ACIT, New Delhi V. M/s. Emaar MGF Land P Ltd., New Delhi

ITA 2725/DEL/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6907 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 05-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Search and seizure; Principle of natural justice; Revised return
• Section: 153A; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. J. S. REDDY, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER AND I.T.A. NO. 2725/DEL/20 12 (ASSESSMENT YEAR 2006-0 7) ASSESSEE BY : SH.G. C. SRIVASTAVA, ADV. SH. DAKSH S. BHARDWAJ, ADV. DEPARTMENT BY : MS.RACHNA SINGH, CIT, DR DATE OF HEARING : 11.01.2017 DATE OF PRONOUNCEMENT : 27.01.2017 I.T.A. NO. 2491/DEL/2012 (ASSESSMENT YEAR 2006-07) EMAAR MGF LAND PVT. LTD. (NOW KNOWN AS EMAAR MGF, LAND LTD.) FIRST FLOOR, ECE HOUSE, 28, KASTURBA GANDHI MARG, NEW DELHI GIR/PAN : AABCE4308B (APPELLANT) VS ACIT CENTRAL CIRCLE-7 NEW DELHI (RESPONDENT) ACIT CENTRAL CIRCLE-7 NEW DELHI (APPELLANT) VS EMAAR MGF LAND PVT. LTD. (NOW KNOWN AS EMAAR MGF, LAND LTD.) FIRST FLOOR, ECE HOUSE, 28, KASTURBA GANDHI MARG, NEW DELHI GIR/PAN : AABCE4308B (RESPONDENT) ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 2 OF 11 ORDER PER BEENA A. PILLAI, JM: 1. THESE ARE CROSS APPEALS FILED BY ASSESSEE AS WELL AS REVENUE AGAINST ORDER DATED 12.03.2012 PASSED BY L D. CIT(A)-1, NEW DELHI, FOR ASSESSMENT YEAR 2006-07, O N THE FOLLOWING GROUNDS OF APPEAL: ASSESSEES APPEAL ITA NO. 2491/DEL/2013 GROUND NO. 1: THE LD, COMMISSIONER OF INCOME TAX (APPEALS) - 1, NEW DELHI (HEREINAFTER REFERRED TO AS 'CIT(A)') HAS ERRED IN LAW AND IN THE FACT & CIRCUMSTANCES OF THE CASE BY PASSING THE ORDER DATED 12.03.2012 UNDER SECTION 25 0 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS 'THE ACT'). THE ORDER PASSED BY THE CIT(A) IS ILLEG AL BEING AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND AGAINST THE PROVISIONS OF THE ACT. GROUND NO. 2: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE ASSESSI NG OFFICER (HEREINAFTER REFERRED TO AS 'AO') AMOUNTING TO RS. 2,67,78,997 ON ACCOUNT OF SHARE CAPITAL BEING RECEIVED AGAINST ISSUE OF SHARES TO M/S KALLARISTER TRADING LIMITED AND M/S LOUPEN SERVICES LIMITED. ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 3 OF 11 THE TOTAL ADDITION CONFIRMED AT RS. 2,67,78,997 IS ONLY ON SURMISES, CONJECTURES AND SHOULD BE DELETED. GROUND NO. 3: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 2,63,00,000 ON ACCOUNT OF EXPENDITURE INCURRED BY WAY OF LEGAL EXPENSES AND FINANCE EXPENSES HOLDING THAT IT IS CAPITAL EXPENDI TURE. THE TOTAL ADDITION CONFIRMED AT RS. 2,63,00,000 IS ONLY ON SURMISES, CONJECTURES AND SHOULD BE DELETED. GROUND NO. 4: THE APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD, AMEND, ALTER OR FOREGO ANY OF THE ABOVE GROUNDS OF APPEAL AS THE CIRCUMSTANCES MAY WARRANT. GROUND NO. 5: THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. ITA NO.2725/DEL/2012 1. THE ORDER OF THE ID. CIT (A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 4 OF 11 1,73,00,OOO/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE PERTAINING TO CURRENT YEAR A S THE SAME HAVE NOT CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION BUT CLAIMED IN THE REVISED RETURN. 3. THE ORDER OF LD. CIT(A) IS PERVERSE IN LAW AND ON FACTS. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ANY/AL L THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F HEARING OF THE APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: A SEARCH AND SEIZURE OPERATION UNDER SECTION 132 OF THE ACT WAS CARRIED ON IN THE CASE OF ASSESSEE ON 12.09 .2007. SUBSEQUENTLY, THE CASE WAS TRANSFERRED TO CIRCLE AN D AN ORDER UNDER SECTION 127 OF THE ACT WAS PASSED. THEREAFTER NOTICE UNDER SECTION 153A OF THE ACT WAS ISSUED, DATED 08. 10.2008 AND WAS SERVED UPON THE ASSESSEE. IN COMPLIANCE TO THE SAID NOTICES, ASSESSEE FILED RETURN OF INCOME ON 17.02.2 009 DECLARING A LOSS OF RS. 5,19,63,589/-. LD. AO OBSER VED THAT ASSESSEE HAS RECEIVED SHARE CAPITAL MONEY AMOUNTING TO RS. 2,22,81,320/-, RS. 44,97,676/- FROM M/S KALLARISTER TRADING LTD AND M/S. LOUPEN SERVICES LTD., RESPECTIVELY. IT WAS OBSERVED THAT THESE WERE CYPRUS-BASED COMPANIES AND SH. SUDHIR SAREEN ALONG WITH SH. SHARVAN GUPTA WERE BENEFICIARIES. ON FURTHER VERIFICATION ASSESSING OF FICER OBSERVED THAT THESE TWO GENTLEMEN WERE ALSO DIRECTO RS OF THE ASSESSEE BEFORE US. ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 5 OF 11 3. ASSESSING OFFICER CALLED FOR VARIOUS DETAILS IN OR DER TO VERIFY THE GENUINENESS AND CREDITWORTHINESS OF THES E COMPANIES, WHO HAVE MADE SUCH PAYMENTS ON ACCOUNT O F SHARE CAPITAL TO ASSESSEE. VARIOUS DETAILS BY WAY O F CASH STATEMENTS WERE FILED BY ASSESSEE IN RESPECT OF THE SE COMPANIES. HOWEVER, ASSESSING OFFICER MADE ADDITION ON THE GROUND THAT THE ASSESSEE DID NOT PRODUCE BANK STATE MENTS OF THESE COMPANIES, IN ORDER TO ESTABLISH THE CREDITWO RTHINESS 4. ASSESSING OFFICER ALSO OBSERVED THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS.1.73 CRORES AS PRIOR PERIOD EXPENSES. LD. AO DISALLOWED THESE EXPENSES ON THE G ROUND THAT THESE HAD NOT CRYSTALLIZED DURING THE YEAR AND THEREFORE, HAS TO BE TREATED AS REVENUE. ASSESSING OFFICER FUR THER MADE DISALLOWANCE IN RESPECT OF THE LEGAL EXPENSES INCUR RED BY ASSESSEE TO THE TUNE OF RS.2,63,00,000/- BY HOLDING THAT THESE WERE NOT FOR THE PURPOSES OF BUSINESS. 5. AGGRIEVED BY THE ORDER OF LD. AO, ASSESSEE PREFERR ED AN APPEAL BEFORE LD.CIT(A). LD. CIT(A) ALLOWED THE DIS ALLOWANCE MADE BY ASSESSING OFFICER TO AN EXTENT OF 1.73 CROR E, HOWEVER, UPHELD THE ADDITION MADE BY HIM IN RESPECT OF SHARE CAPITAL AND LEGAL EXPENSES CLAIMED. 6. AGGRIEVED BY THE ORDER OF LD. CIT (A) THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US NOW. ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 6 OF 11 ITA NO. 2491/DEL/2012: (ASSESSEES APPEAL) GROUND NO. 1 7. GENERAL IN NATURE. HENCE, NO ADJUDICATION IS CALLE D FOR. GROUND NO. 2 8. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT CYPRUS BA SED COMPANIES WHO ADVANCED FUNDS BY WAY OF SHARE CAPITA L, DO NOT HAVE BANK STATEMENT EVEN TODAY. IT HAS BEEN SUB MITTED THAT THE CASH ACCOUNTS MAINTAINED BY THESE COMPANIE S HAVE BEEN PLACED BEFORE THE LOWER AUTHORITIES, WHICH HAS NOT BEEN REJECTED. HE FURTHER SUBMITTED THAT ALL PAYMENTS MA DE BY THESE COMPANIES HAVE BEEN ROUTED THROUGH RBIS APPR OVAL. 9. LD. COUNSEL THUS SUBMITTED THAT ASSESSING OFFICER DO NOT HAVE ANY BASIS/EVIDENCE/MATERIAL ON RECORD TO A LLEGE THAT THESE COMPANIES ARE SHELL COMPANIES, AND THE MONEY DEPOSITED BY WAY OF SHARE CAPITAL ARE UNACCOUNTED M ONEY IS OF SH. SUDHIR SAREEN AND SH. SHARVAN GUPTA. HE SUBM ITTED THAT THE ADDITION U/S 68 CANNOT BE MADE ON MERE SUR MISES AND CONJUNCTURES. 