9911796707
TMI Blog2019 (12) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) is not correct in law and on facts. 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition made on account of disallowance of excessive depreciation of ^ 2,10,53,292/- claimed by the assessee company, by ignoring the admitted fact that the contractors who had constructed the building for the assessee company inflated the cost of construction and thereby increased the value of capital assets which had resulted in excessive claim of depreciation. 3. The appellant craves leave to add, amend any/all the ground of appeal before or during the course of hearing of the appeal. 3. Briefly stated facts of the case are that the assessee company is one of the group company of M/s Educomp Group and was incorporated on 02/09/2006. It was engaged in business of providing infrastructural facilities to educational institution of the Educomp group. A search and seizure action under section 132 of the Income-tax Act, 1961 (in short 'the Act') was carried out on 18/08/2011 in the case of 'Educomp Group' including the assessee and its contractors. For the year under consideration, the assessee filed return of income on 29/09/2012 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brig (Retd.) Vikram Singh, Vice President of the assessee company in the capacity of the authorized signatory of such contractor. Annexures A-3, A-4, A-5 and A-8 seized from the said premises contain details of the nature of work contracts given to the said contractor and sub contractors allotted by such contractor to its own parties at meager rate. Thus, substantial evidence was found and seized which reflected that various contractors are acting in collusion with the assessee company to enable it to raise its cost of capital asset in order to claim enhanced depreciation and evade tax." 3.1 Thus, according to the Assessing Officer, the assessee has claimed excess expenditure on construction of the building through these two contactors, and thus claimed excess capitalization of asset of building and consequently claimed excess depreciation on building, which the assessee was not entitled for. 3.2 The Assessing Officer issued a detailed show cause notice to the assessee, the reply of which has been reproduced by the Assessing Officer in the assessment order. The assessee explained that various advances are given to contractors on account of construction contract on a progressive b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations of the AO that the activities of sub-contractors were being managed by the personnel of appellant is against the material on record, and that neither any document nor any evidence was found to establish the fact that the appellant had authorized its personnel to manage or supervise the affairs of subcontractors, nor any benefit in the form of salary or otherwise was derived by the personnel of the appellant from the contractors which may suggest in any manner that the operations of the sub-contractor companies were being used to inflate capital cost of assets. It has also been submitted that the total receipts offered by the sub-contractors is same as the cost of assets accounted for by the appellant and the appellant accounted for as the cost of assets the amount which was paid to the subcontractors and it is not the case of the AO that the cost of assets is more than the expenditure incurred by the appellant, nor has the AO brought on record any material to establish that the cost of assets accounted for in the books of accounts is more than the expenditure incurred, and that the sub-contractors offered the inflated expenditure in their accounts as their income in their c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement Services Pvt. Ltd. i. Total Advance Given 158,59,85,370 180,71,91,299 (5,96,49,496) ii. Cumulative capitalization by EISML (101,77,25,278) (126,16,58,703) iii. Less: Cumulative inflated expenses offered 10,00,00,000 15,00,00,000 iv. Net capital work-in-progress (91,77,25,278) (111,16,58,703) V. Invoices raised by JDMS 101,77,25,278 24,39,33,425 vi. Cumulative invoices raised by JDMS 32,73,66,279 126,16,58,703 126,16,58,703 vii. Excess of invoices vs capitalization by EISML (iv - vi) (34,39,33,425) (15,00,00,000) viii. Depreciation on excess capitalization (B) OSN Infrastructure & Projects Pvt. Ltd. i. Total Advance Given 138,84,99,263 7,05,29,978 ii. Cumulative capitalization by EISML 23,22,34,166^ iii. Less: Cumulative inflated expenses offered 14,70,00,000 iv. Net capital work-in-progress (8,12,34,166b V. Invoices raised by JDMS 23,22,34,166 4,02,07,799 vi. Cumulative invoices raised by JDMS 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was aware of the actual rate of work and money which flowed back to the contractors. According to the learned DR, it is apparent that the money has actually routed back to the assessee as flow of cash back from the subcontractor to the contractor was within the knowledge of the assessee. In view of the learned Departmental Representative, it is against human probability that assessee would allow such bogus payment to the contractor knowingly that actual rate of the work is very low and money is routed back from the subcontractor to the contactor. Regarding the computation of the depreciation by the Ld. CIT(A), the learned DR submitted that in case of Jubilant Developers and Management Services Private Limited, the amount of excess capitalisation has been computed at Rs. 15 croress, whereas it should have been the amount of Rs. 25 crores, i.e., the amount which has been offered by the contactor as undisclosed income. The Ld. DR also filed copy of the assessment order in the case of two contractor companies. 5. The Ld. counsel of the assessee, on the other hand, filed two paper-books containing page 1 to 74 and 1 to 104 respectively. He relied on the finding of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement Services Private Limited ( in short 'JDMS') to the extent of amount accepted by them in the return of income as expenditure not incurred actually. Thus, the Assessing Officer has excluded out of cost of building, the amount which has been admitted by the two contractors as not actually incurred. In facts of the case, the issue in dispute is what should be the depreciation which the assessee should have been allowed. In terms of section 32 of the Act and Rule 5(1) of Income-tax Rules 1962, the deduction of depreciation is allowed on building owned, wholly or partly by the assessee , and used for the purposes of the business or profession at the rate of 10 % of the written down value of the capital asset of building. The term "written down value" has been defined in section 43(6) of the Act means in the case of assets acquired in the previous year, the actual cost to the assessee. The term "actual cost" has further been defined in section 43(1) as actual cost to the assessee deduced by the portion of the cost which has been met directly or indirectly by any other person or the authority. In the facts of the case, we have thus, to examine what is the actual cost in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were rendered by you and other office bearers of your group. Do you agree on the said state of affairs? Explain the same? Ans. I agree that certain corporative evidences to establish the genuineness were missing at the time of survey. To cover the stated discrepancies, we in consultation with Sh. Ashish Mittal, the person supervising the accounting/compliance/other business activities, agree to offer Rs. 75 crore as income of the OSN group, its principals who have allotted contracts/ jobs other vendors/contractors who have performed work for as or our principals or our sub-contractors for the relevant period i.e. FY 2010-11 and 2011-12 with the understanding that neither any penalty nor any punitive action of any nature., whatsoever shall eitner be initiateo/imposed against ail the entities/concerns, individuals who have been covered in the action conducted by the department/'s. 132 and 133 A of the Act. The bifurcation of the above said offered income for the relevant period in the hands of different entities/individuals will be provided after verification of the contents of the seized/impounded material within next three working days. Necessary tax due thereon will be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-11 & 2011-12. d) Actual cost incurred for the work and e) The difference received in cash by M/s. OSN Infrastructure & Projects Pvt. Limited from such sub contractors. f) Details of brokerage received from the sellers of land not booked in the books of accounts of M/s. OSN Infrastructure & Projects Pvt. Limited. g) Details of cash received back from sellers of land at Distt. Alwar, Rajasthan and Hyderabad not booked in the books of accounts of M/s. OSN Infrastructure & Projects Pvt. Limited. 5.8 Scanned copies of pageds 128 and 129 of Annexure AA-1 and Page 36 of Annexure AA-2 respectively are reproduced herein 5.9 The contents of the above sheet were compared with the books of account of the assessee company. On the reconciliation of the transactions as recorded in Annexure AA-1, page no. 129 and Page no. 35 of Annexure AA-2, it is seen that M/s. OSN infrastructure & Projects Pvt. Limited allotted contract of Rs. 25 crore for the restoration of hill for Mussoorie International School, Mussoorie to M/s. Dharamraj Contract India Pvt. Limited, DDA Commercial Complex, New Delhi subject to the escalation cost. The said sub-contractor has billed M/s. OSN Infrastructure & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and at Village Pata, Tehsil Ramgarh, Distt. Alwar, Rajasthan to subcontractor M/s. Patel Engineering Limited. A part of this work was also performed by M/s. Orris Infrastructure Pvt. Limited. The details of these two subcontracts are available on page 14 to 24 of Annexure AA-1. On page number 128 & 129 of Annexure AA-1 it is shown that out of total bills of Rs. 9 crores on account of Alwar work, the actual cost was for Rs. 1 25 crores and therefore, amount of Rs. 7.75 crores represented excess/bogus billing. 5.14 In addition to the above there were other small works which were handled by the assessee company and allotted to other subcontracts details of which are available at page no. 49 to 127 of Annexure AA-1 seized from premises no. H-35/1, DLF, Phase-1, Gurgaon. On a composite perusal of such papers alongwith seized papers marked as pages 127 tol29, it is crystal clear that bogus billing from all other petty sub-contractors was to the extent of Rs. 26 lakh for the F.Y 2010-11, relevant to A.Y. 2011-12. 5.15 The seized papers marked as pages 129 of Annexure AA-1 and 36 of Annexure AA-2 also 'evealed that the assessee company has received brokerage from various land deals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may kina'iv be treated as part of the total income offered by us to the extent of Rs. 75cr in the course of my statement recorded on oath dated 25/08/11. Q. 2A I am showing you pages 1 to 36 of Annexure AA -2 of the material found and seized/impounded during the course of lifting of restraints placed at the premises of your consultant, Mr. Ashish Mittal who has stated to belong to you. Kindly identify the papers and explain the contents thereof. Ans. The said papers/documents pertain to the bills raised by one of the sub contractors on OSN Infrastructure and Projects Pvt Ltd, its ledger accounts and a summary sheet of 1) Contract Value 2) Amount of total bills raised 3) Cost of bills 4) the actual cost incurred and 5) the difference received by us in cash from the said sub contractor on account of inflated/excessive expenditure charged by us in our books of account. As apparent from the papers, the said excessive/inflated expenditure aggregates to Rs. 2.70 crores (Approx) for the financial years2011- 12 which is appearing in a summarized manner on page 36 of the above stated Annexure AA 2. A/so, Page 36 of Annexure AA 2 of the material has mention of cash received back ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charged by you to the profit and loss account of OSN Group companies through the aid of various sub contractors. Please state whether any other expenses over and above the payment to sub contractors of similar nature also exist or not? Ans. We are not able to verify the same at this moment However, to cover up the same, we hereby offer amounts of Rs. 18 Lakhs and Rs. 50 Lakhs for the financial years 2010-11 and 2011- 12 to cover any other disallowances on account of other excessive or unreasonable expenditure or other unaccounted income etc. The same may also be treated as part of the total income offered by us to the extent of Rs. 75 crores in the course of my statement recorded on oath dated25/08/2011..." 7. In view of the above, the assessee group declared an aggregate amount of Rs. 75 cores including a sum of Rs, 15 crores for and on behalf of its associate M/s, Jubilant Developers & Management Services Pvt. Ltd In fact the OSN Group declared an amount of Rs. 33.60 crores and Rs. 25.65 crores for the F.Y. 2010-11 and 2011-12 respectively aggregating to Rs. 59.25 crores out of the total disclosure of Rs. 75 crores. The amount offered was also confirmed to have been earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere containing details of transaction taken by his company with various subcontractors for FY 2010-11 & 2011-12. In his statement he admitted of having received back the cash from M/s. StartrekBuildcon Pvt. Limited during FY 2010-11 & 2011-12 against various cheques issued for Rs. 9.45 cr. & 4.90 Crore for FY 2010-11 & 2011-12 respectively. He explained that these amount were in the nature of excess expenditure charged, therefore, it has over booked the revenue expenditure in its books of account by obtaining excess/inflating of bills and thus suppressed its profit in the books of account of the assessee company. In the statement he additionally disclosed amount of Rs. 55 lakh & Rs. 10 lakh for FY 2010- 11 & 2011-12 respectively to cover any other discrepancy arising out of books of account. The relevant part of the statement of Sh. Arun Kumar is reproduced as under:- "..... Q. 19: - What were the total value of works allotted to StartrekBui/dconPvt Ltd and how much cash was received against payments made to them by your company M/s JDMS during the financial year2010-11 and 2011-12? Answer: - During the financial year 2010-11 and 2011- 12contracts worth Rs. 10 crores and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores as income of Jubilant Developers and Management Services Pvt Ltd also. It was on this basis that I reiterated and confirmed the offer of Rs. 15 crores in the hands of M/s Jubilant Developers and Management Services Pvt Ltd. in my statement on 05/09/2011. I hereby reconfirm that out of the total amount of Rs. 15 crores, Rs. 10.00 crores will be offered to tax for the financial year 2010-11 and Rs. 5.00 crores for the financial year 2011-12 with an understanding that neither any penalty nor any punitive proceedings of any nature will either beinitiated or imposed against our companies or individuals of our group." 1.2 Thus, the assessee company offered undisclosed income to the extent of Rs. 10 crores for the relevant period under consideration. The relevant amount of suchincome was directly offered in the computation of assessable income and tax liability due thereon was discharged by the assessee company. 2. During the course of assessment proceedings, the assessee vide questionnaire u/s. 142(1) of the Act dated 27.01.2014 was asked the details of surrender of Rs. 15 crores and how the same is reflected in your books of accounts. The relevant extract is reproduced as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e introduced Sh. Sanjay Saini and his group companies, M/s OSN Infrastructure and Projects Pvt. Ltd for meeting the additional requirements of execution of the construction contracts of the above said Educomp Group in the month of June 2010. Various constructions contracts were allotted to them by the Educomp Group on our recommendation and the same are being executed by Sh. Sanjay Saini and his companies till date. I often used to visit the business premises of Sh. Sanjay Saini and his consultant, Sh. Ashish Mittal in order to discuss various aspects of the common construction business. During the course of survey/search of Sh. Sanjay Saini and his group companies, he discussed the matter with me and after due consultation with him, I advised him to include an amount of Rs. 15 crores as income of Jubilant Developers and Management Services Pvt Ltd. also. It was on this basis that I reiterated and confirmed the offer of Rs. 15 crores in the hands of M/s Jubilant Developers and Management Services Pvt Ltd. in my statement on 05/09/2011. I hereby reconfirm that cut of the total amount of Rs. 15 crores, Rs. 10.00 crores will be offered to tax for the financial year 2010-11 and Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of inclusion of additional income offered of Rs. 5 crores for the relevant period under consideration. Keeping in view the above said facts, no adverse cognizance is taken in this regard." 6.3 On perusal of the above finding in the case of OSN and JDMS, it is evident that OSN and JDMS in their books of account had shown receipt from the assessee and expenditure towards construction of the building for the assessee and claimed that they further paid to subcontractors for such construction expenditure by cheque. However, as a result of documents found and investigation during search and survey proceeding on the premises of Educomp group and those contractors, they admitted that no such construction work was actually done or value of such construction done was actually very less and the payment made to the subcontractors by way of cheque was returned back in cash to them. 6.4 In the case of the assessee, the Assessing Officer has observed that employees of the assessee Sh. Shalabh Raizada (Senior Executive) and Brig (retired) Vikram Singh (Vice President of the assessee company) has signed documents in the capacity of authorised signatory of those contractors, namely, OSN and JDMS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee corresponding to the expenditure not incurred actually by those two contractors mentioned above, did not come into existence and thus the assessee cannot be entitled for depreciation in respect of the capital asset which has never come into existence. The bills raised by the contractors on the assessee are inflated one and not of actual amount of the work done for the assessee. Consequently, the cost debited by the assessee in respect of the building, which has been capitalized is inflated and not the actual cost. The reliance placed by the Ld. counsel of the assessee in the case of M/s SSIPL Luxury Fashion Private Limited (supra) and Discovery Estate Private Limited (supra) is of no assistance as facts and circumstances of those case are different from the case of the assessee. In the case of SSIPL Luxury Fashion Private Limited (supra) a particular receipt was already taxed in the hands of the holding company and thus the assessee contested that it should not be taxed in the hands of the assessee, whereas the learned DR contested that receipt should be taxed in the hands of the correct person. The Tribunal held that same income cannot be taxed twice unless so provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of the assessee as assessee is the ultimate beneficiary by way of excess deduction of depreciation on the capital asset in the form of building. 6.8 In view of the facts and circumstances discussed above, in principle we hold that the assessee is not entitled for the depreciation on the inflated portion of the cost of capital asset shown by the assessee as incurred through two contractors, namely, OSN and JDMS. 6.9 As far as the quantum of depreciation is concerned, we find that while computing the cumulative inflated expenses in the the case of JDMS, the learned CIT(A) has missed the undisclosed income of Rs. 10 crore declared by the JDMS for financial year 2010-11 and the net capital work-in-progress has been shown that Rs. 111,16,58,703/- instead of Rs. 101,16,58,703/-. Similarly, in the case of OSN also the undisclosed income declared by the said party in respect of building constructed for the assessee has not taken into account for reducing the capital cost of the building. The AO was required to examine relevant bills of the two contractors, where the value of construction work has been inflated. As the quantum of depreciation to be disallowed on the account of inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.2015 in Appeal No.81/14-15 in the case of the same assessee for AY 2012-13 I have held that there is no case of excess capitalization and therefore the depreciation disallowed by the AO was deleted. The disallowance of depreciation in this year has been made by the AO by adopting the WDB as on 31.03.2012 as per his findings in the assessment order for AY 2012-13 which stands modified by my above order dated 07.10.2015, and therefore there is no case for disallowance on account of depreciation on the alleged excess capitalized assets. The addition of Rs. 1,89,47,963/- is therefore deleted." 9. As the issue in dispute in both the years under consideration is dependent on the outcome of assessment year 2012-13, which we have restored to the Assessing Officer for deciding the quantum of the depreciation, we feel it appropriate to restore the grounds raised in assessment years 2013-14 and 2014-15 for deciding the quantum of the depreciation on the basis of the written down value of the capital asset of the building determined for assessment year 2012-13. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground of appeal is accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
