Income Tax Appellate Tribunal - Delhi
Dcit, Central Circle-29, New Delhi vs Dharmpal Satyapal Ltd., New Delhi on 17 January, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : F : NEW DELHI
BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
AND
SHRI ANUBHAV SHARMA, JUDICIAL MEMBER
ITA No.3071/Del/2022
Assessment Year : 2016-17
Dharampal Satyapal Ltd., Vs. DCIT,
98, Okhla Industrial Estate Central Circle-29,
Phase III, New Delhi.
New Delhi - 110 020.
PAN: AAACD0132H
ITA No.246/Del/2023
Assessment Year : 2016-17
DCIT, Vs. Dharampal Satyapal Ltd.,
Central Circle-29, 98, Okhla Industrial Estate Phase III,
New Delhi. New Delhi - 110 020.
PAN: AAACD0132H
(Appellants) (Respondents)
Assessee by : Shri R.S. Singhvi;
Shri Satya Jeet Goel; &
Shri Rajat Garg, CAs
Revenue by : Shri S.K. Jadhav, CIT-DR
Date of Hearing : 06.01.2025
Date of Pronouncement : 17.01.2025
ORDER
PER ANUBHAV SHARMA, JM:
These are cross appeals preferred by the Assessee as well as the Revenue against the order of the Commissioner of Income-tax (Appeals) (hereinafter ITA No.3071/Del/2022 ITA No.246/Del/2023 called the Ld. First Appellate Authority or for short 'the Ld.FAA') in Appeal No.CIT(A), Delhi-30/10593/2019-20 dated 30.11.2022 arising out of the appeal filed before him against the order dated 11.02.2017 passed u/s 143(3) r.w.s. 144C of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') by the DCIT, Central Circle-29, New Delhi (hereinafter referred to as the Ld. AO, for short).
2. The brief facts of the case are that the appellant company is engaged in the business of manufacturing and trading in pan masala, zarda, perfumery compounds and herbs, mouth freshener, salt, spices, snack food, dairy products, confectionary products and processing of silver etc. and for the year under reference, the appellant filed original return of income on 29.11.2016 declaring total income of Rs. 10,23,11,890 (after claiming deduction under section 80IC) under normal provisions of the Act. Since, Minimum Alternate Tax ('MAT') liability tax on book profits under section 115JB of the Act was higher, the appellant paid tax of Rs. 126,74,93,300 on book profits amounting to Rs.593,90,73,432. The case was selected for scrutiny and reference was made to TPO u/s 92CA of the Act. The TPO based on adjustments made in earlier assessment years, vide order dated 31/10/2019 proposed TP adjustment in respect of transactions between eligible and non-eligible units resulting in reduction of claim of deduction u/s 80IC of the Act to the extent of Rs. 162,15,97,109/-. The assessing officer completed the assessment after making 2 ITA No.3071/Del/2022 ITA No.246/Del/2023 adjustment as proposed by the TPO and further made addition to the tune of Rs. 76,44,17,147/- u/s 69A in respect of claim of expenses under the head "Sales Promotion and Entertainment Expense" and "Advertisement and Publicity Expenses" from various parties. The Ld. CIT(A) allowed part relief to the appellant company vide impugned order dated 30/11/2022. The outcome of the impugned order has been succinctly provided by assessee in the written submissions as under:
S Particulars Amount (In Rs.) CIT(A)
Amount (in Rs.)
No. order
i. Reduction of claim under
162,15,97,109
section 80IC :
• TP Adjustment on account
of transfer of goods from 129,08,82,032 Deleted
non- eligible units to Page 35
eligible units Para
6.7
TP Adjustment on
account of allocation of Deleted
2,76,10,488
interest to eligible units Page 37
Para 7.7
TP Adjustment on Deleted Page
account of 30,31,04,589 40 Para 8.6
allocation of
common services
from corporate
office to eligible
units
ii Addition under section
76,44,17,147
69C in respect of claim of
advertisement and sales
promotion expenses from Partly deleted
various parties to the extent
of Rs. 57.52
crores
3
ITA No.3071/Del/2022
ITA No.246/Del/2023
3. Against the order of CIT(A), both the assessee and revenue are in appeal before ITAT. The following grounds are raised in ITA No.3071/Del/2022 by the Assessee;
"1(i). That on the facts and circumstances of the case, the CIT(A) is not justified in confirming addition of Rs.16,47,47,402/- in respect of claim of advertisement and sales promotions expenses relating to M/s. Sadhna Media P. Ltd.(Rs. 5,91,92,961/-), M/s. Kamdhenu Media P. Ltd. (Rs. 9,95,00,000/-), and M/s. Prabhatam Advertisement P. Ltd. (Rs. 60,54,441/-)
(ii). That CIT(A) having accepted the fact that statement of Sh. Himanshu Verma and Sh. Praveen Aggarwal relied on by Assessing Officer have no relevance to claim of appellant, there is no justification to confirm addition of Rs.16,47,47,402/-.
