M/s. SPL Industries Ltd., New Delhi V. DCIT, New Delhi

CO 119/DEL/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6906 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-01-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2005-2006
• Appeal Filed On: 01-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANSHUL MITTAL
• Assessee Lawyers: PRAKASH DUBEY
• Keywords: Audit objection; Reason to believe; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL DELHI BENCH G: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.5302/DEL/2014 (ASSESSMENT YEAR 2005-06) DCIT, CIRCLE-9(1), NEW DELHI. VS. M/S SPL INDUSTRIES LTD. C-2/54, 5 TH FLOOR, RAJASTHALI APARTMENTS, PITAM PURA, DELHI-110 034. PAN AAACS 0343R (APPELLANT) (RESPONDENT) CROSS OBJECTIONS NO.119/DEL/2015 ARISING OUT OF ITA NO.5302/DEL/2014 (ASSESSMENT YEAR 2005-06) M/S SPL INDUSTRIES LTD. C-2/54, 5 TH FLOOR, RAJASTHALI APARTMENTS, PITAM PURA, DELHI-110-034. PAN AAACS 0343R VS. DCIT, CIRCLE-24(1), NEW DELHI. (CROSS OBJECTORS) (RESPONDENT) APPELLANT BY SH. PRAKASH DUBEY, SR. DR RESPONDENT BY SH. ANSHUL MITTAL, CA & SH. DIVESH KALRA, CA DATE OF HEARING 27.01.2021 DATE OF PRONOUNCEMENT 29.01.2021 2 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA NO.5302/DEL/2014 IS THE DEPARTMENTS APPEAL AGAINST ORDER DATED 02.07.2014 PASSED BY THE LD. COMMISSION ER OF INCOME TAX (APPEALS)-12, NEW DELHI {CIT (A)} FOR ASSESSMENT YEAR 2005-06 WHEREAS CROSS OBJECTION NO.119/DEL/2015 HAS BEEN PRE FERRED BY THE ASSESSEE.. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE RETUR N OF INCOME WAS FILED DECLARING AN INCOME OF RS.8,84,23,980/-. S UBSEQUENTLY, THE ASSESSMENT WAS COMPLETED AN INCOME OF RS.9,59,45 ,806/- U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED THE ACT) ON 26.12.2007. THEREAFTER, A NOTICE U/S 148 OF THE ACT WAS ISSUED ON 02.11.2011 AFTER RECORDING OF REASONS. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED THAT THE ORIGINAL RE TURN OF INCOME FILED BY THE ASSESSEE MAY BE TREATED AS THE RETURN FILED IN COMPLIANCE OF NOTICE ISSUED U/S 148 OF THE ACT. THE REASONS RECORDED FOR THE RE-OPENING ARE AS UNDER: 3 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT DURING THE YEAR, THE ASSESSEE HAS CLAIMED AN AMOUN T OF RS.2,05,16,000/- FOR RUNNING AND MAINTENANCE OF FOR EIGN OFFICE. THIS EXPENDITURE IS NOT ALLOWABLE AS PER TH E PROVISIONS OF THE ACT AND THEREFORE, SHOULD HAVE BEEN ADDED TO THE INCOME OF THE ASSESSEE. FURTHER, THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.4,32,39,948/- BEING QUOTA EXPENSES. THIS EXPENDI TURE BEING IN THE NATURE OF GIVING ENDURING BENEFIT TO T HE ASSESSEE SHOULD HAVE BEEN TREATED AS CAPITAL EXPENDITURE AND THE ADDED TO THE INCOME OF THE ASSESSEE. IN ADDITION TO THE ABOVE, WHILE CALCULATING THE TAX ABLE INCOME AN INCOME AN AMOUNT OF RS.1,16,32,526/- RELATING TO ADVANCE RECOVERABLE BY WAY OF INCOME FROM FINANCIAL TRANSACTION HAS NOT BEEN INCLUDED BY THE ASSESSEE. THE ESCAPEMENT OF INCOME HAS BEEN ACCOUNT OF FAILUR E ON THE PART OF THE ASSESSEE TO TRULY AND FULLY DISCLOSE AL L THE MATERIAL FACTS NECESSARY FOR ASSESSMENT. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT AN INCOME OF RS.7,53,88,474/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE IT ACT, 1961. 2.1 THE ASSESSEE OBJECTED TO THE REOPENING BUT THE OBJECTIONS WERE NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER A ND THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.17,13,34 ,280/- AFTER MAKING TOTAL ADDITION OF RS.7,53,88,474/- I.E., ON ACCOUNT OF ALL THE THREE ISSUES MENTIONED IN THE REASONS AS REPRODUCED ABOVE. 4 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT 2.2 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIR ST APPELLATE AUTHORITY CHALLENGING THE ASSUMPTION OF J URISDICTION U/S 148 OF THE ACT AND ALSO CHALLENGED THE ADDITIONS ON MERITS. THE LD. CIT (A) DELETED ALL THE THREE ADDITIONS ON MERITS A ND ALSO OBSERVED THAT IN VIEW OF ALL THE ADDITIONS HAVING BEEN DELETE D, THERE WAS NO NECESSITY TO ADJUDICATE ON THE LEGAL ISSUE OF VALID ITY OF ASSUMPTION OF JURISDICTION FOR RE-ASSESSMENT. 2.3 AGGRIEVED, THE DEPARTMENT IS NOW IN APPEAL BEFO RE THIS TRIBUNAL CHALLENGING THE DELETION OF ADDITIONS ON M ERITS WHEREAS THE ASSESSEE HAS FILED MEMORANDUM OF CROSS OBJECTIONS I N WHICH THE ASSUMPTION OF JURISDICTION U/S 148 OF THE ACT HAS B EEN CHALLENGED. THE RESPECTIVE GROUNDS RAISED BY BOTH THE PARTIES A RE AS UNDER: ITA NO.5302/DEL/2014 BY THE DEPARTMENT 1. THE LD. CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF RUNNING AND MAINTENANCE EXPENSES O F FOREIGN OFFICE AMOUNTING TO RS.2,05,16,000/-. 2. THE LD. CIT (A) HAS ERRED IN DELETING THE ADD ITION MADE BY THE AO ON ACCOUNT OF QUOTA EXPENSES AMOUNTING TO RS.4,32,39,948/-. 5 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT 3. THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITI ON OF RS.1,12,76,154/- MADE BY THE AO ON ACCOUNT OF ADVAN CE RECOVERY BY WAY OF INCOME FROM FINANCIAL TRANSACTIO N AMOUNTING TO RS.1,16,32,526/-. 4. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. CROSS OBJECTIONS NO.119/DEL/2015 BY THE ASSESSEE THAT THE LD. CIT (A)-XII, NEW DELHI {CIT A)} ERRED IN LAW IN NOT ADJUDICATING ON LEGALITY OF REOPENING THE AS SESSMENT RAISED IN GROUND NO.1 TO 3 BEFORE HER WHILE DECIDIN G THE APPEAL. THE GROUND NO.1 TO 3 AS RAISED BEFORE LD. C IT (A) ARE AS UNDER: 1. THAT THE LD. DEPUTY COMMISSIONER OF INCOME TAX (AO) HAS ERRED ON FACTS AND IN LAW IN ISSUING THE NOTICE U/S 148 OF THE ACT AND REOPENING THE ASSESSMENT RELATING TO AY 200 5-2006. 2. THAT THE ORDER OF LD. DEPUTY COMMISSIONER OF INCOME TAX (AO) PASSED U/S 147/143(3) OF THE ACT, MAKING THE A DDITIONS OF RS.7,53,88,474/-, IS AGAINST LAW AND FACTS OF TH E CASE, THEREFORE, LIABLE TO BE QUASHED. 