Assistant Commissioner of Income Tax, Visakhapatnam V. Grandhi Manoj Kumar(HUF), Visakhapatnam

ITA 51/VIZ/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3171 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 12-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Keywords: Business expenditure; Principle of natural justice; Earning of tax free income; Deemed dividend; Validity of assessment; Accommodation entries; Reason to believe; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 51 & 52 /VIZ/ 201 8 ( / ASSESSMENT YEAR: 20 1 0 - 1 1 AND 2014 - 15 ) ASST.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1 VISAKHAPATNAM VS. GRANDHI BHARATA MALLIKA RATNA KUMARI LR OF GRANDHI MANOJ KUMAR C/O VAIBHAV JEWELLERS THE LOWER GROUND, D.NO.47 - 15 - 9/1, V SQUARE, OPP:TSR COMPLEX DWARAKA NAGAR, VISAKHAPATNAM [PAN : A ABHG9892B] ( / APPELLANT) ( / RESPONDENT) / ASSESSEE BY : SHRI G.V.N.HARI, AR / REVENUE BY : SHRI DEBA KUMAR SONOWAL, DR / DATE OF HEARING : 12 . 07. 2018 / DATE OF PRONOUNCEMENT : 21 .0 8 .2018 / O R D E R P ER BENCH : THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 3, VISAKHAPATNAM VIDE ITA NO.2 57 /2016 - 17/CIT(A) - 3/VSP/2017 - 18 AND ITA NO.241/2016 - 2 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM 17/CIT(A) - 3/VSP/2017 - 18 DATED 31.10.2017 FOR THE ASSESSMENT YEAR 2010 - 11 AND 2014 - 15 RESPECTIVELY . ITA NO.51/VIZ/2018 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE VALIDITY OF ASSESSMENT MADE U/S 148 OF INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS ACT). IN THIS CASE, THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 ON 12.03.2013 IN THE OFFICE OF ITO, WA RD - 1, ELURU. HOWEVER AS PER THE ACT, T HE ASSESSEE IS REQUIRED TO FILE THE E - RETURN ON OR BEFORE 30.09.2011. T HE ASSESSING OFFICER(AO) RECEIVED THE INFORMATION WITH REGARD TO RECEIPT OF ACCOMMODATION ENTRIES FOR DIAMOND TRADE FROM M/S BHANWARLAL JAIN GROU P FROM THE INVESTIGATION WING, MUMBAI. THEREFORE, THE AO HAVING REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT , ISSU ED THE NOTICE U/S 148 ON 26.09.2014 AFTER RECORDING THE REASONS. IN RESPONSE TO THE NOTICE ISSUED U/S 148, THE ASS ESSEE SUBMITTED A LETTER DATED 07.11.2014 STATING THAT IT HAD ALREADY FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 ON 12.03.2013 AND REQUESTED TO TREAT THE SAME AS THE RETURN IN RESPONSE TO THE NOTICE ISSUED U/S 148. THE ASSESSEE ALSO FILED T HE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 ELECTRONICALLY ON 3 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM 11.03.2015 ADMITTING NIL INCOME. SUBSEQUENTLY, THE AO ISSUED NOTICE U/S 143 (2) OF THE ACT AND COMPLETED THE ASSESSMENT ON TOTAL INCOME OF RS.12 ,00,02,396/ - AND RAISED THE DEMAND OF RS.6 ,56,30,550/ - . 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (A) AND CHALLENGED THE ASSESSMENT ON LEGAL GROUNDS AS WELL AS GROUNDS ON MERIT. THE ASSESSEE RAISED THE GROUNDS WITH REGARD TO THE VALIDITY OF THE ASSESSMENT MADE UNDER SECTION 147 R.W.S. 143(3) AND ALSO RAISED THE GROUNDS ON MERIT. THE ASSESSEES CONTENTION BEFORE THE LD. CIT(A) WAS THAT THE INFORMATION RECEIVED BY THE AO , FROM THE INVESTIGATION WING, MUMBAI IS NOT CAPABLE OF FORMING ANY BELIEF AND W HILE REOPENING THE ASSESSMENT, THE AO HAS NOT APPLIED HIS MIND, BUT SUBSTITUTED THE OPINION OF INVESTIGATION WING . THE AO FOLLOWED MECHANICAL APPROACH WITHOUT APPLICATION OF MIND. THE AO HAS NOT FOLLOWED DUE PROCESS WHILE INVOKING THE PROVISIONS OF SECTION 147 / 148 OF THE ACT, THEREFORE CONTESTED T HAT THE NOTICE ISSUED U/S 148 WAS INVALID. 