Income Tax Appellate Tribunal - Hyderabad
Hill County Properties Ltd (Formerly ... vs Department Of Income Tax on 30 September, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. Asst. Year Appellant Respondent
185/Hyd/2016 2006-07 M/s. Hill County Addl. Commissioner of
Properties Ltd., Income Tax,
(Formerly M/s. Maytas Central Range-3,
Properties Ltd), HYDERABAD
HYDERABAD
[PAN: AAECM2732Q]
285/Hyd/2016 2006-07 Asst. Commissioner of M/s. Hill County
Income Tax, Properties Ltd.,
Central Circle-3(2), (Formerly M/s. Maytas
HYDERABAD Properties Ltd),
HYDERABAD
[PAN: AAECM2732Q]
186/Hyd/2016 2007-08 M/s. Hill County Addl. Commissioner of
Properties Ltd., Income Tax,
(Formerly M/s. Maytas Central Range-3,
Properties Ltd), HYDERABAD
HYDERABAD
[PAN: AAECM2732Q]
286/Hyd/2016 2007-08 Asst. Commissioner of M/s. Hill County
Income Tax, Properties Ltd.,
Central Circle-3(2), (Formerly M/s. Maytas
HYDERABAD Properties Ltd),
HYDERABAD
[PAN: AAECM2732Q]
For Assessee : Shri S. Rama Rao, AR
For Revenue : Smt. M. Kiranmayee,
Sr. Standing Counsel for
Dept. (for ITA Nos. 186,
285 & 286/Hyd/16)
Date of final Hearing : 23-08-2016
Date of Pronouncement : 30-09-2016
ORDER
PER B. RAMAKOTAIAH, A.M. :
These are cross-appeals by Assessee and Revenue against the orders of the Commissioner of Income Tax (Appeals)-11, Hyderabad I.T.A. Nos. 185 & 186/Hyd/2016 :- 2 -: 285 & 286/Hyd/2016 dated 27-10-2015 for AY. 2006-07 and order dt. 30-10-2015 for AY. 2007-08. Since common issues are involved, these appeals are clubbed and heard together and decided by this common order.
2. At the outset, we have to record that ITA No. 185/Hyd/2016 has to be taken as 'ex-parte' qua Revenue, due to recusal of the CIT-DR when the case was part-heard. The case was taken up for hearing on 2nd August, 2016 and continued hearing on 4th August, 2016 and 5th August, 2016. On 4th August, 2016, assessee's Counsel argued about the major issue of reopening of assessment, on which additional grounds were also filed. After hearing the preliminary issue of jurisdiction, the arguments on issues on merits were continued on 5th August, 2016. As certain clarifications were required, the case was adjourned to 19-08-2016 as part-heard on that day. However, on 19-08-2016, Ld. CIT, who appeared in the earlier hearings, Shri B.V. Gopinath did not turn up for hearing and on his behalf, Ms. Hemalatha Devi, CIT-DR requested for adjournment. Vide a separate order sheet dt. 19-08- 2016, the case was posted on 23-08-2016 on which date, the Ld. CIT-DR appeared. After arguments were completed by Ld. Counsel for assessee, he refused to argue the case for Revenue by stating that he has recused himself on earlier occasion and walked away from the court without arguing the case. In these circumstances, as there is no other person to argue the case after having been heard the appeal in ITA No. 185/Hyd/2016 is heard 'ex-parte' qua the Revenue. Smt. Kiranmayee was authorized to represent the case at about 3.40 PM on 23-08-2016 through an authorisation received by fax from the Pr.CCIT, hence she is allowed to appear and argue the other cases in the group. Ld. Special Counsel, I.T.A. Nos. 185 & 186/Hyd/2016 :- 3 -: 285 & 286/Hyd/2016 Smt. Kiranmayee relied on the orders of authorities and her arguments were taken on record. Though the conduct of CIT-DR is deprecable, we do not wish to make any further comment on his behaviour in the court, lest justice in the matter should not suffer and thus we have properly taken into consideration the facts emanating from the record which may support the stand of the Revenue. Needless to observe that the officers who need to properly monitor the DR's conduct would certainly take appropriate action on the erring officer.
3. We have perused the documents placed on record including Paper Books upto 218 pages in 4 volumes and also the written submissions. For the sake of record, the appeals in AY. 2006-07 are considered in detail.