3. THAT THE AO ERRED IN LAW IN PASSING THE NON-SPEAKIN G AND NON-REASONED ORDER WITHOUT DISCUSSING THE ISSUES IN DETAIL AND WITHOUT DISCUSSING THE REASONS FOR MAKING THE ADDITIONS. 3.0 THE LD. AUTHORIZED REPRESENTATIVE (AR) ARGUED THAT THE RE-OPENING HAD BEEN DONE AFTER A PERIOD OF FOUR YEA RS AND THAT THERE WAS NO RECORDING BY THE ASSESSING OFFICER THAT THERE HAD BEEN ANY 6 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT NON-DISCLOSURE OF MATERIAL RELEVANT FACTS BY THE AS SESSEE WITH RESPECT TO THE ISSUES WHICH WERE THE SUBJECT MATTER OF RE-OPENING. THE LD. AUTHORIZED REPRESENTATIVE ALSO SUBMITTED TH AT THE ISSUES WHICH WERE THE SUBJECT MATTER OF THE REOPENING WERE DULY DISCLOSED IN THE AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE . IT WAS ALSO SUBMITTED THAT THE ISSUE PERTAINING TO FOREIGN OFFI CE EXPENSES HAD ARISEN AFTER AN AUDIT OBJECTION BEING RAISED BY THE INTERNAL AUDIT PARTY OF THE DEPARTMENT AND, THEREFORE, THE REOPENI NG WAS BAD IN LAW. 4.0 PER CONTRA, THE LD. SR. DEPARTMENTAL REPR ESENTATIVE (DR) SUBMITTED THAT THE ASSUMPTION OF JURISDICTION U/S 148 WAS VALID IN LAW. 5.0 ARGUING FOR THE DEPARTMENTS APPEAL, THE L D. SR. DR PLACED EXTENSIVE RELIANCE ON THE FINDINGS AND OBSER VATIONS OF THE ASSESSING OFFICER ON ALL THE THREE ISSUES AND VEHEM ENTLY ARGUED THAT THE LD. CIT (A) HAD ERRED IN DELETING THE ADDI TIONS WHILE IGNORING THE OBSERVATIONS OF THE ASSESSING OFFICER. 7 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT 6.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE T HROUGH THE IMPUGNED ORDER, THE SUBMISSIONS MADE BY THE ASSESSE E AND THE PAPER BOOK FILED BY THE ASSESSEE. AS FAR AS THE APP EAL OF THE DEPARTMENT IS CONCERNED, IT IS SEEN THAT GROUND NO. 1 OF THE DEPARTMENT APPEAL CHALLENGES THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITION AMOUNTING TO RS.2,05,16,000/- PERTAINING TO RUNNING AND MAINTENANCE EXPENSES OF FOREIGN OFFICE. IT IS SEEN THAT THESE FOREIGN EXPENSES HAVE BEEN DEBITED BY THE ASS ESSEE COMPANY TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD MANUFAC TURING, ADMINISTRATIVE AND OTHER EXPENSES UNDER THE SUB-HEA D MISCELLANEOUS EXPENDITURE IN SCHEDULE-13 OF THE AUD ITED ACCOUNTS. THESE EXPENSES ARE IN THE NATURE OF PAYMENTS MADE T O ASSESSEES FOREIGN REPRESENTATIVE IN USA, MR. DANNY WILLIAMS WH O HAS BEEN CLAIMED TO BE LOOKING AFTER THE INTEREST OF THE COM PANY IN THE USA. IT HAS BEEN CLAIMED BY THE ASSESSEE THAT MR. DANNY WILLIAMS WAS PERFORMING FUNCTIONS RELATING TO SALES PROMOTIONS, PROCURING ORDERS, PROVIDING ASSISTANCE IN LOGISTIC ISSUES, ASSISTANCE IN INSPECTION OF COMPANYS PRODUCTS, ASSISTANCE IN COLLECTION OF PAY MENTS AND 8 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT ADVISING