(iii) That in any case, AO/CIT(A) having not allowed any opportunity for cross examination, these statements have no evidentiary value.
(iv) That all these payments being through banking channels after deduction of TDS whereever applicable and all these parties have confirmed the transaction in respect of notice u/s. 133(6), there is no valid basis to sustain the addition.
(v) That CIT(A) has misconstrued and misapplied the order passed in the case of M/s. Sadhna Media P.Ltd. for sustaining addition of Rs.
5,91,92,961/-, without there being any factual or legal basis or any opportunity.
(vi) That reference to statement of Sh. Sulabh Dixit is highly arbitrary and misconceived in the absence of any corroborative evidence and opportunity for cross examination.
2. That CIT(A) has wrongly confirmed the action of the AO in making addition u/s. 69C even though there is no dispute that these expenses are fully recorded and verifiable from the books of accounts.
3. That on the facts and circumstances of the case, the Ld. CTT(A) was not justified in making 20% ad-hoc disallowance of expenses amounting to Rs. 1.25 crores u/s 37(1) in respect of which additions was made by AO u/s. 69C of the Act even though there is no dispute or doubt over the genuineness of the claim of expenses towards Sales Promotion and advertisement from various parties or source of expenditure. 4 ITA No.3071/Del/2022 ITA No.246/Del/2023 4(1) That on the facts and circumstances of the case, the Ld. CIT(A) was not justified in confirming disallowance of expenses amounting to Rs. 1.19 crores u/s 37(1) in respect of which additions was made by AO u/s. 69C of the Act even though there is no dispute or doubt over the genuineness of the claim of expenses towards Sales Promotion and advertisement from various parties.
(ii) That the mere non-compliance of notice u/s 133(6) by the parties could not be the ground for drawing adverse inference in absence of any dispute vis-à-vis the documentary evidences in support of claim of expenses and as such the disallowance is invalid and on arbitrary basis.
5. That on the facts and circumstances of the case, the Ld. CIT(A) has erred on holding that provisions of section 115BBE are applicable even while computing tax liability u/s. 115JB of the Income Tax Act, 1961.
6. That the orders passed by lower authorities are not justified on facts and same are bad in law.
7. That the appellant craves leave to add, amend, alter or forgo any or all of the grounds as may be necessary and in the interest of justice." 3.1 The following grounds are raised in ITA No.246/Del/2023 by the Revenue;
"1. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in deleting addition made by the AO on account of disallowance of deduction u/s 80IB/IC on account of allocation of interest.
2. Whether on facts & in the circumstances of the case the Ld CIT(A) erred in law & on facts in deleting addition made by the AO in respect of disallowance u/s 80IC/IB on account of upward adjustment in cost of services by the Head Office.
3. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in reduction of claim u/s 80IB/IC made by the AO by increasing the value of goods transferred from Non-eligible units to eligible units treating them processed goods and by reducing the 80IB/IC to that extent.
4. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in deletion of Rs. 27,08,07,039/- out of addition of 5 ITA No.3071/Del/2022 ITA No.246/Del/2023 Rs.33,00,00,000/- u/s 69C of the Act made w.r.t the transaction of the assessee company with the party M/s Sadhna Media Private Limited during the period under consideration ignored that the genuineness of the services remained doubtful during the course of assessment proceedings.
5. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in deletion of the addition of Rs. 2,20,00,000/- u/s 69C of the Act w.r.t the transaction of the assessee company with the party M/s Best News Company Pvt Ltd. during the period under consideration ignored that the said entity claimed heavy losses during the period under consideration and having weak financial statements creating doubt about the genuineness of the transactions.
6. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in deletion of the addition of Rs. 16,80,00,000/- u/s 69C of the Act w.r.t the transaction of the assessee company with the party M/s Jewel Xchange Pvt Ltd during the period under consideration ignored that the said entity was non-existence to the said address.
7. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in deletion of the addition of Rs. 6,44,62,706/- u/s 69C of the Act w.r.t the transaction of the assessee company with the party M/s Jagdishwar Lal Jewellers (P) Ltd. during the period under consideration ignored that the said entity was non-existence to the said address.
8. Whether on facts & in the circumstances of the case, the Ld CIT(A) erred in law & on facts in passing direction of the addition/part addition w.r.t Rs. 7,44,00,000/- u/s 37(1) instead of 69C of the Act w.r.t the transaction of the assessee company with the 18 parties relating to the issue of Service of Notice u/s 133(6) of the Act during the period under consideration ignored that the genuineness of the assessee with the said parties remained unproved an important limb of Section 69C of the Act during the course of assessment proceedings. Further, the Ld CIT(A) ignored that the part disallowance of the expenditure is not allowable within the purview of Section 68 and 69C of the Income-tax Act, 1961. In this regard, attention is drawn to one of the decisions of Apex Court in the case of M/s. N.K Proteins (SLP No.769 of 2017)."
4. On hearing both the sides we find that in respect of the appeal filed by the revenue the Ground No. 1, 2 and 3 are relating to the issue of transfer pricing adjustment resulting in reduction of claim of deduction u/s 80IC. In regard to 6 ITA No.3071/Del/2022 ITA No.246/Del/2023 these grounds the facts are that adjustment of claim of deduction u/s 80-IC amounting to Rs. 129,08,82,032/- in terms of provisions of section 80-IC(7) read with section 801A(8) of the Act was made by ld. AO in respect of goods (Supari and Katha) transferred from non eligible to eligible units. The assessing officer/TPO considered the adjustment on the basis of observation of Special Auditor for AY 2004-05 to 2011-12. Further, the adjustment in the year under reference is made on the similar lines as in AY 2004-05 to 2011-12. In the transfer pricing order/ assessment order, the TPO/ assessing officer held that the appellant transferred the aforesaid goods procured by the manufacturing unit from third party vendors, at cost of purchase and did not enhance the aforesaid costs with other direct and indirect costs incurred on manufacturing of aforesaid goods at the rate of 11.27% (as done by the assessing officers in preceding years). As a result, the assessing officer apportioned direct and indirect manufacturing costs to the cost of aforesaid goods at an amount of Rs.64,95,62,017. As a result, the assessing officer determined the total cost of goods transferred at Rs.641,32,00,149 (Rs.576,36,38,132 + Rs.64,95,62,017). On the aforesaid alleged cost of goods, the assessing officer attributed markup of 10%, amounting to Rs.64,13,20,015, and held that the aforesaid goods should have been transferred at a total value of Rs.705,45,20,164 [Rs.641,32,00,149 + Rs.64,13,20,015), being the alleged arm's length price, by applying the provisions of sections 801A(8) read with section 801C(7) of the Act. In view of 7 ITA No.3071/Del/2022 ITA No.246/Del/2023 the aforesaid allegation, the assessing officer held that the inter-unit transfer/ purchase was shortly recorded at eligible units by an amount of Rs.129,08,82,032 [Rs. 705,45,20,164 (-) Rs. 576,36,38,132] and, accordingly, re- computed the profits of the eligible unit and made the disallowance of deduction under section 801C of the Act by the aforesaid amount. 4.1 Next, ld. AO made adjustment of claim of deduction u/s 80-IC to the extent of Rs. 2,76,10,488/- in terms of provisions of section 80-IC(7) read with section 801A(8) of the Act in respect of allocation of interest to eligible units. In the TPO order, it has been alleged that the total interest amount of Rs. 88,37,08,283/- should have been allocated to all the eligible and non-eligible units and therefore, there is short allocation of interest amounting to Rs.6,52,97,261/- of which Rs.2,76,10,488/- was calculated as pertaining to eligible units, which has resulted in overstatement of profits of the units eligible for deduction under section 80IC of the Act.
4.2 Then Ld. AO made adjustment of claim of deduction u/s 80-IC to the extent of Rs. 30,31,04,589/- in terms of provisions of section 80-IC(7) read with section 801A(8) of the Act in respect of allocation of services from corporate office to eligible units. The assessing officer/TPO considered the adjustment on the basis of observation of Special Auditor for AY 2011-12. Further, the adjustment in the year under reference is made on the similar lines as in AY 2011-12. The factual position to this effect is evident from para 7.2 and 7.3 of 8 ITA No.3071/Del/2022 ITA No.246/Del/2023 the TPO order. The TPO considered the common cost incurred at head office, etc., as services being rendered by non-eligible units to the eligible, which should have been attributed/allocated at cost plus operating profit markup. In view of the same, the TPΟ applied the provisions of section 801A(8) read with section 80IB(13)/80 IC(7) of the Act and increased the expenditure on account of allocated common costs incurred at head office, etc., by an amount of Rs.30,31,04,589, being mark-up of 19.67% on cost. Accordingly, the disallowance of deduction under section 80IB/IC of the Act was made to the extent of Rs.30,31,04,589.
4.3 The CIT(A) has deleted these adjustments on the basis of order of Hon'ble ITAT in preceding years i.e. AY 2010-11 to 2014-15. Ld. AR has submitted that the issues involved are of recurring nature and squarely covered in favour of the assessee by the order of Tribunal in preceding years. Ld. DR has tried to distinguish on the basis the in this year the ld. AO has made more enquires about the existence of the units but we are not inclined to accept his submissions as the ld. Tax Authorities, themselves have observed in impugned orders that there is no change in the circumstances as taken from previous years. These grounds have no substance requiring any interference.
5. Coming to ground No. 5, 6 and 7 in the appeal of the revenue are arising out of deletion of addition u/s 69A in respect of the following parties:
Ground No. 5 - M/s. Best News Company P. Ltd. Rs. 2,20,00,000/ -9 ITA No.3071/Del/2022 ITA No.246/Del/2023
Ground No. 6 - M/s. Jewel Xchange P. Ltd. Rs. 16,80,00,000/-
Ground No. 7 - Jagdishwarlal Jewellers Rs. 6,44,62,706/-
5.1 The addition in regard to Best News Company (P) Ltd. is out of Advertisement Expenditure of Rs.2,20,00,000. In this regard, we find that the case of the assessee is that the appellant obtained advertisement services from the said company. The assessing officer has drawn adverse inference on the basis of report obtained from the assessing officer of the said company stating that the company has taken large amount of unsecured loans and is under heavy losses.
5.2 In regard to addition made for expenses incurred with Jewel Xchange (P) Ltd. assessee has claimed that same pertains to the purchase of silver coins/items for distribution purposes of Rs.16,80,00,000. The assessee has claimed to have purchased silver coins/products from this party for the purpose of distribution to retailer and business associates as part of marketing activities.
The assessing officer has considered the addition on the basis of report of on the spot verification carried out. As per the inspector report, it was stated that the said party was operational only till FY 2015-16 and has discontinued the operation since then. It has been further alleged that most of the billing/sale was done by the said party to the appellant only.
5.3 Coming to addition made on account of disputed expenditure with Jagdishwar Lal Jewellers (P) Ltd. assessee has claimed it to be on account of purchase of silver coins/items for distribution purposes worth Rs.6,44,62,706. 10 ITA No.3071/Del/2022 ITA No.246/Del/2023 The appellant has purchased silver coins/products from this party for the purpose of distribution to retailer and business associates as part of marketing activities. The assessing officer has considered the addition on the basis of report of on the spot verification carried out. As per the inspector report, it was stated that the said party was found non existent on the given address. It has been further alleged that most of the billing/sale was done by the said party to the appellant only.
6. Ld. AR has submitted that the assessee has claimed advertisement and sales promotion expenses from the above parties which is duly supported from documentary evidences in the form of bills, ledger account, TDS certificates and payment has been through banking channel. Further, the parties have duly responded to notice u/s 133(6) and there is no dispute with regard to identity and genuineness. The copy of documents pertaining to these parties are placed in PB Pg 152 to 184.
7. In this context we find substance in the argument of ld. AR that as the necessity of expenses and nexus of the same with business activity of the assessee is not in dispute by the ld. Tax Authorities below and the payments are admittedly by banking modes and duly reflected in the books of other party, there is no legal basis to invoke provisions of section 69C of the Act. Then we find that in the impugned assessment order the assessing officer has not commented upon the documentary evidences placed on record and the fact that 11 ITA No.3071/Del/2022 ITA No.246/Del/2023 the parties have duly confirmed the transaction in response to notice u/s 133(6) of the Act.
8. Further, the Ld. CIT(A) after appreciating the facts of the case and documentary evidences placed on record, vide finding recorded at page 51-53 held that the observations of the assessing officer are extraneous and does not hold any merit. The CIT(A) after specifically dealing with each observation of the assessing officer has categorically held that the assessee has discharged the onus to prove the genuineness of the transactions as well as the parties and there is no adverse material on record to dispute the correctness of documentary evidences. The CIT(A) further took note of the fact that the parties have responded to notice 133(6) and the assessee having availed advertisement services/purchased goods from the parties which is duly subjected to VAT, there is no valid basis for making addition u/s 69A of the Act.
9. To invoke section 69C of the Act the foundation is that expenditure is not accounted for or there is no source behind incurring such expenditure then only section 69C could be invoked. However, such is not the case of the AO as he failed to point out any expenditure incurred without source or which is unrecorded. Hence provisions of S.69C were wrongly invoked. Even ld. CIT(A) has reached the same conclusion as in para 9.12 and 9.13 he held that the invocation of 69C in respect of recorded expenditure is invalid as there is no dispute with regard to source of such expenses. The focus of Section 69C is on 12 ITA No.3071/Del/2022 ITA No.246/Del/2023 the "source" of such expenditure and not on the authenticity of the expenditure itself. This view is duly supported by the decision of Mumbai Bench in I.T.A. No.6617/Mum/2014 Earthmoving Equipment Service Corporation Versus DCIT, Mumbai order dated May 2, 2017; Hon'ble Bombay High Court decision in CIT-1 v. B.G. Shirke Construction Technology (P.) Ltd. [2018] 96 taxmann.com 608 and co-ordinate bench decision at Delhi benches in case of ITA No.2497/Del/2024 Alexis Global Private Ltd. Versus ACIT, Circle-2(2), Delhi decision dated 31/07/2024.
10. Then ld.CIT(A) has rightly held that the reference to statement of Himanshu Verma and Parveen Agarwal in the assessment order is irrelevant and in absence of there being any nexus or link between these persons and the parties forming the subject matter of addition u/s 69C, the mechanical reference to statement of Himanshu Verma and Parveen Agarwal is out of context and deserves no cognizance. The statements have been reproduced in assessment order and ld. DR was unable to point out anything so specific which without any enquiry and corroborative evidence could have been used against the assessee. In fact, on reading of grounds raised by the revenue, it is self-evident that even the revenue has accepted the finding of the CIT(A) to this effect. Even otherwise these statements were not confronted to assessee and in a case where ld. AO intended to invoke the deeming income provisions on the basis of statements of third party the all the more necessitated opportunity of cross examination. 13 ITA No.3071/Del/2022 ITA No.246/Del/2023
11. Further, these expenses are of recurring nature and in accordance with past accepted history. As the finding of the CIT(A) is based on correct appreciation of facts of the case and in absence of revenue bringing any fresh fact or material before us, the findings of ld. CIT(A) need no interference.
12. The issues raised in Ground No. 4 and 8 of the revenue's appeal are connected with Ground No. 1, 3 and 4 of the appeal of the assessee company. The issue involved in the above grounds is regarding addition u/s 69C in respect of claim of advertisement and sales promotion expenses from the following parties:
Party Addition made in Addition upheld Addition deleted the assessment by CIT(A) by CIT(A) order Sadhna Media P. Ltd. 33,00,00,000 5,91,92,961 27,08,07,039 Kamdhenu Media P. Ltd. 9,95,00,000 9,95,00,000 Nil Prabhatam 60,54,441 60,54,441 Nil Advertisement P. Ltd.
7,44,00,000 1,44,00,000 6,00,00,000 Addition in respect of 18 parties on the alleged ground of non-compliance to notice u/s 133(6) 14 ITA No.3071/Del/2022 ITA No.246/Del/2023
12.1 In regard to Sadhna Media (P) Ltd. expenditure is on account of Advertisement (Telecast and outdoor) worth Rs.33,00,00,000/-. The assessee appellant has claimed that it obtained advertisement services from the said party.
M/s. Sadhna Media is big television studio operating Sadhna Channel which is a famous and well known channel for showing religious/devotional/spiritual content all over India and commands immense viewership. The assessing officer considered the disallowance on the basis of so-called statement of an employee Shri. Sulabh Dixit, working with Sadhna Group and the report of the assessing officer of the said party as extracted at page 250-251 para 34 of the assessment order. As with regard to Kamdhenu Media (P) Ltd. and Prabhatam Advertising (P) Ltd., the case is similar to Sadhna Media (P) Ltd.
12.2 Coming to addition to 18 parties the case of the assessee is that notice under section 133(6) of the Act was issued by the assessing officer to 33 parties to whom the appellant company had made payments towards sales promotion, entertainment, advertisement and publicity expenses during the year. Out of the notices issued to 33 parties, it is submitted that replies from 14 parties have been received and accepted by the assessing officer in the assessment order and for balance 19 parties, it has been held that no reply has been received there from. In this regard, it is pointed out that out of the 18 parties (wrongly mentioned as
19) alleged to have not responded, it is submitted that the assessee vide letter dated 29.12.2019 duly placed on record the factum of 9 parties (out of the 18 15 ITA No.3071/Del/2022 ITA No.246/Del/2023 parties) having complied with the notice issued under section 133(6) and the details as directed to be furnished by the assessing officer were submitted through email or otherwise. The details of the 9 parties who had responded is tabulated as under;
Sl. No Name of Party Amount (in As intimated by
lakhs) the party
1. 1. Prem Industries Unit-ll 28 Replied
1.2. J.C. Print Services 29 Replied
1.3 Scarecrow Communications Ltd 75 Replied by email
1.4 VP Creations 63 Replied
1.5 ISOBAR (division of Aegis Media 323 Replied by email
India Pvt Ltd)
1.6 Neonlight Pictures 20 Replied by email
1.7 Dentsu Media and Holdings India 50 Replied by email
1.8 Tara Marketing Solutions Pvt. Ltd. 9 Replied by email
1.9 Prem Industries Unit-ll 28 Replied
Total 625
12.3 The copy of reply so filed is filed before us in the paper book. Further, w.r.t. the remaining 9 parties (out of 18 parties) from whom response, as alleged by the assessing officer, was not received, the amount of expenditure incurred by the appellant company was explained as under:
Sl. No Name of Party Amount
(in lakhs)
1. 1. Shree Sai EnterprisesPrem Industries Unit-ll 75
1.2. KD JP Steels Pvt. Ltd. 7
1.3 Aryan Manpower 3
1.4 Curiosity Marketing 3
16
ITA No.3071/Del/2022
ITA No.246/Del/2023
1.5 Spire Advertisement 2
1.6 MIQQI Data Solutions 5
1.7 Charming Event and Promotion Pvt. Ltd. 4
1.8 Universal Solution Services 6
1.9 Eureka Products Marketing 14
Total 119
12.4 On the basis of aforesaid table(s), ld. AR submitted that 9 parties had duly furnished necessary documents along with their reply as directed by the assessing officer and to whom payment of Rs.6.25 crore was made during the year. As regards balance 9 parties from whom information has purportedly not been received, it would be noted that the expenditure incurred in respect of such parties is only to the tune Rs.1.19 crore which is meager 0.02% of total sales made by the appellant company for the relevant assessment year. It is further submitted that, as explained above, all the details sought by the assessing officer in the nature of invoices and mode and proof of payment etc., were duly submitted/ provided by the appellant. The assessing officer, and also the CIT(A) however, totally disregarded the documents furnished by the appellant company evidencing incurrence of such expenditure and its genuineness, without granting reasonable opportunity of being heard, has proceeded to complete the assessment proceedings by making addition under section 69C of the Act on the ground that the notices issued by the assessing officer were not responded/replied. 17 ITA No.3071/Del/2022 ITA No.246/Del/2023
13. In regard to addition made for expenses paid to Sadhna Media P. Ltd., ld. AR submitted that the assessee has obtained advertisement services from M/s. Sadhna Media which is a big television studio operating Sadhna Channel telecasting various entertainment/commercial/spiritual content all over India and commands immense viewership. However, the assessing officer considered the addition in respect of claim of expenses on the alleged ground that Sadhna Group was engaged in providing bogus billing. The assessing officer has also made reference to the statement of an employee Shri Sulabh Dixit, working with Sadhna Group and the report of the assessing officer of the said party was extracted at page 250-251 para 34 of the assessment order.
14. Now what is relevant here is that the transaction is duly supported from documentary evidences in the form of invoices and confirmation. Further, the invoices contains specific details of service provided such as outdoor advertisement in the form of hoarding and telecast on TV channel. The payment was made through banking channel after deduction of TDS. The party has duly affirmed the transaction in response to notice u/s 133(6) of the Act and as such the identity of the party is not in dispute. The assessee has obtained similar services from the party in the preceding assessment years as well which have been accepted without any dispute and as such the adverse inference in the year under reference is inconsistent and without any basis. The details of expense, which were cited before the ld. CIT(A) also, claimed in the past are as under : 18 ITA No.3071/Del/2022 ITA No.246/Del/2023
AY 2013-14 Rs. 13,94,88,9577-
AY 2014-15 Rs. 18,02,17,3187-
AY 2015-16 Rs. 29,26,98,110/-
15. Now coming to the statement of Sh. Sulabh Dixit as relied there is nothing to show any incriminating statements or facts specifically involving were there before the ld. AO. There is also force in contention of ld. AR that unconfronted statement of Sh. Sulabh Dixit has been used for drawing inferences. In this context we are of considered view that ld. CIT(A) has discarded the statements of Himanshu Verma and Parveen Agarwal for not being substantive piece of evidence but similar is the case of Sulabh Dixit, still without pointing any difference relied part of his statements.
16. Then we find that the assessment in the case of Sadhna Media P. ltd. for very same assessment year was completed u/s 143(3) which contains no finding or allegation regarding any cash payment or bogus billing to the assessee company and as such the entire basis of addition is fallacious and wholly inconsistent. In this context we find that the assessing officer in the assessment order of M/s. Sadhna Media P. Ltd, has recognized payment of Rs. 38.39 crores from DS Group and as such the payment of Rs. 33 crores by the assessee company is fully corroborated from the assessment order u/s 143(3) passed post search in the case of M/s Sadhna Media P. Ltd.. Then it comes up that upon 19 ITA No.3071/Del/2022 ITA No.246/Del/2023 appreciation of the facts of the case and after taking into consideration the assessment order in the case of Sadhna Media P. Ltd., the CIT(A) vide finding recorded at Page 48-51 Para 9.14 deleted the substantial addition to the extent of Rs. 27,08,07,039/- out of total addition of Rs. 33,00,00,000/-. However, without there being any case of the ld. AO and without any sort of evidences the ld. CIT(A) has assumed that expenses to extent of Rs. 5,91,92,961/- incurred by the M/s. Sadhna Media P. ltd. out of its unaccounted income is attributable to the assessee and the source of such expenses would have emanated from the assessee company. This conclusion is not only without any evidence but also does not match the assessment as stands concluded in the hands of M/s. Sadhna Media P. ltd. In this context we also find substance in the contention of ld. AR that the abbreviation used in the assessment is 'DS' which has been presumed to be with reference to DS group to which the assessee belongs. However, DS group is a conglomerate consisting of various companies and as such the drawing of adverse presumption by singling out the case of the assessee company is not justified. Then at Page 281-282 (internal page 50-51), the ld. CIT(A) has clearly noted that the DS group is not aware of any unaccounted expenses incurred by the Sadhna Media P. ltd. towards its advertisement. It is also mentioned in the impugned order that Sadhna Media P. ltd. was incurring these excess expenses on its own just to gain more business from the parties and there is no allegation of any bogus billing or cash transaction. Thus we are 20 ITA No.3071/Del/2022 ITA No.246/Del/2023 inclined to accept the contention of ld. AR that the ld. CIT(A) has fallen into an error in reaching conclusion on presumption about any arrangement or understanding between the assessee and Sadhna Media P. ltd. for incurring of expenses to the tune of Rs. 5,91,92,961/-.
17. In context to expenses disallowed as paid to Kamdhexru Media P. Ltd., the ld. AR has submitted that the assessee company has obtained advertisement services from the said party and the copy of ledger account and Form 16A is placed at PB Pg 201-202. The party has responded to notice u/s 133(6) and affirmed the transaction. In this context we find that the assessment order does not contain much discussion elaborating the basis of addition, however, it is gathered that the assessing officer has disputed the genuineness of the transaction based on a letter from DCIT Central Circle 32 which contains allegation of dummy directors in Sadhna group. It is apparent that the ld. CIT(A) vide has simply upheld the addition by treating the party as non-genuine.
18. In this regard, we are of considered view that the allegations contained in the internal letter from DCIT Central Circle 32 cannot be considered to be gospel truth without any corroborative enquiry of facts and relying evidences. Ld. AR has rightly pointed out that in fact, the arbitrariness of the approach in placing reliance on letter from DCIT is evident from the fact that said letter talks about cash deposit during demonetization which happened in subsequent year (FY 21 ITA No.3071/Del/2022 ITA No.246/Del/2023 2016-17) and not even relevant for the year under reference. There is also force in the contention that the letter of DCIT Central Circle 32 is primarily in respect of Sadhna Group and the CIT(A) having himself rejected the allegation of bogus billing or accommodation entry vis-a-vis Sadhna group, the entire basis of addition in respect of Kamdhenu media P. ltd. is non-existent and wholly untenable. There is no material on record to dispute the identity of the party or genuineness of the services rendered. Even otherwise, it is not the case of DCIT Central Circle 32 having jurisdiction over M/s. Kamdhenu Media P. Ltd. that this issue arise out of the assessment order or based on any material or evidence in his possession. Then ld. AR has also drawn support from the fact that Kamdhenu Media P. ltd. is an independent company and active as per MCA status and to connect it with Sadhan Group is not justified.
19. In regard to expenses of Prabhatam Advertising P. ltd., ld. AR has submitted that the assessee has availed advertisement services which includes outdoor hoardings. The transaction is supported from ledger account and invoices and subject to TDS u/s 194C. Further, the payment has been made through banking channel. The party has complied with notice u/s 133(6) of the Act. The documentary evidences are placed in PB Pg 185-228. We find that the assessing officer has not given any specific basis for considering the addition. The ld.CIT(A) has upheld the addition vide finding making reference to search on Sadhna Group and Prabhatam group, which cannot be considered to be set of 22 ITA No.3071/Del/2022 ITA No.246/Del/2023 evidence to connect Sadhna Group and Prabhatam Group. Even otherwise, merely on the basis of search in case of any entity, no adverse inference could be drawn in respect of recorded and confirmed transactions. It is relevant to observe that the assessee has been availing services from Prabhatam Advertising P. ltd, for past several years when they were not doubted. Ld. AR has provided the details of expense claimed in the past as under:
AY 2013-14 Rs. 13,94,88,9577-
AY 2014-15 Rs. 18,02,17,3187-
AY 2015-16 Rs. 29,26,98,110/-
20. Now coming to the addition in respect of 18 parties on the alleged ground of non- compliance to notice u/s 133(6) of the Act we find that the assessing officer has considered the addition in respect of the various parties on sole ground that the parties have failed to reply to notice u/s 133(6) of the Act. Before CIT(A), the assessee submitted that 9 out of 18 parties having aggregate transaction amount of Rs.6.25 crores have duly responded to notice u/s 133(6) and as such the very basis of addition stands vitiated. With respect to remaining 9 parties with whom the assessee had aggregate transaction worth 1.19 crores, it was submitted that the mere fact of non-compliance of notice u/s 133(6) cannot be the ground for addition particularly when payment was made through banking channel after deduction of TDS and transaction is supported from bills and 23 ITA No.3071/Del/2022 ITA No.246/Del/2023 invoices. The ld. CIT(A) accepted the factual error in the assessment order, however, without giving any cogent basis, restricted the disallowance to the extent of 20% in case of 9 parties who have responded to notice u/s 133(6) and upheld the balance disallowance of Rs. 1.19 crores.
21. As with regard to upholding of ad-hoc 20% disallowance to the extent of 1.25 crores, the disallowance upheld by the CIT(A) lacks justification and is purely based on conjectures and surmises. Ad-hoc disallowance are self destructive to case of AO and self explanatory qua claim of assessee. Reliance can be placed on catena of decision, including decision reported in PCIT v. Rambagh Palace Hotels (P.) Ltd. [2018] 98 taxmann.com 167 (Delhi) and CIT v. DLF Hilton Hotels [2016] 240 Taxman 495 (Delhi), where such ad-hoc disallowance have been held to be not sustainable under law.
22. Coming to claim of Rs. 1.19 crores relating to remaining 9 parties who have not complied with notice u/s 133(6) of the Act, Ld. AR has submitted that no adverse inference could be drawn merely on the ground of non-compliance to notice u/s 133(6) in absence of any clear adverse finding about genuineness of the expense particularly when the payment has been made through banking channel after deduction of TDS and the claim is supported from documentary evidences. The assessee is big company and avails services from various parties and suppliers spread all over India and the non-compliance of notice u/s 133(6) 24 ITA No.3071/Del/2022 ITA No.246/Del/2023 by few of the parties could be attributable to various factors such as change of address or non-delivery of notice. However, it is trite law that failure to comply to notice u/s 133(6) per se cannot be the valid ground for disputing the genuineness of transaction in absence of any fault on part of the assessee. Reliance is rightly placed by ld. AR on decision of Hon'ble Delhi high Court in PCIT Versus Wel Trade (P) Ltd. [2023] 152 taxmann.com 663. Non compliance of the notices issued by the AO u/s 133(6), cannot lead to conclusion that the transactions were bogus. Had the AO harboured any doubt regarding creditworthiness of this company, he could have made enquiry from the respective AO's of the above company as all the income tax particulars in respect of above company are placed on record. Thus the additions as sustained by ld. CIT(A) are not justified and deserve to be deleted.
23. Lastly the Ground No. 5 is a consequential ground involving issue of computation of tax liability u/s 115BBE despite the fact that the final tax is assessable as per MAT u/s 115JB. Even though this ground now becomes of academic nature as the additions made in the assessment order u/s 69C are held to be not sustainable still what is material is that even after the various additions made in the assessment order, the final tax liability is payable based on book profit u/s 115JB. However, the assessing officer computed separate tax liability in respect of additions u/s 69C in terms of section 115BBE even though the additions were made to the normal income and aggregate tax on assessed income 25 ITA No.3071/Del/2022 ITA No.246/Del/2023 under normal provisions was less that tax on book profit u/s 115JB. The ld. CIT(A) has upheld the action of the assessing officer is raising separate demand in respect of additions made u/s 69C r.w.s. 115BBE of the Act. In this regard, it is submitted by ld. AR that Section 115JB of the Act, starts with a non- obstante clause and while overriding all the other provisions of the Act (including Section 115BBE) provides that where tax payable (MAT) on book profits under section 115JB is more than tax computed under normal provisions of the Act, then tax shall be payable under the former provisions.
24. In facts of the present case, since the tax on assessed income under the normal provisions is lower than the tax liability (MAT) on book profits under section 115JB, then by virtue of non-obstante provision of the said section, the same would even override special tax rate prescribed under section 115BBE on undisclosed income, and tax liability shall only be determined under section 115JB of the Act. It should be further appreciated that the provisions of section 115BBE, unlike section 115JB, do not over-ride other provisions of the Act and thus, for that reason too, the provisions of section 115JB will prevail over the provisions of section 115BBE of the Act. It is pertinent to mention that the case for AY under consideration was subsequently reopened u/s 147 and the assessing officer while passing order u/s 147 himself accepted the above position and computed final tax liability based on book profit u/s 115JB vide order u/s 154/147 dated 23/05/2023 and as such the stand taken while passing assessment 26 ITA No.3071/Del/2022 ITA No.246/Del/2023 order u/s 143(3) is unsustainable and stands negated by the assessing officer himself. In view of the aforesaid, it is submitted that the interpretation given by CIT(A) is erroneous and no separate demand could be raised u/s 115BBE in case the final tax liability is determinable u/s 115JB of the Act.
25. Consequently grounds raised in appeal of assessee are sustained and in appeal of revenue stand rejected. Consequently the appeal of assessee is allowed and of revenue dismissed with consequences to follow by deletion of additions.
Order pronounced in the open court on 17.01.2025.
Sd/- Sd/-
(S. RIFAUR RAHMAN) (ANUBHAV SHARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 17th January, 2025.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asstt. Registrar, ITAT, New Delhi
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