4. Briefly stated, assessee is in the business of real estate and has undertaken property development in the impugned years. Assessee-company was incorporated originally as M/s. Maytas Rajeswari Development Pvt. Ltd., on 20-05-2005 and was later re- named as Maytas Hill County Pvt. Ltd., w.e.f. 28-12-2005 and as Maytas Hill County Ltd., w.e.f. 20-12-2007. Subsequently, its name was again changed as Maytas Properties Ltd., w.e.f. 31-12- 2007. After completion of the assessments but before the appeal was decided by the Ld.CIT(A), the company's name was once again changed to Hillcounty Properties Ltd w.e.f. 16-08-2013. Even though the same was acknowledged by the CIT(A) in the header of the impugned orders, but in the cause title of the order, the name of the appellant was stated as M/s. Maytas Properties Ltd., only. However, the approval for second appeal was granted in the name I.T.A. Nos. 185 & 186/Hyd/2016 :- 4 -: 285 & 286/Hyd/2016 of Hillcounty Properties Ltd., and the appeals were preferred by both the parties in the name of Hillcounty Properties Ltd.
5. This company was promoted by the family of Shri B. Ramalinga Raju, the Chairman of M/s. Satyam Computer Services Ltd. The company has filed its return of income for AY. 2006-07 on 30-11-2006 declaring a loss of Rs. 1,55,46,052/-. The return was processed u/s. 143(1) of the Act on 01-11-2007 accepting the loss returned by assessee. For AY. 2007-08, assessee filed its return of income on 31-10-2007 declaring an income of Rs. 96,43,760/-. This return was processed u/s. 143(1) on 31-03- 2009.
6. Subsequently, these two impugned assessment years were reopened by issue of notices u/s. 148 of the IT Act dt. 25-03- 2011. The reasons for reopening which are common for both the assessment years [except the assessment year and the dates of processing of the returns] are as under:
"M/s. Maytas properties Ltd, was incorporated as M/s. Maytas Rajeswari Development Pvt Ltd, on 20-05-2005, and was later renamed as 'Maytas Hill County Pvt Ltd.' w.e.f. 28-12-2005 and as "Maytas Hill County Ltd, w.e.f 20-12-2007. Subsequently, its name was again changed as 'Maytas properties Ltd' w.e.f. 31-12-2007. The company was floated by the promoters of M/s. Satyam Computer Services Ltd (M/s. SCSL). Viz., Shri B. Rama Raju.
On 7th January, 2009, Sri B. Ramalinga Raju, Ex-Chairman of M/s.Satyam Computer Srvices Ltd(SCSL for shortcut) in his letter sent to the Board of Directors with a copy marked to SEBI has stated that Books of account of SCSL have been fudged for the last several years. He further stated that the revenues and profits were manipulated by falsification of accounts for the last several years.
The sworn statement of Sri B. Rarnalinqa Raiu was recorded under section 131 of the LT. Act, 1961 on 21-02-2009 in the central prison, I.T.A. Nos. 185 & 186/Hyd/2016 :- 5 -: 285 & 286/Hyd/2016 Chanchalguda, Hyderabad. In his statement, he has confirmed and reiterated the facts and figures that were stated in his letter dated 7-01- 2009 addressed to the Board of Directors.
It has been ascertained by the central investigating agencies that Sri B. Ramalinga Raju was fully conversant with the activities and functions of SCSL and has a pivotal role to play in exercising the control over the affairs of this company and the decision making with respect to it and its implementation. As the chairman of SCSL, he has signed on the financial statements showing inflated cash and bank balances, data on interest, data of income generated, investments and receipts and also suppressing the liability status of the company. He got forged monthly bank statements, bank balances, purported transfer of funds and FDRs. 327 companies were floated by him along with his brothers Sri B. Rama Raju and Sri B. Suryanarayana Raju and his near relatives in the guise of carrying out agricultural activities. The funds were mobilized by the above companies from various NBFCs by pledging the shares of family members. The proceeds were thus converted into assets through the said companies into assets. He and his brother Sri B. Rama Raju obtained money from 37 of such companies and also repaid 15 out of 37 companies, by deceiving the Board of Directors of SCSL.
There is further information that some of the funds advanced to M/s. SCSL have not been recorded in the books of SCSL at the behest of Sri B. Ramlinga Raju and that certain transactions entered in the books of SCSL are not recorded in the accounts of the group companies like the assessee company. The entire set of unrecorded transactions by SCSL and group of companies and individuals were thus planned and executed by one master mind viz., Sri B. Ramalinga Raju, and his brother B. Rama Raju. It came to light through investigations by central agencies that Sri B. Ramalinga Raju and his family members, including Sri B. Rama Raju & others have floated numerous front companies for the purpose of routing the funds and to acquire vast tracts of lands in and around Hyderabad. The effective control and management of these companies was with Sri B. Ramalinga Raju & B. Rama Raju and in particular through Sri B. Suryanarayana Raju his brother. The controlling directors of these front companies are the family members of Sri B. Ramalinga Raju, including B. Rama Raju & others.
