United Teleservices Ltd., Kolkata V. A.C.I.T.,Circle-12(2), Kolkata

ITA 248/KOL/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3407 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-02-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 26-02-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH KANOJIA
• Keywords: Depreciation; Set aside
• Section: 40(a)(ia); 251; 13; 22; 20

Judgement Text

ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 1 | P A GE , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI J. SUDHAKAR REDDY, AM AND SHRI A. T. VARKEY, JM] I.T.A. NO. 248/KOL/2020 ASSESSMENT YEAR: 2016-17 UNITED TELESERVICES LTD. (PAN: AABCU3091K) VS. ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-12(2), KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 10.02.2021 DATE OF PRONOUNCEMENT .02.2021 FOR THE APPELLANT SHRI SUBHAS AGARWAL, ADVOCATE FOR THE RESPONDENT SHRI MANISH KANOJIA, CIT DR ORDER PER SHRI A. T. VARKEY, JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT(A)-4, KOLKATA DATED 11.02.2020 FOR AY 2016-17. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E AS UNDER: 1. (A) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ADDITION MADE BY THE A.O. ON ACCOUNT OF BUSINESS PROMOTION EXPENSES U/S. 40(A)(IA) IS RESTRICTED TO RS. 20,65, 713/- WHEN THE TOTAL ADDITION MADE BY THE A.O. ITSELF WAS RS. 15,12,574/-. (B) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE OF RS. 15,12,574/- BEING 3 0% OF RS. 50,41,915/- ON ACCOUNT OF BUSINESS PROMOTION EXPENSES MADE BY THE A.G. BY WRO NGLY INVOKING THE PROVISION OF SECTION 40(A)(IA). 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) OUGHT TO HAVE ALLOWED RS. 4,02,837/- ON ACCOUNT OF INTEREST ON OF FICE LOAN DISALLOWED BY THE A.O. 3, (A) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) ERRED IN MAKING AN ENHANCEMENT OF RS. 20,35,95,402/- IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF ALLEGED INFLATED PURCHASES. (B) FOR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN IN TRODUCING IN THE ASSESSMENT, A NEW SOURCE OF INCOME AND FAILING TO CONFINE HIMSELF TO THOSE ITEM S OF INCOME WHICH WERE THE SUBJECT MATTER OF THE ORIGINAL ASSESSMENT. (C) FOR THAT THE LD. CIT(A) FAILED TO AFFORD FULL A ND PROPER OPPORTUNITY BEFORE PROCEEDING TO MAKE HUGE AND UNJUSTIFIED ENHANCEMENT OF RS. 20, 35,94,402/-. ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 2 | P A GE 3. AS FAR AS GROUND NO. 1(A) IS CONCERNED, THE LD. AR SHRI SUBHAS AGARWAL DREW OUR ATTENTION TO PAGE NO.2 OF THE ASSESSMENT ORDER, FRO M WHICH IT IS SEEN THAT AO HAS MADE A CHART WHEREIN HE HAS NOTED THAT THE ASSESSEE COMPAN Y FAILED TO DEDUCT TAX AT SOURCE IN RESPECT OF SIXTEEN (16) ITEMS OF EXPENSES TO THE TU NE OF RS.50,41,915/- AND, THEREFORE, HE DISALLOWED 30% OF IT U/S. 40(A)(IA) OF THE INCOME T AX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) I.E. RS.15,12,574/-. AGGRIEVED, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO HAS DECIDED THE ISSUE AT PAGE 6 AND 7 OF THE IMPUGNED ORDER WHEREIN THE LD. CIT(A) HAS GIVEN RELIEF TO THE TUNE OF RS.29,76,202 /- (EXPENDITURE) BY EXCLUDING FOUR (4) ITEMS OF EXPENDITURE AND ONE DUPLICATE ENTRY FROM T DS. HOWEVER, WHILE DISPOSING OFF THIS GROUND OF APPEAL, THE LD. CIT(A) DIRECTED THE AO TH E FOLLOWING: IN VIEW OF THE ABOVE, THE AMOUNT OF RS.29,76,202/ - WAS NOT LIABLE FOR DEDUCTION OF TAXES FOR THE REMARKS GIVEN IN THE ABOVE TABLE, THEREFORE, TH E ADDITION IS RESTRICTED TO RS.20,65,713/-. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. 