turnkey basis for its clients i.e. designing, developing, and constructing the pavilions and interior designing. Copy of the Balance Sheet enclosed at page 269-283 of paper book VI. Thus, it is apparent form the above that the above companies are engaged in similar kind of business as that of appellant. Hence, the functions, Assets and Risk of those comparable are comparable with the FAR analysis of the assessee. Hence, the information available in the TP documentation cannot be said to be unjustified and unverified. Further, the Ld. TPO had not provided any reason to hold that the information in the documents was not verifiable. This shows that the Ld. TPO had no basis to reject the documents. 67. With respect to multiple year data used by the assessee initially, assessee submitted the current year data analysis of those comparables as can be seen from page 192 of the TP study at paper book VI. Even if current year data were to be used then there would have been two comparables namely Deepali Designs & Exhibits P Ltd and Pavilions & Interiors P Ltd. The average margin of thes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1.2014. It is claimed by AR and not controverted by ld DR That No further notice was issued to the appellant between the periods of 20.01.2014 to 28.01.2014. The Ld. Ld DR did not show that ld asked any other information from appellant. Thus, the ld TPO neither asked the appellant to further explain any queries nor called for any further documents in support of TNMM. Further, the Ld. TPO also did not provide any reason or justification in his order in relation to the above allegation. In view of the above, the reason of rejecting the study is without any basis. 70. As mentioned above the TPO after summarily rejecting the TP study wherein TNMM was used to determine the arm‟s length price of the international transaction, he applied CUP method. Under CUP, method the TPO simply stated that since the assessee was engaged in obtaining bogus bills and thereby inflating the expenses its payment towards international transactions amounting to Rs. 58,43,92,894/- is reduced to NIL using CUP method. The aforesaid action of the TPO is wholly unsustainable for the reason that appellant in the TP study had classified the transactions in two classes as under: Class I: Consists o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed enterprises assisted the appellant in the elaboration of its commercial policy, its communication policy, its strategy, its purchases, its management, and its organization. The major eligibility criteria mentioned in Expression of Interest of CWG, 2010 was that "... have experience of providing overlays for at least one major multi sports event of Olympics and/or Commonwealth Games and/or Asian Games in the last five years." 73. Since, no such experienced contractor was available in India; no such comparable could be adopted. Further, the G L Event Services, an associated enterprise charged only 2.5% of the total turnover for rendering all the management services, which cannot be said to exorbitant or unreasonable without placing contrary data on record, as compared to the work and terms of the contract of CWG, 2010. The fees charged by the associated enterprise cannot be compared and was an independent transaction as it is based on the experience of organizing international events. It was for this reason that the appellant applied TNMM in the TP study instead of CUP method. Thus application of TNMM as Most appropriate method cannot be found fault with. With respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AE in its normal course of business. It is specifically stated that these expenses were incurred on behalf of the assessee, and this position remains uncontroverted. Whether the assessee was under an obligation to incur these expenses or not is, therefore, not really relevant. The question of incidental benefit to the assessee, for expenses incurred by the AE, would arise only when the expenses are incurred by the AE in its own right though for the common benefit of group as a whole. The impugned ALP adjustment is, therefore, devoid of legally sustainable basis on the facts of this case. We, accordingly, direct the AO to delete the same." 75. Further, the Ld. TPO ignored these facts and applied the CUP Method in determining the arm‟s length price. The Ld. TPO did not provide any specific reason for applying the CUP method and determine the arm‟s length price at NIL. Thus the international transaction entered in to by the assessee supported by relevant evidences, agreements justifying need of them and resultant benefits arising there from cannot be held to be not genuine. As such, the role of the ld TPO is to just determine ALP of such transactions. Hence, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the appellant 19/10/2000 income of the bills amounting to INR 2 75505611/- against this the total of the parties as per the books of accounts was INR 3 87738567/-. The AO asked the relevant queries to the assessing Officer in response to which the assessee submitted that the invoices of value of more than INR 1 Lacs were seized and taken by the income tax authorities while other invoices were returned to the company. It was further stated that at the time of search and seizure proceedings all the notices were not seized is due to multiplicity of the project sites and the bunches were lying at different sites. However, the learned assessing officer did not accept the explanation of the assessee and held that the appellant could not submit the bills for the remaining entries in the books of accounts and thus has made the addition of the difference of INR 11 Crore for which no bills were available. The assessee raised the objection before the learned dispute resolution panel and furnished in submission that the learned AO disallowed the sum only on the ground that the bills for not submitted and the expenses remained unexplained. It was further stated that the bills were duly subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not submitted the bills which were not seized be by the income tax authorities but merely because they were not found at the time of search the addition has been made. 80. The learned departmental representative vehemently relied on the order of the learned assessing officer and submitted that during the course of search the bills were not found with the assessee and therefore the those bills cannot be accepted as genuine bills hence the learned assessing officer has made the addition correctly. He stated that the learned dispute resolution panel has also upheld the addition. 