ETC. IT HAS FURTHER BEEN CLAIMED THAT ALL THE PAYMENTS MADE TO MR. DANNY WILLIAMS WERE MADE IN FOREIGN CUR RENCY AS PER THE NORMS OF RBI THROUGH STATE BANK OF INDIA. THE LD. CIT (A), WHILE DELETING THE ADDITION, HAS NOTED THAT THE ASSE SSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE INCU RRED AND THE LD. CIT (A) HAS ALSO NOTED THAT THE EXPENDITURE INC URRED IS DULY SUPPORTED BY DOCUMENTARY EVIDENCES LIKE VOUCHERS, B ANK ADVICES, AND CORRESPONDENCES. A PERUSAL OF THE ASSESSMENT OR DER PASSED U/S 147 OF THE ACT SHOWS THAT THE ASSESSING OFFICER HAS BASED THE ADDITION MERELY ON THE REASONS RECORDED FOR REOPENI NG WHEREIN IT HAS BEEN STATED THAT THIS EXPENDITURE WAS NOT ALLOWAB LE AS PER THE PROVISIONS OF THE ACT. HOW AND WHY THIS EXPENDITURE WA S NOT ALLOWABLE HAS NOT BEEN SPECIFIED BY THE ASSESSING OF FICER. BEFORE US ALSO, THE LD. SR. DR COULD NOT POINT OUT ANY PERVER SITY IN THE FINDINGS OF THE LD. CIT (A) ON THE ISSUE. WE ALSO N OTE THAT THIS AMOUNT HAS BEEN DULY DISCLOSED IN THE AUDITED FINAN CIAL STATEMENTS AND NO FRESH MATERIAL ON THE ISSUE HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER. UNDISPUTEDLY, THE REASSESSME NT IS BEYOND THE PERIOD OF FOUR YEARS AND, THEREFORE, IT WAS INCUMBEN T UPON THE 9 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT ASSESSING OFFICER TO POINT OUT SPECIFICALLY AS TO H OW THE ESCAPEMENT OF INCOME FROM TAX ON THIS ISSUE COULD BE ATTRIBUTE D TO ANY FAULT ON THE PART OF THE ASSESSEE. THEREFORE, IN VIEW OF THE CATEGORICAL FINDINGS RECORDED BY THE LD. CIT (A) THAT NO ADVERS E INFERENCE WAS DRAWN BY THE ASSESSING OFFICER AND THAT THE PAYMENT WAS DULY SUPPORTED AND EVIDENCED BY DOCUMENTARY EVIDENCES AN D THAT THE GENUINENESS OF EXPENDITURE INCURRED WAS NOT DOUBTED BY THE AO, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS RECO RDED BY THE LD. CIT (A) AND, WE UPHELD THE SAME. 6.1 GROUND NO.2 OF THE DEPARTMENTS APPEAL PERTAIN S TO DELETION OF ADDITION AMOUNTING TO RS.4,32,39,948/- PERTAINING TO QUOTA EXPENSES. IT IS SEEN THAT THE ASSESSEE COMPAN Y IS INTO EXPORTS OF GARMENTS MANUFACTURED BY IT. THE QUOTA WAS ALLOTT ED ON YEAR TO YEAR BASIS AND, THEREFORE, IT HAD NO ENDURING BENEF IT. WHILE DELETING THE ADDITION, THE LD. CIT (A) HAS NOTED THAT THE AS SESSEE COMPANY HAD BEEN INCURRING QUOTA EXPENSES FROM YEAR TO YEAR AND IN ASSESSMENT YEAR 2004-05 I.E. THE IMMEDIATELY PRECED ING ASSESSMENT YEAR, THE ASSESSEE COMPANY HAD INCURRED QUOTA EXPENSES AMOUNTING TO RS.1,85,92,535/- AND SINCE TH IS 10 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT EXPENDITURE DID NOT RESULT IN CREATION OF ANY TANGI BLE OR INTANGIBLE ASSETS, IT WAS NECESSARILY INCURRED AS PART OF THE P ROFIT EARNING PROCESS AND WAS, THEREFORE, REVENUE IN NATURE. IN TH E ASSESSMENT ORDER PASSED U/S 147 OF THE ACT, THE ASSESSING OFFI CER HAS NOT POINTED