4. THE NE X T CONTENTION OF THE ASSESSEE WA S THAT THE ASSESSEE HAD COMPLIED WITH THE NOTICE ISSUED U/S 148 BY FILING THE LETTER ON 07.11.2014 4 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM AND SUBSEQUENT RE TURN OF INCOME ON 11.03.2015 AND REQUESTED THE REASONS FOR REOPENING THE ASSESSMENT VIDE LETTER DATED 07.11.2014 BUT T HE AO HAS NOT SUPPLIED THE REASONS, THUS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE AND ACCORDINGLY SUBMITTED THAT THE ASSESSMENT MADE U/ S 147 R.W.S. 143(3) IS INVALID AS HELD BY HONBLE SUPREME COURT IN THE CASE OF G.K.N.DRIVESHAFTS (INDIA) LTD. (2003) [259 ITR 99 (SC)]. T HE LD.CIT(A) UPHELD THE VALIDITY OF ISSUE OF NOTICE U/S 148 FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MULTIPLEX TRADING &INDUSTRIAL CO. LTD. VS. CIT - II 356/2013 (DEL) AND THE FOLLOWING CASES : A) KELVINATOR OF INDIA LTD. 320 ITR 561(SC) B) RAJESH JHAVERI STOCK BROKERS PVT. LTD. 291 ITR 502(SC) C) CENTRAL PROVINCES MANGANESE ORE CO. LTD. 191 ITR 662(SC) D) CALC UTTA DISCOUNT CO. 41 ITR 191(SC) E) MADNANI ENGINEERING WORKS LTD. 118 ITR 1 (SC) 5. WITH REGARD TO THE VALIDITY OF ASSESSMENT MADE U/S 147 R.W.S. 143(3), THE LD .CIT(A) OBSERVED THAT THE AO HAD ISSUED THE NOTICE U/S 148 ON 26.09.2014 CALLING FOR THE RETURN OF INCOME . THE ASSESSEE FILED LETTER DATED 0 7 .11.2014 REQUESTING THE AO TO TREAT THE RETURN FILED ON 11.03.2013 AS RETURN IN RESPONSE TO THE NOTICE ISSUED U/S 148 AND REQUESTED TO SUPPLY THE REASONS . THE ASSESSEE ALSO FILED THE RETURN ON 11.03. 2015. IN RESPONSE TO THE LETTER SUBMITTED BY THE ASSESSEE, THE AO SENT A COMMUNICATION DATED 5 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM 14.11.2014 STATING THAT THE REASONS WOULD BE SUPPLIED ONLY AFTER FILING THE E - RETURN AND ACCORDINGLY THE ASSESSEE COMPLIED WITH THE NOTICE ISSUED U/S 148 AND THE INSTRUCTIONS OF THE AO BY FILING THE RETURN OF INCOME. SUBSEQUENTLY, THE AO OUGHT TO HAVE SUPPLIED THE REASONS , AS REQUESTED BY THE ASSESSEE IN ACCORDANCE WITH THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF G.K.N.DRI VESHAFTS (INDIA) LTD. (S UPRA) AFTER FILING THE RETURN OF INCOME. HOWEVER, THE AO DID NOT SUPPLY THE REASONS TO THE ASSESSEE AND PROCEEDED TO COMPLETE THE ASSESSMENT . THEREFORE, THE LD.CIT(A) RELIED ON THE INTERPRETATION GIVEN BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF HARYANA ACRYLIC MANUFACTURING COMPANY (2009) [308 ITR 38 (DEL)], WHEREIN HONBLE DELHI HIGH COURT HELD AS UNDER : 1) ANY DEVIATION FROM G.K.N.DRIVESHAFTS (INDIA) LTD. WOULD ENTAIL NULLIFYING THE PROCEEDINGS. 2) THE REQUIREMENTS DISCUSSED BY THE SUPREME COURT ARE INTEGRAL PART OF THE SAFEGUARDS INBUILT FOR LAWFUL RE - ASSESSMENT AND TRANSPARENT MANNER. 3) IF SAFEGUARDS ARE FLOUTED, IT WOULD INVALIDATE THE EXERCISE OF JURISDICTION U/S 147/148 OF THE ACT. THE LD.CIT(A) ALSO RELI E D ON THE FOLLOWING DECISION S AND HELD THA T THE ASSESSMENT MADE U/S 147 R.W.S. 143(3) IS INVALID. A) ASIAN PAINT LTD. 296 ITR 96 (BOM) B) IOT INFRASTRUCTURE AND ENG.SERVICES LTD. (2010) 329 ITR 547 (BOM) C) ALLANA COLD STORAGE (2006) 287 ITR 1 (BOM) D) BHARAT JAYANTILAL PATEL (2015) 378 ITR 596 (BOM) (SC) 6 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM A) N ANDLAL TEJMAL KOTHARI (1998) 230 ITR 943 (SC) B) GUJARAT FLUOROCHEMICALS LTD. (2008) 15 DTR (GUJ) 1 C) VIDESH SANCHAR NIGAM LIMMITED (2012) 340 ITR 66 (BOM) D) TREND ELECTRONICS (2015) 379 ITR 456 (BOM) E) SAFETAG INTERNATIONAL INDIA PVT. LTD. F) FOMENTO RESORTS AND HOTE LS LTD. ITA NO.71/2016 (MUM) 6. AGG RIEVED BY THE ORDER OF THE CIT( A), THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE REVENUES CASE IS THAT THE ASSESSEE HAS FILED THE ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 BEYOND THE TIME PRESCRIBED BY THE ACT, HENCE, THE ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 WAS NONEST IN LAW. THE ASSESSEE HAS FILED THE E - RETURN ON 11.03.2015 AND THERE WAS NO VA LID RETURN BEFORE 11/03/2015. SUBSEQUENT TO FILING OF THE RETURN, THE ASSESSEE HAD NOT MADE ANY REQUEST FOR SUPPLY OF REASONS, HENCE THE AO DID NOT SUPPLY THE RE A SONS. IN THE ABSENCE OF ANY REQUEST FROM THE ASSESSEE FOR SUPPLY OF THE REASONS , THE AO IS NOT OBLIGED TO SUPPLY THE REASONS TO THE ASSESSEE FOR REOPENING OF THE ASSESSMENT AND THUS THE AO DID NOT VIOLATE THE DIRECTIONS OF THE HONBLE SUPREME COURT IN THE CASE LAW CITED AND CORRECTLY COMPLETED THE ASSESSMENT . HENCE ARGUED THAT THE 7 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM LD. CIT(A) ERRE D IN HOLDING THAT THE ASSESSMENT MADE U/S 147 R.W.S. 143(3) IS INV ALID . THE ASSESSEES CASE IS THAT THE ASSESSEE HAD FILED RETURN OF INCOME ON 11.03.2013 AND IN RESPONSE TO THE NOTICE ISSUED U/S 148, THE ASSESSEE HAS FILED A LETTER REQUESTING THE AO TO TREAT THE ORIGINAL RETURN FILED AS THE RETURN IN RESPONSE TO THE NOTICE ISSUED U/S 148 AND REQUESTED FOR SUPPLY THE REASONS. THE ASSESSEE HAS COMPLIED WITH THE DIRECTIONS GIVEN IN THE HONBLE SUPREME COURTS DECISION IN THE CA SE OF G.K.N.DRIVESHAFTS (INDIA) LTD. SUBSEQUENTLY ON RECEIPT OF COMMU NICATION FROM THE AO FOR FILING THE E - RETURN , THE ASSESSEE ALSO FILED THE E - RETURN ON 11.3.2015 AND THE AO HAS NOT SUPPLIED THE REASONS INSPITE OF COMMUNICATING TO THE ASSESSEE THAT THE REASON WOULD BE SUPPLIED AFTER FILING THE E - RETURN . THE LD.AR ARGUED THAT THE ASSESSEE HAS FILED A LETTER COMPLYING WITH THE NOTICE ISSUED U/S 148 AND REQUEST ED FOR SUPPLY OF THE REASONS RECORDED AND THE AO FAILED TO SUPPLY THE REASONS ON FILING THE E - RETURN . T HE ASSESSEE, HAVING COMPLIED WIT H THE DIRECTION S GIVEN BY THE AO AND FILED THE E - RETURN , AO SHOULD HAVE SUPPLIED THE REASONS AS DIRECTED BY HONBLE APEX COURTS IN THE CASE LAW CITED . N O SEPARATE LETTER IS REQUIRED FOR SUPPLY OF REASONS AFTER FILING THE RETURN SINCE THE ASSESSEE HAS MADE THE REQUEST EARLIER AND THE AO ALSO HAS ASSURED 8 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM TO SUPPLY THE REASONS THROUGH THE LETTER. NON - SUPPLY OF THE REASONS IS VIOLATION OF THE DIRECTION GIVEN BY HONBLE SUPREME COURTS DECISION IN THE CASE OF G.K.N.DRIVESHAFTS (INDIA) LTD. , AND COMPLETION OF ASSESSMENT IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE, HENCE THE ASSESSMENT MADE U/S 147 R.W.S. 143(3) IS INVALID. THE LD.AR ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S SRI SARVARAYA SUGARS LTD. VS. JT.CIT VIDE ITA NO.294,295 AND 576/VIZ/2014 . 7.1. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE, THE AO HAS ISSUED NOTICE U/S 148 AND IN RESPONSE TO WHICH THE ASSESSEE HAS FILED THE REPLY AND ALSO REQUESTED FOR THE REASONS RECORDED FOR REOPENING THE ASSESSMENT. SUBSEQUENTLY, ON RECEIPT OF COMMUNICATION FROM THE AO VIDE LETTER DATED 14.11.2014 TO SUPPLY THE REASONS , AFTER FILING THE E - R ETURN OF INCOME, T HE A SSESSEE HAD COMPLIED WITH THE COMMUNICA TION AND ACCORDINGLY FILED THE E - RETURN OF INCOME ON 11.3.2015 . AS REQUESTED BY THE ASSESSEE AND COMMUNICATED BY THE AO , THE AO IS DUTY BOUND TO SUPPLY THE REASONS RECORDED FOR REOPENING THE AS SESSMENT. SINCE THERE WAS ALREADY A LETTER FROM THE ASSESSEE REQU ESTING FOR REASONS ON 07.11.2014 AND A 9 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM COMMUNICATION FROM THE AO