It is believed that since the accounts of M/s. Satyam Computer Services Ltd, are doctored and fabricated, the accounts of M/s. Maytas properties Ltd.(Formerly Known as M/s. Maytas 'Hill County Ltd), which is closely connected do not reflect the true and correct financial results being under the same management and control. Further, Sri B. Ramalinga Raju is the Chairman and Sri B. Rama Raju is the CMD of M/s. Satyam Computer Services Ltd. Both the persons have been accused in a multi crore scam and are presently in judicial custody. The assessee company I.T.A. Nos. 185 & 186/Hyd/2016 :- 6 -: 285 & 286/Hyd/2016 has been floated by the persons belonging to M/s. Satyam computer Services Ltd. group, Viz., B. Rama Raju, who had direct control over the affairs of the assessee-company.
The Return of income filed by the assessee company for the A.Y.2006-07 has been processed u/s.143(1) of the I.T. Act, 1961 and it is believed that the assessee company in its return did not disclose the material facts as below:
a) The facts relating the fudging and manipulation of accounts of the assessee company and transactions relating to SCSL, particularly with reference to transactions with other group companies like the assessee company, as stated by Sri B. Ramalinga Raju in his statement.
b) That there were variations in the quantum of income and assets/liabilities of SCSL relating to the front companies including the asseessee company, as revealed in the confessional statements etc and the facts which came to light in the investigations;
c) there were manipulation of the accounting statements and the audit reports;
d) Non-recording of inter company and related party transactions;
There is a scope for the above facts will have a bearing on the company's own financial affairs, its consequent income and assets position.
I have, thus, reason to believe that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for AY 2006-07 and also that it resulted in escapement of income chargeable to tax, which is likely to amount to Rs. One lakh or more given the volume of the transactions as stated above, within the meaning of section 147 read with section149 of the 1.1. Act, 1961. For the above detailed reasons, it is proposed to issue notice to the assessee under section 148 of the I.T. Act to reopen the assessment in the assessee's case for the assessment year 2006-07 for bringing to tax the income chargeable to tax which has escaped assessment".
6.1. Thereafter, considering assessee's objections in reopening, which were rejected, the AO referred the accounts to Special Audit u/s. 142(2A) in both the assessment years and completed the assessment by making various additions in the I.T.A. Nos. 185 & 186/Hyd/2016 :- 7 -: 285 & 286/Hyd/2016 respective assessment years. As against the loss of Rs. 1,55,46,052/- returned by assessee, the total income was determined at Rs. 15,18,05,583/- in AY. 2006-07. The total addition made is to an extent of Rs. 16,73,51,635/-. The details of the additions are as under:
COMPUTATION OF INCOME & TAX Rs.
ALONG WITH INTEREST
Income/Loss Declared by the assessee for the AY. (-) 1,55,46,052
2006-07:
Add: 1 Addition (as discussed in Para Rs.
9.1) on account of violation of
provisions u/s. 40A(3) of the
Income Tax Act, 1961 i.e., cash
paid in excess of Rs. 20,000/-
for purchase of Sony video 28,600/-
Camera
02 Addition (as discussed in Para 56,11,320/-
9.2) on account of disallowance
of interest paid to banks and
Financial Institutions
03 Addition (as discussed in Para 8,400/-
9.3) on account of purchase of
Blakberry Phone i.e. Capital
Expenditure debited to P&L A/c
04 Addition (as discussed in Para 1,06,492/-
9.3.4) with respect to fixed
assets where bills not produced:
05 Addition under the head Trunk 2,49,06,130/-
Road Cost (as discussed in Para
9.4) i.e. Entire amount of
reimbursement made to LOCs
and debited work-in-progress
06 Addition under the head HUDA 67,44,463/-
Fees (as discussed in Para 9.5)
07 Addition under the head Other 82,24,731/-
Works Contracts given by
assessee (as discussed in Para
9.6)
08 Disallowance u/s. 40(a)(ia) of 10,91,41,612/- the Income Tax Act, 1961 made on account of Contractual payment made to MIPL (as discussed in Para 9.7) 09 Addition on account of Other Payments on which there is a I.T.A. Nos. 185 & 186/Hyd/2016 :- 8 -: 285 & 286/Hyd/2016 non-deduction/short-deduction 1,19,68,670/- of TDS (as discussed in Para 9.8) (Rs. 92,05,972 + Rs.
27,62,698=Rs.11968670/0) 10 Disallowance u/s. 43B of the 93,325/-
Income Tax Act, 1961 (as discussed in para 9.9) 11 Expenditure Disallowance u/s.
37(1) for not having incurred for 5,17,892/-
the purpose of business (as
discussed in para 9.10)
Total Addition: 16,73,51,635
7. Similarly in AY. 2007-08 as against the income of Rs. 98,43,780/- declared by assessee, the following additions are made totalling to Rs. 2,11,67,31,975/- .
