9911796707
TMI Blog2020 (6) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order of the CIT(A), the relevant grounds/additional grounds raised by the assessee are dismissed. Accordingly, we order the Assessing Officer to quantify the profits of the business and delete all the business linked itemised additions. Additions u/s 40(a)(ia) - transport charges incurred related to the purchase of earth (murum) - HELD THAT:- We find there is need for undertaking the comparative analysis of facts of the cases cited above. For the said reason, we find it relevant to remand this issue to the file of the Assessing Officer. The Assessing Officer shall decided the issue after granting reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice. Accordingly, this issue is allowed for statistical purposes. Quantification of the business profits of the assessee for A.Y. 2007-08 as well as the GP estimation as done by the CIT(A) - HELD THAT:- Additions and relied heavily on the order of the Tribunal [ 2019 (9) TMI 861 - ITAT MUMBAI] . Further, we also approved the estimation of profits at a percentage of profits. We have also approved the requirement of taxing the additional profits applying the rate of 0.61% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A)-1, Thane dated 15.03.2011 involving two assessment years i.e. A.Ys. 2007-08 and 2008-09. Since the facts and issues are almost common in both the set of cross appeals, therefore, these cross appeals were heard together and are being disposed of by this composite order. 2. Briefly stated the relevant common facts for assessment years include that the assessee was a Firm and the same stands corporatized since the assessment year 2008-09 onwards. The assessee had its Headquarters at Panvel and has branches at many places including Nashik. The Nashik Branch handles the contract work for resurfacing the roads at Nashik and it was assigned by the Public Works Department (PWD) and the Municipal Corporation of Nashik (MCN). There was search action u/s 132 of the Act on the business premises of the assessee on 07.02.2008 relevant to the assessment year 2008-09. The search action resulted in discovery of various incriminating papers and CDs. Inflation of expenses, understatements of profits etc are the issues discovered during the search action. Mr. Prashant Thakur and his father manage the business in India and outside of India respectively. Subsequently, Mr. Thakur disclosed the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of item-wise additions in that year and other additions involving the provisions of section 40(a)(ia) of the Act; the decision of the CIT(A) in estimating the profit @ 10% of the gross receipts; the details of the additions made by the Assessing Officer based on the seized CD; the details of unusual GP rate if the details gathered during search for a specific period involving the Nashik Branch are considered in isolation etc. Eventually, the Tribunal held that making addition of ₹ 5.86 crores for the assessment year 2006-07 is not proper. 5. Further, in para 14 of the order of the Tribunal (supra), it is held that the estimation of profits at the rate of 8%, in place of 10% adopted by the CIT(A), is appropriate and reasonable. Tribunal rejected the Assessing Officer s manner of making the itemised additions based on the incriminating documents in isolation. The Tribunal disapproved the existence of the huge/unusual profit percentage. In the language of the Tribunal, it is held that .............. In the given circumstances, we need to find out the amount of addition liable to be made. Ordinarily, we would have gone with the evidence actually found at the time of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) 3773903 9 Addition u/s 14A 509608 10 Addition on account of WIP 5000000 11 Addition on account of donations 1,81,000 Total Assessed Income 280997872 7. During the first appellate proceeding, the above manner of assessment by Assessing Officer was found unacceptable. Therefore, the CIT(A) after granting opportunity to the assessee, estimated the net profits @ 10% of the total turnover. The said decision resulted in the addition of ₹ 1,37,13,252/- only. The annual business turnover over for the year is ₹ 137.13 crores. CIT(A) confirmed the profits at the rate of 0.63% over and above the book results @ 9.39%. The GP rate offered by the assessee as per the books maintained by the assessee is 9.37%, which is much higher than 8% as approved by the Tribunal for the immediate preceding assessment year 2006-07. Further, the CIT(A) confirmed other additions made u/s 40(a)(ia) of the Act too. No telescopic be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng income @ 10% of GTO, without considering the fact that assessee was also having sub- contract receipt. The addition of ₹ 137 Lacs on facts and in law was not supported by any undisclosed investment/seized assets in possession of assessee or unexplained expenditure as per search documents and/or as per Assessment order. 8) The Learned CIT(A) has erred in law and on facts by not considering the overall disclosure made by assessee of RS 650 lacs u/s 132(4) in A.Y. 08-09 to buy peace of mind while sustaining / confirming part of addition in the assessment. 9) The assessee craves leave to add/ alter any of grounds of appeal before or at the time of hearing. Additional Grounds :- 1. On the facts and in the circumstances of the case and in law, the assessment proceedings initiated as well as the assessment order passed u/s, 143(3) r.w.s. 153A of the I.T. Act, is invalid and bad in law. 2. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in not admitting the additional grounds raised before him. 3. On the facts and in the circumstances of the case and in law, the learned A.O. ought to have allowed depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Addition u/s 14A 604242 Total Assessed Income 330150750 10. During the first appellate proceeding, the above manner of assessed income was found unacceptable. Therefore, the CIT(A), after granting opportunity to the assessee, estimated the profits @ 14% of the annual total turnover for the assessment year 2008-09. The turnover over for the year under consideration is ₹ 146.76 crores. The GP rate offered by the assessee as per the books of accounts is 12.82%, which is much higher than 8% as order by the Tribunal for the earlier assessment year 2006-07. CIT(A) confirmed other additions too i.e. addition u/s 69C and u/s 40(a)(ia) of the Act. 11. Aggrieved with the above decision of the CIT(A), the assessee is in appeal before us with the following grounds and additional grounds :- Grounds :- 1) The Learned CIT(A) has erred in law and facts by confirming alleged illegal payment of ₹ 75,00,000/- as unexplained expenditure u/s 69C on the basis of noting found on computer/dump document in course of search. The Learned A.O. as well as CIT(A) fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession . 4. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in confirming/sustaining additions ₹ 89 lacs assessable as income from Inflated Expenses for Nasik Project on the basis of erroneous inference drawn from various statements found as a computer file in the course of search action, as against apparent loss of ₹ 411 lacs in two years from these statements provided they are read in toto. 5. The learned C.I.T. (A) also erred in law and on facts same as A.O. by not considering and reading the statements as whole, found from the computer file in respect of Nasik Project in the course of search action, as decided and held by the Judicial Authorities. The Appellant craves leave to add, to alter, to delete and/or to amend any or all of the above grounds of appeal at any time. 12. We have so far discussed the facts and the procedural developments for these assessment years i.e. A.Ys. 2006-07, 2007-08 and 2008-09. Having discussed, we shall now take up the cross appeals for A.Y. 2007-08 and 2008- 09, which are under consideration for adjudication in the subsequent paragraphs of the order. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition @ 0.51% (i.e. 8% - 7.49%) for A.Y. 2006- 07 and the similar addition at the rate of 0.51% may be considered for the year under consideration as well. Otherwise, ld. AR laboured to demonstrate that the itemised additions made by the Assessing Officer is unreasonable, unsustainable in law and such method does not reflect the true profits of the assessee for A.Y. 2007-08. 16. Referring to other additions u/s 40(a)(ia) of the Act, ld. Counsel made various submissions and submitted that these issues which will be discussed at appropriate place in subsequent paragraphs of this order. 17. Summing up all the assessee s grounds for the assessment year 2007- 08, the ld. Counsel mentioned that with the exceptions of ground no.1 and 8 of the appeals, the rest of grounds related to the business profits of the assessee or correct profits for this year. 18. Ld. AR discussed or elaborated on each of the grounds of appeal and submitted that the ground no.1 relates to the disallowance made u/s 40(a)(ia) of the Act. It is the case of the assessee before us that invoking the provisions of section 40(a)(ia) of the Act is not proper in its entirety. According to him, part of the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the page 19 to 21 at para 7 onwards of the written submission. 