TO SUPPLY THE REASONS NO SEPARATE REQUEST IS NECESSARY TO SUPPLY THE REASONS. IMMEDIATELY AFTER FILING THE E - RETURN OF INCOM E, THE AO OUGHT TO HAVE SUPPLIED THE REASONS AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF G.K.N.DRIVESHAFTS (INDIA) LTD. VS. JCIT. AS PER THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE LAW CITED, ON RECEIPT OF THE NOTICE ISSUED U/S 148, THE ASSESSEE IS OBLIGED TO FILE THE RETURN OF INCOME AND COMPLY WITH THE NOTICE ISSUED U/S 148. THE ASSESSEE ALSO HAS A RIGHT TO SEEK THE REASONS FOR REOPENING THE ASSESSMENT. IN CASE THE ASSESSEE SOUGHT THE REAS ONS FOR REOPENING THE ASSESSMENT, THE AO IS OBLIGED TO COMMUNICATE THE REASONS FOR REOPENING OF THE ASSESSMENT. ON RECEIPT OF THE REASONS, THE ASSESSEE IS PERMITTED TO FILE OBJECTIONS FOR REOPENING THE ASSESSMENT AND THE AO IS DUTY BOUND TO DISPOSE OFF TH E OBJECTIONS RAISED BY THE ASSESSEE FOR REOPENING OF THE ASSESSMENT BY SPEAKING ORDER. THE ENTIRE PROCESS WAS DIRECTED BY THE HONBLE SUPREME COURT WITH AN INTENTION TO GIVE REASONABLE AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE AND MAKE THE PROCEEDINGS MO RE TRANSPARENT AND SCIENTIFIC MANNER TO AVOID UNNECESSARY HARASSMENT TO THE ASSESSEE, AS RELIED UPON BY THE LD.CIT(A), HONBLE HIGH COURT OF DELHI IN THE CASE OF HARYANA ACRYLIC MANUFACTURING COMPANY (2009) (SUPRA) HELD THAT ANY DEVIATION FROM THE 10 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF G.K.N.DRIVESHAFTS (INDIA) WOULD ENTAIL NULLIFYING THE PROCEEDINGS. BY NOT SUPPLYING THE REASONS TO THE ASSESSEE, THE AO VIOLATED THE PRINCIPLES OF NATURAL JUSTICE TO FILE OBJECTIONS FOR REOPENING OF THE ASSESSMENT. HONBLE MUMBAI HIGH COURT IN THE CASE OF ASIAN PAINTS IN 296 ITR 96 (BOM) RELIED UPON BY THE LD.CIT(A) AL SO HELD THAT FAILURE TO SUPPLY THE REASONS WOULD MAKE THE PROCEEDINGS U/S 148 OF THE ACT NOT MAINTAINABLE. THE LD.CIT(A) ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF SARVARAYA SUGARS LTD. , CITED SUPRA WHEREIN THE ASSESSMENT MADE U/S 147WITHOUT SUPPLYING THE REASONS HELD TO BE INVALID. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARAGRAPH OF THE ORDER OF THIS TRIBUNAL IN PARA NO.9.1 TO 9.2 WHICH READS AS UNDER : 9.1. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TREND ELECTRONICS (SUPRA) FOLLOWING THE DECISION OF CIT VS. VIDESH SANCHAR NIGAM LTD AND APPLYING THE DECISION OF APEX COURT IN THE CASE OF GKN DRIVE SHAFTS (INDIA) LTD . VS. ITO HELD AS UNDER : 8. WE FIND THAT THE IMPUGNED ORDER MERELY APPLIES THE DECISION OF THE APEX COURT IN GKN DRIVESHAFTS (INDIA) LTD. (SUPRA). FURTHER IT ALSO FOLLOWS THE DECISION OF THIS COURT IN VIDESH SANCHAR NIGAM LTD. (SUPRA) IN HOLDING THAT AN ORDER PASSED IN REASSESSMENT PROCEEDINGS ARE BAD IN LAW IN THE ABSENCE OF REASONS RECORDED FOR ISSUING A REOPENING NOTICE UNDER SECTION 148 OF THE ACT BEING FURNISHED TO THE ASSESSEE WHEN SOUGHT FOR. IT IS AXIOMATIC THAT POWER TO REOPEN A COMPLETED ASS ESSMENT UNDER THE ACT IS AN EXCEPTIONAL POWER AND WHENEVER REVENUE SEEKS TO EXERCISE SUCH POWER, THEY MUST STRICTLY COMPLY WITH THE PREREQUISITE CONDITIONS VIZ. REOPENING OF REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WHICH WOUL D WARRANT THE REOPENING OF AN ASSESSMENT. 9.2. IN THE INSTANT CASE, THE AO HAD ISSUED NOTICE U/S 148 AND THE ASSESSEE HAS COMPLIED WITH THE NOTICE AND REQUESTED FOR REASONS. THE AO COMPLETED THE 11 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM ASSESSMENT WITHOUT COMMUNICATING THE REASONS. THEREFORE , THE FACTS OF THE CASE ARE SIMILAR TO THAT OF THE DECISION OF HONBLE BOMBAY HIGH COURT RELIED UPON BY THE LD.AR CITED SUPRA. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT, WE HOLD THAT THE ASSESSMENT MADE U/S 147 R.W.S. 143(3) WITHOUT COMMUNICATING THE REASONS IS BAD IN LAW. ACCORDINGLY, THE ORDERS FRAMED U/S 147 R.W.S. 143(3) ARE QUASHED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. SINCE, WE HAVE QUASHED THE ASSESSMENT MADE U/S 143(3), WE CONSIDER IT IS NOT NECESSARY TO ADJUDICATE THE GROUNDS ON MERITS. 7.2. IN THE INSTANT CASE, IT IS ESTABLISHED THAT THE ASSESSEE HAS COMPLIED WITH THE NOTICE ISSUED U/S 148 AND REQUESTED FOR THE REASONS FOR REOPENING OF THE ASSESSMENT. THE AO FAILED TO SUPPLY THE REASONS. SINCE THE FACTS ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH, WE HOLD THAT ASSESSMENT MADE U/S 147 R.W.S. 143(3) WITHOUT SUPPLYING THE REASONS IS INVALID AND A CCORDINGLY, WE CANCEL THE ASSESSMENT MADE U/S 147 R.W.S.143(3) AND DISMISS THE APPEAL OF THE REVENUE. 8. IN THE RESULT APPEAL OF THE REVENUE IN THIS CASE IS DISMISSED. ITA NO.52/VIZ/2018 9. GROUND NOS. 1 AND 5 ARE RELATED TO THE DEFERRED REVENUE EXPENDITURE OF RS.1,99,96,121/ - . DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD RECEIVED REFERRAL COMMISSION OF RS.2,29,29,338/ - AND CLAIMED THE EXPENDITURE OF RS.4,99,97,036/ - INCLUDING EARLIER YEARS 12 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM EXPENDITURE OF R S.1,99,96,121/ - TERMED AS DEFERRED REVENUE EXP ENDITURE AND DECLARED THE LOSS. THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED THE DEFERRED EXPENDITURE OF RS.1,99,96,121/ - BUT NOT PRODUCED ANY CORROBORATIVE EVIDENCE OF EXPENDITURE. IN THE ABSENCE OF BILLS, NATURE OF PAYMENT, TO WHOM IT WAS PAID ETC., THE AO DOUBTED THE GENUINENESS OF THE EXPENDITURE AND ACCORDINGLY DISALLOWED A SUM OF RS.1,99,96,121/ - RELATING TO THE EARLIER YEARS EXPENDITURE. 10. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). THE LD.CIT(A) OBS ERVED THAT THE AOS FINDING OF NO N - AVAILABILITY OF INFORMATION OR DETAILS OF EXPENDITURE WAS NOT CORRECT AND OBSERVED THAT THE DETAILS OF EXPENDITURE WITH REFERENCE TO THE SCHEMES RUN AND MANAGED BY THE ASSESSEE WERE FILED BEFORE THE AO AND THE SAME INFORMATION WAS ALSO FILED BEFORE THE LD.CIT(A). THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE TO RUN THE VARIOUS SCHEMES AND THE NATURE OF EXPENDITURE WAS PRINTING AND STATIONERY, REPAIRS, MAINTENANCE , FINANCE CHARGES, CREDIT CARD COMMISSION, MARKETING AND COMMUNICATION EXPENSES ETC.. T HE LD CIT(A) FURTHER OBSERVED THAT AROUND 60 NU MBER OF EMPLOYEES ARE WORKING WITH THESE SCHEMES . THE 13 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM ASSESSING OFFICER VIEWED THAT THE ASSESSEE HAD MADE THE INVESTMENT IN VAIBHAV EMPIRE PRIVATE LTD. ( VEPL ) THUS HELD THAT THE EXPENDITURE WAS CAPITAL IN NATURE. HOWEVER THE LD.CIT(A) OBSERVED THAT BUSINES S OF THE ASSESSEE IS TO RUN THE SCHEMES FOR CUSTOMERS AND SUPPLY THE FUNDS TO THE VEPL AND IN TURN VEPL PAYS THE REFERRAL COMMISSION TO THE ASSESSEE FOR THE FUNDS PROVIDED. THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF THE BUSINESS AND THE SAME IS BUSINE SS EXPENDITURE. THE ASSESSEE IS HAVING A RUNNING ACCOUNT WITH VEPL AND HELD THAT UNDER SPECIAL AND UNAVOIDABLE CIRCUMSTANCES, THE LAW ALLOWS SUCH EXPENDITURE TO BE AMORTIZED AND TO BE CLAIMED IN THE COMING YEARS TO AVOID DISTORTION OF PROFITS. THE LD.CIT (A) FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED VS. CIT (225 ITR 802) AND THE DECISION OF HINDUSTAN ALUMINIUM CORPORATION LTD. VS.CIT (144 ITR 474) OF KOLKATA HIGH COURT AND DELETED THE AD DITION. 