4. THIS DIRECTION OF THE LD. CIT(A) IS BEING CHALLE NGED BY THE LD. AR STATING THAT THE TOTAL DISALLOWANCE MADE BY THE AO WAS ONLY AT RS.15 ,12,574/- (I.E. 30% OF RS.50,41,915/-) WHEREAS THE LD. CIT(A) AFTER GIVING PARTIAL RELIEF ERRONEOUSLY ENHANCED THE ADDITION TO RS.20,65,713/- (RS.50,41,915/- - 29,76,202/-) WHIC H WAS THE EXPENDITURE ON WHICH THE LD. CIT(A) FOUND THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAXES AND, THEREFORE, THE LD. CIT(A) OUGHT TO HAVE DIRECTED 30% ON THE AMOUNT OF RS.20,6 5,713/- I.E. (@30% OF RS.20,65,713/- AND NOT DISALLOWANCE OF RS.20,65,713/-. HOWEVER, BY RAISING GROUND NO. 1(B) THE LD. AR FURTHER CONTENDED THAT OUT OF THIS RELIEF GRANTED F OR THE EXPENDITURE IN RESPECT OF RS.29,76,202/- THE ASSESSEE IS CHALLENGING HIS ACTI ON/OMISSION IN RESPECT OF PAYMENTS MADE TO M/S. RAKSHIT & COMPANY AMOUNT OF RS.2,27,282/- A ND M/S. CHOICEST ENTERPRISE LTD. TO THE TUNE OF RS.9,53,105/-. ACCORDING TO THE LD. AR , THESE TWO PAYMENTS WERE MADE TO DECORATORS/EVENT MANAGERS. IN ORDER TO SUBSTANTIATE THESE EXPENDITURES GENUINITY, HE DREW OUR ATTENTION TO PAGE 22 AND 23 OF THE PAPER BOOK W HICH ARE THE BILL OF M/S. RAKSHIT & COMPANY; AND THEREAFTER HE DREW OUR ATTENTION TO PA GE NO. 27 WHEREIN THE BILL OF M/S. CHOICEST ENTERPRISE LTD. HAS BEEN FOUND PLACED. AC CORDING TO THE LD. AR PAYMENTS MADE TO THESE TWO CONCERNS MUST HAVE BEEN REFLECTED IN T HEIR RESPECTIVE TURNOVERS AND IN THEIR ROI, AND THEY OUGHT TO HAVE PAID THE TAXES ON IT, S O, HE PLEADED THAT NO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT IS WARRANTED FOR THESE TWO EXP ENSES. PER CONTRA, THE LD. DR DID NOT ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 3 | P A GE OBJECT TO THE CORRECTION RAISED IN GROUND NO. (1)(A ), WHICH IS PER-SE EVIDENT. HOWEVER, IN RESPECT TO THE RELIEF CLAIMED IN RESPECT OF EXPENDI TURES IN RESPECT OF TWO CONCERNS ARE CONCERNED, ACCORDING TO LD. DR, FACTUAL VERIFICATIO N IS NECESSARY, THEREFORE, HE PLEADED THAT THESE TWO EXPENSES MAY BE REMANDED FOR VERIFICATION BACK TO AO. 5. HAVING HEARD BOTH THE PARTIES WE ARE NOT REPEATI NG THE FACTS NARRATED ABOVE FOR THE SAKE OF BREVITY. IN RESPECT OF GROUND NO. 1(A), WE FIND THAT THE LD. CIT(A) ERRED WHILE GIVING DIRECTION TO RESTRICT THE ADDITION TO RS.20, 65,713/- BECAUSE AT THE FIRST PLACE THE AO HAD MADE THE DISALLOWANCE ONLY TO THE TUNE OF RS.15 ,12,574/-. IT IS NOTED THAT THE LD. CIT(A) HAD GIVEN PARTIAL RELIEF TO THE ASSESSEE BY TAKING NOTE OF THE FACT THAT EXPENDITURE IN RESPECT OF ITEMS AMOUNTING TO RS.29,76,202/- WAS NO T LIABLE FOR DEDUCTION OF TAXES FOR VARIOUS REASONS STATED IN THE CHART PREPARED BY HIM AT PAGES 6 AND 7 OF THE IMPUGNED ORDER. HOWEVER, WHEN HE GAVE THE FINAL DIRECTION, HE ERRON EOUSLY DIRECTED THAT THE ADDITION MAY BE RESTRICTED TO RS.20,65,713/- (RS.50,41,915 RS. 29,76,202). SO, THERE IS AN ERROR APPARENT ON THE FACE OF THE RECORD. THE LD. CIT(A) AFTER GIVING PARTIAL RELIEF TO THE EXPENDITURE TO THE TUNE OF RS.29,76,202/- COULD HAV E ONLY DIRECTED THAT THE DISALLOWANCE COULD HAVE BEEN MADE ONLY IN RESPECT OF THE EXPENDI TURE REGARDING RS.20,65,713/- I.E. 30% OF RS.20,65,713/- U/S. 40(A)(IA) OF THE ACT. SO, T HE LD. CIT(A) PER-SE ERRED IN DIRECTING SO (SUPRA). BE THAT AS IT MAY BE, HOWEVER, THE LD. A R HAS PLEADED THAT OUT OF THE ITEMS ON WHICH THE LD. CIT(A) HAS NOT GIVEN RELIEF IN RESPEC T OF EXPENDITURE OF RS.20,65,713/- THE ASSESSEE SEEKS VERIFICATION IN RESPECT OF TWO ITEMS OF EXPENDITURE I.E. IN RESPECT OF M/S. RAKSHIT & COMPANY AND M/S. CHOICEST ENTERPRISES LTD . TO WHOM THE ASSESSEE HAD MADE PAYMENT OF RS.2,78,282/- AND RS.9,53,105/- RESPECTI VELY. THE