M/s SRSR Advisory Services Pvt Ltd., Hyderabad V. ACIT, Central Circle-9, Hyderabad

ITA 1231/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98604 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 22-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 20-06-2014
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Keywords: Reopening of assessment; Depreciation; Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1227/HYD/2014 2002 - 03 M/S. SRSR ADVISORY SERVICES PVT. LTD., HYDERABAD [PAN: AAHCS0296G] ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-9, HYDERABAD 1228/HYD/2014 2003 - 04 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-9, HYDERABAD 1229/HYD/2014 2004 - 05 1230/HYD/2014 2005 - 06 ASST. COMMISS IONER OF INCOME TAX, CENTRAL CIRCLE-9, HYDERABAD 1231/HYD/2014 2007 - 08 FOR ASSESSEE : S HRI K .C. DEVDAS , AR FOR REVENUE : SHRI R AMA KRISHNA BA NDI, DR DATE OF HEARING : 2 2 - 0 9 - 201 5 DATE OF PRONOUNCEMENT : 09 - 1 0 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE FIVE APPEALS ARE BY ASSESSEE AGAINST SEPARAT E BUT SIMILAR ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, HYDER ABAD DT. 29-01-2014. ASSESSEE IS CONTESTING REOPENING OF ASSESSMENTS IN ASSESSMENT YEARS FROM AYS. 2002-03 TO 2005-06. ASSESSEE IS ALSO CONTESTING TH E DISALLOWANCE OF 30% OF THE EXPENDITURE IN ALL THE IMPUGNED ASSESSMENT YEARS. SINCE THE ISSUES INVOLVED IN I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 2 -: ALL THESE APPEALS ARE IDENTICAL, THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. WE HAVE HEARD THE LD. COUNSEL AND LD. DR. 2. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS 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 A ND 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 PE RIODS OF TIME, ON THE REASON THAT SHRI RAMALINGA RAJU, EX. CHAIRMAN OF SATYAM CO MPUTER SERVICES LTD., IN HIS LETTER TO BOARD OF DIRECTORS WITH A COPY MARKED TO SEBI HAS STATED THAT BOOKS OF ACCOUNTS OF THAT COMPANY HAVE BEEN FUDGED FOR THE P AST SEVERAL YEARS AND REVENUES IN PROFITS WERE MANIPULATED BY FALSIFICATI ON OF ACCOUNTS FOR THE LAST SEVERAL YEARS. SOLEMN STATEMENT OF SHRI RAJU WAS R ECORDED IN THE CENTRAL PRISON, CHANCHALGUDA, HYDERABAD ON 21-02-2009 WHERE IN, HE HAS CONFIRMED THE FACTS AND FIGURES ARE STATED IN HIS LETTER DT. 07-0 1-2009 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 INITIAT ED ON 26-03-2010 AND 14- 03-2011 AND 02-03-2012 FOR AYS. 2003-04, 2004-05 AN D 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 ADDITION MADE IN THAT YEAR AND THE RETURN WAS ACCEPTED. HOWEVER, IN AY. 2007-08 WHICH IS A REGULAR SCRUTINY ASSESSMENT, AO DISALLOWED 30% OF EXPENDITURE, AS WAS DONE IN OTHER REOPENED A SSESSMENTS, OF THE EXPENDITURE CLAIMED. 3. ASSESSEE CONTESTED BEFORE THE LD. CIT(A) THAT RE OPENING OF ASSESSMENT IS BAD IN LAW AND FURTHER, DISALLOWANCE OF EXPENDITURE IS NOT WARRANTED. LD. CIT(A) HOWEVER, REJECTED ASSESSEES CONTENTIONS AND DISMIS SED THE APPEALS. HENCE, THE PRESENT APPEALS. EXCEPT FOR AY. 2007-08, IN AL L OTHER ASSESSMENT YEARS, I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 3 -: ASSESSEE IS MAINLY CONTESTING THE ISSUE OF REOPENIN G. 