M/s. Modi Industries Ltd., Uttar Pradesh V. ACIT, New Delhi

ITA 3858/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9236 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 01-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 48; 13; 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.3858/DEL/2016 ASSESSMENT YEAR: 2011-12 M/S. MODI INDUSTRIES LTD., MODI NAGAR, UTTAR PRADESH VS. ACIT, CENTRAL CIRCLE-31, NEW DELHI PAN :AAACM2063Q (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST O RDER DATED 28/04/2016 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-30, NEW DELHI, FOR ASSESSMENT YEAR 2011-1 2 RAISING FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) [ CIT(A)] ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 147/143(3) O F THE INCOME- TAX ACT, 1961 (THE ACT) IS BEYOND JURISDICTION, B AD IN LAW AND VOID-AB-INITIO. APPELLANT BY SHRI ROHIT JAIN, ADV. MS. DEEPASHREE RAO, CA RESPONDENT BY SHRI SANKAR NASKAR, SR.DR DATE OF HEARING 30.10.2019 DATE OF PRONOUNCEMENT 07.01.2020 2 ITA NO.3858/DEL/2016 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UP HOLDING VALIDITY OF RE-ASSESSMENT PROCEEDINGS WITHOUT APPRECIATING THAT THE SAME WERE INITIATED WITHOUT THERE BEING REASON TO BELIE VE THAT INCOME OF THE APPELLANT HAD ESCAPED ASSESSMENT AND WERE BA SED ON INCORRECT INFERENCE DRAWN FROM DOCUMENTS ALREADY AV AILABLE ON RECORD. 1.2 THAT THE CIT(A) ERRED IN NOT APPRECIATING THAT REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT HAVING BEE N INITIATED MERELY ON THE BASIS OF CERTAIN THIRD PARTY INFORMAT ION, WITHOUT INDEPENDENT APPLICATION OF MIND BY THE ASSESSING OF FICER, IS ILLEGAL AND BAD IN LAW. WITHOUT PREJUDICE 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPH OLDING THE DISALLOWANCE OF TRAVEL EXPENDITURE AMOUNTING TO RS. L 1,00,000, INCURRED BY THE APPELLANT FOR AVAILING SERVICES OF A CHARTERED FLIGHT ON THE GROUND THAT THE APPELLANT HAD FAILED TO SUBS TANTIATE THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS. 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CO NCLUDING THAT THE CHARTERED FLIGHT SERVICES WERE NOT AVAILED FOR BUSI NESS PURPOSES,DISREGARDING THE EVIDENCES FILED BY THE AP PELLANT DURING THE COURSE OF ASSESSMENT/APPELLATE PROCEEDINGS. 2.2 THAT THE CIT(A) ERRED IN NOT APPRECIATING THAT THE EXPENDITURE WAS INCURRED IN RELATION TO TRAVEL OF DIRECTORS/EXECUTI VES OF THE APPELLANT-COMPANY, WHICH UNDOUBTEDLY WAS A BUSINESS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 2.3 WITHOUT PREJUDICE, THE CIT(A) ERRED IN NOT REST RICTING THE AMOUNT OF DISALLOWANCE TO RS.9,97,280, BEING THE ACTUAL AMOUN T OF EXPENDITURE CLAIMED AS DEDUCTION BY THE APPELLANT I N THE RELEVANT ASSESSMENT YEAR. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED RETURN OF INCOME ON 29/09/2011, DECLARING TOTAL INC OME AT NIL. THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) WAS COMPLETED ON 16/12/2013 AT NIL INCOME AFTER SET OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEARS AMOUNTING TO RS. 3,79,34,262/- AND AFTER MAKING FOLLOWING ADDITIONS: 3 ITA NO.3858/DEL/2016 1. INCOME FROM HOUSE PROPERTY RS.1,77,89,974/- 2. EXPENSES DISALLOWED UNDER SECTION 14A OF THE ACT RS. 3,99,055/- 3. OUT OF EXPENSES RS.85,000/- 3. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOTICE ON 07/04/2014 UNDER SECTION 148 OF THE ACT IN VIEW OF REASON TO BELIEVE THAT THE PAYMENT OF RS. 11 LAKH MADE TO MRS. J.K. LAKSHMI CEMENT LTD., ON ACCOUNT OF HIRING OF A CHARTERED FL IGHT WAS NOT INCURRED FOR BUSINESS PURPOSES. THE ASSESSEE OBJECT ED TO THE ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT AND AL SO FILED A LETTER DATED 06/03/2014 STATING THAT RETURN OF INCOME FILE D ON 29/09/2011 MIGHT BE TREATED AS RETURN FILED IN RESP ONSE TO NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSING OFFICER COMPLETED ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 47 OF THE ACT ON 05/05/2014 AFTER MAKING DISALLOWANCE OF HIRING C HARGES FOR CHARTERED FLIGHT AMOUNTING TO RS.11 LAKHS. THE ASSE SSEE FILED APPEAL BEFORE THE LD. CIT(A) AND MADE DETAILED SUBM ISSIONS OBJECTING THE LEGALITY OF ISSUING NOTICE UNDER SECT ION 148 OF THE ACT AS WELL AS ON MERIT. THE DETAILED SUBMISSION OF THE ASSESSEE HAVE BEEN REPRODUCED BY THE LD. CIT(A) ON PAGES 8 T O 28 OF THE IMPUGNED ORDER. ACCORDING TO THE ASSESSEE, THE ASSE SSING OFFICER HAS FORMED HIS REASONS TO BELIEVE ON THE BASIS OF S USPICION THAT THE EXPENDITURE INCURRED WAS NOT BUSINESS EXPENDITU RE AND THERE WAS NO TANGIBLE MATERIAL BEFORE HIM AND IT WAS BASE D ON ENQUIRY TO BE CONDUCTED IN FUTURE. THE ASSESSEE RELIED ON T HE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF INDRA PRAST HA CHEMICALS 4 ITA NO.3858/DEL/2016 PRIVATE LIMITED VS. CIT, 271 ITR 113, WHEREIN IT IS HELD THAT REASON TO BELIEVE MUST BE IN GOOD FAITH AND SHOULD HAVE A RATIONAL CONNECTION. THE ASSESSEE ALSO CONTESTED THAT THERE WAS NO FRESH TANGIBLE MATERIAL FOR FORMING REASONS TO BELIEVE TH AT INCOME ESCAPED IN THE CASE OF THE ASSESSEE. THE LD. CIT(A) , HOWEVER, REJECTED THE GROUNDS CHALLENGING ISSUE OF NOTICE UN DER SECTION 148 OBSERVING AS UNDER: 4.3 FINDINGS: THE FINDINGS ARE AS UNDER:- 4.4 I HAVE CAREFULLY CONSIDERED THE REASONS RECORD ED FOR ISSUING NOTICE U/S 148, OBJECTIONS FILED BY THE ASSESSEE BE FORE THE A.O. AND THE OBJECTIONS DEALT BY THE A.O., ASSESSMENT ORDER, WRITTEN SUBMISSIONS, CASE LAWS RELIED UPON AND ORAL ARGUMEN TS OF LD. AR. THE OBJECTIONS/ARGUMENTS OF THE APPELLANT ARE DISCU SSED AS UNDER:- (I) IN THE ASSESSMENT PROCEEDINGS, ASSESSEE FILED T HE OBJECTIONS BEFORE THE A.O. WHICH HAS BEEN DISPOSED OFF VIDE LE TTER DATED 07.4.2014 AND HAS BEEN REPRODUCED IN THE REASSESSME NT ORDER DATED 05.5.2014 AT PARA 2 AT PAGE NO. 1 TO 4. (II) IN THE ASSESSMENT PROCEEDINGS, A.O. HAS DEALT ALL THE OBJECTIONS RAISED AGAINST THE ACTION INITIATED U/S 148 AND AFT ER CONSIDERING THE SAME, THE OBJECTIONS WERE REJECTED. ON PERUSAL OF T HE SAME, IT IS CLEAR THAT REASON TO BELIEVE, IS BASED ON THE FACT THAT THE ALLEGED EXPENSES OF RS. 11,00,000/-, HAS BEEN CLAIMED IN TH E P & L ACCOUNT FOR HIRING THE UNSCHEDULED-CHARTERED FLIGHTS FOR TR AVELLING BY THE DIRECTORS, WHICH IS