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD.DR SUBMITTED THAT THE EXPENDITURE WAS RELATED TO THE EARLIER YEARS, THEREFORE, THE SAME IS NOT RELATABLE TO THE YEAR UNDER CONSIDERATION HENCE NOT ALLOWABLE EXPENDITURE. THE LD.DR 14 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM FURTHER SUBMITTED THAT IN THE INCOME TAX PROCEEDINGS EACH YEAR IS INDEPENDENT AND ASSESSEE CAN OPT THE EXPENDITURE FOR THE SUBSEQUENT ASSESSMENT YEAR. THE LD.DR STRONGLY SUPPORTED THE ORDER OF THE AO . 12. ON THE OTHER HAND, THE LD.AR SUBMITTED THAT THE ASSESSEE IS CONDUCTING PURCHASE PLAN SCHEMES AND COLLECTING MONTHLY SUBSCRIPTION FROM THE CUSTOMERS AND SUPPLYING THE FUNDS TO THE VEPL AND AT THE END OF PLAN THE CUSTOMERS PURCHASE THE JEWELRY FROM VEPL AND ON REDEMPTION OF THE SCHEME THE ASSESSEE IS PAID THE REFE R R A L COMMISSION . THE ASSESSEE HAS INCURRED THE UPFRONT EXPENDITURE TO RUN THE SCHEMES ON ACCOUNT OF PUBLICITY , PRINTING & STATIONERY, REPAIRS AND MAINTENANCE, CREDIT CA RD COMMISSION, FINANCE CHARGES AND SETTING AND MARKETING EXPENSES. THE LD.AR FURTHER SUBMITTED THAT THE BENEFIT OF THIS EXPENDITURE IS DERIVED WHEN THE C USTOMER REDEEMS THEIR DEPOSIT. THEREFORE, THE EXPENDITURE HAS BEEN SPREAD OVER A PERIOD OF LIFE TIME O F THE SCHEME AND WRITTEN OFF THE EXPENDITURE ON PROPORTIONATE BASIS OVER THE LIFE OF DIFFERENT SCHEMES. THIS METHOD IS ADOPTED IN ORDER TO NOT TO DISTORT THE PROFITS OF THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THIS PRACTICE FOLLOWED BY THE ASSESSE E IS A PRUDENT PRACTICE AND FOLLOWED IN THIS LINE OF TRADE . THE LD.AR FURTHER 15 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM SUBMITTED THAT THE DETAILS OF EXPENDITURE INCURRED WERE FURNISHED AT THE TIME OF ASSESSMENT PROCEEDINGS IN THE FORM OF BILLS, VOUCHERS, LEDGER ACC OUNT COPIES BEFORE THE AO WITH THE SUBMISSION S EXPLAINING THAT THE NATURE OF EXPENDITURE WAS REVENUE EXPENDITURE AND IS ALLOWABLE. THE LD.AR ARGUED THAT SINCE THE EXPENDITURE INCURRED WAS THE REVENUE EXPENDITURE AND FOLLOWED A SYSTEM OF ACCOUNTING CONSISTENTLY AND SPREAD OVER THE EXP E NDITURE DURING THE LIFE SPAN OF THE SCHEME TILL THE REDEMPTION OF THE PURCHASE PLAN, THERE IS NO CASE FOR MAKING ANY ADDITION AND REQUESTED TO UPH E LD THE ORDER OF THE LD.CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD . IT IS UNDISPUTED FACT THAT THE ASSESSEE IS CONDUCTING PURCHASE PLAN SCHEMES AND COLLECTING THE MONTHLY SUBSCRIPTION FROM THE CUSTOMERS AND SUPPLYING THE FUNDS TO THE VEPL AND AT THE END OF THE SCHEME, THE CUSTOMERS PURCHASE THE JEWELLERY AND THE ASSESSE E IS RECEIVING THE REFERRAL COMMISSION. THE ASSESSEE FURNISHED THE DETAILS OF PURCHASE PLANS AND THE TOTAL EXPENDITURE RELAT ED TO THE YEAR UNDER CONSIDERATION, THE COLLECTIONS MADE ON RE DEMPTIONS, THE TOTAL EXPENSES TO BE CLAIMED, TOTAL EXPENSES ACTUALLY CLAIMED, SHORT CLAIMED ETC. IN PAGE NO.14 AND 15 OF THE PAPER BOOK. 16 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM THE ASSESSEE SUBMITTED THAT THE ASSESSEE HA D INCURRED THE EXPENDITURE UPFRONT AND WRITTEN OFF THE EXPENDITURE OVER A PERIOD OF LIFE TIME OF THE SCHEMES . THE EXPENDITURE WAS NOT CAPITAL EXP ENDITURE AND ARGUED THAT IT IS REVENUE EXPENDITURE. THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS MAINTAINED THE VOUCHERS AND FURNISHED ALL PARTICULARS. THE ASSESSEE IS HAVING A RUNNING ACCOUNT WITH VEPL ON ALL THE SCHEMES. THOUGH THE ASSESSEE HAS INCURRED EXPENDITURE IN THE INITIAL YEARS AS UPFRONT PAYMENT IT IS A RATIONALE TO SPREAD OVER THE EXPENDITURE OVER THE LIFE TIME OF THE SCHEMES, SINCE THE INCOME ACCRUES ON REDEMPTION. THE