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 WHI CH 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 ASSESSME NTS WAS DONE WITHOUT HAVING ANY BELIEF THAT INCOMES OF ASSESSEE HAVE ESC APED ASSESSMENT IN THE IMPUGNED ASSESSMENT YEARS. IT WAS SUBMITTED THAT N OTICES WERE ISSUED U/S. 148 FOR AYS. 2002-03 TO 2005-06, BEYOND THE PERIOD OF F OUR YEARS FROM THE SPECIFIED PERIOD. IN AYS. 2002-03 TO 2004-05, THERE WERE SCR UTINY ASSESSMENTS AND ORDER U/S. 143(3) WAS ALREADY PASSED WHEREAS FOR AY. 2005 -06 EVEN THOUGH THERE WAS NO SCRUTINY ASSESSMENT, THE INCOME RETURNED BY ASSE SSEE WAS ACCEPTED U/S. 143(1). HE REFERRED TO THE REASONING RECORDED BY T HE AO TO SUBMIT THAT THERE WAS NO ALLEGATION THAT BOOKS OF ACCOUNTS OF ASSESSE E 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 QUESTIO N NO. 14 THAT IT IS A SIMPLE REFERENCE THAT HE WAS HELPING IN SOME OPERATIONAL M ATTERS PERTAINING TO SOME OF THE PERSONAL HOLDINGS, MATTERS OF FILINGS WITH RESP ECT TO AUTHORITIES. HE FURTHER REFERRED TO THE ANSWER GIVEN BY SHRI RAJU THAT MY UNDERSTANDING IS THAT IT IS PROFESSIONALLY RUN AND BOARD MANAGED COMPANY . IT WAS SUBMISSION THAT THERE WAS NO ALLEGATION OR IMPUTATION EITHER IN THE LETTE R WRITTEN TO THE BOARD OF DIRECTORS OF SATYAM COMPUTER SERVICES LTD., OR IN T HE STATEMENT THAT ASSESSEES BOOKS OF ACCOUNTS ARE MANIPULATED OR FUDGED. FURT HER, REFERRING TO THE DISALLOWANCE OF EXPENDITURE, IT WAS SUBMITTED THAT THERE IS NO LIVE LINK BETWEEN THE REASONS RECORDED AND THE DISALLOWANCE MADE IN T HE ASSESSMENT AND THAT TOO, AFTER ACCEPTING THE INCOMES RETURNED IN THE OR IGINAL ASSESSMENTS. LD. COUNSEL PLACED BEFORE US THE COPY OF THE ORDER PASS ED 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 COU LD NOT POINT OUT ANY FAILURE I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 4 -: ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL AND FACTS NECESSARY FOR ASSESSMENT. THE STATEMENT BY EX. CHAIRMAN OF S ATYAM COMPUTER SERVICES LTD., CANNOT FORM BASIS FOR REOPENING THE ASSESSMEN TS IN ASSESSEES CASE. HE ALSO SUBMITTED THAT AO EVEN THOUGH REOPENED THE ASS ESSMENT FOR AY. 2006-07 BY ISSUANCE OF NOTICE U/S. 148, HAS IN FACT ACCEPTE D THE ASSESSMENT VIDE ORDER DT. 28-02-2014 AND NO DISALLOWANCE OF EXPENDITURE H AS BEEN MADE. LD. COUNSEL ALSO PLACED ON RECORD THE ORDER OF THE CO-ORDINATE BENCH B IN THE GROUP OF CASES DT. 10-10-2014 TO SUBMIT THAT THE ISSUES IN A LL 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 PRESIDEN T SITTING AS SINGLE MEMBER IN GROUP APPEALS DT. 11-08-2014. IT WAS SUBMITTED THA T REOPENING OF ASSESSMENTS IS BAD IN LAW. 5. COMING TO DISALLOWANCE OF 30% EXPENDITURE MADE I N ALL THE IMPUGNED ASSESSMENT YEARS, IT WAS SUBMITTED THAT FROM AY. 20 02-03 TO 2004-05 THE ASSESSMENTS HAVE BEEN ORIGINALLY COMPLETED U/S. 143 (3) AND EXPENDITURE CLAIMS WERE ALLOWED AFTER DUE VERIFICATION. SO, DISALLOWA NCE OF EXPENDITURE IN RE- ASSESSMENT DOES NOT ARISE. FOR DISALLOWANCE MADE I N AY. 2005-06 AND 2007-08, IT WAS SUBMITTED THAT AO EVEN AFTER REOPENING U/S. 148 IN AY. 2006-07, HAS ACCEPTED ASSESSEES CLAIMS. THEREFORE, THERE IS NO NEED FOR DISALLOWING ANY EXPENDITURE. IT WAS SUBMITTED THAT DISALLOWANCE OF EXPENDITURE AT THIS POINT OF TIME IN RE-ASSESSMENT DOES NOT ARISE AND THEREFORE, IT IS BAD IN LAW. 6. LD. DR HOWEVER, SUPPORTED THE REOPENING OF ASSES SMENT ON THE STATEMENT GIVEN BY SHRI RAJU WHICH PRE-SUPPOSES IDE NTICAL MODUS OPPARANDI BEING FOLLOWED WITH REGARD TO OTHER COMPANIES. HE JUSTIFIED THE REOPENING THE ASSESSMENTS IN FOUR ASSESSMENT YEARS. HE ALSO SUBM ITTED THAT THE DISALLOWANCE OF 30% EXPENDITURE IN AY. 2007-08 IS WARRANTED AS A SSESSEE FAILED TO FURNISH THE BOOKS OF ACCOUNTS OR VOUCHERS SO AS TO EXAMINE THE VERACITY OF THE CLAIMS. LD. COUNSEL IN REPLY SUBMITTED THAT ASSESSEES BOOK S OF ACCOUNTS FOR THE IMPUGNED ASSESSMENT YEARS ARE IMPOUNDED BY THE AUTH ORITIES ALONG WITH BOOKS OF ACCOUNTS OF THE SATYAM COMPUTER SERVICES LTD., A ND ASSESSEE WAS NOT IN A I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 5 -: POSITION TO FURNISH THEM, THE FACT OF WHICH WAS INF ORMED TO THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO TO THE SPECIAL A UDITOR WHEN THE MATTER WAS REFERRED TO SPECIAL AUDIT. ON THE BASIS OF ALLOWAN CE OF SIMILAR EXPENDITURE IN ALL THE YEARS, IT WAS THE CONTENTION THAT EXPENDITURE C LAIMS WERE REASONABLE AND GENUINE. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE FACTS ON RECORD. AS FAR AS ISSUE OF REOPENING FROM AYS. 200 2-03 TO 2005-06 ARE CONCERNED, THERE IS NO DISPUTE THAT ASSESSMENTS HAV E BEEN ORIGINALLY COMPLETED U/S. 143(3) FOR AYS. 2002-03 TO 2004-05. EVEN THOU GH ASSESSMENT U/S. 143(1) WAS DONE FOR AY. 2005-06 IT IS A FACT ON RECORD THA T 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/ DISALLOWAN CE WAS MADE. THE MAIN ISSUE TO BE CONSIDERED IN ALL THESE APPEALS IS WHETHER TH E REOPENING OF ASSESSMENT ON THE BASIS OF THE SO CALLED STATEMENT OF SHRI RAMALI NGA RAJU IS WARRANTED. SIMILAR ISSUE WAS EXAMINED IN OTHER GROUP COMPANIES BY THE CO-ORDINATE BENCH WHEREIN, THE FOLLOWING FINDINGS WERE GIVEN. (ITA N O. 1233/HYD/2011 AND BATCH DT. 31-12-2013). 18. TO CONCLUDE, I. THE RECORDING OF REASONS BEFORE THE ISSUE OF NOT ICE UNDER SECTION 148 HAS ABSOLUTELY NO NEXUS WITH THE ASSESSMENT MAD E. II. THAT THE ASSESSMENT MADE UNDER SEC.143(3) CANNO T BE REOPENED UNDER SEC.148 BEYOND PERIOD OF 4 YEARS AS THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY 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 REASON ING OF THE FINANCIAL IMPLICATION BETWEEN THE ASSESSEE-COMPANY AND M/S. SATYAM COMPUTER SERVICES LIMITED, WHICH WAS NOT EST ABLISHED IN THE REASSESSMENT TO JUSTIFY THE REOPENING. I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 6 -: V. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, THE AS SESSMENT COMPLETED HAS NO RELATION AT ALL WITH THE REASONS F OR REOPENING. EVEN THOUGH ASSESSEE BELONGS TO SATYAM GROUP OF COM PANIES, THERE IS NO EVIDENCE OF SIPHONING OF FUNDS OR ESCAP EMENT OF INCOME. WHAT THE ASSESSING OFFICER HAS DONE IN THE ASSESSMENT IS DENIAL OF THE EXPLANATIONS GIVEN BY THE ASSESSEE WI TH REFERENCE TO VARIOUS INVESTMENTS MADE THROUGH THE BOOKS OF ACCOU NTS, VARIOUS CREDITS AND LOANS OBTAINED AND ALSO ADDITION TO FIX ED 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 T HE REASONS RECORDED AND THE `FORMATION OF BELIEF TO COME TO A CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME AND ALSO SINCE THE ASSESSM ENT 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 AL L MATERIAL FACTS IN THE ORIGINAL ASSESSMENT ITSELF, AND THERE BEING `NO TAN GIBLE MATERIAL FOR THE REOPENING OF THE ASSESSMENT, THE CIT(A) ERRED IN CO NFIRMING 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 QUASHED. 20. FOLLOWING THE PRINCIPLES ON THE ABOVE ISSUE AS DISCUSSED AND THE FACTS AS CONCLUDED ABOVE IN PARAS NO.18 AND 19, WE ALLOW ASSESSEES GROUNDS ON THE ISSUE OF REOPENING RAISED BEFORE US FROM GROUNDS 1 TO 11. SINCE, WE HAVE ALLOWED THE ASSESSEES GROUNDS ON GR OUNDS 1 TO 11, THE OTHER GROUNDS ON MERITS OF THE ADDITIONS DOES NOT R EQUIRE ANY CONSIDERATION AS THEY BECOME ACADEMIC IN NATURE. AC CORDINGLY, WE ALLOW THE APPEAL ITA NO.1233/HYD/2011 OF THE ASSESSEE. 8. NOT ONLY IN THE ABOVE CASE BUT ALSO IN A BATCH O F APPEALS FROM ITA NO. 482 TO 484/HYD/2014, 489/HYD/2014, 492 & 493/HYD/20 14, 495 TO 497/HYD/2014, 519 TO 524/HYD/2014 DT. 10-10-2014, C O-ORDINATE BENCH B (WHEREIN ONE OF US AM IS PARTY) HAS CONSIDERED THE ISSUE AND HELD AS UNDER VIDE PARA 9, 10 AND 11: 9. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT TH E ASSESSMENT HAS ALREADY BEEN COMPLETED UNDER SECTION 143(3) AFT ER SCRUTINY WHICH HAS BECOME FINAL. THEREFORE REOPENING THE ASSESSMENT AF TER FOUR YEARS FROM THE END OF ASSESSMENT YEAR CAN ONLY BE DONE ONLY WH EN 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 O F 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 I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 7 -: 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 CONCEPT OF CHANGE OF OPINION ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 O F THE INCOME TAX ACT, 1961, BY THE DIRECT TAX LAWS (AMENDMENT) ACTS, 1987 AND 1989. AFTER THE AMENDMEN T, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IM PLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN INBUILT TEST TO CHECK THE ABU SE OF POWER. HENCE, AFTER APRIL 1, 1989, THE ASSESSING OF FICER HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE I S TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST H AVE 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 IT R 310 AFFIRMED. '147. INCOME ESCAPING ASSESSMENT.IF THE AO HAS REA SON TO BELIEVE THAT ANY INCOME ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SS. 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURS E OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LO SS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS T HE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTE R IN THIS SECTION AND IN SS. 148 TO 153 REFERRED TO AS T HE 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 L AWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDE R ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID CO NDITIONS ALONE CONFERRED JURISDICTION ON THE AO TO MAKE A BA CK ASSESSMENT, BUT IN S. 147 OF THE ACT (W.E.F. 1ST AP RIL, 1989), THEY ARE GIVEN A GO BY AND ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE THE AO HAS REASON TO BEL IEVE THAT INCOME HAS ESCAPED ASSESSMENT, CONFERS JURISDI CTION TO REOPEN THE ASSESSMENT. THEREFORE, POST 1ST APRIL , 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS T O GIVE I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 8 -: A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, S. 147 WOULD GIVE ARB ITRARY POWERS TO THE AO TO REOPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE RE ASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REA SSESS. THE AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFI LLMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF 'CHA NGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSE SSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHECK AB USE OF POWER BY THE AO. HENCE, AFTER 1ST APRIL, 1989, AO H AS POWER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERI AL' 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. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO S. 147 OF THE ACT, AS QUOTED HEREIN ABOVE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS 'REASON TO BE LIEVE' BUT ALSO INSERTED THE WORD 'OPINION' IN S. 147 OF T HE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COM PANIES AGAINST OMISSION OF THE WORDS 'REASON TO BELIEVE', PARLIAMENT REINTRODUCED THE SAID EXPRESSION AND DEL ETED THE WORD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE AO. WE QUOTE HEREINBELOW T HE RELEVANT PORTION OF CIRCULAR NO. 549, DT. 31ST OCT. , 1989 [(1990) 82 CTR (ST) 1], WHICH READS AS FOLLOWS : '7.2 AMENDMENT MADE BY THE AMENDING ACT, 1989, TO R EINTRODUCE THE EXPRESSION REASON TO BELIEVE IN S. 147. A NUM BER OF REPRESENTATIONS WERE RECEIVED AGAINST THE OMISSION OF THE WORDS REASON TO BELIEVE FROM S. 147 AND THEIR SUBSTITUT ION BY THE OPINION OF THE AO. IT WAS POINTED OUT THAT THE ME ANING OF THE EXPRESSION, REASON TO BELIEVE HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM S. 147 WOULD GIVE ARBITRARY POWERS TO THE AO T O REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLAY THE SE FEARS, THE AMENDING ACT, 1989, HAS AGAIN AMENDED S. 147 TO REI NTRODUCE 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 S AME.' 5. FOR THE AFORE-STATED REASONS, WE SEE NO MERIT IN THESE CIVIL APPEALS FILED BY THE DEPARTMENT, HENCE, DISMISSED W ITH NO ORDER AS TO COSTS I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 9 -: 10. WE ALSO FIND THAT CIT(A) ERRED IN HOLDING THAT THE ASSESSING OFFICER HAD VALID REASONS