COMPUTATION OF INCOME & TAX Rs.
ALONG WITH INTEREST
Income/Loss Declared by the assessee for the 96,43,760
AY. 2007-08:
Add: 1 Addition on account of Rs.
disallowance of expenditure
u/s. 37(1) (as discussed in 4,08,75,701
Para 9.1)
02 Addition on account of
disallowance of expenditure
u/s. 37(1) (as discussed in 45,00,000
Para 9.1.5)
03 Addition on account of
disallowance of interest paid to
banks and financial 9,84,32,271
institutions (as discussed in
Para 9.2.9)
04 Addition (as discussed in para
9.3.4) on account of
disallowance of Capital 81,556
Expenditure debited to the P&L
A/c & Additions to Fixed
Assets where no bills are
available
05 Addition (as discussed in para
9.3.8) on account of
disallowance of the
depreciation claimed of Rs.
2,90,876/- on the capitalized
item, for the want of requisite
I.T.A. Nos. 185 & 186/Hyd/2016
:- 9 -: 285 & 286/Hyd/2016
evidence regarding the
existence of the asset and for
the asset having been put to
use and Addition (as discussed
in para 9.3.9) in the absence of
the requisite bill no cogences of
the capital expenditure made
towards the addition to
vehicles to the tune of Rs. 3,86,435
6,37,057/- is taken. Thus the
consequent depreciation
claimed by the assessee on the
subject amount @ 15%
amounting to Rs. 95,559/- is
here by disallowed.
(Rs.2,90,876/- + Rs. 95,559/-
= Rs. 3,86,435)
06 Disallowance (as discussed in
para 9.4.9) of entire amount of
reimbursement made to LOCs
and debited to Work in
Progress, by way of journal 1,30,53,852
entries (which is being treated
as the cost of the development
of land and charged to
customers eventually)
amounting to Rs.
1,30,53,852/-
07 The subject payment of Rs.
5,67,00,000/- (as discussed in
Para 9.5.5) under the head
other works contract works 5,67,00,000
given by the assessee to M/s.
Sarala Projects Pvt. Ltd., is not
an expenditure incurred for the
purpose of business of the
assessee, hence disallowed
08 Addition (as discussed in para
9.6.4) on account of short 15,64,02,468
recognition of revenue
09 Addition (as discussed in para
9.7.3) on account of non- 2,33,24,429
apportionment of statutory and
consultancy charges on
'amenities'
10 Disallowance (as discussed in
para 10.1.2) of expenditure
amounting to Rs. 11,19,243/- 11,19,243
has been debited to P&L A/c
that belongs to the earlier
accounting period
I.T.A. Nos. 185 & 186/Hyd/2016
:- 10 -: 285 & 286/Hyd/2016
11 Disallowance u/s. 40(a)(ia) (as
discussed in para 10.3.2) of 58,54,03,397
contractual payments made to
MIPL
12 Addition (as discussed in para
11.1.2) on account of 31,10,908
expenditure disallowed u/s.
37(1) and non-deduction of
TDS u/s. 194C
13 Addition (as discussed in para
11.2.2) on account of non- 26,29,195
deduction of TDS u/s. 194C
14 Addition (as discussed in para
11.3.6) on account of
disallowance of expenditure 1,12,18,54,051 u/s. 37(1) and short deduction of TDS 15 Addition (as discussed in para 11.4.9) on account of disallowance of expenditure 14,40,624 u/s. 37(1) and short deduction of TDS u/s. 194J 16 Addition under the head Corpus Fund (as discussed in 6,48,530 para 12) 17 Addition under the head short receipt of interest on ICD (as 67,69,315 discussed in para 13) Total Addition: 2,11,67,31,975 7.1. As seen from the return filed by assessee in AY. 2007- 08, the income for the year was arrived at Rs. 2,48,37,383/- and after setting off the carried forward loss declared in AY. 2006-07 at Rs. 1,51,93,624/-, the total income was offered at Rs. 96,43,759/-. AO, in his anxiety to complete the assessment and to make substantial additions, ignored the set-off of brought forward losses made by assessee to an extent of Rs. 1,51,93,624/-, whereas in AY. 2006-07 by virtue of making various additions that was turned into a positive income. His computation of income has started from the returned income only. Be that as it may, AO made substantial additions as detailed above in both the years which was subject matter of appeals before the Ld. CIT(A).
