2024 (6) TMI 1276 - AT - Income Tax

Addition made under excess receipts from contract works - As per AO assessee has designed the contract receipts to bring the unaccounted money into the books of account - CIT(A) deleted addition - HELD THAT - Merely granting sub-contracts without any corresponding development activities will not legalize the unlawful amount paid by the said MEIL to the assessee in the guise of the running bills. Further nothing had been brought out on record that the State Government had permitted MEIL to grant sub- contract to assessee. Accepting the income disclosed by the assessee as legal income would be illogical, contrary to law and undermine the purpose of construction activities. In fact, it is difficult to comprehend that such activities were permitted to be carried out unabetted by the State Government and huge amount has allegedly been released to such contractors. The time has come where some suitable mechanism should be put in place by the State Government or other agencies against such contractors so that there should not be any siphoning or diversion of funds meant for development by any unscrupulous contractor. If today we decide this issue against the Revenue, by legalizing the payment merely because the contractor had submitted the confirmations of grant of contract then it would set a wrong precedent and there would not be any actual construction / development works would take place. Since in the present case, the Revenue authorities have failed to examine the details of the work contracts awarded and the payment made by the Government which are relatable to various stages of work contract, therefore, we remit back the matter to the file of Assessing Officer for fresh examination. Needless to say while examining the matter afresh, the Assessing Officer shall take the assistance from state Government Development Agencies and other statutory enforcement agencies to find out the terms of the allotment of the contract, execution, performance, quality control etc., and whether the assessee can divert the funds meant for development to its other activities namely, aircraft / solar power business. Thereafter, considering the inputs from the State Government and other enforcement agencies the Assessing Officer shall decide the matter in accordance with law after granting due opportunity of hearing to the assessee. In case, the Assessing Officer comes to the conclusion that no work has been executed by the assessee or only a small part of the work has been executed then to pass the assessment order accordingly. Thus, ground no.2 is allowed for statistical purposes. Addition towards STCG Short Term Capital Gains - the value of the shares deserves such a huge price, it is not clear why the earlier company has sold these shares at a meagre price of Rs.10/-.- CIT(A) deleted addition - HELD THAT - Since we are remanding ground no.2 back to the file of Assessing Officer, therefore, it is deemed appropriate to remand this issue also to the file of Assessing Officer, to maintain the consistency.

Summary

Issues Involved:
1. Deletion of addition made under excess receipts from contract works.
2. Deletion of addition towards Short Term Capital Gains (STCG).

Issue-wise Detailed Analysis:

1. Deletion of addition made under excess receipts from contract works:

The Revenue appealed against the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision to delete the addition of Rs. 116,04,55,413/- made under Section 68 of the Income Tax Act, 1961, on account of excess receipts from contract works. The Assessing Officer (AO) had initially made this addition, suspecting that the assessee had designed the contract receipts to bring unaccounted money into the books of accounts. The AO treated the excess receipt as unexplained cash credits under Section 68 of the Act, after verifying the appellant's submissions and considering the actual work done to the extent of Rs. 14,65,65,865/- only.

The CIT(A) deleted the addition, stating that the appellant had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions with M/s. Megha Engineering & Infrastructures Limited (MEIL). The CIT(A) also noted that the AO had accepted the explanation of the appellant in the remand report, which confirmed that the addition could not be sustained under Section 68 of the Act. The CIT(A) further considered the possibility of invoking Section 69C of the Act for unexplained expenditure but found no evidence to support this claim.

The Tribunal, however, found that the CIT(A) had not adequately verified the details of the expenditure provided by the assessee. The Tribunal noted discrepancies in the figures submitted by the assessee before the AO and the CIT(A), particularly regarding lease rentals, fuel expenses, and other expenses. The Tribunal observed that the expenditure claimed by the assessee for executing the work, over and above the cost of construction work of Rs. 14,65,65,865/-, had not been thoroughly examined by the CIT(A). The Tribunal also highlighted the unusual profit margin of over 90% claimed by the assessee, which was beyond human comprehension.

The Tribunal remanded the matter back to the AO for fresh examination, directing the AO to verify the details of the work contracts awarded, the payment made by the Government, and whether the assessee could divert the funds meant for development to its other activities. The AO was instructed to take assistance from state government development agencies and other statutory enforcement agencies to determine the terms of the allotment of the contract, execution, performance, quality control, etc. The Tribunal emphasized the need for a livelink between the allotment of the work, its commencement, execution, completion, and payment.

2. Deletion of addition towards Short Term Capital Gains (STCG):

The Revenue also appealed against the deletion of the addition towards STCG. The AO had made this addition, suspecting that the value of the shares deserved a higher price than the meager price of Rs. 10/- at which they were sold by the earlier company. The CIT(A) deleted the addition, but the Tribunal found that neither the Revenue nor the assessee had substantiated their claims with written submissions.

To maintain consistency, the Tribunal remanded this issue back to the AO for fresh examination, along with the issue of excess receipts from contract works. The Tribunal directed the AO to decide the matter in accordance with the law after granting due opportunity of hearing to the assessee.

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, remanding both issues back to the AO for fresh examination and verification. The Tribunal emphasized the need for a thorough and reasoned assessment, considering the inputs from state government development agencies and other enforcement agencies. The Tribunal's decision was pronounced in the open court on 22nd February 2024.