20. Further, ld. Counsel summed up that if the GP addition @ 0.51% over and above the 9.37% of books profits is considered i.e. an alternative argument, all the item-wise additions made at Sl. No.1 to 5, being connected to business profits gets subsumed in view of the said additional profits of 0.51% on the turnover of ₹ 137.13 crores. Thus, the ld. Counsel is critically of 10% adopted by the CIT(A) which will mean the additional profit of (10% - 9.39% = 0.61%). As per ld. AR, in place of that, so far as business income is concerned, additional profit @ 0.51% may be reasonable and has the strength of the order of the Tribunal for the assessment year 2006-07 to support the same. So far as other addition u/s 40(a)(ia) of the Act is concerned, ld. Counsel submitted that the Tribunal can confirm the addition to the extent of ₹ 18,52,908/- only out of the gross addition of ₹ 37,73,903/-. Referring to the balance amount of ₹ 19,20,995/- (₹ 37,73,903 ₹ 18,52,908) i.e. the disallowance made u/s 40(a)(ia) of the Act (transport charges element in purchase of earth/murum), ld. AR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inating documents were found during the course of search, which were seized. Statement of the partner, namely, Sh. Paresh Ram Thakur was recorded u/s.132(4) of the Act on 8.2.2008. The seized documents indicated recording of inflated expenses. Initially, the assessee made surrender of ₹ 6.50 crore in its hands for the A.Y. 2007-08 and its successor, namely, Thakur Infra Projects Pvt. Ltd. for the A.Y. 2008-09. However, in the subsequent statement, the assessee revised surrender of ₹ 6.50 crore only in the hands of Thakur Infra Projects Pvt. Ltd. and that too for the A.Y. 2008-09. The AO found that the assessee had maintained two sets of books of account for the year under consideration, namely, the one which was found recorded in computers at the time of search drawn up to February, 2006 and the other which was produced by the assessee during the course of assessment proceedings. He found difference between several items of profit and loss account and balance sheet recorded in two sets of accounts. The AO has made out a comparative tabulation on page 28 of his order indicating the amount of total receipts including contract receipts along with the direct and indirect ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that : `These signed letter heads have been provided by us to them as per their instructions for preparation of our contract bills to be prepared by M/s S.C. Thakur Bros/SC Thakur Infraproject, Panvel. It was further revealed during the course of search that the vouchers of expenses under the above heads were prepared in the office computer only but the original records containing signature of supervisor and engineering person were destroyed. This fact was also confirmed by the partner in his statement u/s 132(4) of the Act. The above discussion indicates that the Department came across several instances of inflation of expenses and unsubstantiated expenses along with difference in receipts and expenses in the sets of accounts as found in the course of search in the computer of the assessee and the one that was actually produced for the purposes of assessment. This indicates that evidence of the assessee having inflated expenses for the year under consideration was actually found during the course of search. In that view of the matter, the manner in which the disallowance made by the AO u/s 40(a)(ia) has been deleted by us supra, cannot be applied in so far as the instant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received on income-tax amounting to ₹ 6,994/- and office rent received amounting to ₹ 1,75,500/- which are items of subject matter of Ground No.1 of the Revenue s appeal, should be excluded. Interest received on income-tax should be separately included in the total income of the assessee under the head Income from other sources . Office rent of ₹ 1,75,500/- should be considered for the purposes of computation of income under the head Income from house property . These two amounts of receipts, however, are directed to be excluded while applying the percentage of net profit at 8% on the gross contract receipts. The other two items in Ground No.1 of the Revenue s appeal, namely, Discount received amounting to ₹ 2,59,815/- and Miscellaneous receipts of ₹ 1,05,043/- are related to the contract receipts of the assessee which cannot be separately excluded. 24. From the above, for the immediately preceding assessment year 2006-07, it is evident that the Tribunal already considered the revenue s manner of making itemised additions and not appreciated the principle of making such additions due to problems of precise quantification of inflation of expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed to confirm the manner of quantification of business profits at the rate of 10%. Accordingly, since we confirmed the order of the CIT(A), the relevant grounds/additional grounds raised by the assessee are dismissed. Accordingly, we order the Assessing Officer to quantify the profits of the business and delete all the business linked itemised additions. B. Finding of the Tribunal Additions u/s 40(a)(ia) (Ground No.1 and 2) 26. After considering the business linked