81. We have carefully considered the rival contention and find that though the bills were not seized during the course of search, however subsequently the assessee has produced the copies of the bills before the learned assessing officer of Rs. 112232956/- stating the name of the parties along with their addresses and permanent account number. Further the payment of such bills were also made by account payee cheque and which were already on record at the time of search as well as produced before the learned assessing officer. The bank statement of the assessee also showed that those bills have been dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iates being group employees visited India for a short duration and did not have any bank account in India, being the place of temporary posting; The expatriates were paid per diem allowances for meeting their daily expenses in the nature of preparation, transportation and medical expenses. For this reasons may please be considered as circumstances falling under Rule 6DD of the IT Rules and thus these payments should not be disallowed u/s 40A(3) of the Act. However, in the draft assessment order the Ld. AO did not consider the reply of the appellant and compared the said expenses with the other overlays contractors i.e. M/s Pico Deepali Overlays Consortium and held that no such expenses were claimed by the other contractors. Hence, he disallowed the said expenses on the ground that such expenses were not incurred by other overlays contractors. Thereafter, the appellant raised an objection before the DRP against the draft assessment order and furnished the submission in Annexure A-7 enclosed at page 86-105 of the paper book V. The appellant made reference to the reply dated 02.01.2013 submitted to the Ld. AO. The appellant also referred the details of daily allowances paid enclosed a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the facts of the contract and without giving the information obtained by the learned assessing officer from that party to the assessee the learned assessing officer should not have disallowed the above expenditure. 84. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that assessee has not given the proper details before the learned assessing officer and the contractor who is similarly placed in carrying on the same activity has not incurred such expenditure and therefore the expenditure incurred by the assessee cannot be allowed as a deduction and expenditure wholly and exclusively incurred for the purposes of the business. 85. We have carefully considered the rival contention and perused the orders of the lower authorities. The appellant entered in to a contract with G L Events Services, France in relation to technical services. As per the agreement, the G L Event services, France had agreed to provide Technical Workers, Technical Specialists, and Technical Co-coordinators to the appellant for setting up all the temporary structures and installations at sites for CWG, 2010. As per para no 3.3 of the agree....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the foreigners. Thus, it also justifies that the appellant had paid flight booking expenses and hotel expenses for technical personnel immigrating to India for the purpose of CWG, 2010. Since, 198 foreign expatriates were in India hired by the appellant, it was the responsibility of the appellant to provide then preparations, transportation, medical and other allowances. Therefore, the appellant has paid the per diem allowance to those foreign expatriates. Details were also placed before us at page 51-63 of paper book VII. Hence, from the above it is apparent that the appellant has paid daily allowance as a per diem expense to foreign expatriates, which is incurred wholly, and exclusively for the purpose of business. However, the Ld. AO on mere surmise and suspicion held that the documents produced by the assessee are self-serving. Now, coming to the accounting part, the appellant paid total per diem expenses of Rs. 2,62,86,000/- as per P/L Account for preparation, transportation, and medical allowances to 198 foreigners for a period not exceeding 180 days. Hence, the per day allowance is computed as under: Per Diem Paid : Rs. 2,62,86,000/- No. of Foreign Expatria....
X X X X Extracts X X X X
X X X X Extracts X X X X
....did not consider the above and alleged that out of the total bills seized during the search u/s 132 in the case of appellant, the bill amount in the original invoice no. 3112 and 3110 did not match with their photocopies and issued notice dated 29.09.2012 to the appellant to explain the same. The appellant, in response to above, asked the Ld. AO to provide copies of the seized documents or allow the appellant to conduct an inspection of seized documents. Thereafter, the Ld. AO, to verify the genuineness of transaction, conducted survey u/s 133A in the case of Nitin Enterprises and Garg Road Lines. During the course of survey, statement of Sh. Nitin Bansal, Partner in Nitin Enterprises and Sh. Praveen Garg, Partner of Garg Road Lines were recorded and the purchases were treated as bogus. On the basis of statement recorded, the Ld. AO held that the bills raised by the Nitin Enterprises and Garg Road Lines cannot be accepted and issued the notice dated 13.12.2012 and 24.01.2014 to show cause why the expense should not be disallowed. The appellant vide reply dated 12.02.2014, 19.02.2014, 20.02.2014 and 26.02.2014 requested the Ld. AO to provide the alleged incriminating material relied....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rpreted to hold that bogus invoices were issued to the appellant. Further, the appellant in the submission furnished that the only basis for making the said addition is that purportedly the partner and manager of M/s Garg Road Lines had stated that they have not supplied any material to the Assessee. It is claimed that the said allegation is baseless, as all payments to M/s Garg Road Lines have been made against account payee cheques. The ld DRP considered the above submission of the appellant and directs the Ld. AO to verify the said transaction to ascertain the quantum of disallowance and allow consequential relief to the appellant, if any. Thereafter the appellant produced the original bills for verification before the Ld. AO. However, the Ld. AO did not rely upon the bills alleging that the appellant was involved in the practice of receiving bogus bills and made addition of Rs. 25,84,342/- and Rs. 5,87,058/- being the value of bogus purchases from Nitin Enterprises and Garg Road Lines respectively u/s 69C/37 of the Act. 89. The ld Authorised representative submitted that appellant had made several requests to the Ld. AO to supply incriminating material as well as to provide ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. In this, regards assessee submitted that M/s. Nitin Enterprises, has filed a suit for recovery of balance due to them because of purchases made by the appellant company with the Delhi High Court vide petition CS (OS) No. 2055 of 2011. The assessee was not provided an opportunity to cross-examine the third party based on whose statement the additions were made. All the documents such copy of bills, copy of ledger, payment details, legal notice for recovery of outstanding dues, suit filed before High Court and settlement deed between the assessee and High Court and the settlement order of High Court were submitted to the Tribunal. Relying on the aforesaid, the Delhi Tribunal held that :- "25. After hearing the rival contentions and on perusal of the material referred to before us, we find that the main ground for making the addition by the Assessing Officer is that; during the course of survey made in the case of M/s. Nitin Enterprises was found to be engaged in providing bogus bills and one of its partner has given a statement that the assessee was also given the bogus bill and has received cheque from the assessee for the said bills in lieu of cash for the same amount r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ult the issue of bogus purchases in all the assessment years from the said party stands decided in favour of the assessee and the grounds raised by the Revenue are dismissed." 