TO REOPEN THE ASSESSMENT OF ASSESSEE-COMPANY TO EXAMINE THE VERACITIES AND FINANCIAL IMPLICATION S BETWEEN ASSESSEE- COMPANY AND M/S. SATYAM COMPUTER SERVICES LIMITED. WE FIND THERE IS NO RATIONALE NEXUS WITH SUCH STATEMENT BY SRI RAMAL INGA RAJU AND REASSESSMENT MADE. AS SEEN FROM THE ORDER OF AO EVE N THOUGH THE ASSESSMENT WAS REOPENED TO EXAMINE THE TRANSACTION BETWEEN M/S SATYAM 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 HONBLE 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 BETWEEN THE REASONS AND THE BELIEF, SO TH AT ON SUCH REASONS THE A.O. CANNOT HAVE REASON TO BELIEVE THAT ANY PAR T OF THE INCOME OF THE ASSESSEE 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. I S TO BE STRUCK AS INVALID. AS THERE IS NO RATIONAL NEXUS BETWEEN THE REASONS AND THE BELIEF, AND ON SUCH REASONS THE A.O. CANNOT HAVE REASON TO BELI EVE THAT ANY PART OF THE INCOME OF ASSESSEE HAS ESCAPED ASSESSMENT AND S UCH ESCAPEMENT WAS BY REASON OF OMISSION OR FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS, THE NOTICE ISSU ED BY THE A.O. IS TO BE STRUCK DOWN AS INVALID. THE ASSESSING OFFICER HAD N O 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. 147 BEYOND PERIOD OF 4 YEARS, AS THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL THE MATERIAL FACTS IN THE ORIGINAL ASSESSMENT ITSELF. T HE REOPENING WAS ON WRONG FOUNDATION OF REASONING OF THE FINANCIAL IMPL ICATION BETWEEN THE ASSESSEE-COMPANY AND M/S. SATYAM COMPUTER SERVICES LIMITED, WHICH WAS NOT ESTABLISHED IN THE REASSESSMENT TO JUSTIFY THE REOPENING. 11. THUS, THERE BEING NO NEXUS OR LIVE-LINK WITH TH E REASONS RECORDED AND THE FORMATION OF BELIEF TO COME TO A CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME AND ALSO SINCE THE ASSESSM ENT 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 AL L MATERIAL FACTS IN THE ORIGINAL ASSESSMENT ITSELF, AND THERE BEING NO TAN GIBLE MATERIAL FOR THE REOPENING OF THE ASSESSMENT, THE CIT(A) ERRED IN CO NFIRMING THE ORDER OF THE ASSESSING OFFICER. WE, THEREFORE, HOLD THAT THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 IS BAD IN LAW AND IS T O BE QUASHED. I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 10 -: 9. SINCE FACTS BEING SIMILAR, WE HOLD THAT REOPENIN G OF ASSESSMENT IN THE IMPUGNED YEARS 2002-03 TO 2005-06 ARE BAD IN LAW. THE ISSUES CONSIDERING THE MERITS ARE PURELY ACADEMIC IN NATURE AND THEREFORE IT IS NOT NECESSARY TO CONSIDER THE DISALLOWANCE OF EXPENDITURE IN THE IMP UGNED ASSESSMENT YEARS. THE ORDERS OF AO AND CIT(A) ARE ACCORDINGLY SET ASI DE. ACCORDINGLY, ASSESSEES GROUNDS ON THE ISSUE OF REOPENING ARE ACCEPTED AND APPEALS IN ITA NOS. 1227/HYD/2014, 1228/HYD/2014, 1229/HYD/2014 AND 123 0/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 ASSESSME NT. IN THE SCRUTINY ASSESSMENT, AO AS IN OTHER ASSESSMENT YEARS, DISALL OWED 30% OF THE TOTAL EXPENDITURE CLAIMED I.E., 30% OF RS. 1,47,10,886/- THEREBY MAKING DISALLOWANCE OF RS. 44,13,265/-. IT WAS STATED THAT THE MATTER WAS REFERRED TO SPECIAL AUDIT BUT IN THEIR REPORT DT. 31-05-2010 IT WAS STATED TH AT THEY ARE UNABLE TO CONDUCT AUDIT OF ASSESSEE DUE TO NON-AVAILABILITY OF BOOKS OF ACCOUNTS AND RELEVANT RECORDS, REFERRING TO ASSESSEES LETTER STATING THA T THE RECORDS WERE SEIZED BY THE INVESTIGATING AGENCIES. 11. HOWEVER, CONSIDERING THE NATURE OF EXPENDITURE, WE ARE OF THE OPINION THAT BOTH AO AND LD. CIT(A) HAS ROUTINELY DISALLOWE D AND CONFIRMED THE EXPENDITURE WITHOUT EXAMINING THE NATURE OF EXPENDI TURE. FOR EXAMPLE, AUDIT FEE OF RS. 11,236/- HAS BEEN SIMILARLY CLAIMED EARL IER YEARS ALSO WHICH WAS ACCEPTED BY AO. AO ALSO DISALLOWED SERVICES CHARGE S PAID TO GOVT. OF INDIA AT RS. 16,76,656/-. HOW 30% OF THIS EXPENDITURE CAN AL SO BE DISALLOWED IS NOT EXPLAINED. SIMILAR IS THE CASE WITH DIRECTORS PAY MENTS, 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 ST ATED IN THE P&L A/C, PAPERS FILED ALONG WITH RETURN. EXCEPT CAR HIRE CH ARGES, WHICH HAS INCREASED MORE THAN 100% AND PROFESSIONAL CHARGES AND REIMBUR SEMENT OF PROFESSIONAL I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 11 -: CHARGES, ALL OTHER CHARGES ARE MORE OR LESS COMMENS URATE 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 EXP ENDITURES ARE CONCERNED. 12.1. COMING TO CAR HIRE CHARGES, THE SAME HAS BEEN INCREASED FROM RS. 78,580/- IN EARLIER YEAR TO RS. 1,99,933/-. THE RE ASONS WERE NOT EXPLAINED AND IN THE ABSENCE OF ANY VOUCHERS, WE ARE OF THE OPINI ON THAT 20% OF THE CAR HIRE CHARGES CAN BE DISALLOWED. 12.2. COMING TO PROFESSIONAL CHARGES AND REIMBURSEM ENT OF EXPENSES TO CONSULTANTS, THERE IS ALSO MANIFOLD INCREASE IN THI S EXPENDITURE. WHETHER THE AMOUNTS WERE COVERED BY PROVISIONS OF TDS OR NOT CO ULD NOT BE VERIFIED IN THE ABSENCE OF ANY DETAILS. MOREOVER, JUSTIFICATION FO R PAYMENT OF PROFESSIONAL CHARGES WAS ALSO NOT AVAILABLE ON RECORD. IN THE A BSENCE OF ANY JUSTIFICATION OF EXPENDITURE CLAIMS AND FURTHER IN THE ABSENCE OF BO OKS OF ACCOUNTS AVAILABLE AT THIS POINT OF TIME, WE ARE OF THE OPINION THAT DISA LLOWANCE OF 10% OF EXPENDITURE WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, THE D ISALLOWANCE STANDS MODIFIED AS DIRECTED ABOVE. THIS APPEAL IS ACCORDINGLY, PAR TLY ALLOWED. 13. IN THE RESULT, APPEALS IN ITA NOS. 1227/HYD/201 4, 1228/HYD/2014, 1229/HYD/2014 AND 1230/HYD/2014 ARE ALLOWED AND APP EAL IN ITA NO. 1231/HYD/2014 FOR AY. 2007-08 IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09 TH OCTOBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED 09 TH OCTOBER, 2015 TNMM I.T.A. NOS. 1227, 1228, 1229, 1230 & 1231/HYD/14 M/S. SRSR ADVISORY SERVICES PVT LTD., :- 12 -: COPY TO : 1. M/S. SRSR ADVISORY SERVICES PVT. LTD., PLOT NO. 80, ROAD NO. 9, JUBILEE HILLS, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCL E-9, 7 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 3. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -9, 7 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 4. CIT(APPEALS)-VII, HYDERABAD. 5. CIT-(CENTRAL), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.