FOUND TO BE UNUSUAL FOR THE BUS INESS PURPOSES OF THE ASSESSEE COMPANY AND THEREFORE, THERE WAS NO SU SPICION AND PRESUMPTION FOR THIS FACT. BASED ON THESE FACTS, TH E REASON TO BELIEVE, FOR INCURRING ALLEGED EXPENSES ON TRAVEL B Y THE DIRECTOR AND OTHER SENIOR LEVEL OFFICERS, NOT INCURRED WHOLLY AN D EXCLUSIVELY FOR BUSINESS PURPOSES, WAS RE-AFFIRMED. IN VIEW OF THE ABOVE FACTS, I DO NOT AGREE WITH THE ARGUMENTS OF THE APPELLANT AND THEREFORE, I DO NOT FIND ANY I NFIRMITY IN THE ACTION OF THE A.O. FOR ISSUING NOTICE U/S 148. ACCORDINGLY, GROUND NO. 1, IS HEREBY DISMISSED. 5 ITA NO.3858/DEL/2016 3.1 THE LD. CIT(A) ALSO REJECTED THE CONTENTION OF THE ASSESSEE ON MERIT OF THE ADDITION OBSERVING AS UNDER: 5.4 FINDINGS : THE FINDINGS ARE AS UNDER:- 5.5 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, WRITTEN SUBMISSIONS, CASE LAWS RELIED UPON AND ORAL ARGUMEN TS OF LD. AR. THE OBJECTIONS/ARGUMENTS OF THE APPELLANT ARE DISCUSSED AS UNDER: (I) IN THE RE-ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED VIDE QUESTIONNAIRE DATED 07.4.2014 TO PROVIDE THE DETAIL S AND JUSTIFICATION TO PROVE THAT THE EXPENSES ON HIRING OF NON-SCHEDULED CHARTERED FLIGHT (FROM DELHI TO TUTICORIN VIA COIMBATORE AND BACK TO DELHI BY SAME ROUTE),HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS P URPOSES, WHICH WAS USED BY THE DIRECTOR AND GM/DGM. IN RESPONSE TO THI S QUERY, THE ASSESSEE FILED WRITTEN SUBMISSION VIDE LETTER DATED 14.4.2014 AND RELEVANT PORTION HAS BEEN REPRODUCED BY THE A.O. IN THE ASSESSMENT ORDER AT PARA 4 AT PAGE 5 (SUPRA). HOWEVER, THESE S UBMISSIONS DID NOT FIND FAVOUR WITH THE A.O. AND IT WAS HELD BY THE A. O. THAT SERVICES OF CHARTERED FLIGHTS AVAILED BY THE DIRECTOR, SHRI MAM SH MODI, WERE NOT WHOLLY FOR THE PURPOSE OF THE BUSINESS NEEDS OF THE ASSESSEE COMPANY. ACCORDINGLY, THE EXPENDITURE OF RS. 11,00,000/- DIS ALLOWED AND ADDED BACK TO THE TOTAL INCOME. (II) IN THE APPELLATE PROCEEDINGS, IT HAS BEEN SUBM ITTED THAT THE APPELLANT IS A MULTI UNIT PRODUCT COMPANY AND OPERATES FROM V ARIOUS LOCATION ACROSS INDIA AND THEREFORE, IN ORDER TO UNDERTAKE T HEIR BUSINESS OPERATIONS, THE EMPLOYEES/DIRECTORS HAVE TO TRAVEL TO VARIOUS LOCATIONS. IT HAS ALSO BEEN SUBMITTED BY THE APPELLANT THAT TH E APPELLANT IS A SICK COMPANY, THERE ARE NUMEROUS LEGAL PROCEEDINGS PENDI NG BEFORE VARIOUS FORUMS, WHICH ALSO INVOLVES TRAVELLING BY SENIOR ST AFFS, EXECUTIVE AND DIRECTOR TO DIFFERENT LOCATIONS. ACCORDINGLY, IT IS SUBMITTED THAT RS. 11,00,000/- WAS INCURRED BY THE APPELLANT IN RELATI ON TO TRAVEL BY ONE OF THE DIRECTOR OF THE APPELLANT COMPANY, FOR DISCHARG ING CERTAIN BUSINESS COMMITMENT. IT HAS ALSO BEEN SUBMITTED THAT TOTAL E XPENDITURE AGGREGATING TO RS. 326.21 LACS, IS IN RESPECT OF TO UR AND TRAVELLING, WHICH CONSTITUTES NEARLY 1.37% OF THE TOTAL TURNOVER. (III) IN THE APPELLATE PROCEEDINGS, IT HAS ALSO BEE N SUBMITTED BY THE APPELLANT THAT THE A.O. HAS NO CORROBORATIVE EVIDEN CE TO SUPPORT THAT THE CHARTERED FLIGHT SERVICE WAS NOT AVAILED FOR BUSINE SS PURPOSES AND THE A.O. HAS NOT HELD THAT THE EXPENDITURE OF