93. Thus, the statement of Partner of Nitin Enterprise was held to be non-credible. Therefore, in the case of appellant also the said statement could not be relied upon. Hence, the Ld. AO‟s allegation that the bills raised by the Nitin Enterprise are bogus is not acceptable, in absence of opportunity of cross examination. Further, the appellant had furnished the copies of original bills, ledger account, and the bank statement before the Ld. AO, which clearly shows the genuineness of the transaction. Further the Ld. AO allegation for the rejection of original bills was that the appellant was involved in receiving the bogus bills which itself is on surmise and suspicion. Hence, it can be concluded that the Ld. AO does not have any basis or reason to hold all the bills as bogus. In view of above facts and following the decision of the coordinate bench in the case of the sister concern of the assessee with respect to the same party, we direct the learned assessing officer to delete the disallowance of bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....umed that the alleged statement was made by Garg Road Lines, the statement could not be relied upon as it is completely against the transactions and evidences on record. The entry in the bank account of the appellant clearly states that the payment was debited and the same would have been credited in the bank account of the Garg Road Lines. Hence, denial of transaction by Garg Road Lines clearly shows that they have not shown the said transaction in their books. Further, the bill of Amritsar Transport also evident the delivery of diesel from the address of Garg Road Lines to the appellant, hence, statement by the partner of the Garg Road Lines that they have not supplied diesel could not be relied upon. Further, during the survey u/s 133A in the case of Garg Road Lines, the Ld. AO stated that No invoices corresponding to any transaction with the appellant were recovered during the course of survey and no corresponding entries were found in the books of a/c of Garg Roadlines.. It is clear from this that in spite of payment made to the Garg Road Lines as evident from the bank statement, no entry was found in the books of Garg Road Lines. This shows that Garg Road Lines had not shown ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he submission of the appellant and disallowed the professional fees in draft order stating that the appellant must have necessary in-house expertise to execute projects of such nature and magnitude and the external legal and professional services, if required at all, shall be only for limited and highly specialized services on a very small scale. The appellant being aggrieved by the DRAFT ASSESSMENT ORDER, raised an objection before the DRP. After considering the submission of the appellant, the DRP asked the Ld. AO to verify ascertain the quantum of disallowance and allow consequential relief to the appellant, if any. On direction from the DRP, the appellant present all the original bills before the Ld. AO. Subsequently, the Ld. AO passed the assessment order and held that such bills produced by the appellant cannot be relied upon as the assessee company was involved in the practice of receiving bogus bills" and disallowed the sum of Rs. 1,03,15,369/- on account of professional fees u/s 37 of the Act. 97. The learned authorised representative submitted that assessee has paid the total legal and professional fees of INR 6 3282998/- out of which the learned assessing officer has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t appellant has incurred total legal and professional fees of Rs. 6,32,82,998/- which consists of the following. i. Management fees : Rs. 4,59,96,007/- ii. Professional fees : Rs. 1,31,67,745/- iii. Reimbursement of Expenses : Rs. 16,93,746/- iv. Auditors remuneration : Rs. 24,25,500/- Total Rs. 6,32,82,998/- 100. The ld AO out of Management fees of Rs. 4,59,96,007/- and reimbursement of expenses Rs. 16,93,746/- are an international transaction and are dealt in the transfer pricing hence deleted. He allowed the amount of Rs. 28,52,376/- in draft assessment order being paid to the auditors and authorised representatives of the appellant before various Govt. agencies. The Ld. AO disallowed the sum of Rs. 1,03,15,369/- on account of bogus billing. The same was disallowed while disallowing whole of the expense and hence this has led to double disallowance. Further the professional fees of Rs. 28,52,376/- was allowed by the Ld. AO in draft assessment order holding that the same has been paid to the auditors and authorised representatives of the appellant before various Govt. agencies. The said expense has alrea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction. However, the Ld. AO dismissed such bills furnished by the appellant on surmise, suspicion, and added the entire sum by disallowing the same without any enquiry or investigation. Further, the services were procured by the appellant form the renowned experts who are not related to the appellant and no any such information has been received by the Ld. AO that the vendors from whom professional services are received are engaged in raising any bogus bills. All the copies of agreement are at page 93-130 of the paper book VI and the copies of consortium agreement in paper book I, which were also before the Ld. AO are the evidence to those bills, which were raised by the professional for preparation of these agreements. The appellant during the year had legal advice in relation to the customs demand and sales tax demand raised by the department, which was also an evidence for those bills raised in these respects. Further, during the period, the search was conducted in the office of the appellant and therefore the appellant had taken legal advice from the professionals in relation to income tax matter held after the search proceedings and the bills are in relation to these matters. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s very low as compared to appellant. He, therefore, asked the appellant to show cause why the expenses in relation to Travel and hotel accommodation should not be disallowed. In response to above, the appellant reply in Para 3 of the submission dated 05.02.2014. In reply, the appellant requested to provide for the opportunity to cross examine the said person. The request for such cross-examination was also made vide several submissions furnished earlier. The appellant also furnished the ledger of Travelling and Conveyance vide submission dated 12.02.2014. The Ld. AO however did not consider the request of the appellant and passed draft assessment order wherein the amount of expenditure incurred by M/s PDOC of Rs. 32,62,098/- was allowed and the balance of Rs. 6,61,067,087/- was disallowed by the Ld. AO. Thereafter, the appellant raised an objection before the Ld. AO against the draft assessment order . The DRP considered the submission of the appellant and directed the Ld. AO to conduct verification and grant consequential relief to the appellant, if any. The appellant also produced original bills before the Ld. AO. However the Ld. AO did not rely upon the bills alleging that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of Common Wealth Programme 2010. Since, large numbers of high quality equipments were hired from abroad, foreign experts having knowledge to organize and operate those equipments would also be required, and therefore the appellant hired the foreigners for the constriction activities at CWG, 2010. Assessee submitted, list of foreign expatriates along with their designation and passports number. These foreign expert staffs were engaged in construction and other activities of Common Wealth Programmes. Since, they were hired by the appellant, all the expense in relation to flight, hotel accommodation and tours and travels of the foreign staffs were incurred by the appellant. Agreement also provides that these expenditures be