I.T.A. Nos. 185 & 186/Hyd/2016 :- 11 -: 285 & 286/Hyd/2016
8. Ld. CIT(A) has considered assessee's submissions and order of the AO and gave relief on the issue of interest disallowance in both the years. He also set aside the disallowances u/s. 40(a)(ia), both non-deduction as well as short deduction, following various case law. However, he has confirmed partly the disallowance made u/s.40A(3) and confirmed substantial disallowance of cost of trunk road claimed by assessee in both the years along with HUDA's fees paid as not relating to assessee's business. In some of the issues like disallowance of expenditure on account of other works, non-deduction of tax, CIT(A) directed the AO to examine and these were allowed by the AO in the consequential orders, after due examination.
8.1. In 2007-08 also, the CIT(A) has given similar relief and Revenue is in appeal on those issues. Assessee is in appeal on one major issue of disallowance of cost of roads claimed which was to an extent of Rs. 2,49,06,130/- in AY. 2006-07 and Rs. 1,30,53,852/- in AY. 2007-08. There are other grounds of payment to HUDA which is similar to the above disallowance.
9. In assessee's appeals in addition to the grounds on merits of amounts confirmed by Ld. CIT(A), assessee has raised grounds relating to action of the AO in initiating proceedings u/s. 147 of the Act. Assessee also raised following additional grounds in support of main grounds on the issue of reopening:
Additional Grounds of Appeal:
i. The learned Commissioner of Income-tax (Appeals) ought to have held that the initiation of proceedings u/s. 147 are not valid.
I.T.A. Nos. 185 & 186/Hyd/2016 :- 12 -: 285 & 286/Hyd/2016 ii. The learned Commissioner of Income-tax (Appeals) ought to have seen that there are no financial transactions between the appellant and Satyam Computer Services Ltd; that there is no mention in the letter addressed by Sri B. Ramalinga Raju about the financial affairs of the appellant and no addition with reference to the reasons recorded was made in the re-opened assessment".
Assessee's main contentions are that the proceedings initiated are not valid. Further, the reasons for reopening the assessment have no nexus with the additions made in the assessment order. Therefore, the assessment completed itself is bad in law. The detailed submissions of assessee along with the cases relied on by assessee on the issue are as under:
"In the assessment order, the reasons for reopening the assessment are mentioned at paras 3.1 to 4.2. In brief, the Assessing Officer stated as under:
a) Sri B.Ramalinga Raju, Ex-Chairman of Satyam Computer Services Ltd., sent a letter to the Board of Directors with a copy marked to SEBI stating that-the books of account of Satyam Computer Services Ltd., have been fudged for the last several years;
b) The statement of Sri B.Ramalinga Raju was recorded u/s 131 of the I.T.Act on 21.02.2009 while he was in Central Prison and in his statement, he confirmed and reiterated the facts and figures that are stated in his letter dated 07.01.2009 addressed to the Board of Directors.
c) The Central Investigating Agencies ascertained that Sri B.Ramalinga Raju was conversant with the activities and functions of Satyam Computer Services Ltd., and played a pivotal role in exercising control over the affairs of the said company.
d) As the Chairman of Satyam Computer Services Ltd., he signed the financial statements showing inflated cash and bank balances, data on interest, data on income generated, investments and receipts etc.
e) All the transactions were not recorded in the books of Satyam Computer Services Ltd., at the behest of Sri B.Ramalinga Raju.
It is mentioned by the Assessing Officer that the accounts of Satyam Computer Services Ltd., are doctored and fabricated and, therefore, the accounts of Maytas Infra Pvt.Ltd., formerly known as Maytas Hill County I.T.A. Nos. 185 & 186/Hyd/2016 :- 13 -: 285 & 286/Hyd/2016 Ltd., which is closely connected with Satayam Computer Services Ltd., do not reflect the true and correct financial results as it was under the same management and control. For the reasons mentioned above, the Assessing Officer initiated proceedings u/s 147 and issued notice u/s 148 of the I.T.Act.
Similar notices were issued to other concerns of Satyam Group. The question of validity of initiation of proceedings uj s 147 was decided by the Hon'ble ITAT vide consolidated order in ITA No.1233/Hyd/2011 dated 31.12.2013. In the said order, the Hon'ble ITAT held as under:
a) The Hon'ble ITAT held that no valid reasons to reopen the assessment of the company were recorded as the reopening was merely to examine the veracity and financial implications between the appellant company and Satyam Computer Services Limited. The Hon'ble ITAT at para 16 of the said order held that there is no reason to believe that the income of the assessee had escaped assessment.
b) The Hon'ble ITAT also observed that if there is any reason recorded, the same is not based on a tangible material.
c) The recording of reasons before the issue of notice u/s 148 has no nexus with the assessment made.
d) The reopening was on wrong foundation of reasoning of the financial implications between the appellant company and Satyam Computer Services Ltd., which was not established in the assessment to justify the reopening.
e) The reassessment completed u/s 143(3) rws 147 has no relationship at all for the reasons for reopening.
f) The issues involved are similar.
