TaxTMI 
TaxTMI 
2021 (5) TMI 515
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....(A)-54/IT-10227/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10229/DC.CC- 6(4)/2018-19 & CIT(A)-54/IT-10236/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10227/DC.CC-6(4)/2018-19 dated 24/01/2019 & 16/10/2019 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)r.w.s. 153A of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2018 & 29/12/2018 respectively by the ld. Dy. Commissioner of Income Tax, Central Circle-6(4), Mumbai (hereinafter referred to as ld. AO). ITA No. 68/Mum/2020 (A.Y.2011-12), 69/Mum/2020 (A.Y.2012- 13), 70/Mum/2020 (A.Y.2014-15), 71/Mum/2020 (A.Y.2015-16), 72/Mum/2020 (A.Y.2016-17) & 152/Mum/2020 (A.Y.2017-18) These appeals in ITA Nos.68/Mum/2020, 69/Mum/2020, 70/Mum/2020, 71/Mum/2020 & 152/Mum/2020 for A.Y. 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, arise out of the order by the ld. Commissioner of Income Tax (Appeals)-54, Mumbai in appeal No. CIT(A)-54/IT-10218/DC.CC-6(4)/2018-19, CIT(A)-54/IT- 10220/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10224/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10227/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10229/DC.CC- 6(4)/2018-19 & CIT(A)-54/IT-10236/DC.CC-6(4)/2018-19 dated 16/10/2019 (ld. CIT(A) in sho....
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....ppeal Nos.CIT(A)-54/IT-10264/DC.CC- 6(4)/2018-19, CIT(A)-54/IT-10266/DC.CC-6(4)/2018-19 & CIT(A)-54/IT-10265/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10267/DC.CC-6(4)/2018-19 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 153A of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/12/2018 by the ld. Dy. Commissioner of Income Tax, Central Circle-6(4), Mumbai (hereinafter referred to as ld. AO). ITA No.153/Mum/2020 (A.Y.2011-12), 154/Mum/2020 (A.Y.2012-13), 155/Mum/2020 (A.Y.2013-14), 156/Mum/2020 (A.Y.2014-15), 157/Mum/2020 (A.Y.2015-16), 158/Mum/2020 (A.Y.2016-17) & 159/Mum/2020 (A.Y.2017-18) These appeals in ITA Nos. 153/Mum/2020, 154/Mum/2020, 155/Mum/2020, 156/Mum/2020, 158/Mum/2020 & 159/Mum/2020 for A.Y.2011-12, 2012-13, 2013-14 2014-15, 2015-16, 2016-17 & 2017-18 arise out of the order by the ld. Commissioner of Income Tax (Appeals)- 54, Mumbai in appeal Nos. CIT(A)-54/IT-10245/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10246/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10263/DC.CC- 6(4)/2018-19 CIT(A)-54/IT-10264/DC.CC-6(4)/2018-19 & CIT(A)-54/IT-10265/DC.CC-6(4)/2018-19, CIT(A)-54/IT-10266/DC.CC-6(4)/2018-19 & CIT(A)-54/IT-10267/DC.C....
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....es, partnership firms and associate concerns either through equity investments, advances, loans or through debt instruments such as Optionally Convertible Debentures (OCDs), Compulsorily Convertible Debentures (CCDs), Non- Convertible Debentures (NCDs) etc. 5. In view of innumerable number of issues spread over various assessees and various assessment years, we feel that it would be desirable to proceed with each of the issues involved in all these appeals independently for the sake of convenience. However, due care has been taken by us to make proper reference to the concerned name of the assessee, grounds involved thereon together with the relevant assessment years. 5.1. The various issues involved in all these appeals may be summarized as under:- (A) Whether any addition/ disallowance could be made in an assessment framed u/s 153A of the Act in respect of unabated/ concluded assessments on the date of search in the absence of any incriminating material found during the search relating to such unabated assessment year ? (B) Whether disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules could be made in the facts and circumstances of the case under normal pr....
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....to the assessee companies on the ground that no incriminating material has been found during the course of search with respect to the disallowances/ additions made by the ld AO in the various Asst Years which are not abated and had become final in as much as the period for issue of notice u/s 143(2) of the Act had already elapsed for the respective assessment years and/ or that the assessment orders u/s. 143(3) of the Act had already been passed.We find that Section 153A of the Act provides that where a search is initiated u/s 132 of the Act the ld AO shall "assess or reassess the total income of six assessment years immediately preceding the assessment year" relevant to the previous year in which the search is conducted or requisition is made. The 1st Proviso states that the ld AO shall "assess or reassess the total income in respect of each assessment year falling within such six assessment years", while the 2nd Proviso states that the assessment or reassessment relating to the said six assessment years "pending" on the date of initiation of the search u/s 132 of the Act shall "abate". It thus follows that assessments or reassessments which are not pending on the date of initiati....
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....8 to 27 28 to 34 35 to 39 7 Status of Assessment on the date of Search Concluded/Not Pending Concluded/Not Pending Concluded/Not Pending Concluded/Not Pending Concluded/Not Pending Concluded/Not Pending Concluded/Not Pending 6.2. The various dates and events tabulated in the aforesaid table were not disputed by the revenue before us as they are borne out from the records available before us. At the cost of repetition, we find that the ld CIT(A) had deleted all the disallowances and additions made in the assessments framed u/s 153A of the Act for the Asst Years 2011-12, 2012-13 and 2013-14 in the case of IIC Limited ; Asst Years 2011-12 & 2012-13 in the case of Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) and Asst Years 2012-13 and 2013-14 in the case of Rattanindia Power Limited, by giving a categorical finding that these assessments are concluded assessments and no incriminating materials relatable to such assessment years were found during the course of search. The ld DR before us was not able to bring any contrary evide....
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.... it observes as above with regard to the ambit and scope of the powers conferred under section 153A of the Act. Since we are not required to trace out the history and we can do nothing better than to reproduce the observations and conclusions as above that we are not repeating the same. Even if the exercise of power under section 153A is permissible still the provision cannot be read in the manner suggested by Mr. Pinto. Not only the finalised assessment cannot be touched by resorting to those provisions, but even while exercising the power can be exercised where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after 31st March, 2003. There is a mandate to issue notices under section 153(1)(a) and assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words "search" and "requisition" appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision. It being enacted to a search or requisition that....
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.... therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other. 49. Before proceeding further, we may now examine the provision contained in sub-section (2) of sec....
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.... with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1). 52. The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is "shall" and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of init....
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....search. He was specifically questioned about the jurisdiction of the AO to make original assessment along with assessment u/s 153A, merging into one. However he took an evasive view submitting that this question need not be decided in his case although the question of jurisdiction u/s 153A was vehemently pressed on account of which ground No.1 in the appeal for assessment year 2004-05 was admitted as additional ground. He also wanted the additional ground to be retained in case of any future contingency." 32. We would be failing in our duty if we do not note the reliance placed by Mr. Pinto on the judgments rendered by the High Court of Delhi at New Delhi and the High Court of Karnataka. Mr. Pinto would submit that the above observations and conclusions of the Special Bench and reproduced by us are specifically disapproved in CIT v. Anil Kumar Bhatia [2012] 24 taxmann.com 98/211 taxman 453 (Delhi) by the Delhi High Court. We do not find this argument to be accurate. In Anil Kumar Bhatia (supra) as well the assessment involved the years 2000-01, 2002-03 and 2005-06. One of the questions and which was termed as substantial question of law was the correctness of the ....
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....he arguments before the Tribunal and thereupon the Tribunal having deleted these additions and the notional interest, the matter was taken in appeal to the High Court of Delhi under section 260A of the IT Act by the Revenue. 33. The arguments, therefore, have been noted and from paragraphs 16, section 153A was analysed. 34. Mr. Pinto heavily relied on paragraphs 18, 19 and 20 of the judgment of the Hon'ble High Court of Delhi. He also relied on paragraph 21 to contend that the Special Bench decision has not been approved by the High Court of Delhi. 35. The Delhi High Court's judgment must be seen in the context of the essential controversy before it. Pertinently, that controversy arose because of a search being conducted at the residence and business premises of the assessee. Foundation of the action under section 153A being the search that the High Court of Delhi was required to consider the ambit and scope of the powers. Further, pertinently the Delhi High Court did not ignore any of the provisions. Those are correctly understood by the Delhi High Court. We do not see how and where the Delhi High Court disapproves the view take....
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.... has been made to the judgment in Anil Kumar Bhatia (supra) of the High Court of Delhi (supra) and then the following observations in paragraphs 10 and 11 are made : "10. Section 153A of the Acts start with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by e....
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.... again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. Once the order passed by the Assessing Officer gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the interest of the revenue which confers jurisdiction on the Commissioner to exercise the power of the jurisdiction. 11. The Tribunal has proceeded on the assumption by virtue of the judgment....
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....ts Ltd. (supra) requires reconsideration or does not lay down a correct principle of law. We cannot, therefore, accede to the submissions of Mr. Pinto and revisit any of the conclusions rendered by the Division Bench of this Court. 38 to 48. ....................... 49. We, therefore, dismiss the Revenue appeals and answer the substantial questions of law against the Revenue and in favour of the assessee. There shall be no order as to costs. 6.2.1. We further find that against the aforesaid decision of Hon'ble Bombay High Court, the revenue had preferred Special Leave Petition (SLP) before the Hon'ble Supreme Court only on merits of the issue and not on the legality of making additions in the absence of incriminating material in the assessments u/s 153A of the Act. This is the main contention raised by the revenue in its appeals for various Asst Years as listed above as far as this legal issue is concerned.We find that the ld AR rightly brought to our notice that (SLP No. 18506/2015) Civil Appeal No. 8546 of 2012 in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd was directed to be listed along with Civil Appeal No. 8900 of 2012. We find....
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....ars A. Y. Grounds of Appeal Nos. 1. M/s. IIC Limited 2011-12 1 to 5 2. 2012-13 1 to 4 3. 2013-14 1 to 6 4. M/s. Sinnar Thermal Power Ltd (formerly known as Rattanindia Nasik Power Limited) 2011-12 1 to 5 5. 2012-13 1 to 5 6. M/s. Rattanindia Power Limited 2013-14 2012-13 1 to 3 1 to 3 7. In the result, the appeals of the revenue, in ITA Nos. 62 & 63/Mum/2020 for the Asst Years 2012-13 & 2013-14 respectively in the case of Rattanindia Power Limited are dismissed ; in ITA Nos. 68 & 69/Mum/2020 for the Asst Years 2011-12 & 2012-13 respectively in the case of Sinnar Thermal Power Ltd and in ITA Nos. 153 to 155/Mum/2020 for the Asst Years 2011-12, 2012-13 & 2013-14 respectively in the case of IIC Limited, are dismissed. Accordingly, the issue framed in para 5.1. (A) above is decided in favour of the assessee. 8. Disallowance u/s 14A of the Act read with Rule 8D(2) of the Income Tax Rules (in short 'Rules') under normal provisions of the Act We find that the ld AO had resorted to make disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules in the case of IIC Limited in the Asst Years 2013-14 to 2017-1....
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.... in principle upheld the disallowance made by the ld AO but gave a direction to restrict the same to the extent of exempt income, as he was of the opinion, that the disallowance cannot exceed the exempt income. We find that the ld CITA also directed the ld AO to consider only those investments which had actually yielded exempt income while working out the disallowance. Pursuant to the partial relief granted by the ld CITA, both the assessee as well as the revenue are in appeals before us for various assessment years for various companies, with regard to the issue of disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules under normal provisions of the Act. We are any way not concerned with the disallowance made for the Asst Years 2012-13 & 2013-14 in the case of Rattanindia Power Ltd ; Asst Years 2011-12 & 2012-13 in the case of Sinnar Thermal Power Limited (formerly known as Rattanindia Nasik Power Ltd) and Asst Year 2013-14 in the case of IIC Ltd, as it has already been held hereinabove that they being unabated assessments and there is no incriminating material found during the course of search. Hence our finding with regard to the issue of disallowance u/s 14A of the A....
