ACIT, Income Tax Department, New Delhi vs Tumlare Software Services Pvt. Ltd.

“1.

Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in holding that u/s 143(3) of the Act, additions cannot be made, if the show cause notice has not been issued wherein draft assessment order was provided to the assessee well in advance before passing of final assessment order.

2.

Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.29,32,481/- made by the Assessing Officer on account of computer maintenance.

3.

Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.3,59,622/- made by the Assessing Officer on account of buildings maintenance.

4.

Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.51,72,500/- made by the Assessing Officer on account of Auditors payments.

5.

Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.1,64,15,333/- made by the Assessing Officer on account of deficit in sale of service.

6.

Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.72,29,654/- made by the Assessing Officer on account of directors payment.”

(1)

The Appellant Company was incorporated on January 01, 1999 in India to provide various software related services viz. applications development, testing and debugging functions, application’s Maintenance and other application development activities.

(2)

The company has filed its income tax return vide ack no 383430631301118 for the assessment year 2018-19 on 30^th Nov 2018. The return was filed on the basis of available books of accounts not on the basis of audited financial report keeping in view that the last date of filing the return of income was 30^th Nov 2018 to comply with the provisions of the Act. The reason for filing the return of income on the basis of available unaudited books of accounts was that the company has noticed miss- appropriation of funds by the then management/employees of the company who were managing the financial activities during the financial year 2017-18. Consequently, the then management along with the statutory auditors of the company has been replaced by the parent company. Thereafter, the parent company has appointed the new management and new management has started the process of investigation to find out the quantum and reason of miss- appropriation of funds in the financial year 2017-18. After, that keeping in view of the process of investigation the new management has filed an First Information Report (FIR) against the persons who were involved in the miss-appropriation on 06^th Feb 2018 with Economic Offence Wing (EOW) New Delhi (Copy of FIR attached as Annexure-1).

(3)

The company in its EGM finally appointed the new statutory auditor on 17.01.2019, and thereafter the audit has been started by the new statutory auditor (Copy of appointment, consent of new statutory auditor and ADT-1 is attached as Annexure-2).

(4)

As a law abiding company, it was an understanding of the company that the return of income shall be filed on or before due date i.e. 30^th Nov 2018 and revised once the books of accounts finalized and audit completed on or before the due date u/s 139(5) of the Income Tax Act, 1961, but that could not happened because the audit was not completed and the time for revising the return was time barred under the law.

(5)

The Ld. Assessing Officer has not followed the procedure laid down in the faceless assessment scheme, para xi of the scheme which clearly states that:-

“provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made”

Whereas the Ld. A.O has made the additions/disallowance without giving any Show Cause Notice to the appellant on the proposed additions/disallowance which were made in impugned assessment order, thereby acting, we may submit with respect, in an unjustified, arbitrarily, illegal, against the facts and null and void.

Further, we would like to draw your attention on the fact that neither a show cause notice issued nor any draft assessment order has been served to the assessee. Even the company was in shocked after receiving the assessment order directly after the notice issued under section 142(1) dated 22th Dec 2020 vide DIN: 1TBA/AST/F/142(1 )/2020-21/1029146958(1), the copy of the same is attached as Annexure-3 for your kind consideration.

Furthermore, we would like to submit that there is no draft assessment has been shared with the assessee and the screenshot of the e-proceeding portal is attached to your kind consideration which itself apparent clear that the Ld. A.O had passed the impugned assessment order without issuing/serving any show cause notice and/or any draft assessment order. Also, the date wise details of all notices issued by the Ld. A.O during the whole assessment proceedings is reproduced below for your kind consideration:-