In view of the above, the appellant requests the Hon'ble ITAT to hold that the initiation of proceedings u/s 147 of the I.T. Act are not valid".
10. There are no arguments by the Revenue as the Ld. CIT- DR refused to argue on this issue, even though he was present in the court room on behalf of Revenue on 4th and 5th August, 2016. Ld. Sr. Standing Counsel relied on the orders of AO on this aspect.
I.T.A. Nos. 185 & 186/Hyd/2016 :- 14 -: 285 & 286/Hyd/2016
11. We have considered the contentions and perused the documents on record. As seen from the order of the AO, there is no doubt that the assessment was reopened only to examine the so called fraudulent transactions undertaken by Shri Ramalinga Raju, promoter of assessee-group, but nowhere in the order there was any finding or any remark with reference to either such fraudulent transactions or siphoning of moneys from assessee's books of account. In fact even though special audit was conducted, all the disallowances made by the AO are routine disallowances, which could have been examined in the normal scrutiny. Therefore, there is no live link between the reasons for reopening of the assessment and the completion of assessment in which various additions are made. Provisions of Section 147 are as under:
"Section 147: If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
[Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:] I.T.A. Nos. 185 & 186/Hyd/2016 :- 15 -: 285 & 286/Hyd/2016 [Provided [also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
[(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;]
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ;
or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] [(d) where a person is found to have any asset (including financial interest in any entity) located outside India.] [Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.] [Explanation 4.--For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.] I.T.A. Nos. 185 & 186/Hyd/2016 :- 16 -: 285 & 286/Hyd/2016 11.1. As can be seen from the above provisions, if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or re-assess such income and also any other income which comes to his notice subsequently in the course of the proceedings. It means that AO shall assess or re-assess such income which has lead to reopening of assessment to bring it to tax as 'escaped income'. However, as already stated herein above, the reasons for reopening are for examining the fraudulent transactions undertaken by the promoter, Shri B. Ramalinga Raju and his company Satyam Computer Services Ltd. However, there is no such addition made. In view of that, bringing to tax any other income does not arise as held by various decisions of this forum and also by the Hon'ble High Courts. The Co-ordinate Bench in the case of 1233/Hyd/2011 M/s. Rohini Biotech (P) Ltd., and others dt. 31-12-2013 has held as under:
"12. We also find that CIT(A) erred in holding that the Assessing Officer had valid reasons to reopen the assessment of the assessee-company to examine the veracities and financial implications between the assessee company and M/s. Satyam Computer Services Limited. We rely upon the decision of the Hon'ble Supreme Court in the case of Ganga Saran & Sons' P. Ltd. vs. ITO and others (supra) for the proposition that if there is no rational nexus between the «reasons" and the «belief', so that on such reasons the A.O. cannot have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck as invalid.
13. We also rely on the decision of Sarthak Securities Co. P. Ltd. vs. ITO (2010) 329 ITR 110 wherein it has been held as follows :
"That the formation of belief was a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer was required to form an opinion before he I.T.A. Nos. 185 & 186/Hyd/2016 :- 17 -: 285 & 286/Hyd/2016 proceeded to issue a notice. The validity of reasons, which were supposed to sustain the formation of an opinion, was challengeable".
14. In the case of Hindustan Lever Ltd. vs. R.B. Wadkar, ACIT (No.1) (2004) 268 ITR 332 (Born.) (H.C.) the Hon'ble Bombay High Court held as follows:
"That the notice was clearly beyond the period of four years. The reasons recorded by the Assessing Officer nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, the Assessing Officer had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed."
15. In the case of Mahalaxmi Motors Ltd. vs. DCIT reported in (2004) 265 ITR 53 (A.P.) (H.C.) the jurisdictional High Court has held that when all the facts had been fully disclosed by the petitioner, the notice of re- assessment was not valid and was liable to be quashed.
16. We rely on the decisions of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.) and ACIT vs. Major Deepak Mehta (2012) 344 ITR 641 to conclude that the A.O. has not complied with the mandatory condition, pre-condition for taking action under section 147 namely that 'reason to believe' that income of the assessee had 'escaped assessment'. The reason to believe is lacking.