additions which gets subsumed in the above estimation of the profits, the only issue on merits for adjudication before us relates to the addition made u/s 40(a)(ia) of the Act. During the assessment proceedings, the Assessing Officer added ₹ 37,73,903/- on this account. As already discussed in the earlier paragraphs that this addition, it has two segments namely (i) ₹ 18,52,908/-, which is not pressed by the ld. Counsel for the assessee before us. Accordingly, the same is dismissed as not pressed. It goes in favour of the Revenue. The other (11) segment relates to the disallowance of ₹ 19,20,995/- u/s 40(a)(ia) of the Act i.e. the transport charges incurred related to the purchase of eart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion charges only when there is a contract between the prayer and the payee for transportation of some material. In the present case there is no contract between the assessee and the transportation as the suppliers of the earth/murrum engaged/deployment random vehicle owners as per the availability of the vehicle. For this reason also disallowances made by the department is not justified. Reliance in this regard is placed on the judgement of the Hon ble Pune Bench of the Tribunal in the case of Govind Deorao Patil ITA No.127/PUN/2017. 27. From the above, it is the case of the assessee that this matter needs to be remanded to the file of the Assessing Officer for fresh adjudication of issue in the light of the said decision of Mumbai Bench of the Tribunal in the case of M/s. J.M. Mhatre vide ITA No.2345/Mum/2011 for the assessment year 2005- 06 order dated 07.05.2012 and the decision of the Co-ordinate Bench of the Tribunal in the case of Dhanvarsha Builders and Developers Pvt. Ltd. vs. DCIT, 102 ITD 375. 28. After hearing both the sides, we find there is need for undertaking the comparative analysis of facts of the cases cited above. For the said reason, we find it releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct estimated income of ₹ 13.71 crores. 4. In the facts and circumstances of the case, the Ld. CIT(A) has erred in directing A.O. to estimate income for A.Y. 2007-08 and A.Y. 2008-09 for Nashik project at rate of 10% of contract receipts whereas CIT(A) himself has estimated such profit at of 14% of contract receipts in A.Y. 2008-09. 5. In the facts and circumstances of the case, the Ld. CIT(A) has erred in estimating the net profit @ 10% of the turnover whereas in identical case M/s Thakur Infra Project Pvt. Ltd. for the A.Y. 2008-09, the Net profit has been estimated @ 14% of the turnover. 6. In the facts and circumstances of the case, the Ld. CIT(A) has erred in including the following items as part of contract turnover whereas these items represents income which needs to be taxed over and above contract income. a) Discount received : ₹ 1,03,250/- b) Interest on FDR : ₹ 67,55,549/- c) Profit on sale of machinery : ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds no.2 to 7 of the appeal of the assessee for the assessment year 2007-08. In the said order (supra), we have followed the precedent in assessee s own case for A.Y. 2006-07 and rejected the Assessing Officer s approach of the item- wise additions and relied heavily on the order of the Tribunal dated 17.09.2019 for the assessment year 2006-07. Further, we also approved the estimation of profits at a percentage of profits. We have also approved the requirement of taxing the additional profits applying the rate of 0.61% on the total turnover of ₹ 137.13 crores of the assessee for the assessment year 2007-08. In the process, we slightly deviated from the 0.51% for assessment year 2006-07. In effect, the said grounds no.1 to 5 of the Revenue should be considered as adjudicated while dealing with the grounds no.2 to 7 of the assessee s appeal. Accordingly, we order. Accordingly, grounds no.1 to 5 of the Revenue s appeal are dismissed as protanto. Other Receipts of ₹ 88,95,333/- - Ground No.6 36. Regarding ground no.6, ld. DR mentioned that the assessee earned other receipts amounting to ₹ 88,95,333/- under various sources and are included in the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of 10% of the gross receipts. At this stage, the CIT(A) did not understand that the said gross receipts of ₹ 137.13 crores includes ₹ 88,95,333/- of the miscellaneous receipts which are getting taxed by his decision of 10% of the gross receipts. Idly, the CIT(A) should have examined the turnover of the assessee also, if any of receipts which formed part of the turnover or required to be taxed and their entirety and not restricting to 10%. This is the deficiency in the order of the CIT(A). Considering the bonafides, ld. Counsels fairly submitted that this issue can be remanded to the file of the CIT(A) for removal of the deficiency after granting reasonable opportunity of being heard to the assessee. 41. Per contra, ld. DR for the Revenue debated on the manner of itemised additions made by the Assessing Officer and strongly supported the same. Aggrieving with the ld. Counsel s proposition, ld. DR submitted that the estimation of profits, the manner adopted by the CIT(A) gave rise to this issue of taxation of gross receipts at the rate of 10% or at the rate of 100%. In any case, both the counsels agreed with the fact that this issue was skipped attention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eteness, the details of additions are extracted in the following table. The total income determined by the assessee by virtue of itemize addition is ₹ 33,01,50,750/-. The details as given at page 46 of the assessment order in page 46 are extracted as under :- Sl. No. Addition under the head Rs. Income from business 188174700 1 Addition on account of Pune Expenses 80,00,000 2 Addition on account of Nashik Panchavati Expenses 26929993 3 Addition on account of inflation of expenses 104269175 4 Addition on account of Fuel Account 1183413 5 Addition u/s 40(a)(ia) 580399 6 Addition on account of amounts inadmissible 391877 7 Addition u/s 40A(3) 16951 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,00,000/-As per Profit and Loss A/c Less - Amount surrendered in search operation : 6,50,00,000 Net Turnover 1,40,26,65,391 (C) Total Income Net Profit at (A) 13,31,74,700 Add - 0.51 % of Net Turnover (B) 71,53,593 14,03,38,293 Add - Amount disclosed during search 6,50,00,000 Note - % of Net Profit (A) to Net Turnover at (B) 8.78% Sd/- 48. At the end of the arguments ld. Counsel mentioned if the profits of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that extent, the itemized additions made by Assessing Officer with reference to ground Nos.2, 3 6 along with relevant additional grounds are decided as above. 51. We shall now take up the ground No.1 for adjudication and it relates to the addition of ₹ 80 lakhs. The CIT(A) gave relief to the extent of ₹ 5 lakhs. B. Addition of ₹ 80 lakhs (Ground no.1) 52. Regarding the addition of ₹ 80,00,000/- made by the Assessing Officer u/s 69C of the Act, the relevant facts include that the seized papers gave rise to the cash payments of ₹ 80,00,000/- to the government authorities, commissioner, MLA Balance, Ajit Gavane. These transactions emanate from the seized papers and were considered as bribe paid which is not allowable u/s 37 of the Act. The Assessing Officer invoking the provisions of section 69C of the Act made the addition of ₹ 80,00,000/-. In the first appellate proceedings, the assessee got part relief to the extent of ₹ 5,00,000/- and balanced of ₹ 75,00,000/- stands confirmed by the CIT(A). In this regard, the relevant discussion given by the CIT(A) in his order in para 6.3 at page 15 and the same are extracted hereund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal expenses have been added to the estimated income. 3. In the fact and circumstances of the case, the Ld. CIT(A) has erred in directing A.O. to estimate income at rate of 10% of contract receipt for Nashik Project for A.Y. 2008-09 whereas CIT(A) himself has directed to estimate such income for entire business at rate of 14% of entire contract receipts. 4. In the fact and circumstances of the case, the Ld. CIT(A) has erred in including the following items as part of contract turnover whereas these items represents income which needs to be taxed over and above contract income. a) Miscellaneous receipts : ₹ 62,68,372/- b) Profit from TMU-JV : ₹ 9,01,440/- c) Discount received : ₹ 4,17,164/- d) Interest on FDR : ₹ 88,75,229/- e) Disclosure during search : ₹ 6,50,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent ground no.4, ld. DR submitted the decision given by Tribunal in the said ground no.6 of the Revenue s appeal for A.Y. 2007-08 is relevant to the present ground no.4 as well. Referring to ground no.6, ld. DR submitted the arguments from both sides become common for the present ground no.4 as well. 64. On the said ground no.6 we have decided considering confusion among the Officers, this issue was not taken up for scrutiny in its real sense. Therefore, considering the interest of justice, we find relevant to remand this issue to the file of Assessing Officer for fresh adjudication. Para 42 of this order is relevant here. With similar directions, we proceed to allow this ground no.4 for statistical purposes. 65. In the result, the appeal of the Revenue in ITA No.5003/Mum/2011 for the assessment year 2008-09 is partly allowed for statistical purposes. ITA No.766/PUN/2015 A.Y. 2007-08 Revenue 66. This appeal is filed by the Revenue against the order of the CIT(A)-2, Thane dated 10.02.2015 for the assessment year 2007-08. 67. Before us, at the outset, ld. counsel for the assessee submitted that the appeal of the Revenue is liable to be dismissed on account of ..... 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