LD. AR HAD DRAWN OUR ATTENTION TO THE BILLS AS DISCUSSED SUPRA AND CONTE NDS THAT THE AO MAY VERIFY AS TO WHETHER THESE TWO CONCERNS HAVE SHOWN THIS AMOUNT AS RECEIP TS IN THEIR RESPECTIVE TURNOVER AND HAS PAID TAXES ON IT IN ACCORDANCE TO LAW. IN SUCH AN EVENT IT WAS CONTENDED THAT THERE SHOULD BE NO DISALLOWANCE. WE FIND FORCE IN THE SAID CONT ENTION OF THE LD. AR AND WE DIRECT THE AO TO VERIFY FROM THESE TWO CONCERNS AS TO WHETHER THEY (M/S. RAKSHIT & COMPANY AND M/S. CHOICEST ENTERPRISES LTD.) HAVE SHOWN THESE AM OUNTS/RECEIPTS IN THEIR TRADING RECEIPTS IN THIS ASSESSMENT YEAR AND HAVE PAID DUE TAXES THE REON. THE ASSESSEE TO GIVE ALL THE DETAILS TO THE AO REGARDING THEIR IDENTITY. AND, THE AO TO VERIFY FROM THESE CONCERNS THE VERACITY OF THE PAYMENT MADE BY ASSESSEE AND IF THE AO FINDS THAT BOTH THE CONCERNS HAVE SHOWN ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 4 | P A GE THESE TWO PAYMENTS MADE BY THE ASSESSEE AS THEIR RE CEIPTS AND HAVE PAID TAXES THEREON IN THIS ASSESSMENT YEAR, THEN NO DEDUCTION U/S. 40(A)( IA) OF THE ACT IS WARRANTED, IF NOT, THE SAME MAY BE CONFIRMED. IN RESPECT OF OTHER ITEMS CO NFIRMED BY THE LD. CIT(A), THE LD. AR DOES NOT WANT TO PRESS TAKING INTO ACCOUNT THE SMAL LNESS OF THE AMOUNT AND, THEREFORE, THOSE EXPENSES TO BE DISALLOWED U/S. 40(A)(IA) OF THE ACT . SO, THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 2 IS AGAINST THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.4,02,837/- ON ACCOUNT OF INTEREST ON OFFICE LOAN . 7. BRIEF FACTS OF THE CASE AS NOTED BY THE AO ARE T HAT IT HAS COME TO HIS NOTICE THAT EXPENDITURE CLAIMED ON ACCOUNT OF INTEREST ON BORRO WED FUND UTILIZED FOR PURCHASE OF OFFICE WAS TO THE TUNE OF RS.4,02,837/-. ACCORDING TO THE AO, NO DEPRECIATION WAS CLAIMED IN RESPECT OF THIS OFFICE SINCE IT DOES NOT APPEAR AS AN ITEM IN THE FIXED ASSET. ACCORDING TO HIM, THE OFFICE WAS NOT UTILIZED/PUT TO USE IN THIS YEAR FOR THE PURPOSE OF BUSINESS. THEREAFTER, HE APPLIED SECTION 43(1) AND SECTION 36 (1)(III) OF THE ACT AND HELD THAT SINCE THE OFFICE WAS NOT UTILIZED OR PUT TO USE IN THE YEAR F OR THE PURPOSE OF BUSINESS INTEREST PAID ON THE CAPITAL BORROWED FOR ACQUISITION OF THE OFFICE CANNOT BE ALLOWED AND THEREFORE, THE SUM OF RS.4,02,837/- WAS DISALLOWED U/S. 36(1)(III) OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO NOTES THAT THE OFFICE WAS TAKEN ON THE FIXED ASSET OF THE COMPANY FOR THE FINANCIAL YEAR 2016-17 AND OFFICE GOT REGISTERED IN FY 2016- 17 AND ACCORDING TO LD. CIT(A) THIS EXPENSES OF RS. 4,02,837/- CANNOT BE ALLOWED IN THIS YEAR (F.Y. 2015-16). HOWEVER, ACCORDING TO LD. CIT (A), THE SAME CAN BE CAPITALIZED IN THE YEAR OF ACQUISITION. THE LD. AR ASSAILING THE ACTION OF THE LD. CIT(A) SUBMITTED THAT THE ASSESSEE HAS BORROWED AN AMOUNT OF RS.1,36,65,5 35/- FROM THE AXIS BANK WHICH IS DISCERNIBLE FROM A PERUSAL OF PAGE 5 OF THE PAPER B OOK. ACCORDING TO LD. AR, NO DISALLOWANCE COULD HAVE BEEN MADE WHEN THE ASSESSEE POSSESSED MIXED FUND WHICH INCLUDES ITS OWN FUND IN SUFFICIENT QUANTITY. THEN , ACCORDING TO HIM, THE PRESUMPTION IS THAT ITS OWN FUNDS WERE UTILIZED FOR THE ADVANCES N EED TO BE DRAWN AND ACCORDING TO LD. AR, THE ASSESSEES SHARE CAPITAL PLUS RESERVE [RS.1 ,48,12,000/- + RS.6,80,76,111/-] TOTALING RS. 8,28,88,111/-. THEREFORE, ACCORDING TO THE LD. AR, WHEN THE ASSESSEE HAD SUFFICIENT ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 5 | P A GE FUNDS, THEN THE PRESUMPTION IS THAT ITS OWN FUNDS W ERE UTILIZED FOR THE ADVANCE AND RELIED ON THE RATIO OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 AND CIT VS. HDF C BANK LTD REPORTED IN 366 ITR 505 (BOM.). SO, ACCORDING TO THE LD. AR NO DISALLOWANC E WAS WARRANTED SINCE THE ASSESSEE HAS GOT ITS OWN FUNDS OF RS.8,28,88,111/- AND THE LOANS TAKEN BY IT IS ONLY TO THE TUNE OF RS. 1.3 CR. PER CONTRA, THE LD. DR SUPPORTS THE ORDER OF T HE LD. CIT(A) AND DOES NOT WANT US TO INTERFERE. 