17. Further, the 'reason to believe' is not based on tangible material. We find that in the case of Ranjit Reddy vs. Dy.CIT, Hyderabad (2013) 144 ITD 361 the Coordinate Bench of this Tribunal has dwelled on the contention of the assessee that reopening of the assessment is not permissible as there is no tangible material. The relevant portion of the Order is reproduced here under:
"One needs to give a schematic interpretation to the words 'reasons to believe' failing which, section 147 would give arbitrary power to Assessing Officer to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The A.O. has no power to review; he has the power to reassess. But reassessment has to be taxed on fulfilment of certain pre- conditions and if the concept of 'change of opinion' is removed, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the A.O. Hence, the A.O. has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief"
17.1. Further, para 32 at page 483 in the case of S. Ranjit Reddy (supra) reads as follows:
I.T.A. Nos. 185 & 186/Hyd/2016 :- 18 -: 285 & 286/Hyd/2016 "Same view was taken by the Third Member Mumbai Bench in the case of Telco Dadajee Dhackajee Ltd. vs. Dy. CIT, ITA.No.4613/Mum/2005, dated 12th May, 2010. Further same view was taken by Delhi High Court in the case of CIT vs. Orient Crafts Ltd. (2013) 29 taxmann.com 392 and also by Gujarat High Court in the case of Inductotherm (India) (p) Ltd. v. Dy. CIT in Special Civil Application 858 of 2006 dated 6.8.2012. Further, Bombay Bench in the case of Delta Airlines Inc. vs. ITO (International Taxation) (2013) 33 taxmann.com 192 (Mum.)"
17.2. Further, at page 485 it is stated as follows:
"When the matter reached to the Tribunal the learned Judicial Member took e view that there was no fresh material to support the formation of the belief of the Assessing Officer that income chargeable to tax had escaped assessment and in the absence of any fresh tangible material, he came to the conclusion that it was not permissible for the Assessing Officer to reopen the assessment. The learned Accountant Member, however, took a different view relying on the decision of Hon'ble Supreme Court in the case of Rajesli Jhaveri Stock Brokers (P) Ltd. (supra) and the matter, therefore, was referred to a Third Member for resolving inter alia, the following point of difference :-
"Whether on the facts and circumstances of the proceedings initiated by the A.O. u/s 147 is liable to be confirmed or quashed when there was no fresh material available with the AO and the assessment had been completed originally u/s 143(1)."
The Third Member agreed with the view taken by the learned Judicial Member relying mainly on the decision of Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) and Eicher Ltd. 320 ITR 561. It was held by the Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that a reassessment notice issued u/s 148 in a case where the original assessment was made ii/ s 143(1) cannot be challenged on the ground of a mere change of opinion, it is open to an assessee to challenge the notice on the ground that there is no reason to believe that income chargeable to tax has escaped assessment. As regards the decision of Hon 'ble Supreme Court in the case of Rajesli lhaveri Stock Brokers (P) Ltd. (supra) cited by the Revenue and relied upon by- the Accountant Member, the Third Member held that the same was applicable in cases where the return was processed u/ s 143( 1) but later on notice was issued u/ s 148 and the assessee challenges the notice on the ground that it is prompted by a mere change of opinion. The Third Member then referred to the decision of Hon'ble Supreme Court in the case of Keluinator of India Ltd. (supra) wherein it was held that there should be "tangible material" to come to the conclusion that income had escaped assessment. Relying on the said decision, it was held by the Third Member that while resorting to section 147 even in a case where only an intimation had been issued u/ s 143(1)(a), it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment. Since there was no such tangible material before the AO from which he could entertain the belief that income of the assessee chargeable to tax had escaped assessment, the Third Member held I.T.A. Nos. 185 & 186/Hyd/2016 :- 19 -: 285 & 286/Hyd/2016 that reassessment proceedings initiated by the Assessing Officer were liable to be quashed on the ground that there was no tangible material before the Assessing Officer even though the assessment was completed originally u/ s. 143(1). In our opinion, the Third Member decision of the Tribunal in the case of Telco Dadajee Dhackjee Ltd. (supra) is squarely applicable in the present case and respectfully following the same, we hold that the initiation of reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. We Order accordingly and allow ground No.1 of the assessee's appeal.
18. To conclude,
(i) The recording of reasons before the issue of notice under section 148 has absolutely no nexus with the assessment made.
(ii) That the assessment made under sec.143(3) cannot be reopened under sec. 148 beyond period of 4 years as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself.
(iii) The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment.
(iv) The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening.
(v) As can be seen from the assessment order, the assessment completed has no relation at all with the reasons for reopening. Even though assessee belongs to Satyam Group of Companies, there is no evidence of siphoning of funds or escapement of income. What the Assessing Officer has done in the assessment is denial of the explanations given by the assessee with reference to various investments made through the books of accounts, various credits and loans obtained and also addition to fixed assets on the reason that the evidences have not been filed. Thus as can be seen from the order, there is no nexus at all with reference to the reasons for reopening and the assessment completed.
19. Hence, there being no nexus or live-link with the reasons recorded and the 'formation of belief to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being 'no tangible material' for the reopening of the assessment, the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the jurisdiction under section 147 is bad in law and is to be quashed".