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....rmal Power Limited (formerly known as Rattanindia Nasik Power Ltd.) 2011-12 710,93,64,000/- Nil 7. 2012-13 1240,98,56,511/- 12,50,00,000/- 8. 2015-16 1963,00,67,083/- Nil 9. 2016-17 2006,27,04,525/- Nil 10. 2017-18 2022,73,59,000/- Nil 11. Rattanindia Power Ltd. 2012-13 4235,56,84,664/- 7,28,53,56,060/- 12. 2013-14 5355,93,64,407/- Nil 13. 2014-15 5290,27,70,137/- Nil 14. 2015-16 5314,50,59,274/- Nil 15. 2016-17 5486,86,46,299/- Nil 16. 2017-18 4957,95,96,530/- Nil 8.3.1. The aforesaid chart when corroborated with the audited financial statements, which are part of the paper books filed before us, clearly prove that the assessee companies were having sufficient own funds in its kitty for making investments and hence by placing reliance on the decision of Hon'ble Jurisdictional High Court in the case of HDFC Bank reported in 366 ITR 505 (Bom), there cannot be any disallowance of interest under Rule 8D(2)(ii) of the Rules. 8.4. We are in complete agreement with the arguments advanced by the ld AR that the ld AO had not recorded any objective satisf....
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....the Act in asst. yr. 2009-10. In the course of assessment proceedings, in response to the query raised by the AO, the assessee has justified the disallowance made by it under s. 14A through detailed submissions. However, the AO except recording a vague and general observation that the submissions of the assessee was not found tenable has not recorded any satisfaction as to why the claim of the assessee with regard to the disallowance made by it under s. 14A is not correct having regard to its books of account. Sec. 14A(2) of the Act which has been introduced to the statute w.e.f. 1st April 2007 by Finance Act, 2006 mandates recording of satisfaction by the AO on the correctness of assessee's claim having regard to its accounts. Even, r. 8D(1) also postulates similar recording of satisfaction by the AO. The Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. vs. Dy. CIT &Anr. (2010) 234 CTR (Bom) 1 : (2010) 43 DTR (Bom) 177 : (2010) 328 ITR 81 (Bom) has held that recording of satisfaction under s. 14A(2) of the Act is a sin qua non for making disallowance of expenditure attributable to earning of exempt income. The Hon'ble Delhi High Court in case of Maxopp Investment ....
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....n rendered for other cases i.eRattanindia Power Limited and Sinner Thermal Power Ltd on the non-recording of objective satisfaction with cogent reasons, would squarely apply to the similar issue in the case of IIC Limited. 8.8. The grounds raised by the assessee as well as by the revenue on the issue of disallowance u/s 14A of the Act under normal provisions of the Act (issue framed in para 5.1 (B) above) are disposed off in the aforementioned terms. 9. Disallowance u/s 14A of the Act while computing book profits u/s 115JB of the Act We find that the ld AO had resorted to make disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules while computing book profits u/s 115JB of the Act, in the case of IIC Limited in the Asst Years 2013-14 to 2017-18 ; in the case of Sinnar Thermal Power Limited (formerly known as Rattanindia Nasik Power Ltd.) in the Asst Years 2011-12, 2012-13, 2015-16 to 2017-18 and in the case of Rattanindia Power Ltd. in the Asst Years 2012-13 to 2017-18. We find that the assessee companies have earned exempt income during the assessment years under consideration. We find that the claim of the assessee companies is that they have not incurred an....
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..... But in the case of IIC Limited, there was no voluntary disallowance of expenses made by the assessee in the returns of income for the Asst Years 2014-15 and 2015-16. Hence we direct the ld AO to identify the actual expenditure incurred thereon, if any, for the purpose of earning exempt income in the similar fashion as was done in the case of other two assessee M/s. Rattanindia Power Limited for the Asst Years 2014-15 to 2017-18. In any case, the said disallowance shall not exceed the exempt income for the respective years. This would meet the ends of justice in our considered opinion. However, for the Asst Year 2013-14 in the case of IIC Limited, no disallowance u/s 14A of the Act could be made as it falls in unabated assessment year and we have already held that no incriminating material was found during search relatable to that assessment year. 9.3. The grounds raised by the revenue on the issue of disallowance u/s 14A of the Act while computing book profits u/s 115JB of the Act (issue framed in para 5.1 (C ) above) are disposed off in the aforementioned terms. 10. Addition towards cash found during the course of search u/s 69A of the Act We find that this addition ....