required to be incurred by the appellant. All these expense are said to be incurred for business purpose. Looking at the nature of various expenses, Conveyance expenses are nominal and the same are being incurred for the business purpose. These are the expenses incurred by the employees working in the appellant company and are reimbursed by the appellant company to the employees and therefore are incurred for the purpose of business. Therefore, the disallowance c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is again in violation of principle of natural justice. All the expenditure incurred by the appellant was duly supported with the agreements, list of foreigners along with the copies of passports and passports no., original bills, payment details and the copies of ledgers along with the narrations. This shows that the appellant had maintained proper documentation and record of all the transaction and produced before the A.O. to prove the genuineness of the transaction. The Ld. AO did not find any reason to reject the claim of the appellant and therefore without applying his mind disallowed the said expenses simply alleging that the appellant is engaged in receiving the bogus bills. The action of the Ld. AO was purely on surmises and conjectures. Even otherwise expenditure incurred by M/s Pico Deepali Overlays Consortium is less than the appellant still such alleged factum cannot form the basis for disallowing expenditure incurred by the appellant under Section 37 of the Act. No adverse inference can be drawn simply because some other party has allegedly incurred expenditure less than the appellant has. The appellant, by no stretch of reasoning, can be required to follow on identical....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... original bills before the Ld. AO. However, the Ld. AO did not rely on the bills and held that the appellant was involved in practice of receiving bogus bills. He, therefore, made addition of Rs. 4,90,08,835/- on account for bogus related party transaction u/s 40(2)(b)/37 of the Act. 107. The learned authorised representative referred to the various expenditure incurred by the assessee and payment made to the related parties. He submitted that 1 of the party was assessed by the same was assessing officer is that of the appellant and such income was already offered by that party in its return of income and has paid tax due thereon. According to him the recipient of the income has duly suffered tax in the hands of the recipient at the same rate and therefore disallowance under section 40A (2) cannot be made. He further stated that no comparable cases is brought on record by the learned assessing officer and therefore the disallowance cannot be made he referred to the several judicial precedent on the issue. He further stated that there is no evasion of tax at the appellant company as well as the recipient company are paying taxes on the same date. He further stated that the learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or comparable cases to prove that the payments made by appellant company to its sister concern is in excess of the fair market value of the services rendered but has proceeded purely on assumptions. Such an action on the part of the AO is unsustainable in the eyes of law. Honourable Delhi High court in CIT Vs. Modi Revlon (Pvt.) Ltd. (2012) 78 DTR 342 (Delhi) has held that in order to determine whether the payment is not sustainable, the AO has to first return a finding that the payment made is excessive, under Section 40-A (2) of the Income Tax Act. If it is found to be so, then the AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined (as fair market value). Apart from the fact that no such exercise was undertaken by the AO, the Court sees that the assessment order went off into a tangent, in following a method that was clearly inapplicable. We do not see any reason to multiply other judicial pronouncements on this issue. In the instant case, since both the appellant company as well as Meroform India Pvt Ltd are assessed to income tax by same assessing officer and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r concerns for the aforesaid services was excessive or not at arm‟s length. The AO has merely resorted to and suspicions in making the impugned disallowance u/s 40A(2). All the original bills, ledger accounts, and bank statement were already on record before the A.O. The transaction was also assessed in the case of Meroform India Pvt Ltd where the receipts from appellant were duly accepted and offered to total income by the Meroform India Pvt Ltd. Therefore, the action of the AO in resorting merely to suspicion instead of proceeding with material on record and tangible evidence is bad in law and deserves to be quashed. In light of the judicial pronouncements cited supra, it is apparent that in the instant case, the appellant has duly explained the nature of services rendered by Meroform India Private Limited against which the impugned payments of services charges were made by the appellant company. Further, the appellant and Meroform India Pvt Ltd, being assessed with the same A.O., the revenue authorities duly accepted the services rendered and the amount received by the Meroform India Pvt Ltd. The appellant has clearly established the nexus between the services charges and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... P Ltd, we also direct the ld AO to delete the above disallowance. Accordingly ground no 9 of the appeal is allowed. 114. Ground no 10 of appeal is against the addition of Rs. 1,22,696/- . During the search u/s 132 of the Act in the case of appellant, the cashbook of the appellant company was seized by the Income Tax Authorities. In the seized cash book, the Ld. AO observed that on certain dates the cash balance in the books is negative as under : a) 9th April 2010 : Rs. 15,000/- b) 18th May 2010 : Rs. 2,767/- c) 8th Oct 2010 : Rs. 1,04,929/- 115. Appellant submitted the reply on 02.01.2013 where he explained that the negative balance in the books of account was an inadvertent clerical error while making entries in the books of accounts and the same was corrected in the final books of accounts of appellant for the F.Y. 2010-11. The appellant also produced the final cashbook before the Ld. AO. However, the Ld. AO had never gone through the aforesaid reply of the appellant and again issued notice dated 13.12.2012 and notice dated 24.01.2014. The appellant in response to above query by the Ld. AO to refer the reply dated 02.01.2013. Subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nces which clearly shows that the entries were made by the accountant on bulk at rough estimation. Later while finalising the books, the entries were duly recorded as daily allowances paid individually stating the name of foreigners along with the period and no. of days for which the payment was made in the narration (Refer page 396 -399 of P/b VII). While doing so, the difference that might have arisen due to these was duly rectified. This was also nothing but the clerical error. Hence, the reasons for negative cash balance were only due to the aforesaid inadvertent clerical error made while accounting for the same which got rectified at the time of finalization. From the above, it is clear that the appellant did not make any fresh entries in the cash book. The entries in the cash book were only rectified at the time of finalization of accounts as per the clerical errors identified by the auditors and on their instructions. Further, para 9(c) of the Form 3CD enclosed at page 111 - 132 of paperbookII