IN 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 orders of 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 outset, we have to record that ITA No. 185/Hyd/2016 has to be taken as ex-parte qua Revenue, due to recusal of CIT-DR when case was part-heard. 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 major issue of reopening of assessment, on which additional grounds were also filed. After hearing preliminary issue of jurisdiction, arguments on issues on merits were continued on 5th August, 2016. As certain clarifications were required, case was adjourned to 19-08-2016 as part-heard on that day. However, on 19-08-2016, Ld. CIT, who appeared in 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 separate order sheet dt. 19-08- 2016, case was posted on 23-08-2016 on which date, Ld. CIT-DR appeared. After arguments were completed by Ld. Counsel for assessee, he refused to argue case for Revenue by stating that he has recused himself on earlier occasion and walked away from court without arguing case. In these circumstances, as there is no other person to argue case after having been heard appeal in ITA No. 185/Hyd/2016 is heard ex-parte qua Revenue. Smt. Kiranmayee was authorized to represent case at about 3.40 PM on 23-08-2016 through authorisation received by fax from Pr.CCIT, hence she is allowed to appear and argue other cases in group. Ld. Special Counsel, I.T.A. Nos. 185 & 186/Hyd/2016 :- 3 -: 285 & 286/Hyd/2016 Smt. Kiranmayee relied on orders of authorities and her arguments were taken on record. Though conduct of CIT-DR is deprecable, we do not wish to make any further comment on his behaviour in court, lest justice in matter should not suffer and thus we have properly taken into consideration facts emanating from record which may support stand of Revenue. Needless to observe that officers who need to properly monitor DR s conduct would certainly take appropriate action on erring officer. 3. We have perused documents placed on record including Paper Books upto 218 pages in 4 volumes and also written submissions. For sake of record, appeals in AY. 2006-07 are considered in detail. 4. Briefly stated, assessee is in business of real estate and has undertaken property development in 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 assessments but before appeal was decided by Ld.CIT(A), company s name was once again changed to Hillcounty Properties Ltd w.e.f. 16-08-2013. Even though same was acknowledged by CIT(A) in header of impugned orders, but in cause title of order, name of appellant was stated as M/s. Maytas Properties Ltd., only. However, approval for second appeal was granted in name I.T.A. Nos. 185 & 186/Hyd/2016 :- 4 -: 285 & 286/Hyd/2016 of Hillcounty Properties Ltd., and appeals were preferred by both parties in name of Hillcounty Properties Ltd. 5. This company was promoted by family of Shri B. Ramalinga Raju, Chairman of M/s. Satyam Computer Services Ltd. company has filed its return of income for AY. 2006-07 on 30-11-2006 declaring loss of Rs. 1,55,46,052/-. return was processed u/s. 143(1) of Act on 01-11-2007 accepting loss returned by assessee. For AY. 2007-08, assessee filed its return of income on 31-10-2007 declaring 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 IT Act dt. 25-03- 2011. reasons for reopening which are common for both assessment years [except assessment year and dates of processing of 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. company was floated by 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 Board of Directors with copy marked to SEBI has stated that Books of account of SCSL have been fudged for last several years. He further stated that revenues and profits were manipulated by falsification of accounts for last several years. sworn statement of Sri B. Rarnalinqa Raiu was recorded under section 131 of LT. Act, 1961 on 21-02-2009 in 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 facts and figures that were stated in his letter dated 7-01- 2009 addressed to Board of Directors. It has been ascertained by central investigating agencies that Sri B. Ramalinga Raju was fully conversant with activities and functions of SCSL and has pivotal role to play in exercising control over affairs of this company and decision making with respect to it and its implementation. As chairman of SCSL, he has signed on financial statements showing inflated cash and bank balances, data on interest, data of income generated, investments and receipts and also suppressing liability status of 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 guise of carrying out agricultural activities. funds were mobilized by above companies from various NBFCs by pledging shares of family members. proceeds were thus converted into assets through 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 Board of Directors of SCSL. There is further information that some of funds advanced to M/s. SCSL have not been recorded in books of SCSL at behest of Sri B. Ramlinga Raju and that certain transactions entered in books of SCSL are not recorded in accounts of group companies like assessee company. 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 purpose of routing funds and to acquire vast tracts of lands in and around Hyderabad. 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. controlling directors of these front companies are family members of Sri B. Ramalinga Raju, including B. Rama Raju & others. It is believed that since accounts of M/s. Satyam Computer Services Ltd, are doctored and fabricated, accounts of M/s. Maytas properties Ltd.(Formerly Known as M/s. Maytas 'Hill County Ltd), which is closely connected do not reflect true and correct financial results being under same management and control. Further, Sri B. Ramalinga Raju is Chairman and Sri B. Rama Raju is CMD of M/s. Satyam Computer Services Ltd. Both persons have been accused in multi crore scam and are presently in judicial custody. assessee company I.T.A. Nos. 185 & 186/Hyd/2016 :- 6 -: 285 & 286/Hyd/2016 has been floated by persons belonging to M/s. Satyam computer Services Ltd. group, Viz., B. Rama Raju, who had direct control over affairs of assessee-company. Return of income filed by assessee company for A.Y.2006-07 has been processed u/s.143(1) of I.T. Act, 1961 and it is believed that assessee company in its return did not disclose material facts as below: a) facts relating fudging and manipulation of accounts of assessee company and transactions relating to SCSL, particularly with reference to transactions with other group companies like assessee company, as stated by Sri B. Ramalinga Raju in his statement. b) That there were variations in quantum of income and assets/liabilities of SCSL relating to front companies including asseessee company, as revealed in confessional statements etc and facts which came to light in investigations; c) there were manipulation of accounting statements and audit reports; d) Non-recording of inter company and related party transactions; There is scope for above facts will have bearing on company's own financial affairs, its consequent income and assets position. I have, thus, reason to believe that there is failure on part of 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 volume of transactions as stated above, within meaning of section 147 read with section149 of 1.1. Act, 1961. For above detailed reasons, it is proposed to issue notice to assessee under section 148 of I.T. Act to reopen assessment in assessee's case for assessment year 2006-07 for bringing to tax income chargeable to tax which has escaped assessment . 6.1. Thereafter, considering assessee s objections in reopening, which were rejected, AO referred accounts to Special Audit u/s. 142(2A) in both assessment years and completed assessment by making various additions in I.T.A. Nos. 185 & 186/Hyd/2016 :- 7 -: 285 & 286/Hyd/2016 respective assessment years. As against loss of Rs. 1,55,46,052/- returned by assessee, total income was determined at Rs. 15,18,05,583/- in AY. 2006-07. total addition made is to extent of Rs. 16,73,51,635/-. details of additions are as under: COMPUTATION OF INCOME & TAX Rs. ALONG WITH INTEREST Income/Loss Declared by assessee for 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 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 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 head HUDA 67,44,463/- Fees (as discussed in Para 9.5) 07 Addition under 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/- 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 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 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/- purpose of business (as discussed in para 9.10) Total Addition: 16,73,51,635 7. Similarly in AY. 2007-08 as against income of Rs. 98,43,780/- declared by assessee, following additions are made totalling to Rs. 2,11,67,31,975/- . COMPUTATION OF INCOME & TAX Rs. ALONG WITH INTEREST Income/Loss Declared by assessee for 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 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 depreciation claimed of Rs. 2,90,876/- on capitalized item, for want of requisite I.T.A. Nos. 185 & 186/Hyd/2016 :- 9 -: 285 & 286/Hyd/2016 evidence regarding existence of asset and for asset having been put to use and Addition (as discussed in para 9.3.9) in absence of requisite bill no cogences of capital expenditure made towards addition to vehicles to tune of Rs. 3,86,435 6,37,057/- is taken. Thus consequent depreciation claimed by assessee on 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 cost of development of land and charged to customers eventually) amounting to Rs. 1,30,53,852/- 07 subject payment of Rs. 5,67,00,000/- (as discussed in Para 9.5.5) under head other works contract works 5,67,00,000 given by assessee to M/s. Sarala Projects Pvt. Ltd., is not expenditure incurred for purpose of business of 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 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 head Corpus Fund (as discussed in 6,48,530 para 12) 17 Addition under 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 return filed by assessee in AY. 2007- 08, income for year was arrived at Rs. 2,48,37,383/- and after setting off carried forward loss declared in AY. 2006-07 at Rs. 1,51,93,624/-, total income was offered at Rs. 96,43,759/-. AO, in his anxiety to complete assessment and to make substantial additions, ignored set-off of brought forward losses made by assessee to extent of Rs. 1,51,93,624/-, whereas in AY. 2006-07 by virtue of making various additions that was turned into positive income. His computation of income has started from returned income only. Be that as it may, AO made substantial additions as detailed above in both years which was subject matter of appeals before 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 AO and gave relief on issue of interest disallowance in both years. He also set aside disallowances u/s. 40(a)(ia), both non-deduction as well as short deduction, following various case law. However, he has confirmed partly disallowance made u/s.40A(3) and confirmed substantial disallowance of cost of trunk road claimed by assessee in both years along with HUDA s fees paid as not relating to assessee s business. In some of issues like disallowance of expenditure on account of other works, non-deduction of tax, CIT(A) directed AO to examine and these were allowed by AO in consequential orders, after due examination. 8.1. In 2007-08 also, 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 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 above disallowance. 9. In assessee s appeals in addition to grounds on merits of amounts confirmed by Ld. CIT(A), assessee has raised grounds relating to action of AO in initiating proceedings u/s. 147 of Act. Assessee also raised following additional grounds in support of main grounds on issue of reopening: Additional Grounds of Appeal: i. learned Commissioner of Income-tax (Appeals) ought to have held that initiation of proceedings u/s. 147 are not valid. I.T.A. Nos. 185 & 186/Hyd/2016 :- 12 -: 285 & 286/Hyd/2016 ii. learned Commissioner of Income-tax (Appeals) ought to have seen that there are no financial transactions between appellant and Satyam Computer Services Ltd; that there is no mention in letter addressed by Sri B. Ramalinga Raju about financial affairs of appellant and no addition with reference to reasons recorded was made in re-opened assessment . Assessee s main contentions are that proceedings initiated are not valid. Further, reasons for reopening assessment have no nexus with additions made in assessment order. Therefore, assessment completed itself is bad in law. detailed submissions of assessee along with cases relied on by assessee on issue are as under: In assessment order, reasons for reopening assessment are mentioned at paras 3.1 to 4.2. In brief, Assessing Officer stated as under: a) Sri B.Ramalinga Raju, Ex-Chairman of Satyam Computer Services Ltd., sent letter to Board of Directors with copy marked to SEBI stating that-the books of account of Satyam Computer Services Ltd., have been fudged for last several years; b) statement of Sri B.Ramalinga Raju was recorded u/s 131 of I.T.Act on 21.02.2009 while he was in Central Prison and in his statement, he confirmed and reiterated facts and figures that are stated in his letter dated 07.01.2009 addressed to Board of Directors. c) Central Investigating Agencies ascertained that Sri B.Ramalinga Raju was conversant with activities and functions of Satyam Computer Services Ltd., and played pivotal role in exercising control over affairs of said company. d) As Chairman of Satyam Computer Services Ltd., he signed financial statements showing inflated cash and bank balances, data on interest, data on income generated, investments and receipts etc. e) All transactions were not recorded in books of Satyam Computer Services Ltd., at behest of Sri B.Ramalinga Raju. It is mentioned by Assessing Officer that accounts of Satyam Computer Services Ltd., are doctored and fabricated and, therefore, 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 true and correct financial results as it was under same management and control. For reasons mentioned above, Assessing Officer initiated proceedings u/s 147 and issued notice u/s 148 of I.T.Act. Similar notices were issued to other concerns of Satyam Group. question of validity of initiation of proceedings uj s 147 was decided by Hon'ble ITAT vide consolidated order in ITA No.1233/Hyd/2011 dated 31.12.2013. In said order, Hon'ble ITAT held as under: a) Hon'ble ITAT held that no valid reasons to reopen assessment of company were recorded as reopening was merely to examine veracity and financial implications between appellant company and Satyam Computer Services Limited. Hon'ble ITAT at para 16 of said order held that there is no reason to believe that income of assessee had escaped assessment. b) Hon'ble ITAT also observed that if there is any reason recorded, same is not based on tangible material. c) recording of reasons before issue of notice u/s 148 has no nexus with assessment made. d) reopening was on wrong foundation of reasoning of financial implications between appellant company and Satyam Computer Services Ltd., which was not established in assessment to justify reopening. e) reassessment completed u/s 143(3) rws 147 has no relationship at all for reasons for reopening. f) issues involved are similar. In view of above, appellant requests Hon'ble ITAT to hold that initiation of proceedings u/s 147 of I.T. Act are not valid . 10. There are no arguments by Revenue as Ld. CIT- DR refused to argue on this issue, even though he was present in court room on behalf of Revenue on 4th and 5th August, 2016. Ld. Sr. Standing Counsel relied on orders of AO on this aspect. I.T.A. Nos. 185 & 186/Hyd/2016 :- 14 -: 285 & 286/Hyd/2016 11. We have considered contentions and perused documents on record. As seen from order of AO, there is no doubt that assessment was reopened only to examine so called fraudulent transactions undertaken by Shri Ramalinga Raju, promoter of assessee-group, but nowhere in 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 disallowances made by AO are routine disallowances, which could have been examined in normal scrutiny. Therefore, there is no live link between reasons for reopening of assessment and completion of assessment in which various additions are made. Provisions of Section 147 are as under: Section 147: If [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to 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 course of proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as relevant assessment year) : Provided that where assessment under sub-section (3) of section 143 or this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under section 139 or in response to 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 first proviso shall apply in 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 Assessing Officer may assess or reassess such income, other than income involving matters which are subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1. Production before Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by Assessing Officer will not necessarily amount to disclosure within meaning of foregoing proviso. Explanation 2. For purposes of this section, 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 assessee although his total income or total income of any other person in respect of which he is assessable under this Act during previous year exceeded maximum amount which is not chargeable to income-tax ; (b) where return of income has been furnished by assessee but no assessment has been made and it is noticed by Assessing Officer that assessee has understated income or has claimed excessive loss, deduction, allowance or relief in return ; [(ba) where assessee has failed to furnish report in respect of any international transaction which he was so required under section 92E;] (c) where assessment has been made, but (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low rate ; or (iii) such income has been made 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 person is found to have any asset (including financial interest in any entity) located outside India.] [Explanation 3. For purpose of assessment or reassessment under this section, Assessing Officer may assess or reassess income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in course of proceedings under this section, notwithstanding that reasons for such issue have not been included in reasons recorded under sub-section (2) of section 148.] [Explanation 4. For removal of doubts, it is hereby clarified that provisions of this section, as amended by Finance Act, 2012, shall also be applicable for any assessment year beginning on or before 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 above provisions, if 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 course of 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, reasons for reopening are for examining fraudulent transactions undertaken by 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 Hon'ble High Courts. Co-ordinate Bench in 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 Assessing Officer had valid reasons to reopen assessment of assessee-company to examine veracities and financial implications between assessee company and M/s. Satyam Computer Services Limited. We rely upon decision of Hon'ble Supreme Court in case of Ganga Saran & Sons' P. Ltd. vs. ITO and others (supra) for proposition that if there is no rational nexus between reasons" and belief', so that on such reasons A.O. cannot have reason to believe that any part of income of assessee has escaped assessment and such escapement was by reason of omission or failure on part of assessee to disclose fully and truly all material facts, notice issued by A.O. is to be struck as invalid. 13. We also rely on decision of Sarthak Securities Co. P. Ltd. vs. ITO (2010) 329 ITR 110 wherein it has been held as follows : "That formation of belief was condition precedent as regards escapement of tax pertaining to assessment year by Assessing Officer. Assessing Officer was required to form opinion before he I.T.A. Nos. 185 & 186/Hyd/2016 :- 17 -: 285 & 286/Hyd/2016 proceeded to issue notice. validity of reasons, which were supposed to sustain formation of opinion, was challengeable". 14. In case of Hindustan Lever Ltd. vs. R.B. Wadkar, ACIT (No.1) (2004) 268 ITR 332 (Born.) (H.C.) Hon'ble Bombay High Court held as follows: "That notice was clearly beyond period of four years. reasons recorded by Assessing Officer nowhere stated that there was failure on part of assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, Assessing Officer had no jurisdiction to reopen assessment proceedings. notice was not valid and was liable to be quashed." 15. In case of Mahalaxmi Motors Ltd. vs. DCIT reported in (2004) 265 ITR 53 (A.P.) (H.C.) jurisdictional High Court has held that when all facts had been fully disclosed by petitioner, notice of re- assessment was not valid and was liable to be quashed. 16. We rely on 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 A.O. has not complied with mandatory condition, pre-condition for taking action under section 147 namely that 'reason to believe' that income of assessee had 'escaped assessment'. reason to believe is lacking. 17. Further, 'reason to believe' is not based on tangible material. We find that in case of Ranjit Reddy vs. Dy.CIT, Hyderabad (2013) 144 ITD 361 Coordinate Bench of this Tribunal has dwelled on contention of assessee that reopening of assessment is not permissible as there is no tangible material. relevant portion of Order is reproduced here under: "One needs to give schematic interpretation to words 'reasons to believe' failing which, section 147 would give arbitrary power to Assessing Officer to reopen assessments on basis of mere change of opinion, which cannot be per se reason to reopen. A.O. has no power to review; he has power to reassess. But reassessment has to be taxed on fulfilment of certain pre- conditions and if concept of 'change of opinion' is removed, then, in garb of reopening assessment, review would take place. One must treat concept of change of opinion as inbuilt test to check abuse of power by A.O. Hence, A.O. has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief" 17.1. Further, para 32 at page 483 in 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 Third Member Mumbai Bench in 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 case of CIT vs. Orient Crafts Ltd. (2013) 29 taxmann.com 392 and also by Gujarat High Court in case of Inductotherm (India) (p) Ltd. v. Dy. CIT in Special Civil Application 858 of 2006 dated 6.8.2012. Further, Bombay Bench in 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 matter reached to Tribunal learned Judicial Member took e view that there was no fresh material to support formation of belief of Assessing Officer that income chargeable to tax had escaped assessment and in absence of any fresh tangible material, he came to conclusion that it was not permissible for Assessing Officer to reopen assessment. learned Accountant Member, however, took different view relying on decision of Hon'ble Supreme Court in case of Rajesli Jhaveri Stock Brokers (P) Ltd. (supra) and matter, therefore, was referred to Third Member for resolving inter alia, following point of difference :- "Whether on facts and circumstances of proceedings initiated by A.O. u/s 147 is liable to be confirmed or quashed when there was no fresh material available with AO and assessment had been completed originally u/s 143(1)." Third Member agreed with view taken by learned Judicial Member relying mainly on decision of Hon'ble Supreme Court in case of Kelvinator of India Ltd. (supra) and Eicher Ltd. 320 ITR 561. It was held by Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to extent that reassessment notice issued u/s 148 in case where original assessment was made ii/ s 143(1) cannot be challenged on ground of mere change of opinion, it is open to assessee to challenge notice on ground that there is no reason to believe that income chargeable to tax has escaped assessment. As regards decision of Hon 'ble Supreme Court in case of Rajesli lhaveri Stock Brokers (P) Ltd. (supra) cited by Revenue and relied upon by- Accountant Member, Third Member held that same was applicable in cases where return was processed u/ s 143( 1) but later on notice was issued u/ s 148 and assessee challenges notice on ground that it is prompted by mere change of opinion. Third Member then referred to decision of Hon'ble Supreme Court in case of Keluinator of India Ltd. (supra) wherein it was held that there should be "tangible material" to come to conclusion that income had escaped assessment. Relying on said decision, it was held by Third Member that while resorting to section 147 even in case where only intimation had been issued u/ s 143(1)(a), it is essential that 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 AO from which he could entertain belief that income of assessee chargeable to tax had escaped assessment, Third Member held I.T.A. Nos. 185 & 186/Hyd/2016 :- 19 -: 285 & 286/Hyd/2016 that reassessment proceedings initiated by Assessing Officer were liable to be quashed on ground that there was no tangible material before Assessing Officer even though assessment was completed originally u/ s. 143(1). In our opinion, Third Member decision of Tribunal in case of Telco Dadajee Dhackjee Ltd. (supra) is squarely applicable in present case and respectfully following same, we hold that initiation of reassessment proceedings by Assessing Officer itself was bad in law and reassessment completed in pursuance thereof is liable to be quashed being invalid. We Order accordingly and allow ground No.1 of assessee's appeal. 18. To conclude, (i) recording of reasons before issue of notice under section 148 has absolutely no nexus with assessment made. (ii) That assessment made under sec.143(3) cannot be reopened under sec. 148 beyond period of 4 years as there is no failure on part of assessee to disclose fully and truly all material facts in original assessment itself. (iii) Assessing Officer had no tangible material to come to conclusion that there was escapement of income from original assessment. (iv) reopening was on wrong foundation of reasoning of financial implication between assessee-company and M/s. Satyam Computer Services Limited, which was not established in reassessment to justify reopening. (v) As can be seen from assessment order, assessment completed has no relation at all with 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 Assessing Officer has done in assessment is denial of explanations given by assessee with reference to various investments made through books of accounts, various credits and loans obtained and also addition to fixed assets on reason that evidences have not been filed. Thus as can be seen from order, there is no nexus at all with reference to reasons for reopening and assessment completed. 19. Hence, there being no nexus or live-link with reasons recorded and 'formation of belief to come to conclusion that there was escapement of income and also since assessment has been reopened beyond period of 4 years when there is no failure on part of assessee to fully and truly disclose all material facts in original assessment itself, and there being 'no tangible material' for reopening of assessment, CIT(A) erred in confirming order of Assessing Officer. We, therefore, hold that reopening of 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 above decision, which applies on all fours, we have no hesitation in holding that assessment completed has no nexus with 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 law on points and gave substantial relief on many of 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 findings of ITAT in various cases and law on issue. Not only that, on issues referred to AO for examination, AO has allowed claims in consequential order. only major issue contested in assessee s appeal is with reference to disallowance of cost of roads and fees paid to HUDA. Even though, AO relied on agreement to state that agreement was subsequent to laying of road and amount cannot be claimed as expenditure in assessee s business along with fees paid to HUDA, on perusal of agreement with fourteen land owning companies, who gave 85.90 acres out of total area of 374 acres (24.96%) for development, it was specified that cost of 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 expenditure, when assessee s project on 1/4th land is using those lands developed by land owning companies as well as other companies. total cost incurred by them was reimbursed by assessee to 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 course of hearing, we do not find any merit in order of AO and CIT(A) in disallowing expenditure by reading in between lines of agreement. agreement specifically provides for bearing cost of roads and development fee payable to HUDA and so assessee reimbursed cost and also fees paid to HUDA. Ld. CIT(A) allowed cost of fees of HUDA paid directly by assessee, but did not allow amount of fee reimbursed to land owning companies on reason that they paid HUDA fees much earlier to incorporation of assessee- company. In fact, assessee-company was floated for completing project which was approved in various individual companies and agreements specifically provide for cost to be borne by assessee-company. Accordingly, it has made debit entries in Books of Account, crediting those companies to extent of 25% of amount of cost on roads and HUDA fees paid. Considering agreements and entries in Books of Account, we are of opinion that this expenditure is allowable as part of project cost. We are also not sure how expenditure debited to project cost could be disallowed and brought to tax when project is not complete and assessee was estimating proportionate income to extent of project completed. In view of that, we are not in position to approve orders of AO even on merits of additions made. 14. Be that as it may, issues on merit will become academic, since we have already given finding that proceedings initiated itself are bad in law and assessment completed without making any addition on 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 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 conduct of Mr. B.V. Gopinath, CIT who was posted as Departmental Representative for week, and we direct Registry to forward one copy each to Revenue Secretary & Chairman, CBDT, so that they assess 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 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 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. M/s. Hill County Properties Ltd., (Formerly M/s. Maytas Properties Ltd) v. Addl. Commissioner of Income Tax, Central Range-3, HYDERABAD