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.... we find that the ldAO hadalleged that that the difference between the cash in hand as per RattanIndia Group of companies as on the date of search and cash found at the Aerocity office premises was a negative difference. This inference drawn by the ld AO is factually incorrect as could be seen from the aforesaid details submitted by the assessee that the cash balance as per books of accounts on the date of search of various group companies of Rattanindia was Rs. 3,66,94,809/-. It is not in dispute that the same office premises (i.eAerocity office, being only one commercial/ registered/ correspondence office) is being used by 100 companies in the group and hence it would be practicable to hold the cash balance in different locations thereon including keeping the cash balance in the premises of the director for safe custody. The cash found during search was only Rs. 1,81,18,710/- as against Rs. 3,66,94,809/- found in its books of accounts. While this is so, there can only be a positive difference and not negative difference as observed by the ld AO in his order. 10.2. We find that the ld AO had contended that the bundles of money found at the Aerocity office had staples on t....
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.... assessee. 11. Disallowance of write off of advance given to subsidiary We find that the ld AO had disallowed the claim of write off of advance given to subsidiary company M/s Indiabulls CSEB Bhaiyathan Power Limited by Rattanindia Power Limited for the Asst Years 2013-14 and 2014-15. We find that this was deleted by the ld CITA for both Asst Years 2013-14 and 2014-15, against which, the revenue is in appeals before us. We are any way not concerned with the deletion of disallowance made for the Asst Year 2013-14 in the case of Rattanindia Power Ltd, as it has already been held hereinabove that it being unabated assessment, and there is no incriminating material found during the course of search. Hence our finding with regard to the issue of disallowance of write off of advance given to subsidiary company is confined to Asst Year 2014-15 only herein. 11.1. We find that the assessee company M/s. Rattanindia Power Limited had given a business advance of Rs. 79,02,59,727/- to its subsidiary M/s. Indiabulls CSEB Bhaiyathan Power Limited in the earlier years. On the legal advice received by the assessee company, the amount of Rs. 27,12,44,950/- for the Asst Year 2013-14 and Rs. ....
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....d that the assessee company also submitted that the inter- company agreement entered into by the assessee company with its subsidiary company would show that it was the intention of the assessee company to advance to the subsidiary and the purpose for which such advance was to be utilised. The said amount was considered to be irrecoverable since the subsidiary company was not able to take of its project due to rejection from Ministry of Environment & Forest and it became evident that the project will not be implemented. The copy of letter dated 15.10.2010 was placed on record from the Ministry of Environment & Forests (FC Section) has in para 2 to 5 observed that 'after discussing the proposal in detail, the FAC did not recommend the proposal as number of trees to be felled is very high, which does not justify diversion from the conservation point of view.'This is enclosed in pages 802 to 805 of the paper book IB filed before us. In view of the same, the management of the assessee company obtained a legal advice that out of Rs. 79,02,59,727/-, an amount of Rs. 27,12,44,950/- in Asst Year 2013-14 and an amount of Rs. 21,26,79,190/- in the Asst Year 2014-15 would be irrecoverable and....
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....id case. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that in unabated cases, addition(s) on any issue can be made only on the basis of incriminating material found during the search action." 11.5. As stated earlier, the ld CIT(A) had granted relief by deleting the disallowance made on account of write off of irrecoverable business advance given to the subsidiary allowing it to be a business loss, on merits of the case. We find that the revenue had not raised any ground before us contesting the deletion of disallowance by the ld CIT(A) on merits. As we have already stated earlier, the assessee had not pursued the legal issue u/s 153A of the Act before the ld CIT(A) for the Asst Year 2014-15 and no relief has been granted by the ld CIT(A) on the same. Therefore, the aforesaid ground raised by the revenue for the Asst Year 2014-15 in ITA No. 64/Mum/2020 becomes infructuous as not emanating from the records. Accordingly, the grounds raised by the revenue in this regard deserve to be dismissed. The issue framed in Para 5.1 (E ) above is decided in favour of the assessee. 12. Disallowance of alleged bogus expe....
