2022 (11) TMI 1455 - AT - Income Tax

Disallowance of various expenses and disallowance u/s 40A(3) and Section 40(a)(ia) of the Act - HELD THAT - AO did not point out any defects in the books of accounts of the assessee. It is also an undisputed fact that payment towards most of these expenses was made by the assessee through banking channels after deduction of TDS, wherever applicable. Further, all the expenses have been incurred by the assessee for the purpose of business. Merely because increase in turnover from 19.15 crores in the preceding year to 23.55 crores during the year, such expenses could not have been doubted. As noticed that the turnover of the assessee increased resulting into increase in expenses during the year. However, the Ld. AO allowed credit of increase in expenses only to the extent of percentage increase in turnover which was not correct since the turnover of the assessee was in crores whereas the various expenses incurred by the assessee were in thousands or lacs only. Documentary evidences in support of its contention that all the expenses incurred and debited in the profit and loss account were genuine and incurred exclusively for the purpose of business were duly filed by the assessee. The assessee further demonstrated that it did not make any payment in cash to a single person in a single day in excess of Rs.20,000/- so as to warrant the invoking of the provisions of Section 40A(3) of the Act. The assessee also explained that it was not liable to deduct TDS on several other payments made during the year and consequently, no disallowance was called for under Section 40(a)(ia) of the Act. We further find that the Co-ordinate Bench in the case of the assessee itself for the A.Y. 2009-10 approved the net profit rate of 5% in the business carried on by the assessee whereas the net profit rate declared by the assessee for the A.Y. 2010-11 was 5.88% which was higher than the accepted net profit rate of 5%. Accordingly, additions made by the Ld. AO on account of disallowance of various expenses were not justified even on this count. Thus, considering the entire aspect of the matter, we are of the considered opinion that there was no justification for making additions on account of disallowance of various expenses and also on account of disallowance u/s 40A(3) and Section 40(a)(ia) of the Act. Addition of amount deducted by PWD for delay in completion of work - assessee itself debited such payment in its books of accounts under the head Penalty - HELD THAT - On perusal of bills and correspondence made, it is clear that amount deducted by PWD was towards compensation for delay in completion of work and that such amount as deducted was not penal in nature. We have also gone through the assessment passed u/s 147 of the Act in the case of the assessee for the A.Y. 2015-16 wherein the then Assessing Officer did not make any addition to the total income of the assessee and duly accepted the fact that amount deducted by PWD was compensatory in nature and not penal in nature. Thus, considering the entire aspect of the matter, we find no justification for sustaining addition on account of amount deducted by PWD for delay in completion of work particularly for the reason that the assessee has categorically explained with the help of ample documentary evidences that such deduction of amount was compensatory in nature and not penal in nature. Hence, disallowance of the amount deducted by PWD is not sustainable and, thus, deleted. Decided in favour of assessee. Estimation of net profit at the rate of 6% - AO during the course of assessment proceedings observed that the assessee did not produce its books of accounts and that some of the expenses could not be fully vouched and were open to verification - CIT(A) deleted addition - HELD THAT - AO himself accepted the amount of loss declared by the assessee in the subsequent year i.e. A.Y. 2012-13 which further strengthens the contentions of the assessee that its book results ought to be accepted for the year under consideration as well. In light of the factual matrix of the case, we are inclined to accept the book results declared by the assessee and we are in agreement with the findings of the Ld. CIT(A) in deleting the addition made by the Ld. AO on account of estimation of net profit. Thus there was no justification for making addition on account of estimation of net profit. The addition made by the Ld. AO on account of estimation of net profit cannot be said to be justified in view of the observations made hereinabove. Further, we find that the above findings of the Ld. CIT(A) have not been controverted by the Ld. CIT-DR by bringing any contrary material on record. Hence, we do not find any infirmity in the findings of the Ld. CIT(A) and accordingly, the deletion of addition. Addition u/s 68 - share application money received - HELD THAT - In the case in hand, the Ld. AO accepted the amount of Rs. 95,00,000/- received from the same investor company during the A.Y. 2010-11 as genuine and no addition was made to the total income of the assessee on this count. Hence, in our considered opinion, there was no justification for doubting the genuineness of the amount of share application money received from the same investor company during the A.Y. 2011-12. We also find