LD.CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE EXPENDITUR E IS REVENUE EXPENDITURE. WE ALSO OBSERVE FROM THE FACTS SUBMITTED BEFORE US THAT THE EXPENDITURE IS IN THE NATURE OF REVENUE. THOUGH THE EXPENDITURE IS TO BE CLAIMED IN THE YEAR IN WHICH IT WAS INCURRED , WE ARE OF THE VIEW THAT IN DESERVING CASES THE EXPE NDITURE NEEDS TO BE DEFERRED NOT T O DISTOR T THE PROFITS. IN THIS CASE, THE ASSESSEE RECEIVES THE COMMISSION ON REDEMPTION OF DEPOSIT. K EEPING IN VIEW OF THE NATURE OF BUSINESS AND ACCRUAL OF INCOME AND PERIOD OF THE SCHEME, WE HOLD THAT LD.CIT(A) HAS RIGHTLY HELD THAT UNDER SPECIAL CIRCUMSTANCES, THE LAW ALLOWS SUCH EXPENDITURE TO BE AMORTIZED AND TO BE CLAIMED IN COMING YEARS TO AVOID DISTORTION OF PROFITS. THE LD.CIT(A) ALSO 17 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM RELIED ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUS TRIAL INVESTMENT CORPORATION LIMITED VS. CIT (SUPRA) AND THE HINDUSTAN ALUMINIUM CORPORATION LIMITED VS. CIT (SUPRA) . THE ASSESSEE IS EARNING COMMISSION ON PURCHASE OF ORNAMENTS FROM VEPL ON REDEMPTION OF PURCHASE PLANS. THE ASSESSEE ALSO HAS NOT CLAIMED T HE EXPENDITURE IN THE EARLIER YEARS AND THERE WAS NO DOUBLE CLAIM OR DUPLICATION OF THE CLAIM. SINCE THE ASSESSEE IS CLAIMING BUSINESS EXPENDITURE ON A RATIONAL BASIS, SPREADING THE EXPENDITURE OVER LIFE TIME OF THE SCHEMES AND THE FACT IS THAT THE ASSESSE E IS CANVASSING FOR PURCHASE PLAN SCHEMES AND THE EXPENDITURE IN QUESTION WAS BUSINESS EXPENDITURE, WE HOLD THAT THE CIT( A ) HAS RIGHTLY UPHELD THE EXPENDITURE AS REVENUE EXPENDITURE AND DELETED THE ADDITION. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT( A) AND DISMISS THE APPEAL OF THE REVENUE. 14. GROUND NO.2 IS RELATED TO THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF I.T.RULES. THE AO DISALLOWED A SUM OF RS.7,61,656/ - U/S 14A(2) OF I.T.ACT READ WITH RULE 8D OF I.T.RULES. IN THIS CASE, THE CIT(A) DE LETED THE ADDITION HOLD ING THAT NO DISALLOWANCE IS REQUIRED TO BE MADE IN CASE OF NO EXEMPT INCOME. THE CIT(A) FOLLOWED THE DECISION OF THIS TRIBUNAL IN THE CASE OF 18 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM M/S RADHAKRISHNA AUTOMOBILES PVT. LTD. IN ITA NO.511/VIZ/2017 AND SRI D.VEERABHADRA REDDY (HUF) IN ITA NO.263/VIZ/2014 . THE LD.CIT(A) ALSO RELIED ON THE FOLLOWING DECISIONS : A) HONBLE CHENNAI HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. 77 TAXMANN.COM 257 B) HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVESTMENTS 61 TAXMANN.COM 118 C) HONBLE G UJARAT HIGH COURT IN THE CASE OF SINTEX INDUSTRIES LTD. 82 TAXMANN.COM 171 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF ANY EXEMPT INCOME, THERE IS NO CASE FOR MAKING THE DISALLOWANCE U/S 14A R.W.RULE 8D OF I.T.R ULES , A S HELD BY HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. (SUPRA). THE CIT (A) ALLOWED THE APPEAL OF THE A SSESSEE PLACING RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S RADHAKRISHNA AUTOMOBILES PVT. LTD. IN I.T.A.NO.511/VIZAG/2017 DATED 22.11.2017. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN THE CASE CITED SUPRA, WE HOLD THAT THERE IS NO CASE FOR DISALLOWANCE OF EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME U/S 14A R.W.RULE 8D OF I.T.R ULES IN 19 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM THE ABSENCE OF EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE APPEAL OF THE REVENUE ON THIS GROUND IS DISMISSED. 