TaxTMI 
TaxTMI 
2019 (10) TMI 1378
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....ion 144(c)(13) of the Act and assessing the income after rejecting the books of account under section 44B of the Act at Rs. 4,34,79,980/- as against the loss returned by assessee at Rs. 120,18,44,672/-. For this assessee has raised the following grounds: - "General Ground 1.1 erred in assessing the income under section 446B of the Income-tax Act, 1961 (Act') at Rs. 4,3479,980 as against allowing the returned loss of Rs. 1,20,18,44,672; Rejection of books of accounts 2.1 erred in failing to complete the assessment as required under section 44BB(3) of the Act; 2.2 erred in holding that the Act permitted the department to ignore section 44BB(3) of the Act on the grounds of rejecting the Assessee's books of account, method of accounting or otherwise. 2.3 erred in rejecting the Assessee's books of account in the facts and circumstances of the case: 2.3.1 erred in concluding that the date of put to use of the rig after refurbishment, as submitted by the Assessee, is inaccurate, without appreciating that 'date of put to use is not relevant in the subject AY; 2.3.2 erred in rejecting the books of accoun....
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....erations, 4.4 erred in concluding that certain invoices submitted under the head Repairs and Maintenance' are not correct, 4.5 erred in concluding that certain invoices submitted under the head Hire Charges" are not related to the business activities of the Assessee. 4.6 erred in concluding that the auditor has conducted only a system audit and therefore, it can be inferred that the Assessee has not got the books of accounts audited as per provisions of section 44AB of the Act: Non-admission of additional evidence tiled before the DRP 5.1 erred in not accepting additional evidence filed by the Assessee even after obtaining a remand report on the same from the learned AO: 5.2 erred in holding that the details filed as additional evidence were not absolutely material and relevant for deciding whether the books of accounts ought to be rejected;" 3. Briefly stated facts are that the assessee is a company incorporated in Cayman Islands. During the year under consideration, the assessee was awarded contracts in India for charter hire of its offshore drilling rig "J.T. Angel". The assessee company in order to facilitate the oper....
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....ion of fixed assets of only Rs.18,73,09,429/-. (iv) The assessee itself, did not maintain audited accounts in immediately preceding year and was offering its income under section 44BB(1) of the Act on presumptive basis but in current year it is claiming to maintain accounts based on accounts of preceding year as per the management certification only and then again in subsequent year it has switched back to the method where it does not maintain audited accounts and offers its income on presumptive basis under section 44BB(1) of the Act . Thus the assessee is changing its position from having no account case from preceding year to maintaining accounts in current year and then again switching to having no accounts in subsequent years i.e. AY 2015-16 and AY 2016-17. (v) The valuation report in respect of the old rig purchased is from a foreign party but in absence of the agreement of purchase given by assessee, it is not known whether the seller and purchaser ever relied upon such valuation report to decide the purchase consideration of the old rig. (vi) The purchase/sale transaction between two parties may be carried out at a lower/ higher rate from that of ....
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....ed, regularly and consistently. There are serious defects in maintenance of accounts by the assessee. The assessee books are unreliable, incomplete and in accurate. The inaccuracies are reflected over a large part of the transactions and which form the majority part of its expenses. Assessee has changed its method of accounting over the period of the contract. Thus this is not a case where there are only minor mistakes in the books of accounts and difficulty in apportionment of profits of the assessee. The AO noted that there is suspicion without any positive evidence. Hence, he noted that there are positive and specific findings as to how and where, there are defects in the method of accounting in the books maintained by the assessee. Accordingly, the AO rejected the books of accounts after summing the above factors as under: - "The sum and substance of the above cases, is that: a) The job of the Assessing officer is to make a fair and reasonable assessment. b) The case of the Assessing officer cannot be based merely on suspicion. c) Assessing officer is not empowered to act arbitrarily when assessee as furnishing an explanation, which is suppor....
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....m no. 35A on 27.01.2017. 5. The DRP also affirmed the rejection of books of accounts and upheld the action of the AO and directed him to pass final order on the basis of the following directions: - "7.8.18 It is, therefore, evident that not only the transactions of head office and project offices are inter-linked but the transactions of the multiple entities of the group are also interlinked. Some of the group concerns are claiming to have maintained books of account whereas some of those are not maintaining any books of account. In the given circumstances of the case, it is very easy and convenient to shift expenditure of those concerns who are filing return as per provisions of section 441313 and hence, not maintaining any books of account to those concerns which arc claiming 'lower profit' as per provisions of section 44BB(3) of the Act. In the given facts of the case, when the assessee has claimed that two of the project offices of the group concerns, including the assessee is maintain books of accounts whereas the project offices of other group concerns are not maintaining any books of accounts and head office of none of the said group concerns are maintain....
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.... section 44BB, they are supposed to maintain books of account which could enable the AO to deduce their profit correctly and reasonably. It is, however, evident from the observation of the auditor itself that the completeness and accuracy of the opening balances of assets and liabilities and the transactions made from head office has not even found by him to be sufficient for certification and there is a reason to form an opinion that these figures could not be derived from the books of accounts with desired certainty and accuracy so as to accept that the assessee was maintaining books of account properly. Further, as per the observation of the Auditor, there is inventory of stores and spares. The findings of the Auditors in this regard is as below: "The company does not inventories stores and spares. This policy is not in accordance with the Accounting Standard 2 on Valuation of Inventories. The impact of the above on the financial statements is not currently ascertainable and accordingly, we are unable to comment on the effect thereof on the financial statements. 7.8.21 In the case of a Rig where stores and spares are also very expensive and those usually compri....
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....ntract labour expenses, custom duty, food and octoroi cost, support services, travelling expenses, repair and maintenance expenses, rig related expenses, receipts from various contracts and other documents. It was contended that the assessee has explained everything before the lower authorities including the AO during the draft assessment proceedings before DRP and before AO again during final assessment order. The assessee submitted before DRP various additional evidences to substantiate its claim vide submissions dated 27.01.2017 and 17.08.2017. The DRP forwarded these additional evidences to the AO for verification and comments on the merits of the submissions as well as admissibility of the additional evidences vide letter dated 20.07.2017. The AO submitted his remand report dated 11.08.2017 providing his comment thereon and analyzing the additional evidences submitted by the assessee and called for additional documents/ information from the assessee. It was contended that during the remand proceedings also, the AO has verified the books of accounts of the assessee in detail but rejected the books of accounts without any basis. He explained that the entire documents are availab....
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....f intimation from ONGC 30. Annexure 3-Essentiality certificate of the refurbished rig 31. Copy of fixed asset register. 7. The assessee contended that the auditors have verified the books of accounts of the assessee in great detail and have express the opinion that the financial statements are given true and fair view of the state of affairs of the operations of the company and the balance sheet and the profit and loss account of the year end consideration are in agreement with the books of accounts of the assessee. He referred to WDV for assessment year 2014-15 and stated that the difference pointed out by the AO, he has compared the cost as on 01.04.2013 for rig and related equipment as per financial statements, where the figure is given at Rs.70,89,65,840/-, with the opening WDV as per tax audit report is at Rs.68,66,22,438/-. It was explained that the said figure will not match as different rates of depreciation has been provided under the Companies Act and that of the Income-tax Act, that can be verified by the Assessing Officer. He further pointed out that AO has compared the opening gross block for AY 2014-15 along with closing ne....
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....ngaged in providing drilling services, has not inventorised stores & spares. Given this, a suitable qualification to this effect has been made by the auditor. A qualification by the auditor does not tantamount to rejection of books of accounts. Without prejudice, he argued that the AO could have followed an appropriate method instead rejecting the books of account. It was explained by the learned Counsel that during AY 2014-15 Shelf Drilling JT Angel Limited transferred capital work in progress amounting to Rs.19,41,65,370/- to fixed assets. The said amount was transferred to head "Rig and related equipment" amounting to Rs.18,73,09,429/- and "furniture and fittings" amounting to Rs.68,55,941/-. He stated that the AO has compared the Capital work in progress transfer with additions to head "Rig and related equipment" only and has not considered transfer other heads. 10. In regard to sample purchased orders and verification of invoices it was stated that the sample purchase orders for additions to fixed assets purchased showing that these invoices were raised for Indian operations and for this the assessee filed Additional evidence on 27.01.2017 and this was examined by the AO in....
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....ing. Accordingly, the treatment of expenses shall be determined only on the basis of nature of expenses irrespective of the value of expenditure. As per the invoice dated 25.12.2013 which is printed on the face of assessment order, however, AO stated that the invoice is dated 25.12.2014 and thereby alleging that the assessee has claimed expenses pertaining to subsequent years in the current assessment year. The description of expenses on the invoice is purchase of clamps, plates and packing charges. These expenses do not result in creation of any capital asset and hence, cannot be treated as capital in nature. The invoice raised in November dated 29.04.2014 submitted by the assessee is reproduced by the AO in assessment order. It is pertinent to note that while the said invoice was raised by November in the subsequent year, the purchase order pertaining to the said invoice is dated 01.02.2014. This evidence proves that this expense was incurred in AY 2014-15 itself. Accordingly, the contention of the AO that these expenses are inflated with subsequent years is erroneous in nature. 14. We noted that Shelf Drilling JT Angel Limited has a master service agreement with G1 Offshore w....
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.... 17. In view of the above, we noted that the assessee has prepared the books of account including financial statements in accordance with generally accepted accounting principles in India and the company has prepared these financial statements to comply in all material respects with the accounting standards as notified under the Companies (Accounting Standards) Rules, 2006 and the relevant provisions of the Companies Act, 1956. Even the accounts are audited and the same is evidenced from the tax auditors report furnished along with the return of income as well as before the AO. The opening balances of assets, liabilities and head office accounts are prepared based on the income offered under section 44BB of the Act in the preceding assessment year 2013-14 and the relevant bills and vouchers of earlier years. The assessee is primarily service company and not a manufacturing / trading company and there is a limited requirement with respect to stores and spare parts of rig at any given point of time, which are relatively insignificant in value. In such circumstances, the AO has to prove that the books of accounts are incomplete or incorrect and the basis for the same. In view of the ....