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2016 (11) TMI 601 - ITAT HYDERABAD

2016 (11) TMI 601 - ITAT HYDERABAD - TMI - Reopening of assessment - disallowance of the cost of the roads and fees paid to HUDA - Held that:- We do not find any reason to disallow the expenditure, when assessee’s project on 1/4th land is using those lands developed by ‘land owning companies’ as well as other companies. The total cost incurred by them was reimbursed by assessee to an extent of 25% which is same as that of land given for development to assessee. - We do not find any merit in .....

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oration of assessee- company. In fact, assessee-company was floated for completing the project which was approved in various individual companies and agreements specifically provide for the cost to be borne by assessee-company. Accordingly, it has made debit entries in the Books of Account, crediting those companies to an extent of 25% of the amount of cost on roads and the HUDA fees paid. Considering the agreements and the entries in the Books of Account, we are of the opinion that this expendi .....

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016 - Shri D. Manmohan, Vice President And Shri B. Ramakotaiah, Accountant Member For Assessee : Shri S. Rama Rao, AR For Revenue : Smt. M. Kiranmayee, Sr. Standing Counsel for Dept. (for ITA Nos. 186, 285 & 286/Hyd/16) ORDER Per B. Ramakotaiah, A. M. These are cross-appeals by Assessee and Revenue against the orders of the Commissioner of Income Tax (Appeals)-11, Hyderabad dated 27-10-2015 for AY. 2006-07 and order dt. 30-10-2015 for AY. 2007-08. Since common issues are involved, these appe .....

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ring the preliminary issue of jurisdiction, the arguments on issues on merits were continued on 5th August, 2016. As certain clarifications were required, the case was adjourned to 19-08-2016 as part-heard on that day. However, on 19-08-2016, Ld. CIT, who appeared in the earlier hearings, Shri B.V. Gopinath did not turn up for hearing and on his behalf, Ms. Hemalatha Devi, CIT-DR requested for adjournment. Vide a separate order sheet dt. 19-08- 2016, the case was posted on 23-08-2016 on which da .....

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h an authorisation received by fax from the Pr.CCIT, hence she is allowed to appear and argue the other cases in the group. Ld. Special Counsel, Smt. Kiranmayee relied on the orders of authorities and her arguments were taken on record. Though the conduct of CIT-DR is deprecable, we do not wish to make any further comment on his behaviour in the court, lest justice in the matter should not suffer and thus we have properly taken into consideration the facts emanating from the record which may sup .....

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pugned years. Assessee-company was incorporated originally as M/s. Maytas Rajeswari Development Pvt. Ltd., on 20-05-2005 and was later re- named as Maytas Hill County Pvt. Ltd., w.e.f. 28-12-2005 and as Maytas Hill County Ltd., w.e.f. 20-12-2007. Subsequently, its name was again changed as Maytas Properties Ltd., w.e.f. 31-12- 2007. After completion of the assessments but before the appeal was decided by the Ld.CIT(A), the company s name was once again changed to Hillcounty Properties Ltd w.e.f. .....

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Computer Services Ltd. The company has filed its return of income for AY. 2006-07 on 30-11-2006 declaring a loss of ₹ 1,55,46,052/-. The return was processed u/s. 143(1) of the Act on 01-11-2007 accepting the loss returned by assessee. For AY. 2007-08, assessee filed its return of income on 31-10-2007 declaring an income of ₹ 96,43,760/-. This return was processed u/s. 143(1) on 31-03- 2009. 6. Subsequently, these two impugned assessment years were reopened by issue of notices u/s. .....

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es Ltd' w.e.f. 31-12-2007. The company was floated by the promoters of M/s. Satyam Computer Services Ltd (M/s. SCSL). Viz., Shri B. Rama Raju. On 7th January, 2009, Sri B. Ramalinga Raju, Ex-Chairman of M/s.Satyam Computer Srvices Ltd(SCSL for shortcut) in his letter sent to the Board of Directors with a copy marked to SEBI has stated that Books of account of SCSL have been fudged for the last several years. He further stated that the revenues and profits were manipulated by falsification of .....

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f SCSL and has a pivotal role to play in exercising the control over the affairs of this company and the decision making with respect to it and its implementation. As the chairman of SCSL, he has signed on the financial statements showing inflated cash and bank balances, data on interest, data of income generated, investments and receipts and also suppressing the liability status of the company. He got forged monthly bank statements, bank balances, purported transfer of funds and FDRs. 327 compa .....

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Board of Directors of SCSL. There is further information that some of the funds advanced to M/s. SCSL have not been recorded in the books of SCSL at the behest of Sri B. Ramlinga Raju and that certain transactions entered in the books of SCSL are not recorded in the accounts of the group companies like the assessee company. The entire set of unrecorded transactions by SCSL and group of companies and individuals were thus planned and executed by one master mind viz., Sri B. Ramalinga Raju, and h .....

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irectors of these front companies are the family members of Sri B. Ramalinga Raju, including B. Rama Raju & others. It is believed that since the accounts of M/s. Satyam Computer Services Ltd, are doctored and fabricated, the accounts of M/s. Maytas properties Ltd.(Formerly Known as M/s. Maytas 'Hill County Ltd), which is closely connected do not reflect the true and correct financial results being under the same management and control. Further, Sri B. Ramalinga Raju is the Chairman and .....

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t the assessee company in its return did not disclose the material facts as below: a) The facts relating the fudging and manipulation of accounts of the assessee company and transactions relating to SCSL, particularly with reference to transactions with other group companies like the assessee company, as stated by Sri B. Ramalinga Raju in his statement. b) That there were variations in the quantum of income and assets/liabilities of SCSL relating to the front companies including the asseessee co .....

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and truly all material facts necessary for its assessment for AY 2006-07 and also that it resulted in escapement of income chargeable to tax, which is likely to amount to Rs. One lakh or more given the volume of the transactions as stated above, within the meaning of section 147 read with section149 of the 1.1. Act, 1961. For the above detailed reasons, it is proposed to issue notice to the assessee under section 148 of the I.T. Act to reopen the assessment in the assessee's case for the ass .....

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2006-07. The total addition made is to an extent of ₹ 16,73,51,635/-. The details of the additions are as under: COMPUTATION OF INCOME & TAX ALONG WITH INTEREST Rs. Income/Loss Declared by the assessee for the AY. 2006-07: (-) 1,55,46,052 Add: 1 Addition (as discussed in Para 9.1) on account of violation of provisions u/s. 40A(3) of the Income Tax Act, 1961 i.e., cash paid in excess of ₹ 20,000/- for purchase of Sony video Camera Rs. 28,600/- 02 Addition (as discussed in Para 9.2 .....

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06 Addition under the head HUDA Fees (as discussed in Para 9.5) 67,44,463/- 07 Addition under the head Other Works Contracts given by assessee (as discussed in Para 9.6) 82,24,731/- 08 Disallowance u/s. 40(a)(ia) of the Income Tax Act, 1961 made on account of Contractual payment made to MIPL (as discussed in Para 9.7) 10,91,41,612/- 09 Addition on account of Other Payments on which there is a non-deduction/short-deduction of TDS (as discussed in Para 9.8) (Rs. 92,05,972 + Rs. 27,62,698=Rs.119686 .....

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oss Declared by the assessee for the AY. 2007-08: 96,43,760 Add: 1 Addition on account of disallowance of expenditure u/s. 37(1) (as discussed in Para 9.1) Rs. 4,08,75,701 02 Addition on account of disallowance of expenditure u/s. 37(1) (as discussed in Para 9.1.5) 45,00,000 03 Addition on account of disallowance of interest paid to banks and financial institutions (as discussed in Para 9.2.9) 9,84,32,271 04 Addition (as discussed in para 9.3.4) on account of disallowance of Capital Expenditure .....

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hicles to the tune of ₹ 6,37,057/- is taken. Thus the consequent depreciation claimed by the assessee on the subject amount @ 15% amounting to ₹ 95,559/- is here by disallowed. (Rs.2,90,876/- + ₹ 95,559/- = ₹ 3,86,435) 3,86,435 06 Disallowance (as discussed in para 9.4.9) of entire amount of reimbursement made to LOCs and debited to Work in Progress, by way of journal entries (which is being treated as the cost of the development of land and charged to customers eventuall .....

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t of statutory and consultancy charges on amenities 2,33,24,429 10 Disallowance (as discussed in para 10.1.2) of expenditure amounting to ₹ 11,19,243/- has been debited to P&L A/c that belongs to the earlier accounting period 11,19,243 11 Disallowance u/s. 40(a)(ia) (as discussed in para 10.3.2) of contractual payments made to MIPL 58,54,03,397 12 Addition (as discussed in para 11.1.2) on account of expenditure disallowed u/s. 37(1) and non-deduction of TDS u/s. 194C 31,10,908 13 Addit .....

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CD (as discussed in para 13) 67,69,315 Total Addition: 2,11,67,31,975 7.1. As seen from the return filed by assessee in AY. 2007- 08, the income for the year was arrived at ₹ 2,48,37,383/- and after setting off the carried forward loss declared in AY. 2006-07 at ₹ 1,51,93,624/-, the total income was offered at ₹ 96,43,759/-. AO, in his anxiety to complete the assessment and to make substantial additions, ignored the set-off of brought forward losses made by assessee to an exten .....

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side the disallowances u/s. 40(a)(ia), both non-deduction as well as short deduction, following various case law. However, he has confirmed partly the disallowance made u/s.40A(3) and confirmed substantial disallowance of cost of trunk road claimed by assessee in both the years along with HUDA s fees paid as not relating to assessee s business. In some of the issues like disallowance of expenditure on account of other works, non-deduction of tax, CIT(A) directed the AO to examine and these were .....

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erits of amounts confirmed by Ld. CIT(A), assessee has raised grounds relating to action of the AO in initiating proceedings u/s. 147 of the Act. Assessee also raised following additional grounds in support of main grounds on the issue of reopening: Additional Grounds of Appeal: i. The learned Commissioner of Income-tax (Appeals) ought to have held that the initiation of proceedings u/s. 147 are not valid. ii. The learned Commissioner of Income-tax (Appeals) ought to have seen that there are no .....

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sessment completed itself is bad in law. The detailed submissions of assessee along with the cases relied on by assessee on the issue are as under: In the assessment order, the reasons for reopening the assessment are mentioned at paras 3.1 to 4.2. In brief, the Assessing Officer stated as under: a) Sri B.Ramalinga Raju, Ex-Chairman of Satyam Computer Services Ltd., sent a letter to the Board of Directors with a copy marked to SEBI stating that-the books of account of Satyam Computer Services Lt .....

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ivotal role in exercising control over the affairs of the said company. d) As the Chairman of Satyam Computer Services Ltd., he signed the financial statements showing inflated cash and bank balances, data on interest, data on income generated, investments and receipts etc. e) All the transactions were not recorded in the books of Satyam Computer Services Ltd., at the behest of Sri B.Ramalinga Raju. It is mentioned by the Assessing Officer that the accounts of Satyam Computer Services Ltd., are .....

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ity of initiation of proceedings uj s 147 was decided by the Hon'ble ITAT vide consolidated order in ITA No.1233/Hyd/2011 dated 31.12.2013. In the said order, the Hon'ble ITAT held as under: a) The Hon'ble ITAT held that no valid reasons to reopen the assessment of the company were recorded as the reopening was merely to examine the veracity and financial implications between the appellant company and Satyam Computer Services Limited. The Hon'ble ITAT at para 16 of the said order .....

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he assessment to justify the reopening. e) The reassessment completed u/s 143(3) rws 147 has no relationship at all for the reasons for reopening. f) The issues involved are similar. In view of the above, the appellant requests the Hon'ble ITAT to hold that the initiation of proceedings u/s 147 of the I.T. Act are not valid . 10. There are no arguments by the Revenue as the Ld. CIT- DR refused to argue on this issue, even though he was present in the court room on behalf of Revenue on 4th an .....

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eys from assessee s books of account. In fact even though special audit was conducted, all the disallowances made by the AO are routine disallowances, which could have been examined in the normal scrutiny. Therefore, there is no live link between the reasons for reopening of the assessment and the completion of assessment in which various additions are made. Provisions of Section 147 are as under: Section 147: If the [Assessing] Officer [has reason to believe] that any income chargeable to tax h .....

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as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued un .....

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her than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the followin .....

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essing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; [(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;] (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive r .....

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of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.] [Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.] 11.1. As can be seen from the above provisions, if the AO has reason to believe that .....

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Ramalinga Raju and his company Satyam Computer Services Ltd. However, there is no such addition made. In view of that, bringing to tax any other income does not arise as held by various decisions of this forum and also by the Hon'ble High Courts. The Co-ordinate Bench in the case of 1233/Hyd/2011 M/s. Rohini Biotech (P) Ltd., and others dt. 31-12-2013 has held as under: 12. We also find that CIT(A) erred in holding that the Assessing Officer had valid reasons to reopen the assessment of the .....

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e has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck as invalid. 13. We also rely on the decision of Sarthak Securities Co. P. Ltd. vs. ITO (2010) 329 ITR 110 wherein it has been held as follows : "That the formation of belief was a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Off .....

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e was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, the Assessing Officer had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed." 15. In the case of Mahalaxmi Motors Ltd. vs. DCIT reported in (2004) 265 ITR 53 (A.P.) (H.C.) the jurisdictional High Court has held that when all the facts had been fully disclosed by the petitioner, the notice .....

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39; is not based on tangible material. We find that in the case of Ranjit Reddy vs. Dy.CIT, Hyderabad (2013) 144 ITD 361 the Coordinate Bench of this Tribunal has dwelled on the contention of the assessee that reopening of the assessment is not permissible as there is no tangible material. The relevant portion of the Order is reproduced here under: "One needs to give a schematic interpretation to the words 'reasons to believe' failing which, section 147 would give arbitrary power to .....

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e, the A.O. has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief" 17.1. Further, para 32 at page 483 in the case of S. Ranjit Reddy (supra) reads as follows: "Same view was taken by the Third Member Mumbai Bench in the case of Telco Dadajee Dhackajee Ltd. vs. Dy. CIT, ITA.No.4613/Mum/2005, dated 12th May, 2010. Further same view was .....

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hat there was no fresh material to support the formation of the belief of the Assessing Officer that income chargeable to tax had escaped assessment and in the absence of any fresh tangible material, he came to the conclusion that it was not permissible for the Assessing Officer to reopen the assessment. The learned Accountant Member, however, took a different view relying on the decision of Hon'ble Supreme Court in the case of Rajesli Jhaveri Stock Brokers (P) Ltd. (supra) and the matter, t .....

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ase of Kelvinator of India Ltd. (supra) and Eicher Ltd. 320 ITR 561. It was held by the Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that a reassessment notice issued u/s 148 in a case where the original assessment was made ii/ s 143(1) cannot be challenged on the ground of a mere change of opinion, it is open to an assessee to challenge the notice on the ground that there is no reason to believe that income chargeabl .....

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ision of Hon'ble Supreme Court in the case of Keluinator of India Ltd. (supra) wherein it was held that there should be "tangible material" to come to the conclusion that income had escaped assessment. Relying on the said decision, it was held by the Third Member that while resorting to section 147 even in a case where only an intimation had been issued u/ s 143(1)(a), it is essential that the Assessing Officer should have before him tangible material justifying his reason to belie .....

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ision of the Tribunal in the case of Telco Dadajee Dhackjee Ltd. (supra) is squarely applicable in the present case and respectfully following the same, we hold that the initiation of reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. We Order accordingly and allow ground No.1 of the assessee's appeal. 18. To conclude, (i) The recording of reasons before the issue of notice under s .....

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ning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening. (v) As can be seen from the assessment order, the assessment completed has no relation at all with the reasons for reopening. Even though assessee belongs to Satyam Group of Companies, there is no evidence of siphoning of funds or escapement of income. What the Assessing Officer has done in the assessment is denial of th .....

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t 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 jurisdiction under section 147 is bad in law and is to be .....

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ngs of Ld. CIT(A) are in tune with the findings of the ITAT in various cases and law on the issue. Not only that, on the issues referred to the AO for examination, AO has allowed the claims in the consequential order. The only major issue contested in assessee s appeal is with reference to disallowance of the cost of the roads and fees paid to HUDA. Even though, AO relied on the agreement to state that the agreement was subsequent to the laying of the road and the amount cannot be claimed as an .....

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panies as well as other companies. The total cost incurred by them was reimbursed by assessee to an extent of 25% which is same as that of land given for development to assessee. 13. On perusing these facts, which are placed on record during the course of hearing, we do not find any merit in the order of the AO and CIT(A) in disallowing the expenditure by reading in between the lines of the agreement. The agreement specifically provides for bearing the cost of roads and development fee payable t .....

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