S.No.	Date of Notice	DIN	Section	Due date of compliance as per Notice	Response filing Date by Assessee
1	23-09- 2019	ITBA/AST/S/143(2)/2019- 20/1018229299(1)	143(2)	08-10-2019	17-10- 2019
2	01-02- 2020	ITBA/AST/F/142(1)/2019- 20/1024570182(1)	142(1)	14-02-2020	27-02- 2020
3	15-10- 2020	ITBA/AST/S/86/2020- 21/1028267575(1)	Letter to assessee	N.A	N.A
4	22-12- 2020	ITBA /AST / F / 142 (1 ) / 2020- 21/1029146958(1)	142(1)	30-12-2020	30.12.2020
5	07-04- 2021	ITBA/AST/S/143(3)/2021-22/1032262694(1) (copy of assessment order)	143(3)	N.A	N.A

Therefore, from the above details shared is apparent from records that there is no show cause notice and or any draft assessment order has been served on the assessee during the assessment proceeding which is ultra virus to the Faceless Assessment scheme and accordingly the whole assessment order should be quashed.(The screenshot of e-filing portal of assessee showing the above notices/letter issued by the Ld. A.O is attached as Annexure-4 for your kind consideration)

The same view has been accepted by the Honorable Delhi High Court in the matter of KL Trading Corporation vs National E-Assessment Centre Delhi. The Honorable High Court has stated that:-

"Since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation under Faceless Assessment Scheme 2019”

Similar view has been taken by the various Honorable High Courts in the following matters:-

1> SAS Fininvest LLP v National E-Assessment Centre Income Tax Department, New Delhi v Magick Woods Exports Private Limited v National e-Assessment Centre, Delhi.'It is evident from the records and documents produced by the assessee that the assessment order passed u/s 143(3) by the Ld. A.O has knowingly ignored the facts and didn’t apply any application of mind while making the additions or disallowances.

Ground No.2

“In this connection with the above, it is humbly submitted that the company is a multinational technology support company that serves as the trusted technology partner for businesses since 1999. Company is involved majorly in following services:-

•

App Development

•

Web Development

•

IT Security

•

Data Visualization

•

Websites Development

•

Cloud

•

Established brands reimagine their business through digitalization.

In a software company maintenance of a software is not less than development of a software with developing technologies and the business environment.

Further, when it’s about the software company, the major cost belongs to the cost of maintenance of the software from the total repair and maintenance cost as to lead the market, it’s necessary to adopt the latest enterprises software development trends and outrun the competition. The systems is updated with upgraded and smart technologies on a regular basis and runs seamlessly with high-end efficiency under maintenance.

Further, the Ld. A.O has never issued any show cause to the appellant about the details of the repair and maintenance amount of Rs. 29,32,481/-. Further, the Ld. A.O was making the assumption that the expenses are unreasonable and unjustified even when there is no justification has been asked to the company in respect of the said amount.

The company has claimed the expenditure under the head of repair and maintenance computed as under:-

Particulars	Amount (Rs.)	Remarks
Repaid & Maintenance - Monthly Fixed	22,36,518	Copy of Contract and Ledger attached as Annexure-5
Repaid & Maintenance - Computer	6,95,963	Copy of ledger attached as Annexure-5
Total	29,32,481/-

The CIT(A) has righty in making the decision and quashing the addition made in the impugned order by the Ld. A.O without applying his own state of mind that the company is in the software business and in software business the main amount will be spent on the contract of software development and related operational repairs.

Also, the Hon’ble CIT(A) has adjudicate the ground as follows:-

“The appellant has submitted the details of expenses with reference to repairs & maintenance of computer of Rs.29,32,481/- and it is evident that the appellant spent on maintenance of software which is not Capital in nature. The A.O has made this addition without issuing show cause notice and such addition is not warranted. Hence, the A.O. was not justified in disallowing the expenses of Rs.29,32,481/- towards repairs & maintenance of computer”

Therefore, addition done merely by making the assumption without issuing any show cause notice or asking of any explanation is not tenable in law and unjustifiable and totally ignoring the fact that assessee is a software company and for a software developing company the major cost was incurred on maintenance and development of a software.