and Exhibit 1 enclosed at page 123 of P/b II clearly states that the cash book was examined by the auditors during the course of audit. As ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Daksh Automation Fire Detection Alarms 57,25,400/- 2 JCB India Ltd JCB Machine purchase 20,35,463/- 3 DD Motor Gypsy Purchase 17,00,946/- 4 AJS Scale Intl Traffic Cones 13,87,969/- 5 Golden Furnishers Decorators & Furniture purchase 12,30,087/- 6 Haby Engineering Furniture 10,71,491/- 7 Nizammudin Furnitures Furniture 3,90,094/- 8 Associated Business Computers Printers 3,32,325/- 9 Gemini Hydraulics Dynamometer 2,80,445/- 10 SAB Computech Computers 1,96,875/- 11 Kamal Construction Mobile Phones 1,42,450/- 12 Speed 4 Prefab Chemical Blocks Toilet 71,45,415/- 121. During assessment proceedings assessee submitted the explanation of these expenditure as under :- Sl Party Items of Purchase Amount (Rs.) Treatment in books of Accounts 1. Daksh Automation Fire Detection Alarms 57,25,400/- These fire ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts" 9. Gemini Hydraulics Dynamomet er 2,80,445/- Revenue expense under the head operating expense. These cones are generally no re-usable and have a very low resale value. Therefore as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure. 10. SAB Computech Computers 1,96,875/- The nature of asset was not "Computers" instead the same was in the nature of "Delink CAT 6" being a computer part. Accordingly the same has been shown under the head "Overheads - Repairs And Maintenance" 11. Kamal Construction Mobile Phones 1,42,450/- Capitalized and shown under the head "fixed assets" 12. Speed 4 Prefab Chemical Toilet Blocks 71,45,415/- Chemical toilet blocks were not assets owned by GLLE, instead the same were rented by GLE from the party. 122. However, the Ld. AO rejected the reply and added all the above expenditure to the total income of the assessee as capital expenditure. The assessee filed objection before ld DRP confirmed the findings of the ld AO but remitted to AO for verification. Subsequently, the Ld. AO consider....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e has been duly explained via example of construction companies. In construction, companies, all the material, and equipments forms part of consumables and stock in trade. Only those machineries which are purchased and used in construction activities and are reusable in further other construction projects forms part of fixed assets. Likewise, in the event management companies also material and equipments are recorded as consumable. If any number of items left unused then it forms part of stock in trade and not fixed assets. He submitted that asset which is used internally and on which the depreciation is claimed has to be capitalized. The aforesaid consumable neither was used by the appellant company internally for the operation of the company nor was depreciation claimed. They were used temporarily in the common wealth games and were sold as scrap on lump sum after the games. He further stated that after the end of Common Wealth Games, 2010, while dismantling the site, all the electrical equipments and furniture and fixtures that were duly fixed at the site remained as scrap to the appellant. These consumables were not further reusable by the appellant. However, if any of these it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appellant and sold as lump sum scrap. Hence, the purchase value taken as consumables 5 Haby Engineering Furniture 10,71,491/- These furnitures were of no use to the appellant and sold as lump sum scrap. Hence, the purchase value taken as consumables 6 Nizammudin Furnitures Furniture 3,90,094/- These furnitures were of no use to the appellant and sold as lump sum scrap. Hence, the purchase value taken as consumables 7 Gemini Hydraulics Dynamometer 2,80,445/- These expense are capitalised in books under the head electrical equipment. Later when these all equipments were of no use to the appellant and sold as lump sum scrap, these assets were transferred to profit and loss account as consumables. 124. Therefore he submitted that , it is obvious that the appellant had sold all the above consumables as scrap after the end of the common wealth games. This shows that the aforesaid items were of no use after dismantling. Hence, the appellant contention to record the aforesaid items as consumables was found genuine and therefore the disallowance on this ground is not justified. Therefore, he submitted to delete the disallowance of Rs. 1,18,2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at that particular time the assessee would ground would be granted the necessary deduction of the capital loss if any in accordance with the provisions of the law. Only because of the reason that assessee has sold scrap of these items after the completion of the events does not make them revenue expenditure in nature. Accordingly, ground number 11 of the appeal of the assessee is partly allowed. 128. Ground number 12 of the appeal is with respect to the disallowance of INR 1 22626/- on payment of services of security guard. The brief facts of the issue shows that Ld. AO in para 15 of the show cause notice dated 13.12.2012 alleged that the appellant made payments to M/s New Standard Security Services on account of security deposit and asked the assessee to explain the same. In response to the said notice, the appellant submitted that the payment was made to the said party for the security guard service provided by the said party and not the security deposit. However, the Ld. AO did not consider the reply of the assessee and repeatedly held that the payment was in the nature of security deposit and was refundable and therefore the same cannot be in the nature of revenue expenditur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... allowed. 132. Ground number 13 of the appeal is with respect to the addition of INR 1547141/- towards the value of the closing stock. The Ld. AO during the course of assessment proceeding, asked the appellant to furnish supporting evidence in relation to closing stock of Rs. 15,47,141/- standing in the books of accounts. In response, the appellant submitted the details of closing stock containing the name of item, unit, quantity, rate, and value. The Ld. AO considered the reply of the appellant and passed DAO. However, the Ld. AO held that - "the appellant could not produce the original invoices and confirmations and could not establish the genuineness of transaction and authenticity and relation of such expenses therein with the business of the assessee." Therefore, the Ld. AO added the closing stock of Rs. 15,47,141/- to the total income of the appellant. On objection before the DRP and furnished submission in the Ld. AO was directed to verify the said transaction. Subsequently, the Ld. AO passed assessment order, held that the submission of the appellant was not sufficient to establish the genuineness of the closing stock, and therefore disallowed Rs. 15, 47, 141/- u/s 68 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition for the reason that , 1st of all it is a double addition and 2nd it cannot be added when the assessee has given a complete details of the quantity and the items along with the rates and the amount of the closing stock carried forward to the next year, the stock has also been sold by the assessee in next year and receipt of such sale has already been disclosed in the subsequent year. In view of this ground number 13 of the appeal of the assessee is allowed. 136. Ground number 14 of the appeal is with respect to the addition of Rs. 115875146/- towards the advances recoverable. The learned assessing officer during the course of assessment proceedings of the appellant to furnish the supporting evidence in relation to the current assets and loans and advances of INR 1044924844/- outstanding in the books of accounts. The assessee submitted the complete details of the all the current assets and loans and advances along with the copies of the Ledger in the books of accounts of the assessee. However the learned assessing officer made the addition is appellant could not produce the original invoices and confirmation and could not establish the genuineness of the transaction and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the above sum. In view of this ground, number 14 of the appeal of the assessee is allowed and AO is directed to delete disallowance of Rs. 115875146/- towards the advance recoverable. 140. Ground number 15 of the appeal is with respect to the addition of INR 4 6578484/- being the sundry creditors and INR 6 9813499/- being the value of the balance sheet item of the other liabilities to the total income of the assessee. During the course of assessment proceedings, the learned assessing officer asked the assessee to provide the details of all the current liabilities and provisions relating to outstanding in the balance sheet. In response to that the appellant submitted the complete details of the sundry creditors and other liabilities along with the name and address of the person/vendor and amount. The learned assessing officer rejected the contention of the assessee and stated that appellant could not produce the original invoices and confirmation and could not establish the genuineness of the transaction and authenticity in relation of such expenses and liabilities wherein the business of the assessee, he made the addition of INR 898684373/- to the total income of the appellant.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Ld. AO to disprove the appellant after the submission of all the relevant documents in relation to its claim. However, the Ld. AO without providing any reason or findings in relation to such creditors made addition of the sundry creditors only because the appellant could not produce the confirmation, which cannot be the only basis to reject the details and documents submitted by the appellant. Further the details of creditors is enclosed at page 325-327 of the P/b VIII showing total billed amount, payment made, discount received, TDS deducted and amount outstanding as on 31.03.2011. The copies of the ledger accounts and the original bills already furnished before the Ld. AO. Hence, this clearly shows that the said creditors are genuine. Further, when all the expenses are already disallowed by the Ld. AO in para 28 of the assessment order then the question of disallowing the sundry creditors does not arise. Therefore, the addition made because of sundry creditors has lead to disallowance of expenses twice i.e. one by way of disallowing expenses and second by adding sundry creditors. This clearly shows that the addition was made by the Ld. AO on surmises and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been enclosed at page 261-267 of the P/b VI which proves the genuineness of the import and export of the equipments. Therefore the expenses in relation to Customs and Freight payable are genuine and duly supported with proper bills and supporting details, which were duly furnished before the Ld. AO. vii. Further, the original bills in relation to the previously mentioned liabilities and copies of the ledger account were already furnished before the Ld. AO, which ascertains the genuineness of the transaction. Hence, the onus to prove the expense liability as genuine was duly discharged by the appellant. In addition, thereafter, as per law the onus was on the Ld. AO to disprove the claim of appellant. However, the Ld. AO instead of providing the valid reason for rejection of appellant claim only held that the confirmation was not submitted by the appellant and therefore the claim could not be accepted. This clearly shows that the Ld. AO had no valid reasons to reject the claim of the appellant. viii. The original bills produced before the Ld. AO and the ledger account and the bank statement were sufficient to establish whether the transactions are genuine or not. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he above sum without making any enquiry to substantiate his belief that these are non-genuine liabilities. As the assessee has produced all relevant details available with respect to the above sundry creditors and other expenses outstanding and the learned assessing officer has not made any enquiry to prove that these are non- genuine liabilities, the addition in the hands of the assessee cannot be sustained. Accordingly, we direct the learned AO to delete the disallowance of INR 46578484/- with respect to sundry creditors and INR 69813499/- towards the other expenses outstanding as liabilities. Accordingly ground number 15 of the appeal of the assessee is allowed 144. Ground number 16 relates to the disallowance of statutory liabilities of INR 155310286/-. During the course of assessment proceedings the learned assessing officer asked the assessee to provide the details of the all the current liabilities and provisions along with supporting evidences. In response to this, the appellant submitted the details of sundry creditors and other liabilities along with the name and address of the persons/vendor et cetera. The learned assessing officer disallowed the above sum stating tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n claimed by the assessee as deduction from the total income. Therefore the learned assessing officer is directed to delete the disallowance of INR 5 5889554/- to the total income of the assessee. 148. With respect to the service tax payable of INR 97626284/- and VAT and CST payable of INR 1794448/-, the learned assessing officer has incorrectly made the above addition under section 37/69C of the income tax act. These are the statutory liabilities covered under section 43B of the income tax act. The above provisions of section 43B of the income tax act apply to every assessee irrespective of the method of accounting employed by them. If those sums have been paid by the assessee before the due date of the filing of the return of income for the impugned assessment year, both these sums are required to be granted as deduction to the assessee. Even otherwise, the above addition cannot be sustained u/s 37/69C of the income tax act. Therefore, the above ground of appeal is sent back to the file of the learned assessing officer with a direction to grant deduction of tax deduction at payable of Rs. 55889554/- and to verify the provisions of section 43B with respect to VAT and CST as wel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that assessee could not have produced more details than this. He therefore submitted that addition u/s 68 of the income tax act made by the learned assessing officer deserves to be deleted. 151. Learned departmental representative supported the order of the learned AO and dispute resolution panel. 152. We have carefully considered the rival contentions and perused the orders of the lower authorities. The appellant company had no outstanding unsecured loans in the books of accounts during the year. The loan was taken from the following parties which were duly repaid during the year: Binu Nanu (Director) : (Assessed by same AO) Rs. 27,00,000/- Cash Loan from directors : (Assessed by same AO) Rs. 10,000/- Merofrom India Pvt Ltd : (Assessed by same AO) Rs. 71,00,000/- Sebastian Brunet (Director) : Rs. 7,00,000- 153. In the instant case, the appellant received the sum of Rs. 10,000/- during the A.Y.2010-11. Applying the ratio of the above decision to the facts of the case, it is clear that the Ld. AO could not have added the amount of Rs. 10,000/- under the provisions of section 68 of the Income Tax Act, 1961 in the present year since the said amount was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Pvt Ltd" in the books of Meroform India Pvt Ltd. The Ledger account of Meroform India Pvt Ltd in the books of appellant was also submitted. This very clearly shows that the loan of Rs. 71,00,000/- was taken from Meroform India Pvt Ltd. These duly act as confirmation of the Loan. Further, copy of ITR Acknowledgement , PAN card and bank statement of Meroform India Pvt Ltd was submitted. 154. In light of the aforesaid submission, it is clear that all the material including the party confirmation on record, the Ld. AO had made addition of Rs. 1,05,10,000/- which clearly shows that assessee has discharged its onus cast up on it u/s 68 of the act. The ld AO has not carried out any inquiry on the same. Thus, addition was made incorrectly by the Ld. AO. Further, the Ld. AO also did not have any valid reason to disprove the documents submitted by the assessee. Therefore, it is clear that assessee has established identity, creditworthiness, and genuineness of the transactions by submitting adequate evidences, which has not been disapproved by the learned assessing officer by cogent inquiries. In view of this we direct the learned assessing officer to delete the addition u/s 68 of the inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2 Total Purchase cost of the items mentioned in the seized Pages (at the rates mentioned in the said seized papers) Rs. 14,78,75,689/- 3 Margin added u/s 69A of the Act Rs. 30,32,55,951/- 157. Assessee preferred objection before the ld . DRP, who held at para 15, page 42 of its Order that:- "The next issue is in respect of additions of Rs. 30,32,55,951/- and Rs. 34,10,40,959/- on account of exorbitant profit margin. The actual cost of the goods and services found mentioned in the seized documents vis-à-vis rate quoted to OC/DDA do reveal the rate of margin of profit. The assessee was not doing business wherein normal profit is earned. Actually, it is collusive loot of our Exchequer. These seized materials are simple illustration of the profiteering of the assessee. The average rate of profit disclosed in the seized material mentioned at page 10 to 32 of the draft assessment order may be applied on the entire contract value of Rs. 156.73 crores with the OC and Rs. 54.00 crores with DDA. The assessee‟s income has to be worked out both on accrual and investment-expenditure basis and the higher of the tw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t which is already recorded in the credit side of the profit and loss account, there is no requirement of making any addition in the addition to the total income of the assessee as the gross receipts alleged by the learned assessing officer has already been shown in the profit and loss. He therefore stated that that addition is not sustainable on this ground only. He further stated that the learned AO as compared the prices of the material however he has ignored completely the transportation costs, staff cost, other variable costs, overheads and several other costs which are required to be incurred to put the material in that particular place to make it usable for the Commonwealth games . He further stated that in several items the rates quoted to the organizing committee are less than the rates at which the material is available from the outside parties and therefore it is not prove that there is such a huge margin. He further referred to the agreement executed on 2/6/2010 between the consortium and organizing committee, which stated that the assessee has to maintain and operate the above infrastructure from 10th September up to 15/10/2010 and to remove it by 30/11/2010. He furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ods at high prices whereas it has procured goods from the vendor‟s at a very less price and thus there is a huge margin between the price at which the material is sold and the price at which the material is purchased by the assessee, which resulted into the gross profit ratio of 65 percentage. Be that it may be, on simple analysis of the above statement it is apparent that assessee has shown the sale price which is 68% higher than the cost of material booked by the assessee. Thus, the sale price shown by the assessee is higher than the purchase price shown by the assessee in the books of accounts. It is not the case of the AO that assessee has shown receipts even rupee less than what has been paid by the organizing committee. The learned assessing officer could not dispute and find out that the purchase price is booked by the assessee are not correct. The AO also did not dispute that there is other overheads, which has been incurred by the assessee. Therefore, whatever profit has been earned by the assessee would automatically come into the profit and loss account of the assessee on the credit side as there is no understatement of sale price. Now the learned assessing officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e margins were very high, has however himself admitted that out of these 66 items, allegedly the actual purchase price (being only the direct procurement cost) of only 8 items tallied with the target purchase price stated in the table. Here it is relevant to point out that in the seized pages, the first item being "7.01 Wooden Structure" was recorded at an alleged cost price of Rs. 3500 per unit. Now when compared to the Bills as raised by the Appellant, it is seen that the bill raised is of Rs. 2100/- only. The analysis of the bill will reveal that the unit price is very different (lower) and also that the bill clearly lays out that the amount was for only the direct material cost and not for the entire cost relating to the wooden platform. The next item in the seized list is "Chair Sofa" 3 seater and 2 seater. The alleged cost price recorded therein is at Rs. 7550 and 5950/-. Now comparing again eith the Purchase Order of the Appellant Company it is seen that the prices recorded threein are of Rs. 14,250/-and 15,300/- for 3 setaer and Rs. 10,200 for 2 seater. Thus here the price recorded is higher. Thus from the above it stands to be clearly the case of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....addition of INR 3 03255951/- being the difference between the purported target cost and the consideration to be received from the organizing committee by the assessee under section 69A of the act. Accordingly, ground number 18 of the appeal of the assessee is allowed. 163. Ground number 19 of the appeal is with respect to the addition of INR 34,10,40,959/- made by the learned assessing officer being the alleged difference between the price quoted by the appellant to organizing committee in comparison to the price allegedly quoted by other vendors. The brief facts of the addition shows that as per the para number 27 of the order of the learned assessing officer he noted that there is an allegation that for several items different rates charged by the organizing committee from different contractors resulting in undue and selective favoritism, a comparative study of the rates quoted by the 4 vendor is executing the contract was made. Based on this, the learned assessing officer listed the comparative prices of 4 contractors and held the minimum of each to be the benchmark. He therefore calculated on selective basis on certain items where the appellant company charged above the mini....