that in the instant case by producing various documents, the assessee had proved that balance of convenience was in its favour. Thus, considering the entire aspect of the matter, we are of the considered opinion that there was no rationale for making addition to the total income of the assessee on account of share application money received from M/s SKS Ispat and Power Limited more so when the assessee by filing ample documentary evidences has satisfactorily discharged the primary onus cast upon it under Section 68 of the Act to justify the identity and creditworthiness of the investor company and genuineness of the transactions entered into with the said company. Further, the findings of the CIT(A) have not been controverted by the Ld. CIT-DR by bringing any contrary material on record. Decided against revenue. Validity of Reopening of assessment - maintainability of reassessment proceeding on account of change of opinion and on account of initiation of reassessment proceedings after the expiry of four years - HELD THAT - Assessing Officer during the course of assessment proceedings raised a specific query requiring the assessee to reconcile the difference in receipts shown in the profit and loss account as compared to receipts reflected in Form 26AS. As evident that the assessee duly explained the reason for difference in receipts shown in the profit and loss account as compared to receipts reflected in Form 26AS at the time of original assessment proceedings itself. Hence, in our considered opinion, case of the assessee reopened subsequently for examination of the same issue tantamounted to change of opinion which is impermissible as per Section 147 of the Act. The AO has the power to reassess but not the power to review under Section 147 of the Act since otherwise in the garb of reopening the assessment, review would take place. Reopening after the expiry of a period of four years from the end of the relevant assessment year - we are of the considered opinion that reassessment proceedings initiated in the case of the assessee suffer from legal infirmity and deserve to be quashed on this count also since case of the assessee was reopened after the expiry of four years from the end of the relevant assessment year even though original assessment was completed under Section 143(3) of the Act and there was no failure on the part of the assessee either to furnish his return of income or to disclose fully and truly all the material facts necessary for his assessment. Non disposing off the objections raised by the assessee by passing a speaking order - Order passed by the Ld. AO under Section 143(3) r.w.s. 147 of the Act cannot be sustained since the Ld. AO proceeded with the reassessment proceedings without following the mandatory procedure of disposing off the objections raised by the assessee by passing a speaking order. Thus reassessment proceedings initiated in the case of the assessee were illegal, bad in law and void-ab-initio - Decided in favour of assessee. Mobilization advance - Addition on account of amount received from GSPPL not shown as income during the year - HELD THAT - There was no justification for making addition to the total income of the assessee on account of amount received from GSPPL not shown as income more so when the assessee categorically explained that the said amount of advance was duly offered as income in the subsequent year i.e. in A.Y. 2013-14 when the work was actually performed by the assessee. The addition made by the Ld. AO cannot be said to be justified in view of the observations made hereinabove. Further, the findings of the Ld. CIT(A) have not been controverted by the Ld. CIT-DR. Hence deletion of addition made by the Ld. CIT(A) is confirmed. Decided against revenue. Accrual of income - gross income v/s net income - difference between gross receipts and receipts actually accounted for as income from SCCPPL - HELD THAT - Assessee had correctly offered the net amount received from SCCPPL as its income during the year. It is an undisputed fact that the amount of labour cess was directly deposited by SCCPPL and only the balance amount was remitted to the assessee. Hence, the assessee could not have been expected to offer the gross amount mentioned in the bill as its income since the actual amount received by the assessee after deducting the amount of labour cess only which had already been offered for tax by the assessee. There was no justification for making addition to the total income of the assessee on account of difference between gross receipts and receipts actually accounted for as income from SCCPPL. The addition made by the Ld. AO on account of difference between gross receipts and receipts actually accounted for as income from SCCPPL cannot be said to be justified in view of the observations made hereinabove. Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of disallowance of various expenses.
2. Deletion of addition on account of estimation of net profit.
3. Deletion of addition on account of share application money.
4. Deletion of addition on account of receipts not disclosed as income.
5. Deletion of addition on account of difference between gross receipts and actual receipts.
6. Condonation of delay in filing cross objection.
7. Validity of reassessment proceedings.

Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of Various Expenses:
The Revenue challenged the deletion of additions made by the Assessing Officer (AO) on account of disallowance of various expenses such as labor expenses, blasting expenses, site expenses, and others. The CIT(A) deleted these additions, noting that the AO did not point out any defects in the books of accounts, and most payments were made through banking channels with TDS deducted where applicable. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's disallowances were based on presumption without concrete reasoning and that the net profit rate declared by the assessee was higher than the rate accepted in the previous year.

2. Deletion of Addition on Account of Estimation of Net Profit:
For the assessment year 2011-12, the AO estimated the net profit at 6% based on the previous year's estimation without pointing out any defects in the books of accounts. The CIT(A) deleted the addition, considering the significant increase in depreciation and finance charges due to the purchase of new plant and machinery. The Tribunal upheld the CIT(A)'s decision, noting that the AO's estimation was not justified as the net profit rate declared by the assessee, after ignoring the increased depreciation and finance charges, was approximately equal to the rate accepted in the previous year.

3. Deletion of Addition on Account of Share Application Money:
The AO added Rs. 1,10,00,000/- received as share application money from M/s SKS Ispat and Power Limited under Section 68, doubting the genuineness of the transaction. The CIT(A) deleted the addition, noting that the assessee provided ample documentary evidence to establish the identity and creditworthiness of the investor and the genuineness of the transaction. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not conduct any independent enquiry and that the investor's financial statements showed substantial means to invest.

4. Deletion of Addition on Account of Receipts Not Disclosed as Income:
The AO added Rs. 3,75,50,000/- received from Guna Sheopur Pathways Private Limited (GSPPL) as income, treating it as payment for completed work as per the milestone schedule. The CIT(A) deleted the addition, noting that the amount was a mobilization advance for shifting plants and was shown as a liability in the books, with the income being offered in the subsequent year when the work was executed. The Tribunal upheld the CIT(A)'s decision, emphasizing that only real income, not hypothetical income, is chargeable to tax.

5. Deletion of Addition on Account of Difference Between Gross Receipts and Actual Receipts:
The AO added Rs. 7,42,880/- as the difference between gross receipts and actual receipts from SCC Projects Private Limited (SCCPPL), arguing that the assessee should have offered the gross amount as income. The CIT(A) deleted the addition, noting that the amount of labor cess was deducted by SCCPPL and only the net amount was received and offered as income by the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that the issue was merely one of presentation in the books of accounts.

6. Condonation of Delay in Filing Cross Objection:
The Tribunal condoned the delay in filing the cross objection by the assessee, noting bona fide reasons for the delay and the impact of Covid-19 on the filing process.

7. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings on multiple grounds, including change of opinion and initiation after four years without failure on the part of the assessee to disclose material facts. The Tribunal found that the reassessment was based on the same facts considered during the original assessment, amounting to a change of opinion, which is impermissible. The Tribunal also noted that the reassessment proceedings were initiated after four years without any failure on the part of the assessee to disclose material facts, rendering the proceedings invalid. Additionally, the AO did not dispose of the objections raised by the assessee by passing a speaking order, further undermining the validity of the reassessment proceedings. The Tribunal quashed the reassessment proceedings and set aside the AO's order.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the cross objections filed by the assessee, upholding the CIT(A)'s decisions on various grounds, including the deletion of additions on account of disallowance of expenses, estimation of net profit, share application money, and differences in receipts. The reassessment proceedings were also quashed due to being based on a change of opinion and initiated beyond the permissible period without proper justification.