In this connection reference, may be made to the observations of the Hon’ble ITAT Delhi in the case of Sindhu Trade Links Ltd. Vs Add. CIT (ITAT Delhi) where it was held that:-

“The Assessing Officer held that as per the registered documents the market value of land is higher and stamp duty has been paid on the higher value which proves the rate of land in that are at the relevant period. But from the perusal of the Assessment order it cannot be seen that the Assessing Officer has brought out any evidence to substantiate that any amount more than what has been recorded in the sale deed was paid by the assessee and in the absence of any such evidence, no addition can be made merely on the basis of presumption”.

It is further seen that the Apex court in the case of S.A. Builders Ltd. Vs. CIT (A) 288 ITR 1(SC) has held that as under:-

“that once it is established that there is nexus between the expenditure and the purpose of the business, the revenue cannot justifiably claim to put itself in the armchair of the businessmen or in the position of the board of directors and assume the role to decide how much is reasonable having regards to the circumstances of the case”.

The Ld. Assessing Officer has not followed the procedure laid down in the faceless e- assessment scheme 2019, which clearly states that “provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made”

Whereas the Ld. A.O has made the additions/disallowance without any Show Cause Notice to the appellant on the additions/disallowance made in final assessment order, thereby acting, we may submit with respect, in an unjustified and arbitrarily manner.

The same view has been accepted by the Honorable Delhi High Court in the matter of K L Trading Corporation vs National E-Assessment Centre Delhi. The Honorable High Court has stated that:-

"Since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation under Faceless Assessment Scheme 2019”

Similar view has been taken by the various Honorable High Courts in the following matters:-

 SAS Fininvest LLP v National E-Assessment Centre Income Tax Department, New Delhi  Magick Woods Exports Private Limited v National e-Assessment Centre, Delhi.

In view of the above discussion duly supported by authoritative judicial pronouncements on the subject, it is respectfully that there is no ground for the sustenance of the unjustified action of the Ld. Assessing Officer. Hence, as already accepted by the Hon’ble CIT(A) that, there is no show cause notice has been issued on the assessee in the assessment proceedings therefore, it is prayed to the Hon’ble Court to set aside the whole proceedings and quashed the assessment order itself.

Ground No.3

“In this connection with the above, it is humbly submitted that the company has taken the premises on rent and the facts has been duly accepted by the Ld. A.O in its impugned order and paying rent of Rs. 30,19,957/- as mentioned in the impugned order.

The details of expenditure incurred on the repaid and maintenance is produced in tabular form as under:-

Particulars	Amount (Rs.)	Remarks
Maintenance charges - Srimanta Basu Malik	32,600	Copy of Ledger attached as Annexure-6
Repaid & Maintenance - Building	3,27,022	Copy of ledger attached as Annexure-6
Total	3,59,622/-

Further, here important to note is that when a premises has been taken on rent/lease there are various expenses which are not being of capital nature are incurred by the tenant and the same were charged to the statement of profit and loss account only. The contention of the Ld. A.O that there is no building or immovable property found in the audited financials is not justifiable and merely on the basis of assumption and grossly ignoring the facts of the case.

Also, the Hon’ble CIT(A) has adjudicate the ground as follows:-

“The reason given by the AO was that there was no building in the fixed asset schedule and therefore the claim appears to be suspicious. The AO however accepts the fact that the appellant has incurred rent of Rs.30,19,957. There is no prohibition in the Act that in relation to rented premises, repairs and maintenance expenditure cannot be incurred and claimed as allowance. The fact that the AO did not give any show cause notice also further weakens the case of the revenue. Therefore, the AO is directed to delete the addition made on suspicion and without opportunity to the assessee”.

The Ld. A.O has never issued any SCN to the appellant to explain or justify the said expenditure and hence the contention of the A.O that the genuineness of the expenditure cannot be established is baseless and is on assumptions only and the same fact was duly upheld by the Hon’ble CIT(A).