8. HAVING HEARD BOTH THE SIDES AND PERUSED THE RECO RD, WE NOTE THAT THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.4,02,837/- FOR I TS OFFICE. THE AO DISALLOWED IT SINCE THIS OFFICE WAS NOT UTILIZED/PUT TO USE. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. BEFORE US IT HAS BEEN DEMONSTRATED THAT ASSESSEE HAS ITS O WN FUND TO THE TUNE OF RS.8,28,88,111/- AND THE LOAN AMOUNT IS ONLY TO THE TUNE OF RS. 1.3 CR. AND, THEREFORE, ACCORDING TO THE LD. AR, THE ASSESSEE POSSESSED MIXED FUND WHICH INCLUDE S ITS OWN FUND IN SUFFICIENT QUANTITY. THEREFORE, ACCORDING TO HIM, PRESUMPTION NEEDS TO B E DRAWN THAT ITS OWN FUNDS WERE UTILIZED FOR THE PURCHASE OF OFFICE AND, THEREFORE, NO DISALLOWANCE WAS WARRANTED BY APPLYING THE RATIO OF THE DECISION OF HONBLE BOMBA Y HIGH COURT IN RELIANCE UTILITIES & POWER (SUPRA). HOWEVER, WE DO NOT AGREE TO THE SAID CONTENTION OF LD. AR FOR THE REASON THAT ASSESSEE HAS SHOWN IN ITS BOOKS THAT THE LOAN OF RS. 1.3 CR. HAS BEEN TAKEN FROM THE AXIS BANK FOR OFFICE AND CLAIMED DEDUCTION IN RESPE CT OF THE INTEREST EXPENDITURE INCURRED ON THIS LOAN. AND THE AO/LD. CIT(A) HAS DISALLOWED THE INTEREST EXPENDITURE CITING SEC. 36(1)(III) OF THE ACT WHICH READS AS UNDER: 36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN THE MATTER DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRE D TO IN SECTION 28: (I) (II) (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPI TAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION; [PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET T'**] (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM TILE DATE ON WHICH THE CA PITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION.] EXPLANATION.-RECURRING SUBSCRIPTIONS PAID PERIODICA LLY BY SHAREHOLDERS, OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIETIES WHICH FULFI LL SUCH CONDITIONS AS MAY BE PRESCRIBED, SHALL BE DEEMED TO BE CAPITAL BORROWED WITHIN THE MEANING OF THIS CLAUSE;' ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 6 | P A GE 9. IT IS NOTED THAT THE AO HAS DISALLOWED THE INTER EST APPLYING THE PROVISO TO CLAUSE (III) OF SUB-SECTION (1) OF SECTION 36 OF THE ACT. THE A O HAS FOUND THAT THE OFFICE WHICH HAS BEEN ACQUIRED BY LOAN OF RS.1.3 CR. FROM AXIS BANK HAS NOT BEEN UTILIZED/PUT TO USE, SO HE DISALLOWED THE INTEREST EXPENDITURE. THE LD. CIT(A ) HAS FOUND THAT THE ASSESSEE HAS GOT THE OFFICE IN QUESTION REGISTERED NEXT YEAR I.E. F.Y 20 16-17 I.E. AY 2017-18, WHICH FACT CORROBORATES THE FINDING OF AO AND THEREFORE, THE P ROVISO TO SECTION 36(1)(III) OF THE ACT IS ATTRACTED. AND IN THIS CASE, THE PRESUMPTION AS PER THE RATIO OF THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITIES AND HDFC (SUPRA) CANNOT BE APPLIED BECAUSE IN THOSE CASES, THERE WAS MIXED FUNDS IN TH E HANDS OF ASSESSEE I.E. BOTH OWN AND BORROWED FUNDS AND ALLOCATION OF BORROWED FUNDS COU LD NOT BE SPECIFICALLY DETERMINED. IN THE CASE IN HAND, THE LOAN AMOUNT WAS ALLOCATED FOR ITS OFFICE/CAPITAL WHICH IS A FACTUAL FINDING, WHICH COULD NOT BE DISPROVED BY THE ASSESS EE, SO THE PRESUMPTION BASED ON MIXED FUND CANNOT BE APPLIED. SO, WE CONFIRM THE ACTION OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF ASSESSEE IS DISMISSED. 10. GROUND NO. 3 IS IN RESPECT OF ACTION OF THE LD. CIT(A) IN ENHANCING THE ADDITION BY RS.20,35,95,402/- ON ACCOUNT OF ALLEGED INFLATED PU RCHASES. 11. AT THE OUTSET, IT IS NOTED THAT THIS ADDITION W AS NOT MADE BY AO. THE LD. CIT(A) AFTER GIVING NOTICE TO THE ASSESSEE OBSERVED THAT T HE ASSESSEE HAS MADE CERTAIN SALES AT HIGH SEA AND THE SAME GOODS HAVE BEEN RE-PURCHASED BY IT AGAIN USING A LAYER OF COMPANIES. SO, HE ISSUED A SHOW CAUSE NOTICE DATED 11.12.2019 TO T HE ASSESSEE, WHICH IS REPRODUCED AS UNDER: PLEASE REFER TO THE ABOVE. THE APPELLATE PROCEEDINGS ARE GOING ON BEFORE THE U NDERSIGNED. YOUR KIND ATTENTION IS INVITED TO EXPLANATION TO SECTION 251 OF THE I. T. ACT, 1961 WHICH IS AS UNDER: 'ANY MATTER ARISING OUT OF PROCEEDINGS IN WHICH THE ORDER APPEALED AGAINST WAS PASSED.' DURING THE COURSE OF APPELLATE PROCEEDING AND PERUS AL OF CASE RECORDS IT IS NOTED THAT YOU HAVE MADE VARIOUS PURCHASES FROM YOUR SISTER CONCER NS. IN THIS CONNECTION, YOU ARE HEREBY REQUESTED TO FURNISH: I) SALES MADE BY YOU TO YOUR SISTER CONCERNS, ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 7 | P A GE II) PURCHASES MADE BY YOU THROUGH YOUR SISTER CONCERNS, III) WHETHER THE SAME GOODS WHICH WERE SOLD BY YOU TO YOUR SISTER CONCERNS HAVE BEEN PURCHASED BY YOU USING ANOTHER SISTER CONCERN. IF SO PLEASE GIVE THESE DETAILS ALONG WITH THE FOLLOWING : A) AMOUNT AT WHICH SALES WERE MADE BY YOU TO YOUR SIST ER CONCERNS, B) AMOUNT AT WHICH SAME GOODS WERE PURCHASED BY YOU FR OM THESE SISTER CONCERNS. YOUR REPLY ON THE ABOVE MUST REACH THIS OFFICE ON O R BEFORE 24.12.2019 POSITIVELY. 12. THE LD. CIT(A) HAS REPRODUCED THE REPLIES OF TH E ASSESSEE AT PAGE 8 TO 13 OF HIS IMPUGNED ORDER. THEREAFTER, THE LD. CIT(A) HAS HELD AS UNDER: FROM THE ABOVE, CIRCULAR MOVEMENT OF GOODS BETWEEN UNITED TELESERVICES LIMITED AND ZENIAK INNOVATION INDIA LIMITED & INFOBITZ INDIA CA N BE EXPLAINED AS UNDER : CIRCULAR MOVEMENT OF GOODS : FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS A CCEPTED THAT IT PURCHASED THE SAME GOODS WHICH WERE SOLD BY IT. THE ABOVE DISCUSSION IN THE APPELLATE ORDER HAS ALREADY REVEALED THAT THE CIRCULAR TRANSACTIONS OF PURCHASE AND SALES HAV E RESULTED INTO INFLATED PURCHASES IN THE HANDS OF THE ASSESSEE COMPANY BY AN AMOUNT OF RS. 2 0,35,94,402/-. IT IS TO BE NOTED THAT AT NO POINT OF TIME, THE ASSESSEE IS DENYING THE SAME, HOWEVER, IT IS TAKING FRIVOLOUS EXPLANATIONS TO JUSTIFY ITS ACT. IN NO CIRCUMSTANCE S BONA FIDES OF THE ASSESSEE COMPANY CAN BE ESTABLISHED AS IT WAS A PRE-PLANNED ACTION UNDERTAK EN BY THE ASSESSEE COMPANY. IN THESE CIRCUMSTANCES, I DO HEREBY ADD AN AMOUNT OF RS.20,3 5,94,402/- TO THE INCOME OF THE ASSESSEE. IN THIS CASE, NOTICE OF ENHANCEMENT HAS A LREADY BEEN GIVEN AS PER SECTION 251 (2) OF THE INCOME TAX ACT, 1961 VIDE LETTER DATED 24.12 .2019. THEREFORE, A TOTAL ADDITION OF RS.20,35,94,402/- IS HEREBY MADE TO THE INCOME OF T HE ASSESSEE. ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 8 | P A GE 13. ASSAILING THE AFORESAID ACTION OF THE LD. CIT (A) ENHANCING THE ADDITION, THE LD. AR BROUGHT TO OUR NOTICE THE FOLLOWING FACTS WHICH WERE BROUGHT TO THE NOTICE OF LD. CIT(A). 1. UNITED TELESERVICES LIMITED SOLD GIONEE MOBILE P HONE THROUGH HSS TO ZENIAK INNOVATION INDIA LIMITED OF RS. 103,52,77,646 (ONLY MATERIALS VALUE). CUSTOM DUTY PAID BY ZENIAK 'INNOVATION INDIA LIMITE D OF RS.15,36,36,925.00 PURCHASE PRICE IN THE BOOKS OF M/S. ZENIAK INNOVATI ON INDIA LIMITED RS. 118,89,14,571.00 2. ZENIAK INNOVATION INDIA LIMITED SOLD TO INFOBITZ INDIA OF RS. 123,66,82,934.00 . 3. INFOBITZ INDIA SOLD TO UNITED TELESERVICES LIMIT ED OF RS. 123,88,72,048.00. 14. OUR ATTENTION WAS DRAWN TO THE FOLLOWING FACTS WHICH WAS NOTED BY THE LD. CIT(A) WHILE ISSUING SHOW CAUSE NOTICE: GOODS IN THE HANDS OF UNITED TELESERVICES LTD. R S. 103,32,77,646/ - CUSTOM DUTY PAID BY ZENIAK INNOVATION INDIA LTD. RS. 15,36,36,925/- OTHERWISE THE COST WHAT HAVE BEEN PAID BY UTL R S. 118,89,14,571/- SAME GOODS PURCHASED BY UTL AFTER CIRCULAR RS. 123,88,72,048/- MOTION FROM INFOBIZ INDIA AT TOTAL INFLATED PURCHASE RS.4,99,57,477/- 15. WE NOTE THAT THE ASSESSEE HAS BROUGHT TO THE NO TICE OF THE LD. CIT(A) THE FOLLOWING FACTS IN RESPECT OF THIS ISSUE: ZENIAK INNOVATION INDIA LIMITED IS OUR SISTER CONC ERN, THEY HAVE FILED INCOME TAX RETURN AFTER PAID INCOME TAX IS MORE THAN RS. 1.58 CR. FOR THE FINANCIAL YEAR 2015-2016, NET PROFIT HAD BEEN ARRIVED NEAR ABOUT RS. 5 CRORES BECAUSE ON LY FOR CIRCULATED OF GOODS. WE , EVERYBODY KNOW ABOUT WEST BENGAL VALUE ADDED T AX ACT 2003 , WHEN WE SALE GOODS TO THE CUSTOMER THEN WE ARE ADDING VALUE ( PR OFIT) WITH ACTUAL PURCHASE PRICE AND HARGED TAX. SALE PRICE = PURCHASE PRICE + VALUE ( PROFIT) BILLING PRICE = SALE PRICE + TAX (VALUE ADDED TAX) THIS IS THE MAIN REASON TO INCREASE THE PURCHASE PR ICE FROM INFOBITZ INDIA. FURTHER WE INFORM YOU THAT YOU HAVE VERBALLY COMMIT TED TO US DURING THE HEARING THAT YOU WILL NOT BE ADDED WITH OUR INCOME FOR THE AFORESAID FINANCIAL YEAR. WE HAVE NOT INTENTIONALLY DONE THE CIRCULAR MOVEMENT OF GOODS, WE ARE UNABLE TO RUN THE BUSINESS IN ABSENCE OF MATERIALS BECAUSE WE COULD NOT IMPORT THE MATERIALS DUE TO ONLINE WAYBILL BENEFIT, THE JOINT COMMISSIONER OF COMMERCIAL TAX OFFICER STOP THE ONL INE WAY BILL SYSTEM DUE TO TAX DEFAULT . ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 9 | P A GE FURTHER WE INFORM YOU THAT M/S. ZENIAK INNOVATION I NDIA LIMITED ALSO HAVE PAID DIRECT EXPENSES OF RS, 95, 75, 080. REGARDING I. AIRPORT AUTHORITY OF INDIA RS. 17,51,945.00 II. MISE EXPENSES- CLEARING AGENT RS. 70,18,459.00 III. CLEARING AGENT COMMISSION RS. 8,04,676.00 TOTAL RS. 95,75,080.00 YOU ARE REQUESTED NOT TO ADDED BACK THE AFORESAID M ATTER, WE WOULD NOT BE BEAR THE TAX BURDEN, OUR COMPANY BUSINESS ALREADY WAY OF SHUTDOW N DUE TO FINANCIAL CRISIS. GIONEE MOBILE CHIEF HAS BEEN CLOSED THE BUSINESS IN CHAINA , OUR COMPANY HAD BEEN CLAIMED MORE THAN RS. 35 CRORES REGARDING EXPENSES WHICH WE ALRE ADY PAID TOWARDS RSP SALARY, SHARE OF MARKETING EXPENSES, SHARE OF TAX PORTION, DISTRIBUT ORS CLAIMED. THEY HAVE NOT GIVEN ANY SINGLE AMOUNT TO OUR COMPANY AGAINST CLAIMED. WE HA VE INCOME TAX FILED LOSS OF RS. 6,66,29,797.00 FOR THE FINANCIAL YEAR 2018-2019 AND LOSS BOOKED FOR THE CURRENT FINANCIAL YEAR OF RS. 16. FURTHER WE NOTE THAT THE ASSESSEE HAS BROUGHT T O THE NOTICE OF THE LD. CIT(A) THE FOLLOWING MORE FACTS: THIS IS TO INFORM YOU THAT THE AFORESAID INFLATED PURCHASES HAS COME ONLY FOR VALUE ADDED WITH PURCHASE PRICE AS PER WB VAT ACT 2003. ZENIAK INNOVATION INDIA IMITED IS A REGISTERED DEALER UNDER WB VAT ACT 2003 . THE REGIS TERED DEALER CAN NOT BE SOLD ANY GOODS WITHOUT CHARGED VAT. THIS IS THE MAIN REASON FOR INFLATED PURCHASE PRICE. FURTHER WE INFORMED YOU THAT OUR SISTER CONCERN M/S ZENIAK INNOVATION INDIA LIMITED HAS BEEN PAID VAT OF RS. 19,12,20,325 ( NINETEEN CRORE TWELVE LAKH TWENTY THOUSAND THREE HUNDRED TWENTY FIVE) OUT OF WHICH RS. 16,28,8 9,436 VAT PAID ONLY FOR HIGH-SEA PURCHASE FROM MOTHER CONCERN M/ S UNITED TELESERVIC ES LIMITED FOR THE FINANCIAL YEAR 2015-2016 AND ALSO VAT PAID OF RS. 6,08,77,316 FOR THE FINANCIAL YEAR 2014-2015 KINDLY NOTE SIR, PROMOTER AND DIRECTORS OF THE BOTH COMPANY WERE SAME ON THAT PERIOD, ENTIRE BUSINESS OF THE BOTH COMPANIES RUN BUT THE S AME DIRECTORS. WE HAVE NOTICED THAT DOUBLE TAXATION HAS BEEN OCCURRED ON THAT TIME BECA USE TAX PAID BY THE BOTH COMPANY ON THE SAME GOODS AND SAME QUANTITY IN WEST BENGAL ONL Y REASON FOR UNAVAILABLE OF E- WAYBILL , WE WERE UNABLE TO IMPORT MOBILE PHONE FRO M CHINA FOR THE AFORESAID PERIOD IN ABSENCE OF E-WAYBILL. THE AUTHO RITY OF THE WEST BENGAL VALUE ADDED TAXES HAD BEEN DESELECTED OF E-WAYBILL SYSTEM DUE T AX DEFAULT. FURTHER, WE INFORM YOU THAT THE COMPANY M/ S ZENIAK INNOVATION INDIA LIMITED HAS PAID INCOME TAX ON THE PROFIT WHICH WAS ARRIVED FOR SALE OF HIGH SEA GOODS. THE COMPANY ALREADY PAID INCOME TAX ON THE AFORESAID INFLATED P URCHASE . SO, IF YOU ADDED THE AFORESAID INFLATED PURCHASE WITH TAXABLE INCOME THE N IT WILL DOUBLE TAXATION CHARGED BECAUSE OUR SISTER CONCERN ALREADY PAID INCOME TAX AND FILED INCOME TAX RETURN AND ALSO DONE TAX AUDIT FOR THE AFORESAID PERIOD. CBDT CAN NOT BE DENIED STATE TAX BECAUSE THE CONSTITUTION OF INDIA ESTABLISHES A FEDERAL STR UCTURE TO THE INDIAN GOVERNMENT, DECLARING IT TO BE A ' UNION OF STATES' PART XI OF THE INDIAN CONSTITUTION SPECIFIES THE DISTRIBUTION OF LEGISLATIVE, ADMINISTRATIVE AND EXE CUTIVE POWERS BETWEEN THE CENTRAL GOVERNMENT AND THE STATE OF INDICT . ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 10 | P A GE YOU ARE REQUEST NOT TO ADDED BACK THE AFORESAID MAT TER, BECAUSE OUR COMPANY BUSINESS ALREADY WAY OF SHUTDOWN DUE TO FINANCIAL CRISIS. WE COULD NOT RECOVER THE MONEY FROM SYNTECH TECHNOLOGY (HK) LIMITED, MOTHER COMPANY OF GIONEE MOBILE WHICH WE WERE CLAIMED AGAINST EXPENSES AND ALSO NOT RECOVER MONEY FROM SUNDRY DEBTORS AGAINST MOBILE SALE DUE TO UNAVAILABLE MARKET SUPPORT FINALLY THEY HAVE NOT GIVEN ANY SINGLE AMOUNT TO US AGAINST AFORESAID CLAIMED.' 17. THE LD. AR DREW OUR ATTENTION TO THE PAGE 28 OF THE PAPER BOOK WHICH SHOWN THE STATEMENT OF FINANCIAL IMPLICATION OF SALE TO T HE SISTER CONCERN WHICH IS AS UNDER: 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE NOTE THAT THE ASSESSEE IS INTO THE SALES OF GIONEE MOBILES (CHINA ) AND IT HAS SEVERAL DEALERS AND AGENCIES IN INDIA FOR THE SALE OF THESE MOBILES WHI CH IS MANUFACTURED IN CHINA. ACCORDING TO ASSESSEE, THE REASON FOR DOING RE-PURC HASE OF GOODS WAS DUE TO DE- SELECTION OF THE ASSESSEE IN THE E-WAY BILL SYSTEM BECAUSE OF CERTAIN ISSUES WITH THE VAT AUTHORITIES [ RELATING TO PAYMENT OF VAT AND NON-FILING OF VAT RE TURNS .] ACCORDING TO ASSESSEE, THOUGH IT PAID ALL THE OUTST ANDING TAXES AND RETURNS WERE FILED IN RESPECT OF VAT AND WHICH FACT WAS BROUGHT TO THE NOTICE OF THE VAT AUTHORITIES VIDE LETTER DATED 18.08.2015 AND 11.02.2016 (REFER TO PAGES 30 AND 31 OF PAPER BOOK), HOWEVER, THE REQUEST MADE TO RE-SELECT THE ASSESSEE ON THE ON LINE E-WAY BILL SYSTEM ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 11 | P A GE WAS NOT DONE AND, THEREFORE, THE ASSESSEE HAD NO OP TION BUT TO RE-ROUTE THE TRANSACTIONS THROUGH ITS SISTER CONCERNS M/S. ZENIAC INNOVATION INDIA LTD. WHICH WAS REGISTERED DEALER WITH THE COMMERCIAL DEPARTMENT. IT IS NOTED THAT ASSESSEE MADE PURCHASES OF GIONEE CELL PHONES OF CHINA AT THE COST OF RS.102.5 3 CR. (DETAILS REFER TO PAGE 34 OF PAPER BOOK) AND MADE HIGH SEA SALES TO M/S. ZENIAK INNOVATION INDIA LTD. (SISTER CONCERN) AT RS.103.52 CR. (DETAILS REFER TO PAGE 33 AND 34 OF PAPER BOOK). ACCORDING TO ASSESSEE, THE RESULTANT PROFIT OF RS.99.69 LAKHS WA S OFFERED TO TAX (COMPUTATION, FINAL ACCOUNTS INCLUDING ITR ACKNOWLEDGMENT ARE AVAILABLE AT PAGE 1 TO 11 OF THE PAPER BOOK). THE LD. AR BROUGHT TO OUR NOTICE THAT THIS PROFIT WAS SEPARATELY REFLECTED UNDER THE HEAD OTHER INCOME UNDER BROAD HEAD REV ENUE FROM OPERATION(NOTE 14 TO P&L ACCOUNT AT PAGE 9). IT WAS BROUGHT TO OUR NOTI CE THAT WHILE PURCHASING THE GOODS BY THE SISTER CONCERN THEY HAVE INCURRED THE FOLLOW ING DIRECT EXPENSES ALSO: (A) CUSTOM DUTY RS.15,36,36,925/- (B) DIRECT EXPENSES LIKE PAYMENT TO AIRPORT AUTHORI TY, RS. 95,75,080/- CLEARING AGENTS ETC. (C) VAT RS.16,28,89,436/- TOTAL RS.32,61,01,441/- 19. THUS THE TOTAL EXPENSES AS ABOVE TO THE TUNE OF RS. 32,61,01,441/- WAS ADDITIONALLY INCURRED ON THE GOODS. ACCORDING TO H IM, THE SISTER CONCERNS (M/S. ZENIAC INNOVATION INDIA LTD.) HAVE PURCHASED FROM T HE ASSESSEE AT HIGH SEAS AT RS.103.52 CR. AND INCURRED ADDITIONAL COST OF RS.32 .61 CR RESULTANT COST COMES TO AROUND RS.136 CR. WHEREAS THE REPURCHASE COST OF TH E ASSESSEE FROM M/S INFOBITZ INDIA LTD WAS AT RS,123.88 CR. AS NOTED BY THE LD. CIT(A) AT PAGE 13 OF THE IMPUGNED ORDER. SO, ACCORDING TO THE LD. AR, THERE IS NO IN FLATED PURCHASE AS ALLEGED BY THE LD. CIT(A). 20. FURTHER, ACCORDING TO THE LD. AR, THE M/S. ZENI AK INNOVATION INDIA LTD IS A REGISTERED DEALER UNDER THE WEST BENGAL VAT ACT, 20 03 AND HAS PAID VAT OF RS.19,12,20,325/- WHICH INCLUDES RS.16,28,89,436/-. VAT PAID FOR THE HIGH SEA PURCHASE FROM THE ASSESSEE THE MOBILES FOR FY 2015 -16 AND ALSO VAT PAID OF ITA NO. 248/KOL/2020 UNITED TELESERVICES LTD., A.Y. 2016-17 12 | P A GE RS.6,08,77,316/- FOR THE FY 2014-15. ACCORDING TO THE LD. AR, PROMOTER AND DIRECTORS OF BOTH THE COMPANIES WERE SAME DURING TH AT PERIOD AND THE ENTIRE BUSINESS OF BOTH THE COMPANIES WERE RUN BY THE SAME DIRECTOR S AND SINCE THE INDIRECT TAXES HAS ALREADY BEEN LEVIED AND PAID BY THE SISTER CONCERN AND ONCE THIS FIGURE IS DEDUCTED IT IS NOT MORE THAN THE PURCHASE PRICE OF THE ASSESSEE I. E. RS.123 CR., THEREFORE, ACCORDING TO HIM, THERE IS NO INFLATED PURCHASE AS ALLEGED BY TH E LD. CIT(A). FROM THE DISCUSSION OF THE AFORESAID FACTS WE ARE OF THE OPINION THAT T HE LD. CIT(A) HAS NOT ENQUIRED PROPERLY WHICH FACT IS DISCERNIBLE FROM THE SHOW CA USE NOTICE WHEREIN THE LD. CIT(A) GAVE ENHANCEMENT NOTICE TO ASSESSEE ONLY ALLEGING T OTAL INFLATED PURCHASE TO THE TUNE OF RS.4.99 CR. HOWEVER, AFTER RECEIVING REPLIES OF ASSESSEE (SUPRA), THE LD. CIT(A) HAS MADE AN ADDITION OF RS.20,35,94,402/-. ACCORDIN G TO US, THE ACTION OF THE LD. CIT(A) IS BAD FOR NOT CONDUCTING PROPER ENQUIRY AND FOR NON-APPLICATION OF MIND. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMAND THIS ISSUE TO THE FILE OF AO FOR VERIFICATION OF THE DETAILS GIVEN (SUPRA) AN D IF THE ASSESSEE HAS NOT INFLATED ANY PURCHASE AS CONTENDED BY IT, THEN NO ADVERSE VIEW M AY BE TAKEN. WITH THE AFORESAID OBSERVATION, WE DIRECT THE AO TO ENQUIRE INTO THIS LIMITED ISSUE RAISED BY THE LD. CIT(A) AND THE ASSESSEE IS DIRECTED TO PRODUCE ALL DOCUMENTS PERTAINING TO THIS ISSUE TO THE AO AND THE AO TO DECIDE IN ACCORDANCE TO LAW . 21. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY, 2021. SD/- SD/- (J.S. REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: .02.2021 JD, SR. PS COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- M/S. UNITED TELESERVICES LTD., C/O SUBAS H AGARWAL & ASSOCIATES, ADVOCATES, SIDDHA GIBSON, 1, GIBSON LANE, SUITE 213 , 2 ND FLOOR, KJOLKATA-700 069. 2. ACIT, CIRCLE-12(2), KOLKATA. 3. THE CIT(A)- 4, KOLKATA (SENT THROUGH E-MAIL) 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) TRUE COPY BY ORDER ASSISTANT REGISTRAR