OUT ANY REASON FOR TREATING THIS EXPENDITUR E AS CAPITAL EXPENDITURE BUT HAS ONLY AS REFERRED TO THE REASONS RECORDED FOR REOPENING AND HAS DISALLOWED THE SAME. EVEN THE LD. SR. DR COULD NOT POINT OUT ANY PERVERSITY IN THE FINDINGS OF THE LD. CIT (A) ON THE ISSUE. THE LD. CIT (A) HAS ALSO PLACED RELIANCE ON A JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M.S. KANDA PPA MUDALIAR VS. CIT REPORTED 32 ITR 313, WHEREIN IT WAS HELD THAT THE EXPENDITURE FOR ACQUISITION OF QUOTA RIGHTS IS NOT A CAPITAL EXPENDITURE. THEREFORE, ON THIS ISSUE ALSO, THE CON TENTION OF THE DEPARTMENT FAILS AND THE ORDER OF THE LD. CIT (A) I S UPHELD. 6.2 THE THIRD ISSUE UNDER CHALLENGE BY THE DEPART MENT IS DELETION OF ADDITION OF RS.1,12,76,154/- ON ACCOUNT OF ADVANCE RECOVERABLE BY WAY OF INCOME FROM FINANCIAL TRANSAC TIONS. THE LD. CIT (A) HAS NOTED THAT THE AMOUNT DEBITED TO INCOM E FROM FINANCIAL TRANSACTIONS RECEIVABLE WAS IN RESPECT OF INCOME A LREADY CREDITED 11 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT UNDER THE HEAD INCOME FROM FINANCIAL TRANSACTIONS AMOUNTING TO RS.1,12,76,154/- SHOWN UNDER SCHEDULE -12 OF THE AUD ITED ANNUAL ACCOUNTS UNDER THE MAIN HEAD EXCHANGE FLUCTUATION S AND UNDER THE HEAD MISC. RECEIPTS AMOUNTING TO RS.10,58,343 /- SHOWN UNDER THE MAIN HEAD OTHER INCOME UNDER SCHEDULE-1 2 OF AUDITED ACCOUNTS. THE LD. CIT (A), WHILE DELETING THE DISALL OWANCES, HAS NOTED THAT THIS WAS A CASE OF DOUBLE TAXATION OF IN COME AS THE SAME WAS ALREADY PART OF THE PROFIT SHOWN BY THE ASSESSEE IN ITS INCOME TAX RETURN AND WAS AGAIN ADDED BACK IN THE ORDER PAS SED IN REASSESSMENT PROCEEDINGS. THE LD. SR. DR COULD NOT POINT OUT ANY PERVERSITY IN THE FINDING OF THE LD. CIT (A) THAT T HIS AMOUNT HAD COME TO BE TAXED TWICE. ACCORDINGLY, ON THIS ISSUE A LSO WE FIND THAT THERE IS NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) AND WE UPHOLD THE SAME. 7.0 IN THE RESULT, THE APPEAL OF THE DEPARTM ENT STAND DISMISSED. 8.0 SINCE, WE HAVE UPHELD THE ORDER OF THE LD. CIT (A) ON ALL THE THREE ISSUES UNDER CHALLENGE IN THE DEPA RTMENTS APPEAL AND HAVE DISMISSED THE APPEAL OF THE DEPARTMENT, TH ERE IS NO 12 ITA NO.5302/DEL/2014 CROSS OBJECTIONS NO.119/DEL/ 2015 SUNAIR HOTELS LTD. VS. ACIT NECESSITY FOR US TO ADJUDICATE ON THE CROSS OBJECTI ONS FILED BY THE ASSESSEE CHALLENGING THE ASSUMPTION OF JURISDICTION U/S 147/148 OF THE ACT. ACCORDINGLY, THE CROSS OBJECTIONS OF THE A SSESSEE IS DISMISSED AS HAVING BECOME IN FRUCTUOUS IN VIEW OF THE DISMISSAL OF THE DEPARTMENTS APPEAL. 9.0 IN THE FINAL RESULT, THE APPEAL OF THE DE PARTMENT AS WELL AS THE CROSS OBJECTIONS OF THE ASSESSEE STAND DISMISSE D. ORDER PRONOUNCED ON 29 TH JANUARY, 2021 SD/- SD/- (DR.B.R.R. KUMAR) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/01/2021 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI