TMI Blog2018 (3) TMI 1615X X X X Extracts X X X X X X X X Extracts X X X X ..... f so, advised in accordance with law. Therefore, no direction is required u/s. 150(1) of the IT, Act Disallowance of site labour expenses - Held that:- Our attention was specifically drawn to the fact that even after search, the AO has accepted claim of site labour expenses to the extent of 15% of the total receipt. Further, in fact, the AO himself is not clear whether adhoc disallowance is on the basis of non verification of claim or based on incriminating material. In para 3 of the assessment order, AO has merely considered disallowance on the ground of unverified and unvouched claim. However, in the case of audited books of accounts, the AO cannot consider any adhoc disallowance even u/s. 143(3) much less u/s. 153A. There is this no legal basis for any such disallowance even on merits. Claim of Project Consultancy expenses - Held that:- The same was provided after deduction of TDS and further these consultancy services were integral part of the business activities as per evidence placed on record and accordingly there is no prima facie basis for invoking provisions of section 153A in the absence of any nexus between such expenses and seized annexure. We are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Satyajeet Goyal, CA Revenue by : Shri Vijay Verma, CIT- DR ORDER PER B.P. JAIN, ACCOUNTANT MEMBER, These are a bunch of appeals filed by the assessee and revenue and cross objection filed by the assessee as per details given hereunder: Appeal/Cross Objection No. Assessment Year Appeal filed by ITA No. 5011/D/12 2002-03 Assessee ITA No. 5012/D/12 2003-04 Assessee ITA No. 3766/D/10 2004-05 Revenue Cross Obj No. 321/D/10 Assessee ITA No. 881/D/12 2005-06 Assessee ITA No. 882/D/12 2006-07 Assessee ITA No. 883/D/12 2007-08 Assessee ITA No. 884/D/12 2008-09 Assessee Since the appeals have been heard together and pertain to same assessee, these are being disposed of by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial and lead year. The appeal is against order passed by CIT(A)-XXXI, New Delhi dated 31/07/2012. 7. The assessee has raised following grounds of appeal : 1. That on the facts and circumstances of the case, the CIT(A) was not in passing exparte order without service of notice and proper and reasonable opportunity. 2. That further order passed by CIT(A) is not in confirmity with provisions of sec. 250(6) of the Income Tax Act, 1961 as there is no proper adjudication of various ground in dispute. 3. That on the facts and circumstances of the case, order passed u/s. 143(3) read with sec. 153A is illegal and without jurisdiction in the absence of any incriminating material found as a result of search. 4. That further the original assessment had not abated and as such Assessing Officer had no jurisdiction to initiate proceedings u/s. 153A. 5. That even on merits, the lower authorities were not justified in making disallowance in respect of claim of site labour expenses amounting to ₹ 5,50,268/-. That entire claim is for the purpose of business and having accepted the claim in the original assessment, there is no justification for any disallowance in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the Ld. Counsel drew our attention to various decisions regarding object and scope of section 153A and in particular decision of Jurisdiction High Court in the case of CIT v. Kabul Chawla[2016] 380 ITR 573 which was followed by Hon ble High Court in subsequent case of Pr. CIT v. MeetaGutgutia [2017] 395 ITR 526 (Delhi). It was further submitted that legal position to this effect is no longer res-integra and Hon ble Supreme Court in the case of CIT v. Sinhgad Technical Educational Society [2017] 397 ITR 344 (SC) has held that in the case of search assessment, there must incriminating material qua year to justify any addition or disallowance. 12. The Ld. DR vehemently supported the orders of lower authorities and placed on record his written submissions along with paper book of documents containing seized material. From the perusal of written submission, we find that no specific arguments have been made with respect to assessment year 2002-03. However, the Ld. DR strongly relied on seized annexure by CBI and contended that same are of incriminating nature and the issue of various disallowance should be considered in the context of seized annexure which make reference to brib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments: Anil Kumar Bhatia 24 taxmann.com 98 (Delhi) Canara Housing Development Company v. DCIT (Karnataka HC) Filatex v. CIT (ITA 269/2014)(Delhi HC) CIT v. Raj Kumar Arora (ITA No. 56 of 2011) (All HC) Apoorva Extrusion Pvt. Ltd. (ITA No. 3308/D/10)(Delhi ITAT) 16. After going through these judgments, we are of the considered opinion that in the case of proceedings u/s. 153A, the only addition or disallowance could be on the basis of incriminating material found as a result of search. In the light of above position, various grounds are to be adjudicated on the basis of following legal principles. (i) If original assessment is not abated and there is no case of any incriminating material, there is no justification to invoke provision of sec. 153A. (ii) In the case of proceedings u/s. 153A, any addition or disallowance should be based on incriminating material. (iii) The seized material if any is to be considered on the basis of evidentiary value of such material after proper enquiry and investigation. In the light of above background, we undertake to dispose of various grounds relating to A.Y. 2002-03 as extracted above and same are adjudicated as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order, there is no reference to any seized material relating to A.Y. 2002-03 and as such issue of disallowance is not relevant for consideration in terms of provisions of sec. 153A. Even dehors the legal ground, there is no case for adhoc disallowance of 10% in respect of claim of site labour expenses. The assesse has furnished a comparative chart of site labour expenses at page 14 of paper book relating to A.Y. 2000-01 to 2009-10 as per which the claim of site labour expenses is a regular feature of the business activities and entire claim is on the basis of audited accounts. 22. Our attention was specifically drawn to the fact that even after search, the AO has accepted claim of site labour expenses to the extent of 15% of the total receipt. Further, in fact, the AO himself is not clear whether adhoc disallowance is on the basis of non verification of claim or based on incriminating material. In para 3 of the assessment order, AO has merely considered disallowance on the ground of unverified and unvouched claim. However, in the case of audited books of accounts, the AO cannot consider any adhoc disallowance even u/s. 143(3) much less u/s. 153A. There is this no legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment. 8. That orders of the lower authorities are not justified on facts and same are bad in law. 25. The Ld. Counsel Sh. R.S. Singhvi did not press Ground No.1 2. 26. In respect to ground No. 3 4, the ld. Counsel made similar arguments which were putforth for AY 2002-03 on the issue of jurisdiction to make assessment u/s 153A dehors any incriminating material. Further, a paperbook of documents running into 122 pages was placed on record. 27. The Fifth ground is regarding disallowance in respect of claim of Project Consultancy expenses amounting to ₹ 5,00,174/-. It was pointed out that the assessee has obtained services of M/s. Onsite Central Ltd. (a UK based company) in connection with Delhi Jal Board project of Rehabilitation of Truck Sewers and as such the claim of expenses is for the purpose of business and provided after deduction of TDS @ 21% as per copy of account placed in paperbook. The Ld. Counsel further submitted that the claim of project consultancy expenses was not in dispute during original assessment proceedings and in absence of any specific incriminating material or any nexus between claim of expenses and alleged seized m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in AY 2002-03 and submitted that on identical facts, the CIT(A) in AY 2004-05 upheld part disallowance against which the assessee has not filed an appeal and as such it could be deemed that the assessee has accepted the disallowance in principle. The Ld. DR also putforth a theory of source and application and contended that assessee is utilizing unaccounted income for the purpose of payment of bribes to Delhi Jal Board Officials and accordingly disallowance u/s 37(1) of the Act is justified. 34. The Ld. CIT DR also made reference to summary of various annexures which were alleged impounded by CBI and contains details of payment made by assessee to Delhi Jal Board Officials. The CIT DR strongly contended that these disallowances are application based and should be considered only in the context of seized annexure by CBI though AO proceeded to make disallowance of claims of expenses u/s 37(1) of the Act. 35. We have considered the rival submissions and gone through the material available on record. We have considered in detail the issue relating to abatement of completed proceedings and scope of sections 153A and also gone through disallowance of various claims of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 153A in the absence of any nexus between such expenses and seized annexure. We are of the considered opinion that all these expenses are part of record and duly accepted at original stage and as such there is no case of any disallowance in terms of sec. 153A. 39. In respect of disallowance of ₹ 3,02,690/-, the assessing officer has considered the disallowance on the basis of annexure M-610/07 seized by CBI. The AO has alleged that said amount represents bribe paid by the assessee to Delhi Jal Board officials. However, the appellant, in our view, has rightly pointed out that there is no such claim in the Profit Loss a/c and accordingly there is no case of any such disallowance u/s. 37(1) of the IT Act, 1961. Further, we are of the view that whether the documents seized by CBI are of incriminating nature or not can be decided only on the basis of enquiry or investigation. In the case in hand, search took place on 24/04/2007 and even after more than 10 years, the revenue or CBI has not been able to bring any credible evidence to support the allegation of bribe to Delhi Jal Board Officials. In the context of search by Income Tax Authorities and consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961. 5. Whether on the facts and in law and in the circumstances of the case Hon ble CIT (Appeal) is legally justified in allowing part relief an account of technical and consultancy services by accepting the contention of the assessee of deduction of TDS on such payments and ignoring the facts of the case. 6. Whether on the facts and in law and in the circumstances of the case Hon ble CIT (Appeal) is legally justified in holding, while deleting the addition on account of inflated site expenses to the tune of ₹ 1,85,09,072/- and ad hoc disallowance of site labour expenses of ₹ 7,00,938/- made on the facts and material available with the Assessing Officer by opining that the additions made were not legal. 7. Whether on the facts and in law and in the circumstances of the case Hon ble CIT (Appeal) is legally justified in holding, while deleting the addition made on account of site labour expenses by mention the same as made without any legal basis. These additions were made on the basis of facts and material available. 43. The revised cross objection filed by the assessee is as under : 1(i). That on facts and circumstances of the case, the CIT(A) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method which resulted in replacement of existing sewage pipelines with new one. In support of his contention, the Ld. Counsel made reference to Certificate issued by Delhi Jal Board placed at Paperbook Page 68-75 which were on record during original assessment proceedings. After making reference to the terms of the agreement, it was submitted that the assessee has performed the work of creating new pipeline in place of defunct sewer lines. The Ld. Counsel also argued that the claim of deduction u/s 80IA is duly supported from CA Certificate in Form No. 10CCB placed at Paperbook Pg 59-61. 49. The ld. AR also placed reliance on decision of Hon ble Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323 against which the SLP filed by the department was dismissed by Hon ble Supreme Court. 50. We have gone through the documents on record and arguments of both sides. In fact, the Ld. CIT(A) has considered this issue in great detail and finding was recorded after proper appreciation of facts and legal position. The Ld. CIT DR has fairly conceded that claim of statutory deduction u/s. 80IA being a purely legal issue is beyond scope of sec. 153A. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses is only to the extent of ₹ 8,77,144/-, there could be no ground or basis for disallowance of ₹ 1,93,86,216/- u/s. 37(1) of the IT Act, 1961. The Ld. AR also made reference to CBDT Circular no. 37/2016 dated dated 2nd November, 2016. The CIT DR contended that these are application based disallowance and provisions of sec. 37(1) have no relevance. 54. We have considered facts of the case, arguments of both sides and also perused the audited balance sheet. This issue is identical to issue involved in Ground No. 6 in ITA No. 5012/D/12 relating to AY 2003-04 which has already been decided by us in favour of assessee as per observation at para 15.4 and the finding recorded therein is relevant for this ground as well. In addition to this, it is further noted that in the year under reference, the claim of site expenses is only to the extent of ₹ 8,77,144/- and disallowance by the AO is also in terms of provisions of sec. 37(1) and as such it is not understood as to how AO could consider disallowance to the extent of ₹ 1,93,86,216/-. On the face of record, the ground of revenue is misconceived and without any legal basis. The additional argument of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o correctness of claim u/s. 80IA. (ii) That the claim u/s. 80IA is duly supported from order of the CIT(A) in assessment year 2004-05 in terms of proceedings u/s. 153A in the assessee s own case and there is no ground or basis to disregard the same even though there is no change in the relevant facts and provisions of law. (iii) That even otherwise, the claim of statutory deduction u/s. 80IA is in accordance with law and there is no justification for disallowance of the same. 3(i) That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining disallowance of ₹ 92,82,224/- in respect of claim of project consultancy services without proper appreciation of facts and in total disregard to scope and objective of provisions u/s. 153A. (ii) That there is no legal or factual basis for disallowance of ₹ 92,82,224/- and whole basis of disallowances is illegal, arbitrary and without jurisdiction. (iii) That disallowance of ₹ 92,82,224/- is based on change of opinion as the claim of project consultancy was duly accepted in the original assessment u/s. 143(3) and there is no case of any incriminating material. 4(i) That on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ground No. 6 regarding addition of ₹ 11,71,000/- alleged to be income from undisclosed sources. On going through the assessment order and CIT(A), we find that these grounds are regarding certain cash transaction involving Sh. Vijay Kumar Kataria, the director of the assessee company with reference to seized annexure M 488/07 page 93 M 490/07 page 42-46. The assessing officer has made addition on the basis rough jottings on the said Annexure and inferred that these transaction are pertaining to assessee company even though there is no reference to the name of assessee company on the loose sheets of paper. 62. The Ld. Counsel of the assessee vehemently argued that the order of CIT(A) and AO is based on conjectures and surmises and the seized annexure is not relevant in the case of the assessee company. It was further argued that rough notings on a document without any corroboration has no evidentiary value and same could not be used for the purpose of making addition u/s 153A of the Act. It was further contended that even if it is presumed that the content of the seized annexure is true, the cash transactions so involved are fully covered out of cash in hand and withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though there is no change in the relevant facts and provisions of law. (iii) That even otherwise, the claim of statutory deduction u/s. 80IA is in accordance with law and there is no justification for disallowance of the same. 3(i) That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining disallowance of ₹ 84,29,752/- and ₹ 86,70,000/- in respect of claim of project consultancy services without proper appreciation of facts and in total disregard to scope and objective of provisions u/s. 153A. (ii) That there is no legal or factual basis for disallowance of ₹ 84,29,752/- and ₹ 86,70,000/-and whole basis of disallowances is illegal, arbitrary and without jurisdiction. (iii) That disallowance of ₹ 84,29,752/- and ₹ 86,70,000/- is based on change of opinion as the claim of project consultancy was duly accepted in the original assessment u/s. 143(3) and there is no case of any incriminating material. 4(i) That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining disallowance of labour site expenses to the extent of 10% of the total claim amounting to ₹ 31,65, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended that the claim u/s. 80IA is purely of legal nature based on income as may be computed and as such issue of incriminating material has no relevance to the same. 69. It was further argued that even on merits, the claim of statutory deduction is in accordance with provisions of section 80IA of the Act. It was argued that observation of AO that assessee is not engaged in developing new infrastructure facility in terms of provisions of section 80IA is contrary to finding recorded in the assessment completed u/s. 143(3). The Ld. Counsel while explaining the nature of activity carried out by the assessee submitted that during the year under consideration, the assessee, under a contract from Delhi Jal Board, was engaged in the business of installing new sewer line in place of defunct lines. The assessee with the help of revolutionary CIPP Technology has laid down new pipelines in place of old one and as such the assessee fully satisfied the requirement prescribed u/s 80IA of the Act. Further, the Ld. Counsel submitted that CIT(A) in its order for AY 2004-05 after in depth examination has decided this very issue in favour of assessee. The Ld. Counsel took us through the find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per audited accounts. In the circumstances, any disallowance if called for u/s. 153A has to be on the basis of incriminating material. 73. It is noted that claim u/s. 80IA is of statutory nature and have been accepted by AO himself in the order u/s. 143(3) for this very year and various other years and as such merit of claim is not in dispute. Further, this being purely of legal nature, issue of incriminating material has no relevance as benefit u/s. 80IA is to be allowed on the basis of income as may be computed. Further, the contrary view taken by the AO in the order u/s. 153A is merely on the basis of change of opinion. In conformity with facts of the case, nature of the claim and past history, there is no dispute regarding claim u/s. 80IA and accordingly this ground of appellant is accepted. 74. Ground No. 3 is against disallowance of ₹ 84,29,752/- and ₹ 86,70,000/- being claim of Project Consultancy expenses and Technical Support Expenses in the name of M/s. C.M. Contracting Ltd., New Zealand and Mr. Vernon Downes respectively. 75. The assessing officer has made the disallowance by holding these expenses to be bogus and non genuine. The assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to claim deduction u/s 80IA of the Act, the impugned disallowance would be of academic in nature as in the event of disallowance, the benefit of deduction u/s 80IA shall be available on enhanced income. 79. On the other hand, the Ld. CIT DR defended the order of CIT(A) and assessing officer. He contended that as this is a case of abatement of pending assessment u/s 153A, the AO is empowered to assess all the income irrespective of any incriminating material. 80. In this connection, we find that vide assessment u/s. 143(3) dtd. 28/04/2008 passed after search, the Assessing Officer has accepted the claim of project consultancy services and technical support expenses. There is no dispute that these expenses are part of record and supported from audited accounts. However, the revenue has considered disallowance u/s. 153A merely by making reference to seized annexure found by CBI. 81. On the basis of detailed comparative chart, we find that these are routine expenses connected with business activities. There is no dispute that these expenses were claimed after deduction and payment of TDS to the extent of 21%. It is also noted that M/s. C.M. Contracting Ltd., New Zealand and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer has not recorded any specific finding and merely related the same to seized annexure. However, in the light of detailed finding vide para 8.5.3, there is no justification for any such disallowance and same is hereby deleted. 87. The next Ground is against upholding of disallowance of ₹ 3,12,79,704/- u/s 37(1) of the Act. The assessing officer has made disallowance of claim of Site Expenses on the ground that as per the seized annexures as referred to in table at Page 11 of the assessment order, the assessee has allegedly paid bribe to various Delhi Jal Board officials and same is not allowable u/s 37(1) of the Act. However, AO has not been able to relate the same with claim of site expenses in the audited accounts. 88. The Assessing Officer has considered disallowance in terms of provisions of sec. 37(1) of the Act. However, we find that there is no such claim by the assessee and as such there could be no basis for any disallowance u/s. 37(1) of the Act. Further, the Assessing Officer himself has accepted the claim of site expenses vide order u/s. 143(3) passed after search. The presumption of the Assessing Officer that the same are in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l disregard to scope and objective of provisions u/s. 153A. (ii) That there is no legal or factual basis for disallowance of ₹ 75,91,634/- and whole basis of disallowances is illegal, arbitrary and without jurisdiction. (iii) That disallowance of ₹ 75,91,634/- is based on change of opinion as the claim of project consultancy was duly accepted in the original assessment u/s. 143(3) and there is no case of any incriminating material. 4(i) That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining disallowance of labour site expenses to the extent of 10% of the total claim amounting to ₹ 30,80,125/- in total disregard to provisions of sec. 153A and merely on the basis of change of opinion. (ii) That the CIT(A) is not justified in disregarding finding of CIT(A) in the assessee s own case for the assessment year 2004- 05 where the same ground was decided in favour of the assessee and there is no change in facts and legal provisions. (iii) That even otherwise, correctness of claim of labour site expenses is supported from original assessment u/s. 143(3) and there is no justification for any disallowance u/s. 153A in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without proper investigation, appreciation of facts, application of mind and opportunity to the assessee. 3(i). That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining disallowance of site labour expenses amounting to ₹ 10,66,846/- being 10% of total claim without proper appreciation of facts and application of mind. (ii) That entire claim is supported from audited books of accounts and adhoc disallowance is on mechanical basis and even in total disregard to order of CIT(A) in assessee s own case for assessment year 2004-05. 4. That orders of the lower authorities are not justified on facts and same are bad in law. 95. As noted earlier while adjudicating appeal in ITA No. 883/D/2012, even in this appeal, the grounds raised by the assessee are similar to that raised in ITA No. 882/D/2012 relating to AY 2006-07. As the ground and basis of various disallowances are same as in AY 2006-07, the ground wise finding recorded by us in aforesaid Para 45 47 is applicable mutatis mutandis to present appeal and as such Ground No. 2 3 are treated as adjudicated as per finding recorded therein. 96. However, there is one new ground i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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