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....aid power plant comprised of five turbines of 270 MW each aggregating to 1350 MW. The major items of plant & machinery were purchased from M/s. Bharat Heavy Electricals Limited (a public sector company). The plant was set up with one of the lowest per MW cost including cost of plant and machinery and civil works. The per MW cost was Rs. 7.27 crores as against the prevailing industry norm of Rs. 8 crores per MW. During the course of assessment proceedings, the assessee submitted copies of project costs of recently completed thermal power plants before the ld AO for his reference. 12.3.1. It was submitted that M/s. IIC Limited was an EPC Contractor and had undertaken various projects on behalf of different customers and executed projects from time to time including construction of the Real Estate Projects. M/s. IIC Limited has also undertaken Infrastructure Projects i.e. Amravati Thermal Power Plant, Nasik Thermal Power Plant, Solar Projects etc. It was submitted that M/s IIC Limited had procured raw materials from hundreds of vendors aggregating to over Rs. 2307 crores during the period from financial years 2011-2017. Further, the payments were made only by account payee cheques ....
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....uctions with ISO 9001:2015 vide certificate number 910116032110 v. Copy of ITR acknowledgment of proprietor of M/s Ruby Constructions vi. Copy of service tax registration of M/s Ruby Constructions vii. Copy of ledger account of M/s Ruby Constructions in the books of IIC Limited along with narrations viii. Relevant extracts of bank statement of IIC Limited showing payments made to M/s Ruby Constructions 2. Shree Infra i. Copy of invoice raised by M/s Shree Infra on IIC Limited showing its service tax registration details, VAT registration details, address, contact details, PAN etc. 1025-1031 1032-1033 1034-1120 1121-1146 ii. Details of jurisdictional AO of M/s Shree Infra iii. Copy of ledger account of M/s Shree Infra in the books of IIC Limited along with narrations iv. Relevant extracts of bank statement of IIC Limited showing payments made to M/s Shree Infra 3. Varun Earth Movers i. Copy of invoice raised by M/s Varun Earth Movers on IIC Limited showing its service tax registration details, address, contact details, PAN etc. 1147 1148-1149 1150-1151 1152-1155 1156-1277 1278 ii. Copy of PAN Card and ....
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....obilisation advance of crores of rupees to carry out the work done at site, without actually entering into any legally binding contract. The ld AO observed that no formal contract was entered into by these vendors with either IIC Limited or with Rattanindia Power Limited or with Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited). The ld AO also place reliance on the report received from Investigation wing of Income Tax Department wherein the representative of IIC Limited had expressed his inability to provide documentary evidence to substantiate the claim of such expenses/ purchases recorded in the books of IIC Limited. The ld AO further observed that IIC Limited is only a pass through entity and that the goods have been directly supplied at the work site by the vendors and since IIC Limited had lent its name as a pass through entity, it had claimed a margin of 25% on the value of such purchases from the assessee company i.eRattanindia Power Limited and Sinner Thermal Power Limited. The ld AO also admitted the fact that IIC Limited had indeed paid due taxes on 25% margin retained by it on these transactions. In response, we find that the assessee compa....
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....ons made on behalf of the assessee companies were not even controverted by the ld AO in his orders or even by the ld DR before us. Apart from that, we find that the assessee had filed various documentary evidences to prove the genuineness of purchases made from the aforesaid five vendors. If there be any doubt in the mind of the ld AO, nothing prevented him from making any enquiry of the said five vendors in the manner known to law. Absolutely no enquiries were carried out by the ld AO in this regard. We find that each of the allegations levelled by the ld AO in his assessment order were duly met by the assessee companies before the ld CITA by giving proper explanation with regard to these additions either on substantive or protective basis. We find that the ld AO had stated that the assessee companies had admitted that the transactions between these five vendors and IIC limited were not genuine. This statement of the ld AO was submitted to be factually incorrect as there was no occasion for the representative of the assessee company to even make such statement. Infact we find that the ld AO did not even resort to make basic enquiries to understand as to whether these five ....
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....t remains that the materials supplied by these five vendors had ultimately reached the work site of Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) and consumed in their project. The 25% margin retained by IIC Limited had already been offered to tax by IIC Limited, which is not disputed by the revenue. Hence the purchase cost of materials in the hands of Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) would be excessive by 25% of cost. But we find that it is not the case of the revenue before us that the purchase value made in the books of Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) is excessive or unreasonable so as to be disallowed in its hands. Hencewe hold that the entire allegation that IIC Limited had acted as a pass through entity is of absolutely no relevance for adjudication of the subject matter before us. 12.8. Yet another allegation levelled by the ld AO in his assessment order was the absence of contract between the contractor and IIC Limited and subsequently the absence of provisions such as liquidated damages and defect liability. In this regard, we find that the....
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....xpertise in their respective domains. As the entire project was being undertaken for Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited), the assessee had sub-contracted such works to such contractors. However, only upon satisfactory completion of work did IIC Limited make the necessary payments through regular banking channels and after deducting the applicable TDS. In order to make the project commercially viable for IIC limited, it used to charge a profit mark up on the payments made by it to sub-contractors and thereafter charge the marked up amount to Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited). Thus the profits arising from transactions undertaken with such contractors were embedded in the invoicing done by IIC Limited on Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) over the years, which have duly been accepted by the ld AO himself. Hence we find that there is absolutely no case made out by the revenue for disallowance of business expenditure in the hands of IIC Limited. 12.10. We also find that the ld AO while making disallowance of expenditure in the hands of IIC Limited....
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....by the ld AO that the party M/s. Varun Earth Movers has not replied to the Investigation Wing. In this regard, it was submitted that lack of response does not tantamount to the party being non-existent or the transaction being non-genuine. All payments were made through regular banking channels and were duly accounted for in the books of accounts. It was further alleged that the said party was not traceable. In this regard, it was reiterated that the assessee was given to understand that the said contractor had duly responded to all notices u/s 133(6) issued to it. The assessee company had time and again extended its cooperation to the ld AO to visit the site of Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) and examine the work done by the said contractor, but the ld AO has merely raised suspicions based on conjectures and surmises in the absence of any valid basis of such suspicions. It was submitted that the ld AO has failed to appreciate that such payments were made in 2013 i.e. a period more than 6 years ago, and the work performed by the said contractors worth Rs. 2.94 crore was miniscule (i.e. only 0.07%) in comparison to the capital work in....
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.... the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted." 4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. 5. In these circumstances, the Review Petitions are dismissed. We find that the ratio decidendi of the aforesaid decision of Hon'ble Supreme Court would squarely apply to the facts of the instant cases before us. 12.12.1. Moreover, we find that the ld AO on one hand disallowed the entire purchases made by IIC Limited from the aforesaid 5 vendors totalling to Rs. 66.86 crores as non-genuine purchases, spread over different assessment years as tabulated supra, on protective basis, and on the other hand, simultaneous....
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....ttanindia Nasik Power Limited). Accordingly, the issue framed in para 5.1 (F) above is decided in favour of the assessee and grounds raised by the revenue in the case of IIC Limited and Sinner Thermal Power Limited (formerly known as Rattanindia Nasik Power Limited) are dismissed for various assessment years in this regard. 13. Disallowance of business loss in the case of IIC limited for the Asst Year 2017-18 This disallowance was made for the Asst Year 2017-18 in the case of IIC Limited. The ld AO observed that the assessee company i.e IIC Limited filed a revised computation of income during the course of assessment proceedings declaring total income of Rs. 24,89,579/- and long term capital loss at Rs. 51,40,86,582/-. The assessee company furnished the reasons for the said revised computation of income. It was submitted before the ld AO that assessee was also engaged in investing in direct equity, OCDs, ICDs and other financial instruments and loans to group companies as part of its business activities. Therefore the assessee has always showing the income earned from interest and dividend under the head 'income from business & profession'. The assessee company had invested R....
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....k- in-Trade' at cost in the books of accounts. The copy of board resolution is enclosed in Page No. 928 of the Paper Book IB filed before us. Accordingly, provisions of section 2(47)(iv) of the Act was attracted on the date of conversion and the assessee company offered deemed long term capital loss of Rs. 51,40,86,582/- on conversion of capital asset into stock-in-trade. Thereafter, the assessee on the actual sale of OCD's to M/s Tupelo Consultancy LLP at a price of Rs. 24,35,00,000/-, it incurred a loss of Rs. 61,00,40,000/-. This was duly disclosed by the assessee company in its profit and loss account. The fair market value on the date of conversion of investment into stock in trade on 1.4.2016 was Rs. 85,35,40,000/- on which consideration, there is no dispute. The assessee had also furnished the ledger account showing the relevant entries passed in its books of accounts as on 1.4.2016 while converting investments into stock in trade, copies of relevant ledger accounts of stock in trade and evidence in the form of bank statements for the relevant period showing the sale of stock in trade to M/s Tupelo Consultancy LLP on 29.3.2017. 13.3. Infact in the return filed by the a....
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....,26,582 13.5. We find that the ld CIT(A) has granted relief to the assessee company on this ground by holding that "In light of the above, the two separate, independent and distinguishable events arising from a bonafide transaction resulted in capital and business loss in the hands of the appellant, which has rightly been disclosed by the appellant in its revised return of income. Having failed to point out any error in the tax treatment of the transactions that had already taken place more than two and a half years ago in the books of accounts of the appellant, the AO has put forth an unsustainable allegation of an afterthought which cannot be upheld". 13.6. We find that the assessee had always submitted that as part of its business operations over the years, it had carried out its objects (main, other and ancillary objects as per the Memorandum of Association) either itself or through its subsidiaries or through Joint Ventures/ Partnerships etc. It was always pleaded that the assessee company was also engaged in investing in Direct Equity, OCDs, ICDs and other Financial Instruments and loans to Group Companies as part of its business activities. Therefore, the inte....
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....mited company to go back to its books of accounts and pass entries thereon after it is approved and adopted by the shareholders in the annual general meeting, for which necessary annual returns and balance sheet were also already filed with the Registrar of Companies. When the entries in the books of accounts were passed way back as on 1.4.2016 itself, the version of the ld AO that the aspect of conversion of investment into stock in trade is an afterthought and concocted story, cannot be accepted and deserves to be rejected at once. 13.8. We find that the ld AO had further alleged that the assessee company made an attempt to set off its long term capital loss against business income. We find that this allegation of the ld AO to be baseless and devoid of any merits.We find that the assessee company had duly converted the investment in OCDs which were earlier held as Investment to stock in trade as on 01.04.2016. As per due compliance of provisions of section 2(47)(iv) of the Act, the said conversion of asset to stock-in-trade was deemed to be a transfer chargeable to tax under the head Income from Capital Gains, resulting in a long term capital loss of Rs. 51,40,86,582. Subseque....
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....original return of income had been subsequently withdrawn by it in the revised return u/s 139(5) of the Act/ revised computation of income and hence what is to be seen while determining the total income is only the revised computation of income filed on 27.12.2018. This stand is further strengthened by the decision of Hon'ble Allahabad High Court in the case of Dhampur Sugar Mills Ltd vs CIT reported in 90 ITR 236 (All). Infact we find that the ld AO had taken due cognizance of the revised computation of income filed on 27.12.2018 in the determination of total income while allowing the long term capital loss to be carried forward as tabulated supra. 13.11. It is pertinent to reproduce the aforesaid table once again wherein the ld AO while determining the total income of the assessee company for the Asst Year 2017-18 had specifically allowed the long term capital loss to be carried forward to subsequent years :- Long Term Capital loss as per assessee's revised Computation filed on 27.12.2018 - i.e the loss On conversion of investment into stock in trade 51,40,86,582 Add: Business loss on sale of OCDs on 29.3.2017 Treated as long term capital loss by the ld AO 61,00,40....
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....conversion of investment into stock in trade (which has been accepted by the ld AO in the assessment order itself) and incurrence of loss of Rs. 61,00,40,000/- on sale of such stock in trade is to be treated as business loss and hence they are separate, independent and distinguishable events arising from a bonafide transaction. The said business loss of Rs. 61,00,40,000/- cannot be treated as capital loss in the facts and circumstances of the instant case. Hence the issue framed in Para 5.1. (G) above is decided in favour of the assessee and accordingly, the ground raised by the revenue for the Asst Year 2017-18 in the case of IIC Limited is dismissed. 14. Disallowance of deduction with respect to Preliminary expenses in the hands of IIC Limited for the Asst Years 2011-12 to 2017-18 We find that this disallowance is made by the ld AO only in the case of IIC Limited for the Asst Years 2011-12 to 2017-18. We find that the assessee company had incurred Preliminary Expenses in prior years amounting to Rs. 1,16,210/- and had claimed amortization of Preliminary Expenses incurred in earlier years at the rate of 1/5th amounting to Rs. 23,242/- in its computation of income for the Ass....