I.T.A. Nos. 185 & 186/Hyd/2016 :- 20 -: 285 & 286/Hyd/2016 11.2. Respectfully following the above decision, which applies on all fours, we have no hesitation in holding that the assessment completed has no nexus with the reasonings given for reopening of assessment. On that reason, proceedings are held as bad in law.
12. Even on merits, Ld. CIT(A) has considered the law on the points and gave substantial relief on many of the issues, on which Revenue has come in appeal. We do not find any merit in those grounds raised by Revenue as those findings of Ld. CIT(A) are in tune with the findings of the ITAT in various cases and law on the issue. Not only that, on the issues referred to the AO for examination, AO has allowed the claims in the consequential order. The only major issue contested in assessee's appeal is with reference to disallowance of the cost of the roads and fees paid to HUDA. Even though, AO relied on the 'agreement' to state that the agreement was subsequent to the laying of the road and the amount cannot be claimed as 'an expenditure' in assessee's business along with the fees paid to HUDA, on perusal of the agreement with the fourteen land owning companies, who gave 85.90 acres out of the total area of 374 acres (24.96%) for development, it was specified that the cost of the roads and fees paid to HUDA and other developmental activities are to be borne by assessee-company. We do not find any reason to disallow the expenditure, when assessee's project on 1/4th land is using those lands developed by 'land owning companies' as well as other companies. The total cost incurred by them was reimbursed by assessee to an extent of 25% which is same as that of land given for development to assessee.
I.T.A. Nos. 185 & 186/Hyd/2016 :- 21 -: 285 & 286/Hyd/2016
13. On perusing these facts, which are placed on record during the course of hearing, we do not find any merit in the order of the AO and CIT(A) in disallowing the expenditure by reading in between the lines of the agreement. The agreement specifically provides for bearing the cost of roads and development fee payable to HUDA and so assessee reimbursed the cost and also fees paid to HUDA. The Ld. CIT(A) allowed the cost of fees of HUDA paid directly by assessee, but did not allow the amount of fee reimbursed to the 'land owning companies' on the reason that they paid the HUDA fees much earlier to the incorporation of assessee- company. In fact, assessee-company was floated for completing the project which was approved in various individual companies and agreements specifically provide for the cost to be borne by assessee-company. Accordingly, it has made debit entries in the Books of Account, crediting those companies to an extent of 25% of the amount of cost on roads and the HUDA fees paid. Considering the agreements and the entries in the Books of Account, we are of the opinion that this expenditure is allowable as part of project cost. We are also not sure how the expenditure debited to project cost could be disallowed and brought to tax when the project is not complete and assessee was estimating a proportionate income to the extent of the project completed. In view of that, we are not in a position to approve the orders of the AO even on the merits of the additions made.
14. Be that as it may, the issues on merit will become academic, since we have already given a finding that the proceedings initiated itself are bad in law and the assessment completed without making any addition on the reasons for I.T.A. Nos. 185 & 186/Hyd/2016 :- 22 -: 285 & 286/Hyd/2016 reopening being bad in law. In view of that, assessee's ground Nos. 1 & 2 are allowed in both the years and other grounds are treated as allowed for statistical purposes. Revenue's appeals are dismissed.
15. Before parting, we would like to place on record our displeasure on the conduct of Mr. B.V. Gopinath, CIT who was posted as Departmental Representative for a week, and we direct the Registry to forward one copy each to Revenue Secretary & Chairman, CBDT, so that they assess the problems arising on account of posting DRs on temporary basis who, despite being senior officers, openly admit that they have no knowledge of certain Branches of tax laws (particularly Transfer Pricing Provisions) and seek adjournments undauntingly and when Bench shows its displeasure they unscrupulously go to the extent of recusing to appear before that Bench, disrupting court proceedings.
16. To sum-up, assessee's appeals are allowed and Revenue's appeals are dismissed.
Order pronounced in the court on 30th September, 2016 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated 30th September, 2016
TNMM
I.T.A. Nos. 185 & 186/Hyd/2016
:- 23 -: 285 & 286/Hyd/2016
Copy to :
1. M/s.Hill County Properties Ltd., (Formerly M/s. Maytas Properties Ltd.,) Hyderabad. C/o. Sri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, 3-6-643, Street No. 9, Himayat Nagar, Hyderabad.
2. Addl. Commissioner of Income Tax, Central Range-3, Hyderabad.
3. Asst. Commissioner of Income Tax, Central Circle-3(2), Hyderabad.
4. CIT (Appeals)-11, Hyderabad.
5. Pr.CIT (Central), Hyderabad.
6. D.R. ITAT, Hyderabad.
7. Guard File.