RS. 11,00 ,000/-, IS EXCESSIVE OR UNREASONABLE AND THEREFORE, THE A.O. HAS WRONGLY GIVEN FINDINGS THAT EXPENDITURE UNDER CONSIDERATION HAS NOT BEEN INCURR ED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. (IV) DURING THE APPELLATE PROCEEDINGS, THE APPELLAN T WAS REQUIRED TO PROVE THE BUSINESS ACTIVITY CARRIED OUT AT THE PLAC ES OF DESTINATIONS, 6 ITA NO.3858/DEL/2016 TRAVELLED BY CHARTERED FLIGHT ON 18.02.2011. IN THI S REGARD, THE APPELLANT HAS SUBMITTED VIDE LETTER DATED 30.10.2015, THE TOU R REPORTS DATED 25.02.2011 ONLY AND FOR SAKE OF CLARITY, THE SAME I S REPRODUCED AS UNDER:- 'TOUR REPORT WITH A VIEW TO IMPROVE MODI ARC ELECTRODES CO. S P RESENCE IN SOUTHERN INDIA, EFFORTS ARE BEING MADE TO MOTIVATE DEALERS O F THE AREA NEAR COIMBATORE AND TUTICORIN. AS SUGGESTED BY MR. SUKUMARAN OF M/S UNIVERSAL AGEN CY, TRICHY, AN EMERGENT MEETING OF OUR ADVISOR MR. MANISH MODI AND OTHER MARKETING EXECUTIVES FROM HEAD OFFICE WAS FIXED WITH BHEL, EV ERSENDAI, EDAC ENGINEERING, ESSAE ASSOCIATES AND MANY MORE. BHEL-TRICHY AND EVERSENDAI ENGINEERING ARE BIG CONS UMER OF PRODUCT OF MODI ARC ELECTRODES AND OTHER WELDING CONSUMABLES O F ALL TYPES. SINCE THE MEETING WAS FIXED WITH A VERY SHORT NOTIC E AND NO REGULAR FLIGHT WAS AVAILABLE, SO AS TO REACH THE DESTINATIO N IN TIME, A CHARTERED PLANE HAD TO BE HIRED. THE FOLLOWING EXECUTIVES TRAVELED TO COIMBATORE AND TUTICORIN IN THE PLANE ON DT. 18/2/2011. 1. MR. MANISH MODI, MARKETING ADVISOR 2. MR. SANJAY BHATIA, CEO 3. MR. LAJPAT YADAV, GM MARKETING 4. MR. U.K. SHARMA, DGMR &D 5. MR. KAPIL SINGH, GMHRD MEETING WERE HELD WITH THE FOLLOWING PARTIES OF THE NEARBY AREA:- 1. BLACKSMITH.COIMBATORE 1/314-B, HAPPY GARDEN COLO NA METTUPALAYAMROAD, COIMBATORE,T.N COIMBA TORE-641031 PHONE-0422-2462480 2. ESSAE ASSOCIATES BHARATHIYAR RD..433.D. SUGUNABUILDING, NEAR WOMEN'S POLYTECNIC, PAPPANICHKEN PALAYAM COIMBATORE-641037 PHONE-0422-2240733/9344934855 3. JAYAHARI TRADERS 1/196-8, POORNIMA COMPLEX, KTVRENGG. COLLEGE ROAD, MADDAMPALAYAM COIMBATORE-641019 PHONE-09865894562 4. VIGNESH AGENCIES G-L, VIGNESH PARK RAMNAGAR COIMBATORE, TAMIL NADU COIMBATORE-641009 PHONE-0422-2233455/09787772733 5. UNIVERSAL AGENCY-TRICHY 7 ITA NO.3858/DEL/2016 45 A/2C, TANJOREROAD, OPPOSITE MARIAMMAN TEMPLE-TRI CHY, T.N TRICHY-620008 PHONE-9443136185 6. SANDHYA ENGINEERING NO 4/123 K/2, MUTHAMMAL COLONY ETTAYA PURAM ROAD, TUTICORIN, T.N TUTICORIN-628004 PHONE-0461-2347600/ 5532400 7 EDAC ENGINEERING LTD. C/0 COASTAL EN.P.LTD.2X600 MWMUTIARA T.P.P VILLAGE MELAMARUDUR, OTTAPR, TUTICORIN, TUTICORIN-628105 PHONE-044-22301941 8 EVERSENDAI CONSTRUCTION PVT. LTD. PLOT NO:B5 & B6,B6,B7,B8,B18 ATGKINDSTL PARK REDDIM ANGUD1, LALGUDI TALUK, TRICHY-621105 PHONE-044-40701230 9 B.H.E.L-TRICJY FOSSIL BOILERS, B.H.KL, BOILER PLANT PROJECTP.O.- T1RUCHIRAPALLI, (T.N) TRICHY-620014 THE MEETING WERE QUITE USEFUL AND THE PARTIES SHOWE D THEIR INTEREST IN MODI ARC'S PRODUCT. (SANJAY BHATIA) (LAJPAT YADAV)' BESIDES THE ABOVE, NO EVIDENCE/CORRESPONDENCE HAVE BEEN FILED FOR THE ALLEGED DISCUSSION/BUSINESS RELATED ACTIVITIES, CAR RIED OUT AT COIMBATORE AND TUTICORIN WITH CUSTOMERS, AS CLAIMED IN THE TOU R REPORT. AS PER THE TOUR REPORT, 5 PERSONS HAVE TRAVELLED IN THE CHARTE RED PLANE ON 18.02.2011, BUT NEITHER EXIGENCY HAVE BEEN PROVED F OR HIRING THE CHARTERED FLIGHT NOR BUSINESS ACTIVITIES CARRIED OU T AT THE PLACES OF DESTINATIONS. (V) FURTHER, AS PER JOURNAL VOUCHER FILED AT PAGE 7 8 OF THE PAPER BOOK, THE NARRATION HAS BEEN MENTIONED AS 'EXPS. OF CEO BY JK LAKSHMI CEMENT FROM DEL- CJB-TCR-CJB-'. HOWEVER, THE CEO IN THE TOUR REPORT, IS SHRI SANJAY BHATIA, WHEREAS NO MENTION A BOUT OTHER EMPLOYEES/DIRECTORS OF THE APPELLANT COMPANY. (VI) DURING THE APPELLATE PROCEEDINGS, THE APPELLAN T WAS ALSO REQUIRED TO FILE DETAILS OF SALES MADE WITH 9 PARTIES MENTIONED IN THE TOUR REPORT FOR F.Y. 2010-11 TO F.Y. 2012-13, TO PROVE THE BENEFITS IN THE FORM OF INCREASE IN THE SALES, AS A RESULT OF ALLEGED TOUR CONDUCTED FOR BUSINESS PURPOSES. IN RESPONSE TO THIS, THE APPELLANT HAS FI LED DETAILS VIDE LETTER DATED 26.4.2016 AND SAME ARE REPRODUCED AS UNDER:- YEARS SI. NO. PARTY & ADDRESS 2010-11 2011-12 2012-13 REMARKS 8 ITA NO.3858/DEL/2016 1 B.H.E.L.- TRICHYFOSSIL BOILERS,BH.EL, BOILER, PLANT PROJECT P.O.TIRUCHIRAPALLI(T.N) TRICHY-620014 17,744,593 13,707,518 13,510,885 WELDING ELECTRODE 2 UNIVERSAL AGENCY- TRICY 45A/2C TANJORE ROAD OPPOSITE MARIAMMAN TEMPLE- TRICHY T.N. TRICHY-620008 13,263,516 17,787,115 19,425,932 WELDING ELECTRODE 3 SANDHYA ENGINEERING N0.4/123KJ2 MUTHAMMAL COLONY ETTAYA PURAM- ROAD TUTICORIN T.N TUTICORIN-628004 4,903,268 9,759,573 7,551,941 WELDING ELECTRODE 4 EDAC ENGINEERING LTD C/O COASTAL EN. P. LTD 2X600 MW MUTIARA T.P.P.VILLAGE MELAMARUDUR OTTAPR, TUTICORIN, TUTICORIN-628105 4,278,620 5,285,199 WELDING ELECTRODE 5 JAYAIIARI TRADERS 1/196- 8 POORNIMA COMPLEX KVR ENGINEERING COLLEGE ROAD MADDAMPALA YAM COIMABATORE-641019 335,223 1,985,223 2,351,968 WELDING ELECTRODE 6 BLACK SMITH COIMBATORE B HAPPY GARDEN COLONY METTUPALAYAM ROAD COIMBATORE T.N. COIMBATORE-6410131 3,214,450 1,434,315 1,957,246 WELDING ELECTRODE 7 ESSAE ASSOCIATES BHARATHIYAR RD. 433 D, SUGUNA BUILDING, NEAR WOMEN POLYTECHNIC PAPPANICHKEN PALA YAM COIMBA TORE-641037 2,618,363 985,462 328,919 WELDING ELECTRODE 8 VIGNESH AGENCIES G- L VIGNESH PARK RAMNAGAR COIMBATORE TAMIL NADU COIMBATORE-641009 493,667 NIL WELDING ELECTRODE 9 EVERSENDAI CONSTRUCTION PVT LTD PLOT NO'-B- S & B6,B7,B8,B18 AT GKINDSTL PARK REDDIMANGUDI, LALGUDI TALUK TRICHY- 621105 699,246 29,521 NIL WELDING ELECTRODE ON PERUSAL OF THE ABOVE, THERE IS A DECREASE IN THE SALES MADE IN SUBSEQUENT 2 F.YS. (FOR WHICH DATA WAS PROVIDED BY THE APPELLANT) BHEL, TRICHY; M/S BLACK SMITH, COIMBATORE; M/S ESSA E ASSOCIATES, BHARATHIYAR AND M/S EVERSENDIA CONSTRUCTION PVT. LT D., REDDIMANGUDI. THEREFORE, CLAIM BY THE APPELLANT IN THE TOUR REPOR T THAT MEETING WAS QUITE USEFUL AND THE PARTY SHOWED THEIR INTEREST IN MODI ARC'S PRODUCT (A UNIT OF M/S MODI INDUSTRIES LTD.), IS NOT SUBSTANTI ATED. (VII) THE APPELLANT HAS ALSO TAKEN ALTERNATE ARGUME NT WITHOUT PREJUDICE TO THE ABOVE OBJECTIONS RAISED (SUPRA) TH AT THE DISALLOWANCE SHOULD BE RESTRICTED TO RS. 9,97,280/-, ON THE GROU ND THAT THIS AMOUNT IS DEBITED IN THE P&L ACCOUNT, EXCLUDING THE ELEMENT O F SERVICE TAX. ON PERUSAL OF THE INVOICE DATED 22.02.2011, RAISED BY M/S J.K. LAKSHMI CEMENT LTD., IT IS CLEAR THAT THE TOTAL AMOUNT OF I NVOICE IS AT RS. 11,00,000/-, WHICH INCLUDES SERVICE TAX, EDUCATION CESS, SECONDARY AND HIGHER EDUCATION CESS OF RS. 1,02,720/-. HOWEVER, O N PERUSAL OF JOURNAL VOUCHER, THE TOTAL AMOUNT OF RS. 11,00,000/-, HAS B EEN DEBITED, UNDER 4 DIFFERENT HEADS, WHICH INCLUDES SERVICE TAX, EDUCAT ION CESS, SECONDARY AND HIGHER EDUCATION CESS OF RS. 1,02,720/- ALSO. T HEREFORE, CLAIM OF THE 9 ITA NO.3858/DEL/2016 APPELLANT IS WRONG, SINCE TOTAL INVOICE AMOUNT OF R S. 11,00,000/-, HAS BEEN PAID AND CLAIMED IN P & L ACCOUNT. IN VIEW OF THE ABOVE, THE ALTERNATE ARGUMENT OF THE APPELLANT, IS NOT CORRECT AND ACCORDINGLY, NOT ACCEPTABLE. FROM THE ABOVE, FOLLOWING FACTS EMERGED:- > DURING ASSESSMENT PROCEEDINGS, APPELLANT FAILED T O PROVE BEFORE THE A.O. THAT THE ALLEGED EXPENDITURE OF RS. 11,00, 000/-, ON ACCOUNT OF HIRING OF CHARTERED FLIGHT, WERE INCURRE D FOR BUSINESS PURPOSES. > DURING THE APPELLATE PROCEEDINGS ALSO THE APPELLA NT WAS GIVEN ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CLAIM, BY FILING THE DOCUMENTS OF CORRESPONDENCE ETC. PRIOR TO AND/OR SU BSEQUENT TO THE DATE OF TRAVEL TO PROVE THAT TOUR TO THESE DEST INATIONS WAS EXCLUSIVELY FOR BUSINESS PURPOSES. HOWEVER, ONLY TO UR REPORT DATED 25.02.2011 WAS FILED, IN WHICH IT IS CLAIMED THAT THE MEETING WAS HELD ON 18.02.2011 WITH 9 ALLEGED PARTI ES AND NO OTHER INDEPENDENT DOCUMENTS, WERE SUBMITTED TO PROV E THE CLAIM THAT THE ALLEGED MEETINGS WERE FOR BUSINESS PURPOSE S. THEREFORE, THE APPELLANT FAILED TO SUBSTANTIATE THE CLAIM THAT TOUR WAS WHOLLY AND EXCLUSIVELY CONDUCTED FOR BUSINESS PURPOSES. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ALLEGED EXPENDITURE OF RS. 11,00,000/-, INCURRED ON TOUR BY DIRECTORS AND OTHE R EMPLOYEES, IS NOT PROVED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES, IN TERMS OF SECTION 37 OF THE ACT. ACCORD INGLY, I HOLD THAT THE ALLEGED EXPENDITURE OF RS. 11,00,000/-, WAS NOT INC URRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AND THEREFORE, I DO NOT FIND ANY INFIRMITY IN THE FINDINGS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. THEREFORE, THE ADDITION OF RS. I 1,00,000/-, IS HER EBY CONFIRMED ON ACCOUNT OF ALLEGED HIRE CHARGES FOR CHARTERED FLIGH T. ACCORDINGLY, GROUND NO. 2 AND 3, ARE HEREBY DISMISS ED. 3.2 AGGRIEVED WITH THE FINDING OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL, RAISING THE GROUNDS AS REPRODUCED ABOVE. 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED A PAPER BOOK CONTAINING PAGES 1 TO 111. HE REFERRED TO PAGE 46 OF THE PAPER- BOOK, WHICH IS A COPY OF THE REASONS RECORDED FOR REOPENING THE 10 ITA NO.3858/DEL/2016 ASSESSMENT AND SUBMITTED THAT BELIEF HAS BEEN FORME D MERELY ON THE BASIS OF SUSPICION WITHOUT ANY TANGIBLE MATERIA L. HE PARTICULARLY REFERRED TO THE SENTENCE WHERE THE ASS ESSING OFFICER RECORDED THAT IT APPEARED TO HIM THAT THE EXPENSES WERE NOT ALLOWABLE UNDER SECTION 37 OF THE ACT AND CERTAIN I NQUIRIES MIGHT HAVE TO BE DONE IN THAT MATTER. HE SUBMITTED THAT N O ASSESSMENT CAN BE REOPENED BASED ON MERELY SUSPICION AND ASSES SMENT NEEDS TO BE QUASHED AS VOID AB INTIO. 5. ON THE CONTRARY, THE LD. DR SUPPORTED THE FINDING O F THE LD. CIT(A). 6. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE REASONS RECORD ED BY THE ASSESSING OFFICER FOR THE REOPENING OF THE ASSESSME NT, AVAILABLE ON PAGE 46 OF THE PAPER BOOK ARE REPRODUCED AS UNDE R: ASSESSMENT IN THE ABOVE NOTED CASE WAS COMPLETED U /S 143(3) OF INCOME TAX ACT,1961 VIDE ORDER DATED 16.12.2013 AT NIL INCOME AFTER ADJUSTING BROUGHT FORWARD LOSS OF EARLIER YEARS TO THE TUNE OF RS.3,7 9,34,262/-. SUBSEQUENTLY IT CAME TO NOTICE THAT DURING THE FINANCIAL YEAR 2010-11 RE LEVANT TO THE ASSESSMENT YEAR 2011 12, THE ASSESSEE COMPANY M/S MODI INDUSTRIES L IMITED HAD AVAILED THE SENDEES OF NON-SCHEDULED FLIGHTS (CHARTERED FLIGHTS ) AS UNDER: DATE FROM - TO AMOUNT PAID DATE OF PAYMENT MODE OF PAYMENT NAME OF PASSENGER 18.02.2011 DEL-CJB TCR-DEL RS.L 1,00,000/- 04.03.2011 BY CHEQUE MR. MODI IT IS ALSO NOTICED THAT THE ABOVE PAYMENT WAS MADE BY THE ASSESSEE COMPANY M/S MODI INDUSTRIES LIMITED TO M/S J.K. LAKSHMI CEMENT LIMITED. THIS EXPENSE HAS BEEN CLAIM ED AS BUSINESS EXPENSE BY THE ASSESSEE. IT APPEARS THAT T HE EXPENSES IN RESPECT OF SUCH OTHER NON-CHARTERED FLIGHTS MIGHT H AVE BEEN CLAIMED BY THE ASSESSEE COMPANY AS BUSINESS EXPENSES IN THE PROFIT AND LOSS ACCOUNT WHICH ARE NOT ALLOWABLE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. BESIDES ABOVE, ENQUIRIES IN RESPECT OF OTHER SIMILAR BOOKED CHARTERED FLIGHTS MAY ALSO HAVE TO BE MADE I N THIS CASE. IN VIEW OF THE ABOVE MENTIONED FACTS I HAVE REASON TO BELIEVE THAT INCOME IN RESPECT OF WHICH THE ABOVE NAMED ASS ESSEE IS 11 ITA NO.3858/DEL/2016 ASSESSABLE/CHARGEABLE TO TAX FOR THE ASSESSMENT YEA R 2011-12 HAS ESCAPED ASSESSMENT WITHIN THE MEANING CLAUSE (C) OF EXPLANATION-2 OF SECTION 147 OF THE I.T. ACT, 1961. I AM THEREFORE, SATISFIED THAT THIS IS A FIT CASE F OR RE-OPENING OF THE ASSESSMENT .AND ISSUANCE OF NOTICE U/S. 148 OF THE I.T. ACT FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, NOTICE U/S. 148 OF THE ACT IS ISSUED. 6.1 WE FIND THAT ASSESSMENT IN THE CASE OF THE ASSESSE E WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND THERE AFTER, THE ASSESSING OFFICER HAS ISSUED NOTICE UNDER SECTION 1 48 OF THE ACT FOR REOPENING OF THE ASSESSMENT. THE ASSESSING OFFI CER IN THE REASONS RECORDED HAS MENTIONED THAT SUBSEQUENTLY, I T CAME TO HIS NOTICE THAT THE ASSESSEE HAS MADE PAYMENT OF RS.11 LAKH TO M/S. JK LAKSHMI CEMENT LTD. FOR HIRING SERVICES OF NON-S CHEDULED FLIGHT (CHARTERED FLIGHTS) AND CLAIMED THIS EXPENSE S AS BUSINESS EXPENDITURE. WHILE FORMING THE REASON TO BELIEVE TH AT INCOME HAS ESCAPED THE ASSESSING OFFICER MENTIONED THAT IT APP EARED TO HIM THAT EXPENSES WERE NOT ALLOWABLE UNDER SECTION 37 O F THE ACT AND BESIDES INQUIRIES IN RESPECT OF OTHER