10. ON THE CONTRARY, LD. DR SUBMITTED THAT ASSESSING OFFICER HAS DISALLOWED THE ALLEGED SHARE APPLICATIO N U/S 68 ON THE BASIS OF CATEGORICAL REASONING. SHE FURTHER SUB MITTED THAT SH. SUDHIR SAREEN AND SH. SHARVAN GUPTA, WHO ARE TH E BENEFICIARIES OF CYPRUS BASED COMPANIES, ARE ALSO D IRECTORS OF ASSESSEE BEFORE US. MERE ROUTING OF MONEY THROUG H RBI ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 7 OF 11 CANNOT AUTHENTICATE THE GENUINENESS AND CREDITWORTH INESS OF THESE SHELL COMPANIES. SHE SUBMITTED THAT CYPRUS HA VING BEEN CATEGORIZED AS TAX HEAVEN, IT CANNOT BE IGNORE D THAT THESE MAY AMOUNT TO BE UNACCOUNTED MONEY OF SH. SUD HIR SAREEN AND SH. SHARVAN GUPTA, MORE SO WHEN ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE CREDITWORTHINESS OF THESE COMPANIES. SHE THUS SUPPORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. GROUND NO. 3 11 . LD. COUNSEL FOR ASSESSEE SUBMITTED THAT ASSESSEE HAS INCURRED EXPENSES TOWARDS PAYMENT OF SECURITY SERVI CES, LEGAL SERVICES, RECRUITMENT OF MANPOWER, LAND ACQUISITION CONSULTANCY, PUBLICITY BROCHURE IS, SELLING EXPENSE S, ACCOUNTING CHARGES ETC. HE SUBMITTED THAT ALL THESE EXPENSES ARE REVENUE IN NATURE AND HAVE BEEN INCURRED FOR TH E PURPOSES OF CARRYING ON BUSINESS OF THE ASSESSEE. L D. COUNSEL ALSO SUBMITTED THAT EXPENSES WHICH PERTAIN TO PRE-O PERATIVE EXPENSES HAVE BEEN CAPITALIZED BY ASSESSEE WHICH IS EVIDENT FROM THE BALANCE SHEET SUBMITTED BEFORE US. LD. COU NSEL SUBMITTED THAT ASSESSING OFFICER HAS MADE DISALLOWA NCE WITHOUT CONSIDERING THE SUBMISSIONS ADVANCED BY THE ASSESSEE. 12. LD. DR SUPPORTED THE ORDER PASSED BY THE AUTHORITI ES BELOW AND SUBMITTED THAT ASSESSEE ITSELF HAS CAPITA LIZED THE EXPENSES ON AN ESTIMATE BASIS WITHOUT IDENTIFYING T HE EXACT ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 8 OF 11 ITEMS WHICH DO NOT RELATE TO THE CARRYING OF DAY-TO -DAY BUSINESS ACTIVITY. SHE HAS ALSO SUBMITTED WRITTEN SUBMISSIONS IN SUPPORT OF HERE ARGUMENTS. 13. WE HAVE PERUSED THE RECORDS PLACED BEFORE US THE L IGHT OF THE SUBMISSIONS ADVANCED BY BOTH THE PARTIES. 14. IN RESPECT OF GROUND NO. 2 RAISED BY ASSESSEE, IT IS OBSERVED THAT ASSESSING OFFICER HAS NOT DENIED THE CASH FLOW STATEMENT OF THE CYPRUS COMPANIES SUBMITTED BY ASSE SSEE. MERELY BECAUSE DIRECTORS OF THE ASSESSEE ARE SAME A S THE BENEFICIARIES OF THESE CYPRUS-BASED COMPANIES, CANN OT LEAD TO A CONCLUSION THAT THESE ARE UNACCOUNTED MONEY IS IN THE HANDS OF ASSESSEE. IT IS ALSO OBSERVED THAT ASSESSI NG OFFICER HAS NOT CONDUCTED ANY FURTHER ENQUIRY OR CALLED FOR ANY FURTHER DETAILS OF THESE COMPANIES TO ESTABLISH HIS REASONING IN THE ASSESSMENT ORDER. WE ARE THEREFORE, UNABLE T O DECIPHER REGARDING CREDITWORTHINESS AND GENUINENESS OF THE C YPRUS COMPANIES AS ASSESSEE HAS STILL NOT DISCHARGED ITS LIABILITY OF PROVING THE SAME. UNDER SUCH CIRCUMSTANCES WE ARE I NCLINED TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE ASS ESSING OFFICER FOR DE NOVO VERIFICATION AS PER LAW. 15. IN RESPECT OF GROUND NO. 3, WE AGREE WITH THE SUBMISSIONS ADVANCED BY LD. DR THAT ASSESSEE HAS CAPITALISED THE EXPENSES ON AN AD HOC BASIS. ASSESS EE HAS PLACED LIST OF EXPENSES INCURRED AT PAGE 137 OF THE PAPERBOOK. NEITHER ASSESSEE NOR LD. AO HAS UNDERTAKEN THE EXER CISE OF ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 9 OF 11 VERIFYING EACH AND EVERY EXPENSES INCURRED BEFORE M AKING THE ADDITION. WE ARE, THEREFORE, INCLINED TO SET ASIDE THIS ISSUE TO THE ASSESSING OFFICER FOR DE NOVO VERIFICATION AS PER LAW. 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 2725/DEL/2012 (DEPARTMENTS APPEAL) 17. THE ONLY ISSUE THAT BEEN RAISED BY REVENUE IS IN R ESPECT OF ADDITION THAT HAS BEEN DELETED BY LD. CIT(A), PE RTAINING TO EXPENDITURE CLAIMED IN THE REVISED RETURN. 18. IT HAS BEEN SUBMITTED BY LD. DR THAT ASSESSING OFF ICER HAD DISALLOWED RS. 1.73 CRORE ON THE GROUND THAT TH E EXPENDITURE HAS NOT CRYSTALLISED DURING THE YEAR AN D UNDER CONSIDERATION AND THEREFORE, ASSESSEE COULD NOT HAV E CAPITALISED THESE EXPENSES. SHE SUBMITTED THAT LD. CIT (A) HAS DEALT WITH THE ISSUE IN PARA 5.3 AS UNDER: 5.3 1 HAVE GONE THROUGH THE CONTENTION OF THE APPELLANT AS WELL AS THE OBSERVATION OF THE ASSESSI NG OFFICER. IT IS SEEN THAT THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE AMOUNT OF RS 1.73 CRORE BY ST ATING THAT THESE EXPENSES HAVE NOT CRYSTALLIZED DURING TH E YEAR AND THAT THEY ARE CAPITAL IN NATURE. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT ASSESSIN G OFFICER HAS ASSIGNED NO REASONS FOR COMING TO SUCH A CONCLUSION. ONCE THE APPELLANT HAD FURNISHED THE ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 10 OF 11 DETAILS OF THE EXPENSES WHICH IT HAS CLAIMED IN THE REVISED RETURN, THE ASSESSING OFFICER SHOULD HAVE DISCUSSED THE REASONS FOR CONCLUDING THAT THESE EXPENSES HAD NOT CRYSTALLIZED DURING THE YEAR. NO S UCH EXERCISE HAS BEEN CARRIED OUT BY THE ASSESSING OFFI CER. EVEN FOR TREATING THESE EXPENSES AS CAPITAL IN NATU RE, EACH AND EVERY EXPENDITURE HAS TO BE ANALYZED AND WITHOUT CARRYING OUT SUCH AN EXERCISE NO DISALLOWAN CE CAN BE MADE. THE APPELLANT HAS RIGHTLY POINTED OUT THAT THE NATURE OF EXPENSES WHICH ARE MENTIONED IN PARA 5 OF THE ASSESSMENT ORDER ITSELF GOES TO SHOW THAT TH EY ARE REVENUE IN NATURE. FURTHER, THE GENUINENESS OF THESE EXPENSES HAVE NOT BEEN QUESTIONED BY THE ASSESSING OFFICER. CONSIDERING THESE FACTS, THE DISALLOWANCE OF RS 1,73,00,0OO/- MADE BY THE ASSESSING OFFICER IS HERE BY DELETED. THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. 19. SHE SUBMITTED THAT AS THERE IS A CATEGORICAL FINDI NG BY LD. CIT (A) REGARDING NON-VERIFICATION AND ANALYSIS OF THE NATURE OF EXPENSES, BY ASSESSING OFFICER THE CLAIM OF THE ASSESSEE COULD NOT BE ALLOWED. SHE HAD REQUESTED FO R SETTING ASIDE THIS ISSUE TO THE ASSESSING OFFICER FOR A DE NOVO VERIFICATION AND ANALYSIS OF EACH AND EVERY EXPENSE S BEFORE ALLOWING THE CLAIM OF THE ASSESSEE. ITA NO. 2491 & 2725/DEL/2013 (AY 2006-07) PAGE 11 OF 11 20. LD. COUNSEL FOR ASSESSEE DO NOT OBJECT FOR THIS IS SUE TO BE SET-ASIDE TO ASSESSING OFFICER. 21. IN THE LIGHT OF THE ABOVE DISCUSSION WE THEREFORE SET ASIDE THIS ISSUE TO THE ASSESSING OFFICER FOR DE NOVE VERIFICATION OF EACH AND EVERY EXPENSES INCURRED BY ASSESSEE AS PER LAW. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE AS W ELL AS REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JANUARY, 2017. SD/- SD/- (J. S.REDDY) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 27.01.2017 @M!T COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI)