2021 (6) TMI 751 - AT - Income Tax

Revision u/s 263 - case of assessee was reopened in respect of escapement of income through accommodation entry provided by Akash Agarwal group in the garb of bogus billing - PCIT observed that the AO s action of applying u/s. 44AD of the Act i.e. 8% on the purported accommodation entry from Akash Agarwal group is erroneous and resulted in under assessment of income - HELD THAT - Since actual contractual work (construction of new road (11 km.), leveling, formation of village road etc. as given in the table supra) has been found to have been executed by some other persons in the remote areas of mines situated at Barajamda, Jharkhand, the AO presumed that the purpose of availing the billing from M/s. Simplex must be for inflation of expenses and thereafter adopted the presumptive tax rate as envisaged u/s. 44AD of the Act. Since the AO s aforesaid finding is based on the evidence in the form of photos/work, completion report and the payment released by reputed companies for the successful completion/execution of works contract, the finding of the AO is a plausible view and cannot be termed perverse. It is trite law that only the net income can be brought to tax. For that expenditure incurred by the assessee has to be allowed to determine the net income of the assessee. In this case, the AO has found that assessee has executed the contract through some one. For execution of the work contract, the assessee received payment from the contractor and the assessee s expenditure incurred need to be allowed. For doing that AO has found that though bogus billing has been made through M/s. simplex, work contract has been executed through some one. So, he was of the opinion that procuring the bills through M/s. Simplex was for inflation of expenses and to plug the revenue loss on account of that he applied the presumptive tax rate u/s. 44AD. Therefore, the action of AO on the facts and circumstances as discussed is a plausible action and cannot at any rate by termed as unsustainable in law . Therefore, the action of Ld. PCIT to invoke the revisional jurisdiction is absent and therefore, the impugned action of Ld. PCIT is held to be bad in law and so quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
2. Validity of the Assessing Officer’s (AO) application of Section 44AD for determining income.
3. Assessment of alleged bogus billing and accommodation entries.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263:
The Assessee challenged the jurisdiction of the PCIT to exercise revisional jurisdiction under Section 263 of the Income Tax Act, 1961, on the grounds that the PCIT did not demonstrate how the AO's order was erroneous as well as prejudicial to the interest of the revenue. The PCIT noted that the AO had reopened the assessment for AY 2011-12 based on escapement of income through accommodation entries provided by the Akash Agarwal group. However, the AO recomputed the income by invoking Section 44AD, which the PCIT found inapplicable as the gross contract receipt exceeded ?60 lakhs. Consequently, the PCIT issued a show-cause notice to the Assessee and, after considering the Assessee's submissions, held the AO's order as erroneous and prejudicial to the revenue, setting it aside and directing a fresh assessment.

2. Validity of the Assessing Officer’s (AO) application of Section 44AD:
The AO reopened the assessment based on information that the Assessee availed accommodation entries for bogus billing. Upon examination, the AO found that the Assessee had executed actual contractual work but presumed that the billing from M/s. Simplex Infra Project Pvt. Ltd. was for inflating expenses. To guard against revenue leakage, the AO applied an 8% profit rate under Section 44AD. The Assessee argued that the AO conducted a thorough inquiry and was satisfied with the explanation and proof provided, thus the AO's decision should not be considered erroneous.

3. Assessment of alleged bogus billing and accommodation entries:
The AO concluded that the Assessee carried out actual contractual work, but the credentials of the sub-contractor, M/s. Simplex Infra Project Pvt. Ltd., could not be verified. The AO presumed that the purpose of availing bills from M/s. Simplex was to inflate expenses. Despite this, the AO determined the profit based on Section 44AD, which was challenged by the PCIT. The Tribunal noted that the AO's findings were based on evidence such as photos and work completion reports, making the AO's view plausible and not perverse. The Tribunal cited various judicial precedents supporting the AO's approach and concluded that the AO's action was sustainable in law.

Conclusion:
The Tribunal held that the PCIT's action to invoke revisional jurisdiction under Section 263 was not justified, as the AO's order was based on a plausible view supported by evidence and judicial precedents. Therefore, the Tribunal quashed the PCIT's order and allowed the Assessee's appeal. The order was pronounced in the open court on 18th June 2021.