16. GR OUND NO.3, 4 AND 6 ARE RELATED TO THE ASSESSMENT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS RECEIVED A LOAN OF RS.4,31,53,812/ - FROM M/S VAIBHAV EMPIRE PVT. LTD. (VEPL) SINCE THE ASSES SEE IS HAVING CONTROLLING SHARE IN THE COMPANY AND THE COMPANY M/S VEPL IS HAVING ACCUMULATED PROFITS, T HE AO HELD THAT THE LOAN TAKEN BY THE ASSESSEE FROM VEPL IS A DEEMED DIVIDEND U/S 2(22)(E) OF I.T.ACT, ACCORDINGLY ASSESSED THE SUM OF RS.1,51,39,860/ - AS DEEMED DIVIDEND U/S 2(22)(E) OF I.T.ACT. 17. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND ARGUED THAT THE TRANSACTIONS WITH VEPL . ARE B USINESS TRANSACTIONS, HENCE SHOULD NOT BE CONSIDERED AS ADVANCES OR LOANS U/S 2(22)(E) OF I.T.ACT. THE ASSESSEE FURTHER SUBMITTED THAT T HE BALANCE IN THE BOOKS OF VEPL IS CREDIT BALANCE WHICH IS RECEIVABLE . AS PER THE ASSESSEES BOOKS, AS AT THE END OF 31.03.2014, THERE WAS A DEBIT BALANCE OF RS.15,98,60,140/ - . SINCE T HE BALANCE WAS A DEBIT BALANCE AND THE ASSESSEE 20 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM HAS NOT TAKEN ANY LOAN OR THE BENEFIT THE ASSESSEE ARGUED BEFORE THE CIT(A) THAT THERE WAS NO CASE FOR DEEMED DIVIDEND AND REQUESTED THE L D CIT(A) TO DELETE THE ADDITION. THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND VERIFYING THE FACTS OBSERVED THAT THE ASSESSEES BOOKS SHOWS THE DEBIT BALANCE AND THE AO MISUNDERSTOOD THE FACTS, HENCE DELETED THE ADDITION. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE REVENUE CARRIED THE APPEAL TO THE TRIBUNAL. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. FROM THE ASSESSMENT ORDER IT IS FOUND THAT THE ASSESSEE IS HAVING RUNNING ACCOUNT WITH M/S VAIBHAV EMPIRE PVT. LTD. (VEPL) AND A S O N 31.03. 2014, THERE WAS CREDIT BALANCE IN THE BOOKS OF VEPL AND THE BALANCE OUTSTANDING WAS RS.15,98,60,104/ - , THE ACCOUNT SHOWS THE OPENING RS.2,67,13,952/ - AS 31 . 03 . 2014 AND THE SAME DAY A SUM OF RS.17,50,00,000/ - WAS TRANSFERRED WITH JOURNAL ENTRY RES ULTING IN BALANCE OF RS.20,17,13,952/ - CREDIT AND T HERE WAS A DEBIT ENTRY OF RS.4,18,53,812/ - WHICH THE AO HAS CONSIDERED AS LOAN AND TAXED THE SAME AS DEEMED DIVIDEND. ON CLOSE SCRUTINY OF THE ACCOUNT S OF THE ASSESSEE AS WELL THE 21 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM VEPL, IT IS EVIDENT T HAT THERE WAS NO LOAN AND THE RECEIVABLE S ARE OUTSTANDING AT RS.15,98,60,104/ - AS PER THE BOOKS OF THE ASSESSEE. THEREFORE, THERE IS NO DIRECT OR INDIRECT BENEFIT DERIVED BY THE ASSESSEE BY WITHDRAWING THE AMOUNT RECEIVABLE FROM THE COMPANY. HENCE, THERE IS NO CASE FOR MAKING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF I.T.ACT. ACCORDINGLY, WE HOLD THAT THE LD.CIT(A) RIGHTLY DELETED THE ADDITION AND THE ORD E R OF THE CIT(A) IS UPHELD. HENCE , THE APPEAL OF THE REVENUE ON THIS GROUND IS DISMISSED. 19. IN THE RESULT, APPEALS OF THE REVENUE FOR THE ASSESSMENT YEAR 2010 - 11 AND 2014 - 15 ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21ST AUGUST , 201 8 . SD/ - SD/ - . . ) ( . ) ( D.S. SUNDER SINGH) ( V. DURGA RAO) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / VISAKHAPATNAM /DATED : 21 .08.2018 L.RAMA, SPS 22 I.T.A NOS . 51 & 52 /VIZ/2018 M/S GRANDHI MANOJ KUMAR (HUF), VISAKHAPATNAM / COPY OF THE ORDER FORWARDED TO: - 1 . / THE ASSESSEE - M/S GRANDHI MANOJ KUMAR, C/O VAIBHAV JEWELLERS THE LOWER GROUND, D.NO.47 - 15 - 9/1, V SQUARE, OPP:TSR COMPLEX , DWARAKA NAGAR, VISAKHAPATNAM 2 . / THE REVENUE ASST.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1 VISAKHAPATNAM 3 . THE PR. COMMISSIONER OF INCOME TAX (CENTRAL) , VI SAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX(APPEALS) - 3 , V ISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6. / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM