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M/s SRSR Advisory Services Pvt. Ltd. Versus Asst. Commissioner of Income Tax, Deputy Commissioner of Income Tax

2015 (11) TMI 1063 - ITAT HYDERABAD

Reopening of assessment - disallowance of 30% of the expenditure - Held that:- Reopening of assessment in the impugned years 2002-03 to 2005-06 are bad in law as there being no nexus or live-link with the reasons recorded and the 'formation of belief' to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the orig .....

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l charges and reimbursement of professional charges, all other charges are more or less commensurate with the expenditure in earlier years. Therefore, we are of the opinion that the expenditure cannot be disallowed on adhoc basis as far as these other expenditures are concerned.

Car hire charges, the same has been increased from ₹ 78,580/- in earlier year to ₹ 1,99,933/-. The reasons were not explained and in the absence of any vouchers, we are of the opinion that 20% of t .....

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s point of time, we are of the opinion that disallowance of 10% of expenditure would meet the ends of justice. Accordingly, the disallowance stands modified as directed above. - Decided partly in favour of assessee. - ITA No. 1227/HYD/2014 to 1231/HYD/2014 - Dated:- 9-10-2015 - P. Madhavi Devi, JM And B. Ramakotaiah, AM For the Petitioner : Shri K C Devdas, AR For the Respondent : Shri Rama Krishna Bandi, DR ORDER Per B. Ramakotaiah, AM These five appeals are by assessee against separate but sim .....

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of advisory services to the group concerns and has filed its returns of income for all the impugned assessment years. Originally, assessments u/s. 143(3) of the Income Tax Act [Act] was completed for AY. 2002-03 on 02-02-2005 and for the AYs. 2003-04 and 2004-05 on 07-03-2006. The return for AY. 2005-06 was processed u/s. 143(1) of the Act. In all the impugned assessment years, proceedings u/s. 147 were initiated not at one time, but at different periods of time, on the reason that Shri Ramalin .....

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09 addressed to the Board of Directors. Based on such statements, AO sought to reopen assessment of this assessee initially for AY. 2002-03. The notice was issued for AY. 2002-03 on 26-03-2009. Subsequently, proceedings were initiated on 26-03-2010 and 14- 03-2011 and 02-03-2012 for AYs. 2003-04, 2004-05 and 2005-06 respectively. In the consequential assessments AO disallowed 30% of expenditure claimed. Even though notice for AYs. 2006-07 was issued u/s. 148, there was no disallowance or additio .....

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n all other assessment years, assessee is mainly contesting the issue of reopening. Apart from that, in all the assessment years, the disallowance of expenditure @30% is an issue. Assessee has raised as many as 9 grounds on these issues which are nothing but detailed submissions on the issue of reopening, disallowance of expenditure and levy of interest which is contested in Ground No. 8. 4. Ld. Counsel contended that reopening of assessments was done without having any belief that incomes of as .....

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e was no allegation that books of accounts of assessee have been manipulated. He also referred to the statement recorded from the Ex. Chairman of Satyam Computer Services Ltd., Shri B. Ramalinga Raju and particularly referred to the statement pertaining to assessee-company in question No. 14 that it is a simple reference that he was helping in some operational matters pertaining to some of the personal holdings, matters of filings with respect to authorities. He further referred to the answer gi .....

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the assessment and that too, after accepting the incomes returned in the original assessments. Ld. Counsel placed before us the copy of the order passed by the ITAT 'A' Bench, Hyderabad in the case of certain group companies to highlight that when a notice was issued beyond a period of four years, it is the duty on the part of the AO to record proper reasons in those cases. AO could not point out any failure on the part of assessee to disclose fully and truly all material and facts nece .....

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submit that the issues in all the group assessees have been examined in detail and the reopening was held to be bad in law. He also placed on record the order of Hon'ble Vice President sitting as Single Member in group appeals dt. 11-08-2014. It was submitted that reopening of assessments is bad in law. 5. Coming to disallowance of 30% expenditure made in all the impugned assessment years, it was submitted that from AY. 2002-03 to 2004-05 the assessments have been originally completed u/s. .....

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ver, supported the reopening of assessment on the statement given by Shri Raju which pre-supposes identical modus opparandi being followed with regard to other companies. He justified the reopening the assessments in four assessment years. He also submitted that the disallowance of 30% expenditure in AY. 2007-08 is warranted as assessee failed to furnish the Books of Accounts or vouchers so as to examine the veracity of the claims. Ld. Counsel in reply submitted that assessee's books of acco .....

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ave considered the rival contentions and perused the facts on record. As far as issue of reopening from AYs. 2002-03 to 2005-06 are concerned, there is no dispute that assessments have been originally completed u/s. 143(3) for AYs. 2002-03 to 2004-05. Even though assessment u/s. 143(1) was done for AY. 2005-06 it is a fact on record that notice u/s. 148 was issued after four years. It is also fact that even though the similar proceedings were initiated for AYs. 2006-07, no addition/ disallowance .....

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That the assessment made under sec.143(3) cannot be reopened under sec.148 beyond period of 4 years as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. III. The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment. IV. The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M .....

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ments made through the books of accounts, various credits and loans obtained and also addition to fixed assets on the reason that the evidences have not been filed. Thus as can be seen from the order, there is no nexus at all with reference to the reasons for reopening and the assessment completed. 19. Hence, there being no nexus or live-link with the reasons recorded and the 'formation of belief' to come to a conclusion that there was escapement of income and also since the assessment h .....

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ussed and the facts as concluded above in paras No.18 and 19, we allow assessee's grounds on the issue of reopening raised before us from grounds 1 to 11. Since, we have allowed the assessee's grounds on grounds 1 to 11, the other grounds on merits of the additions does not require any consideration as they become academic in nature. Accordingly, we allow the appeal ITA No.1233/Hyd/2011 of the assessee." 8. Not only in the above case but also in a batch of appeals from ITA No. 482 t .....

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y when there is failure on the part of assessee to disclose fully and truly all material facts of any particulars of income. AO did not allege anything of that sort. Therefore disallowing the expenditure claims and bringing to tax credits which were accepted in the assessment earlier comes within the domain of 'change of opinion'. For the concept of change of opinion, the Supreme Court has held in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 as follows : "The conc .....

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uot; must be treated as an inbuilt test to check the abuse of power. Hence, after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief. Decisions of the Delhi High Court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (FB) and CIT v. Eicher Ltd. (2007) 294 ITR 310 affirmed." "147. I .....

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e assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year)." After the Amending Act, 1989, s. 147 reads as under : 4. On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act .....

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change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the conc .....

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d the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as fo .....

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ld give arbitrary powers to the AO to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new s. 147, however, remain the same." 5. For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed .....

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computers and assessee, no such exercise was undertaken and no findings were given on that issue. The additions made are routine disallowances out of already allowed expenditure in original assessment. There is no nexus between the reasons recorded and additions made in the guise of escapement of income. We rely upon the decision of the Hon'ble Supreme Court in the case of Ganga Saran & Sons P. Ltd. vs. ITO and others 130 ITR 1 (SC) for the proposition that if there is no rational nexus .....

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cannot have reason to believe that any part of the income of Assessee has escaped assessment and such escapement was by reason of omission or failure on the part of Assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck down as invalid. The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment. The assessment made under sec. 143(3) has been wrongly reopened under sec. 1 .....

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come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being 'no tangible material' for the reopening of the assessment, the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the assessment under section 147 is b .....

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/2014, 1228/Hyd/2014, 1229/Hyd/2014 and 1230/Hyd/2014 are accordingly allowed. 10. Coming to ITA No. 1231/Hyd/2014 for AY. 2007-08, this is not a reopened assessment but a regular scrutiny assessment. In the scrutiny assessment, AO as in other assessment years, disallowed 30% of the total expenditure claimed i.e., 30% of ₹ 1,47,10,886/- thereby making disallowance of ₹ 44,13,265/-. It was stated that the matter was referred to special audit but in their report dt. 31-05-2010 it was s .....

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rlier years also which was accepted by AO. AO also disallowed services charges paid to Govt. of India at ₹ 16,76,656/-. How 30% of this expenditure can also be disallowed is not explained. Similar is the case with director's payments, bank charges and also depreciation. There is no rationale in disallowing 30% of the claim without analyzing the nature of expenditure. 12. We have considered the claims of assessee as stated in the P&L A/c, papers filed along with return. Except car h .....

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