It is further seen that the Apex court in the case of S.A. Builders Ltd. Vs. CIT (A) 288 ITR 1(SC) has held that as under:- “that once it is established that there is nexus between the expenditure and the purpose of the business, the revenue cannot justifiably claim to put itself in the armchair of the businessmen or in the position of the board of directors and assume the role to decide how much is reasonable having regards to the circumstances of the case”.

The Ld. Assessing Officer has not followed the procedure laid down in the faceless e- assessment scheme 2019, which clearly states that ‘‘provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made”

Whereas the Ld. A.O has made the additions/disallowance without any Show Cause Notice to the appellant on the additions/disallowance made in final assessment order, thereby acting, we may submit with respect, in an unjustified and arbitrarily manner.

The same view has been accepted by the Honorable Delhi High Court in the matter of K L Trading Corporation vs National E-Assessment Centre Delhi. The Honorable High Court has stated that:-

"Since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation under Faceless Assessment Scheme 2019”

Similar view has been taken by the various Honorable High Courts in the following matters:- SAS Fininvest LLP v National E-Assessment Centre Income Tax Department, New Delhi¹²  Magick Woods Exports Private Limited v National e-Assessment Centre, Delhi.¹

In view of the above discussion duly supported by authoritative judicial pronouncements on the subject, it is respectfully that there is no ground for the sustenance of the unjustified action of the Ld. Assessing Officer. Hence, as already accepted by the Hon’ble CIT(A) that, there is no show cause notice has been issued on the assessee in the assessment proceedings therefore, it is prayed to the Hon’ble Court to set aside the whole proceedings and quashed the assessment order itself.”

Ground No.4

“Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 51,72,500/- made by the Assessing Officer on the account of Auditor’s Payments.

In this connection with the above, it is humbly submitted that the company has paid the amount of Rs. 51,72,500/- to the auditor for the following payments:-

1)

Statutory Audit - Rs 11,00,000/-

2)

Tax Audit and Other Taxation Matters - Rs 15,82,500/-

3)

For Company Law Matters - Rs 1,50,000/-

4)

For other including audit of group company - Rs 23,40,000/-

The above payments are made by the company on account of various services taken from the Deloitte Haskins and Sells LLP a reputed chartered accountant firm from time to time during the financial year 2017-18 for its service provided to company the copy of invoices is attached as Annexure-7 for your kind consideration.

The Ld. A.O on the basis of his assumption that:-

“the assessee company failed to file or upload a valid statutory tax report in prescribed time frame and even after the said default the assessee company is debiting its audited financials with said huge amount on account of audit fee or payment to auditors” is not tenable as the function of audit is a time consuming process and for any delay in filing the return or audit report there are separate provisions under the statute of income tax act.

Also, the Hon’ble CIT(A) has adjudicate the ground as follows:-

“The reasons given by the AO for disallowance are far from satisfactory to resort to the disallowance without giving any opportunity to the assessee. Taking into account the documentation filed along with written submissions, the AO is directed to delete the disallowance”.

The Ld. A.O has never issued any SON to the appellant to explain or justify the said expenditure and hence the contention of the A.O that the genuineness of the expenditure cannot be established is baseless and is on assumptions only.

It is further seen that the Apex court in the case of S.A. Builders Ltd. Vs. CIT (A) 288 ITR 1(SC) has held that as under:-

‘‘that once it is established that there is nexus between the expenditure and the purpose of the business, the revenue cannot justifiably claim to put itself in the armchair of the businessmen or in the position of the board of directors and assume the role to decide how much is reasonable having regards to the circumstances of the case”.

The Ld. Assessing Officer has not followed the procedure laid down in the faceless e- assessment scheme 2019, which clearly states that ‘‘provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made”

Whereas the Ld. A.O has made the additions/disallowance without any Show Cause Notice to the appellant on the additions/disallowance made in final assessment order, thereby acting, we may submit with respect, in an unjustified and arbitrarily manner.

The same view has been accepted by the Honorable Delhi High Court in the matter of K L Trading Corporation vs National E-Assessment Centre Delhi. The Honorable High Court has stated that:-

"Since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation under Faceless Assessment Scheme 2019”

Similar view has been taken by the various Honorable High Courts in the following matters:- SAS Fininvest LLP v National E-Assessment Centre Income Tax Department, New Delhi¹²  Magick Woods Exports Private Limited v National e-Assessment Centre, Delhi.¹

In view of the above discussion duly supported by authoritative judicial pronouncements on the subject, it is respectfully that there is no ground for the sustenance of the unjustified action of the Ld. Assessing Officer. Hence, as already accepted by the Hon’ble CIT(A) that, there is no show cause notice has been issued on the assessee in the assessment proceedings therefore, it is prayed to the Hon’ble Court to set aside the whole proceedings and quashed the assessment order itself.”

Ground No.5

“In this connection with the above, it is humbly submitted that the company has filed its original returned of income on the basis of available unaudited books of accounts and declared total turnover/total revenue 11,78,26,561/-and correspondingly the total expenses claimed of Rs 9,81,90,329/- and declared resultant total profit as per the profit and loss account of Rs.1,49,90,981/-. Whereas, assessee company has also submitted the audited financial report along with the revised computation of income on the basis of audited books of accounts and declared total turnover/total revenue 13,42,41,894/- and correspondingly the total expenses claimed of Rs11,40,51,371/-and declared resultant total profit as per the profit and loss account of Rs.1,54,07,865/-.

Also, as discussed in detail in the above Ground No. 4, the audit of the company has been finalized by the statutory auditor and on the basis of audited books of account and the turnover, expenditure, profitability and tax payments has been calculated as under:-

Particulars

Turnover as per Unaudited Books/ITR

Turnover as per Audited Books/Revised Computation of Income Submitted during Assessment

Variance, if any

Sale of Services 11,78,26,561/- 13,42,41,894/- 1,64,15,333/-

Expenditure	9,81,90,329/-	11,40,51,371/-	1,58,61,042/-
Profit before tax	1,49,90,981/-	1,54,07,865/-	4,16,884/-
Total Income under Normal Provision of Income Tax Act	1,18,76,815/-	1,79,07,584/-	60,30,770/-
Total Income under MAT	1,61,89,480/-	1,57,48,834/-	4,40,646/-
Tax Paid 11.	36,60,740/-	60,42,119/-	23,81,379/-

The Ld. A.O. has not apply his own state of mind and grossly ignored and made addition of Rs. 1,64,15,333/- on account variance in the turnover in between audited and unaudited books of accounts. But, not given the claim of the variation in expenditure of Rs. 1,58,61,042/- and passed the impugned order which is total arbitrary, illegal and bad in law.

The Ld. A.O has grossly ignored the fact that due to non-completion of audit, ITR was filed on the basis of unaudited data and the financial shared with the Ld, A.O during assessment was on the basis of audited data in which not only the turnover but all the others figures were recalculated including expenditures, profitability and taxes paid. Also, my lordship here important to note that the taxes paid by the company on the basis of audited financials is much higher than the amount of taxes paid in ITR which clearly indicating towards the facts that there is no suppression of sale.

Also, we would like to submit with your good office that there is no mala fide involved as assessee did not have intention of evading tax which is clearly evident from the fact that the assessee has suo-moto deposited the amount of tax arises due to the difference in audited and unaudited financials and as calculated in the revised computation of income submitted with the Ld. A.O during assessment proceedings. The tax deposited was well before the conclusion of assessment proceedings for the year under consideration.

Also, the Hon’ble CIT(A) has adjudicate the ground as follows:-

“It is not known whether the AO has taken into account the entire expenditure claimed in the revised computation of Rs.11,40,51,371 and validated the allowability or otherwise of each one of them. In the absence of the same, the AO cannot be permitted to take cognisance of facts favourable to the revenue and ignore the claims of expenditure as per revised computation of income. The AO ideally could have started the computation from the profit as per revised computation of income filed by the appellant during assessment. Not having done so, he cannot adopt ‘pick and choose’ approach in making additions. Besides, the appellant was not issued show cause notice as seen from the observations in the assessment order. Therefore, the said addition cannot be sustained and therefore the AO is directed to delete the addition made.

Further, the Ld. A.O had never issued any show cause notice to the appellant to explain the reason for such difference in sale of service i.e. turnover which is grossly in violation of principle of nature justice and against the Faceless Assessment Scheme 2019.

Whereas the Ld. A.O has made the additions/disallowance without any Show Cause Notice to the appellant on the additions/disallowance made in final assessment order, thereby acting, we may submit with respect, in an unjustified and arbitrarily manner.

The same view has been accepted by the Honorable Delhi High Court in the matter of K L Trading Corporation vs National E-Assessment Centre Delhi. The Honorable High Court has stated that:-

"Since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation under Faceless Assessment Scheme 2019”

Similar view has been taken by the various Honorable High Courts in the following matters:-

SAS Fininvest LLP v National E-Assessment Centre Income Tax Department, New Delhi

Magick Woods Exports Private Limited v National e-Assessment Centre, Delhi.

In view of the above discussion duly supported by the facts, circumstances and authoritative judicial pronouncements on the subject, it is respectfully that there is no ground for the sustenance of the unjustified action of the Ld. Assessing Officer.

Hence, as already accepted by the Hon’ble CIT(A) that, there is no show cause notice has been issued on the assessee in the assessment proceedings therefore, it is prayed to the Hon’ble Court to set aside the whole proceedings and quashed the assessment order itself.”

Ground No.6

“In this connection with the above, it is humbly submitted that the during the financial year 2017-18, company has paid Rs. 1,44,59,308/- to its key managerial persons as remuneration including the amount of reimbursements, share of provident fund, gratuity, leave encashment. The details of amount paid to persons specified under section 40A(2)(b) of the Act, is reproduced below:-

S.No.	Name of related person	PAN of related person	Relation	Amount Paid (In INR)	Remarks
1	Mr. Puneet Dhaiya	AAPPD3475K	Key Management Person	52,08,635	Remuneration and other
2	Mr. Anurag Mahajan	ABAPM7072M	Key Management Person	8,98,507	Remuneration and other
3	Mr. Amit Gupta	AGCPG6143Q	Key Management Person	83,52,166	Remuneration and other
Total				1,44,59,308/-

The Ld. A.O has mentioned in its impugned order that “the difference in the amount of remuneration paid to above key managerial personnel is nowhere justified in the audited financials but the fact that to such extent the remuneration is said is genuine and acceptable. In the instant case it assumes that 50% of the said payment of remuneration is justifiable or reasonable and rest of the payment of remuneration deserves to be disallowed”.

The Ld. A.O. has grossly ignore the fact that the note no 26C of the audited financials clearly mentioned that the period for which Mr. Anuraga Mahajan and Mr. Puneet Dhaiya hold a key management position in the company. Further, the Ld. A.O had never issued any show cause notice to the appellant to explain the reason for such a gigantic difference in remuneration paid hence the question of explaining the reason of difference is arbitrary and against the facts and law.

The Ld. A.O has itself in his impugned order has accepted the facts the remuneration paid is genuine and acceptable and later on without apply his state of mind and by grossly neglecting the facts of the case, disallowed the 50% of the remuneration on assumption basis. The reason for gigantic variation in remuneration is due to the resignation of Mr. Anurag Mahajan is for 1 months and 5 days, to Mr. Puneet Dhaiya is for 6 months and 3 days and for Mr. Amit Gupta is for 12 months during the financial year 2017-18. Therefore, it is crystal clear fact that there will be variation in the amount of remuneration paid. Further, the copy of resignation of Mr. Anurag Mahajan and Mr. Puneet Dhayia is attached as Annexure-8

Also, the Hon’ble CIT(A) has adjudicate the ground as follows:-

“Form 3CD requires disclosure of payments made to specified persons u/s 40A(2)(b). The AO merely on the basis of the data available therein jumped to the conclusion that such payments are excessive or unreasonable without bringing any data on record as to how such inference was drawn. This is just not a straightforward disallowance but requires to be made by the AO subject to the following conditions;

“Where the Income-tax Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from"

The AO has failed to make out a case as to how the conditions precedent have been satisfied in this case. Besides, unlike the other additions which are prima facie called for and therefore more in the nature of mistakes in computation, this addition is a conscious addition based on valid data and therefore cannot be made without giving any opportunity to the appellant. Therefore, I have no hesitation in striking down this addition as not based on merits and having been made without following the principles of natural justice.

The Ld. A.O has never issued any SCN to the appellant to explain or justify the said expenditure and hence the contention of the A.O that the genuineness of the expenditure cannot be established is baseless and is on assumptions only.

It is further seen that the Apex court in the case of S.A. Builders Ltd. Vs. CIT (A) 288 ITR 1(SC) has held that as under: -

“that once it is established that there is nexus between the expenditure and the purpose of the business, the revenue cannot justifiably claim to put itself in the armchair of the businessmen or in the position of the board of directors and assume the role to decide how much is reasonable having regards to the circumstances of the case”.

Whereas the Ld. A.O has made the additions/disallowance without any Show Cause Notice to the appellant on the additions/disallowance made in final assessment order, thereby acting, we may submit with respect, in an unjustified and arbitrarily manner.

The same view has been accepted by the Honorable Delhi High Court in the matter of K L Trading Corporation vs National E-Assessment Centre Delhi. The Honorable High Court has stated that:-

"Since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation under Faceless Assessment Scheme 2019”

Similar view has been taken by the various Honorable High Courts in the following matters:-

•

SAS Fininvest LLP v National E-Assessment Centre Income Tax Department, New Delhi ²

•

Magick Woods Exports Private Limited v National e-Assessment Centre, Delhi.'

In view of the above discussion duly supported by authoritative judicial pronouncements on the subject, it is respectfully that there is no ground for the sustenance of the unjustified action of the Ld. Assessing Officer.

Hence, as already accepted by the Hon’ble CIT(A) that, there is no show cause notice has been issued on the assessee in the assessment proceedings therefore, it is prayed to the Hon’ble Court to set aside the whole proceedings and quashed the assessment order itself.

In this connection, the following submissions are made for and on behalf of the Appellant Company: -

(1)

A perusal of the assessment order and history of the assessment proceedings would show that no opportunity was provided to the Appellant Company to explain its position with respect to additions made in above paras of the assessment order. Consequently, the basic principles of natural justice which involve reasonable application of prescribed procedures with a view to promote natural justice and prevent its miscarriage have been derailed and sabotaged.

(2)

A proceedings without issuing a show cause notice and or draft assessment order is null and void-ab-initio as per the procedures laid down in the faceless assessment scheme. Therefore, it is humbly prayed to this Hon’ble Court to set aside the impugned assessment order and oblige.

(3)

As such a conclusion having a deep impact on the Appellant and conflicting with his consistent stand has been drawn without giving him at least a reasonable opportunity to present his point of view and to counter the arguments sought to be put forward by the Ld. Assessing Officer. The Ld Assessing Officer has acted, we may submit with utmost respect, rather unilaterally without giving the Appellant Company any inkling as to his thought process or the ultimate conclusion that he was striving to arrive at deriving at.

(4)

It should be noted that income-tax proceedings, being quasi-judicial in nature, have to confirm to certain basic principles/ canons of natural justice, one of which clearly entails an accused (assessee) being made aware of the charge/material/arguments against him and to give him a decent and adequate opportunity to counter the same which has undeniably been not provided to him in the instant case thereby leading the conclusions drawn and consequent additions made on that basis in sustainable, indefensible and void ab-initio.