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asis of outgoings / expenditure / investments is more than that on accrual basis by applying the profit margin appearing in the above mentioned seized documents; is found more, then the assessment has to be completed on the basis of outgoings / expenditure / investments on accrual basis. It is hereby clarified that the set off of outgoings / expenditure / investments has to be subsequent to the receipt of income as it cannot precedes to that. Accordingly, grounds of objection A-5 and A-6 are disposed of." The learned assessing officer thus made the above addition. 165. The learned authorised representative submitted that the above addition has been made without any evidences and merely based on the conjectures and surmises by comparing the prices of the four contractors and selecting the minimum price out of their bids and then working out the difference between prices charged by the assessee with the minimum prices offered by the assessee, the ld AO worked out the difference of INR 34,10,40,959/-. He further submitted that the learned assessing officer has totally ignored the concept of the "service‟ and the "sale of goods‟. He submitted that the contract of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot based on facts and proper appreciation of the entire structure of the Contract and its accounting procedure. Whenever a project like Commonwealth games involving thousands of items is executed what is important is the overall consideration received and the overall cost. The profitability of a project involving thousands of different items cannot be determined based on cherry picking of the alleged margins earned in relation to few items based on some adhoc comparisons. The Ld. AO has only carried out selective comparison but has cherry picked only those items where the price quoted by the Assessee was more in comparison to the price allegedly quoted by the other vendors. However, the Ld. AO has ignored the items where the price quoted by the Assessee was less in comparison to the price quoted by the other vendors. This cherry picking is the basis for Ld. AO‟s allegation that the Assessee has earned exorbitant margins and that the Assessee has caused huge loss to the exchequer. Therefore, these factual findings of the Ld. AO regarding exorbitant margins earned by Assessee and that the Assessee has caused loss to exchequer cannot be the basis for making the above addition u/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing addition of whole of the expenditure of Rs. 165,12,50,026/-. Reason for making above disallowance by the ld AO is that the appellant had not submitted original invoices and other supporting evidences as requisitioned earlier on various dates as discussed above, but photocopy which has been submitted by them during the course of hearings. The ld AO held that this shows that the assessment proceedings which started on 17.09.2012 and continued through the year 2013 and year 2014 the assessee did not have any original invoices. Thos further shows that the copies of the bills and invoices of claimed expenditure under various heads by the assessee for the A.Y. 2011-12 are sham expenses as already proved in the earlier para of this order. It was submitted that seized documents shows those originals with Income Tax Department. Thereafter, after few months original invoices of value, less then Rs. 1 Lakh were returned to the company while all the invoices of value , Rs. 1 Lakh and above (in original) were retained by the Income Tax Authorities . Further, the Ld. AO also alleged that assessee was given repeated opportunities but assessee failed. Thus it resulted in addition/ disallowance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenditure considering it as unexplained, which has lead to twice as well as thrice disallowances . iv. He submitted a chart showing double disallowances is submitted separately in the course of this hearing. This very clearly shows the addition was made substantially many times. v. Original bills, copies of ledger of all the expenses along with narration, payment details, bank, statement and ledger of party‟s account from which materials and services were procured and also explained the purpose of the expenditure before the Ld. AO. The narration in the ledger account and the bills are sufficient to explain the purpose for which the expenditures are incurred. The appellant had maintained cash basis of accounting for Income Tax purposes. In order to comply with the provision of section 209 of the Companies Act, 1956, the appellant also prepared and maintained its books of accounts on accrual basis. It was also established that the appellant had maintained proper books of accounts and all the transaction in respect of income, expenditure, assets, and liabilities are duly recorded in the books. The Ld. AO also accepted that the appellant had maintained proper b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ld Departmental representative vehemently supported the order of the ld DRP. 172. We have carefully considered the rival contentions and found that the appellant filed its return of income following the cash method as of the IT Act, 1961. All the incoming and outgoing of receipts and payments were all evidenced, verified and accepted as such. However, while making the disallowance about the expenses, the AO has disallowed it on accrual basis in as much as rejecting the cash system of accounting. The AO on no basis whatsoever adopted the accrual method for determining the appellant‟s income. The appellant produced all the original bills before the Ld. AO during the course of assessment, which has been duly accepted by the Ld. AO in the assessment order. However, he rejected all the original bills for the only reason that the appellant was involved in receiving the bogus bills. The Ld. AO without any inquiry, investigation, identifying the parties, nature of bills, number of bills, amount involved, and modus opearandi alleged that all the bills are bogus and therefore the statement of the Ld. AO sounds very vague. Further, the DRP also directed the Ld. AO to make addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re to find out the actual bogus expenditure, if any incurred by the assessee. In view of this we do not find any merit in the disallowance made by the ld AO and sustained by the ld DRP. Accordingly Ground no 20 of the appeal is allowed. 173. Ground no 21 is general in nature and no specific arguments were advanced therefore it is dismissed. 174. Ground no 22 is against the initiation of penalty proceedings, which is premature at this stage. Though arguments are advanced by the ld AR extensively but there is no appeal against the initiation of the penalty proceedings as separate mechanism are provided. The assessee has proper opportunities are available for defending it, therefore it is premature at this stage and hence, dismissed. 175. Ground no 23 is against the initiation of penalty proceedings u/s 271 G of the act for non maintenance of the documents prescribed under the law for International Transactions. It is also similar to ground no 22 of the appeal. Though arguments are advanced by the ld AR extensively but there is no appeal against the initiation of the penalty proceedings as separate mechanism are provided. The assessee has proper opportunities available for de....