SIMILAR BOOKI NG OF CHARTERED FLIGHTS MIGHT ALSO REQUIRED TO BE MADE. 6.2 IN VIEW OF THE REASONS RECORDED, IT IS UNDISPUTED THAT THERE WAS NO FRESH TANGIBLE MATERIAL BEFORE THE ASSESSING OFFICER ON THE BASIS OF WHICH HE FORMED HIS BELIEF THAT INCOME ESC APED IN THE CASE OF THE ASSESSEE. THE ONLY REASON WHICH HAS BEE N RECORDED BY THE ASSESSING OFFICER IS THAT IT APPEARED TO HIM TH AT THOSE EXPENSES WERE NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. IN OUR OPINION, THIS IS MERE CHANGE OF OPINION BASED ON TH E SUSPICION WITHOUT ANY TANGIBLE INFORMATION THAT SAID EXPENDIT URE WAS NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. THE ASSESSIN G OFFICER WAS NOT SURE WHETHER THE SAID EXPENDITURE WAS NOT ALLOW ABLE UNDER 12 ITA NO.3858/DEL/2016 SECTION 37 OF THE ACT. WE FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF NITIN P SHAH VS DCIT, 146 TAXMAN 536 (G UJ.) QUASHED THE REOPENING OF THE ASSESSMENT, WHERE THE ASSESSING OFFICER ONLY STATED THAT NOTE ATTACHED TO RETURN OF INCOME INDICATED POSSIBLE ESCAPEMENT OF INCOME AND WAS NOT SURE ABOUT IT. THE RELEVANT PARA OF THE DECISION IS REPR ODUCED AS UNDER: 'THE REASONS RECORDED WENT TO SHOW THAT THE ASSESSI NG OFFICER HAD NO INFORMATION WITH HIM. ALL THAT THE ASSESSING OFF ICER STATED WAS THAT IN THE LIGHT OF THE NOTE ATTACHED TO THE RETUR N OF INCOME WHICH WAS REPRODUCED BY HIM, IT WOULD ALSO INDICATE 'POSS IBLE ESCAPEMENT OF INCOME'. IN THE CIRCUMSTANCES, THE IMPUGNED NOTI CE SEEKING TO REOPEN COULD NOT BE PERMITTED TO STAND. THE REASONS RECORDED MUST DISCLOSE THE MATERIAL AND THE BASIS, WHICH REFLECT THE PROCESS BY WHICH THE AUTHORITY HAD FORMED BELIEF. EVEN IF SUFF ICIENCY OF SUCH REASONS COULD NOT BE EONE INTO. IT IS EQUALLY WELL ESTABLISHED THAT THE COURT CAN ALWAYS EXAMINE WHETHER, ON SUCH MATERIAL AS DISCLOSED IN THE REASONS, THERE WAS A RATIONAL NEXUS FOR THE FORMATION OF BELIEF IN OTHER WORDS, WHETHER A REASONABLE PERSON COULD H AVE ARRIVED AT SUCH A BELIEF. THE REASONS RECORDED FAILED THE OBJE CTIVE TEST. THE ASSESSING OFFICER WAS ALSO NOT SURE THAT ANY INCOME HAD ESCAPED ASSESSMENT - ONLY A POSSIBLE ESCAPEMENT OF U ASSUME JURISDICTION. [PARA 63] 6.3 RESPECTFULLY, FOLLOWING THE ABOVE DECISION, WE ARE OF THE OPINION THAT THE NOTICE ISSUED FOR REOPENING OF THE ASSESSMENT UNDER SECTION 148 OF THE ACT WAS NOT VALIDLY ISSUED BY THE ASSESSING OFFICER AND IT WAS BASED MERELY ON SUSPIC ION WITHOUT ANY TANGIBLE MATERIAL AND ACCORDINGLY, WE QUASH THE REASSESSMENT PROCEEDING IN THE CASE OF THE ASSESSEE . THE GROUNDS OF THE ASSESSEE CHALLENGING THE REASSESSMENT PROCEE DINGS ARE ACCORDINGLY ALLOWED. 13 ITA NO.3858/DEL/2016 6.4 AS WE HAVE ALREADY QUASHED THE REASSESSMENT PROCEE DINGS, WE ARE NOT ADJUDICATING THE GROUNDS OF THE ASSESSEE CHALLENGING THE MERIT OF ADDITION AS SAME ARE RENDERED MERELY A CADEMIC. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER IS PRONOUNCED IN THE OPEN COURT OF 7 TH JANUARY, 2020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 7 TH JANUARY, 2020. RK/-(D.T.D.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI