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TMI Blog2024 (3) TMI 1199X X X X Extracts X X X X X X X X Extracts X X X X ..... pter, be reopened in any proceeding under the Act or under any other law for the time being in force. In this regard, we take note of the legal maxim expressio unius est exlcusio alterius, which means that express mention of one is the exclusion of other [GVK Industries Ltd [ 2011 (3) TMI 1 - SUPREME COURT] ]. Since Section 153A overrides only the specific provisions, as stated hereinabove, then it clearly means that provisions of Section 245-I has been excluded and that it has not been overridden by Section 153A of the Act. We therefore hold that the AO erred in law by reopening the assessment for AY 2013-14 and made addition u/s 153C of the Act, which assessment had already been concluded and settled by ITSC, Mumbai, whose order had attained finality. Thus orders passed u/s 153C/153A/143(3) is held to be impermissible in law and is accordingly all additions made therein also stands deleted. - Decided in favour of assessee. Bogus purchases - payments made to the thirty (30) vendors were fake - HELD THAT:- Analysis and the inference drawn by the AO is found to be actionable. This analysis was however only the starting point of investigation. The Revenue however ought to have brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax returns and VAT Audit reports and that it had fully discharged its service tax and VAT liabilities levied on their invoices to the credit of the Government. Having perused the financials of IDCC, we note that it has reported substantial turnover in excess of several hundred crores in AYs 2013-14, 2014-15 2015-16 respectively. The audited financials reveal that IDCC is a fully functioning company engaged in rendering contractual services. CIT(A) is also noted to have taken cognizance of the income declared by IDCC across various assessment years of the appellate order, which showed that IDCC was declaring substantial income each year and therefore lacked the characteristics of a paper/shell entity as alleged by the AO. It is further noted that the AO was unable to find any defect in any of these documents. Even before us, the Revenue was unable to point out any specific infirmity in these evidences furnished by the assessee and IDCC, which demonstrated the genuineness of the payments made towards sub-contract charges. Payments made to IDCC was genuine and the AO is held to be unjustified for disallowing the same. Unexplained cash credit in the hands of the assessee JV - principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Settlement Commission, Mumbai ( ITSC ) had rejected the books of accounts and estimated the profits of the assessee JV from this water pipeline project at 8%. Following the same, the assessee is noted to have filed the returns of income u/s 153C of the Act estimating the income from this same project. The comparative details of the return of income originally filed and the return filed u/s 153C of the Act for the AYs before us are as under: - AY Date of filing of return u/s 139(1) Returned Income Date of filing of return u/s 153C Returned Income as per return filed u/s 153C Additional filed Income 2013-14 30/11/2023 2,48,74,664 31/05/2019 11,74,30,740 9,25,56,076 2014-15 26/11/2014 4,79,14,081 15/06/2019 7,31,29,640 2,52,15,559 2015-16 31/03/2017 92,96,300 12/06/2019 1,36,55,760 43,59,460 2017-18 - - 31/05/2019 (35,81,960) Nil 3. The summary of the additions/disallowance in Rupees made by the AO, which are in dispute in the cross appeals for AYs 2013-14, 2014-15, 2015-16 2017-18, are as follows: Issue AY 13-14 AY 14-15 AY 15-16 AY 17-18 Disallowance of bogus purchases from thirty (30) vendors - 21,76,83,384 16,18,42,702 - Disallowance of sub-contract payments made to IDCC 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had carried out one single contract during the relevant year and that the Settlement Commission had finally settled the taxable income for AY 2013-14 qua such contract undertaken for UMC and that the final assessment order pursuant thereto had been passed by the Assessing Officer. According to him therefore, no further income in relation to the same contract could be again re-assessed by the AO. The Ld. AR accordingly contended that the AO s action of reopening the settled income for AY 2013-14 by issue of notice u/s 153C of the Act and re-assessing the total income at Rs. 19,33,27,260/- by making further addition on account of bogus purchases was unjustified in law and he thus urged that the impugned order be quashed. 6. Per contra, the Ld. DR appearing for the Revenue supported the action of AO. He argued that, the assessee had not placed the order of ITSC before the AO and therefore he cannot seek shelter of this order now. According to him, search action was conducted upon the Konark Group on 23.01.2018, which was much after the date of order of ITSC and since further incriminating material had come to light that the income for AY 2013-14 had escaped assessment, the AO was well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly authorized in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner. 8. Sub-section (6) of Section 245D provides that every order passed under sub-section (4) shall stipulate the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due in the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the ITSC that it has been obtained by fraud or misrepresentation of facts. Sub-section (7) provides that where a settlement becomes void, the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the ITSC and the income tax authority concerned may complete such proceedings at any ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the expenses/purchases in question formed part of the books of accounts, on the basis of which return of income was filed for AY 2013-14 and that the books for the relevant AY 2013-14 were rejected and total income was estimated at 8% of receipts by the ITSC. Under Section 245F(1), the ITSC, in addition to the powers conferred on it under Chapter XIX-A, shall have all the powers which are vested in an income-tax authority under the Act. By virtue of the provisions of Section 245F (2) once the application for settlement was filed and an order was passed allowing the application to be proceeded with, it was the ITSC which has the exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the Act relating to the case, till the final order of settlement is passed under Section 245D (4). Thus, the moment the application of the assessee was allowed to be proceeded with by the ITSC till the final order of the settlement is passed on 03.12.2014, it was the ITSC which had exclusive jurisdiction in relation to the assessee's case. Therefore, all matters which could be examined by the Assessing Officer could be examined by the ITSC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act is in the nature of an assessment order. Therefore, assessment of the total income of the assessee for the assessment year in relation to which the Settlement Commission has passed the order under section 245D(4) of the Act stands concluded and in terms of section 245I of the Act, such order shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIX-A, be reopened in any proceeding under the Act or under any other law for the time being in force. Therefore, once an order is passed by the Settlement Commission under section 245D(4) of the Act, the same is conclusive insofar as the assessment year involved is concerned. Therefore, once an order has been passed under section 245D of the Act by the Settlement Commission, the assessment for the year stands concluded and the Assessing Officer thereafter has no jurisdiction to reopen the assessment. 13. Our above view finds support from the decision of the Hon ble Gujarat High Court in the case of Komalkant Faikirchand Sharma vs DCIT (108 taxmann.com 50) wherein it was held as follows :- 7.4 Thus, in Brij Lal (supra), the Supreme Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force. 7.7 An application under section 245C of the Act is akin to a return of income, wherein the assessee is required to make a full and true disclosure of his income and the order under section 245D(4) of the Act is in the nature of an assessment order. Therefore, assessment of the total income of the assessee for the assessment year in relation to which the Settlement Commission has passed the order under section 245D(4) of the Act stands concluded and in terms of section 245I of the Act, such order shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIX-A, be reopened in any proceeding under the Act or under any other law for the time being in force. Therefore, once an order is passed by the Settlement Commission under section 245D(4) of the Act, the same is conclusive insofar as the assessment year involved is concerned. When the section refers to matters not covered by such order, it refers to matters other than that covered under the assessment, viz. other than determination of the total income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and another for normal assessment at the hands of the Assessing Officer or the appellate or revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment year in question would stand settled. The court held that the Act does not envisage parallel proceedings for the same assessment year concerning the same assessee. 7.10 The upshot of the above discussion is that once an order has been made by the Settlement Commission under section 245D(4) of the Act, the same is conclusive and final in respect of the assessment for the assessment year in relation to which such order was passed and the Assessing Officer has no jurisdiction under section 147 of the Act to reopen an assessment made under section 245D(4) of the Act. That, however, does not mean that the Revenue is without remedy if at a subsequent stage it is noticed that the assessee had suppressed its actual income before the Settlement Commission. In view of the provisions of sub-section (6) of section 245D of the Act, an order made by the Settlement Commission under section 245D(4) of the Act shall provide for the terms of settlement, which sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 but on or before the 31st day of March, 2021, the Assessing Officer shall ..[Emphasis given by us] 16. From the above it is ex-facie apparent that Section 153A or 153C of the Act, is overriding only Sections 139, 147, 148, 149, 151 153 of the Act. As rightly pointed out by the Ld. AR, it does not override the specific provision of Section 245-I of the Act, which provides that the orders passed by the ITSC shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in that Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force. In this regard, we take note of the legal maxim expressio unius est exlcusio alterius, which means that express mention of one is the exclusion of other [GVK Industries Ltd Vs ITO (2011) 4 SCC 36]. Following this legal maxim, since Section 153A overrides only the specific provisions, as stated hereinabove, then it clearly means that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (9) parties out of the thirty (30) vendors were found in the course of search. It was also noted that, six (6) out of these nine (9) parties belonged to one Gursahani family and upon enquiry, Shri Gursahani failed to provide the relevant details viz., invoices, contract, work performed, ledger, labour register, books of accounts etc. citing that the records were stolen from him on 15.12.2014 and for which he provided an FIR copy as well. Since these six (6) parties were unable to provide any evidence of work performed and that the summons issued by the Investigating authorities were not complied with, the AO inferred that none of these thirty (30) vendors did any work for the assessee. The AO further noted that the assessee was only able to provide regular documents viz., bills, ledgers, proof of payments etc. in relation to all these vendors, but no evidence of the actual work performed was provided by the assessee. 21. The AO is noted to have further correlated Page No. 18 of Loose Paper Bundle No. 3 with Page Nos. 19, 20, 21 22 of Loose Paper Bundle No. 3. His analysis revealed that the figures mentioned on Page 19 correlated with the aggregate value of purchases commission ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) held that net profit rate of 15% ought to have been earned from this water pipeline project. The Ld. CIT(A) accordingly restricted the quantum of addition viz., the profit element embedded in the purchases, to 15% of the contractual receipts across the years. Aggrieved by this order of the Ld. CIT(A), both assessee and Revenue are in appeal before us. 23. Supporting the order of the AO, the Ld. DR appearing for the Revenue contended that the AO had succinctly examined the incriminating documents being Page Nos. 18, 19, 20, 21 22 of Loose Bundle No. 3 and had rightly arrived at the conclusion that the purchases of Rs. 37,95,26,087/- made from thirty (30) vendors were bogus. Referring to the non-attendance of summons by these vendors and the non-compliance of enquiries made by the Investigating authorities, the Ld. DR argued that all these vendors had actually performed no work and that they had only provided fake bills to the assessee. He showed us that, even the assessee had skirted from providing the whereabouts of these vendors but had only furnished the relevant bills, ledgers and proof of payments, which according to Ld. DR, is available in all cases of bogus purchases. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to substantiate the purchases. For this, he relied upon the decision of Hon ble Bombay High Court in the case of CIT Vs Nikunj Eximp Enterprises Pvt Ltd (372 ITR 619). 25. The Ld. AR further submitted that, to execute this magnitude of project, the assessee JV had to engage several vendors and thus it was practically not possible for assessee JV to be in regular touch with each of them and be aware of their whereabouts, even post completion of the contract. He explained that the payments in question were majorly made to local labor contractors who dealt in manual labor and understandably were not well educated and that their books of accounts etc. were maintained in thorough and formalized manner. The assessee JV had come into contract with these local labor contractors through their ground team who were executing the project and thus it was not a case that the JV partners had been engaging their services regularly across all their projects. According to Ld. AR, the Page Nos. 18 19 referred to by the Revenue to allege these payments to be bogus purchases were only loose papers having no evidentiary value and thus ought not be relied upon. Even otherwise, according to him, the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned notings of the expenses paid to the thirty (30) vendors in question, against which certain percentage of commission was also mentioned. The amounts on this Page correlated with certain notings on other Page No. 19 of the same Loose Bundle. We further note that, the figures against each vendors mentioned on Page No. 18 fully correlated with the books of the assessee JV. According to us therefore, these loose papers cannot be said to contain dumb notings and that the assessee was required to explain the same. Hence, the preliminary plea of the assessee that these Pages being loose in nature does not have evidentiary value and thus has to be straightaway discarded cannot be countenanced. 28. Having held so above, it is well settled in law that, the contents of the loose papers ought to be such that, it is possible to decipher the nature of transaction, ascertain the year qua which it pertains to and quantify the taxable income qua the assessee. Having regard to the analysis undertaken by the lower authorities, indeed, there arises a suspicion regarding the genuineness of the payments made to these thirty (30) vendors. The notings found in Page No. 18 suggests calculation of commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al parties. It was noted that unlike other purchases, in twenty-two instances, the assessee was unable to provide any evidences, details, confirmations etc. to support the purchases. It was also noted that were no entries found in goods register towards such purchases, there were no delivery challans, evidence of transport etc. There were no corresponding details of sales available. Further, even the notices issued by the AO were not served upon any of them. It was also gathered that each of them were found to be bogus hawala dealers by the authorities. On these specific facts, it was held that, the assessee was unable to prove whether these payments were made actually towards any purchases and thus entire value was added. It is relevant to note that, the Tribunal had taken note of the jurisprudence where purchases are bogus, only profit element embedded in those purchases needs to be taxed, but, found the facts of this case to be different as the whole purchases were proved to be non-existent and that the were payments made to hawala dealers. The facts of the present case are however noted to be factually distinguishable from this decision (supra). The present case before us does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, added to the assessee's income. The Tribunal, however, restricted to the said sum of Rs. 2,21,600/-. The Tribunal recorded that the Assessing Officer has not rejected either the purchases or the sales made out of the said purchases. The Tribunal therefore, was of the opinion that the addition should be restricted to 10% of the total purchases. The Revenue strongly disputes this proposition. 3. Without elaboration, what the Tribunal by the impugned Judgment held is that the Department had not rejected the instance of the purchases since the sales out of purchase of such raw material was accounted for and accepted. With above position, the Tribunal applied the principle of taxing the profit embedded in such purchases covered by the bogus bills, instead of disallowing the entire expenditure. We do not find any error in the view of the Tribunal. No question of law arises. 87.3 Similarly in the case of PCIT-13 vs Rishabhdev Technocable Ltd [2020] 115 taxmann.com 333 (Bombay), the Hon ble Bombay High Court has reiterated the principle that in cases where sales are accepted by the assessing officer, only the profit element embedded in purchases would be subjected to disallowance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (A) had disallowed the amount of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. The Hon'ble Mumbai Tribunal in the case of Saroj Anil Steel (P.) Ltd. v. ITO vide order dated 30-10- 2012 has also decided this issue that only profit margin @ 1 % is to be added back. Similar view has been taken by the Hon'ble Tribunal Mumbai in the case of Anil Goyal Exim (P.) Ltd. v. ITO vide order dated 25-04-2005. The Hon'ble Gujarat High Court in the case of CIT v. Bholanath Polyfab (P.) Ltd ., 40 Taxman.com 494 has held that whether the assessee did purchase cloth and sell finished goods and purchasers were not traceable, profit element embedded in purchases would be subject to tax and not entire amount. From the facts of the present case, it is noticed that the assessee has made circular purchases and sales with 12 parties as declared in sales tax return. The genuineness of purchases and sales were not proved before the A.O. and even during the appellate proceedings. The A.O. has treated the purchases as bogus but accepted the sales and gross profit declared in the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of these facts and circumstances, I am of the view that 2% of the purchases made from the hawala parties amounting to Rs. 65,65,30,470/- which works out at Rs. 1,31,30,609/- is air and reasonable, hence, upheld and the balance addition made is deleted. Ground of appeal is partly allowed. 17. Before the Tribunal, Revenue expressed the grievance that CIT (A) had erred in disallowing bogus purchases at 2% being profit on purchases made by the assessee from the grey market. Tribunal vide its order dated 3rd November, 2016 held as under : 4. We have heard rival contentions and gone through the facts and circumstances of the case. Admitted facts are that the AO neither in the original proceedings nor during remand proceedings objected to sales made by assessee. In that eventuality it is imperative on our part to hold that there must be purchases. Whether the purchases are from Grey Market or whatever the assessee has made purchases although payments are made to hawala dealers. In that eventuality it is to be seen whether the payments are recorded in the books of account or not. This fatum is not denied by Revenue, rather the assessee has proved that the payments are made through accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee. While the CIT (A) had assessed profit at 2% which was added to the income of the assessee, Tribunal made further addition of 3% profit, thereby protecting the interest of the Revenue. We have also considered the two decisions relied upon by learned standing counsel and we find that facts of the present case are clearly distinguishable from the facts of those two cases to warrant application of the legal principles enunciated in the two cited decisions. 20. In Bholanath Polyfeb (P.) Ltd. (supra), Gujarat High Court was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om other parties which were not recorded in the books. The appellant took only bills from these 8 parties as accommodation to explain the purchases. Therefore the entire purchase from these 8 parties cannot be added as bogus and what needs to be taxed is the profit element embedded in such transaction. The appellant carryout only the job work of dying the cloths on a contract basis. Estimation ranging from 12.5% to 25% has been upheld by the Hon'ble Gujarat High Court depending upon the nature of the business. As held in the case of Simit P. Sheth (supra) no uniform yardstick could be applied to estimate the rate of profit and it vary with the nature of business. Taking all the facts into consideration and the findings of the Hon'ble Courts on this issue, I am of the view that estimation of 17.5% of profit would meet the ends of justice. Therefore, I direct the AO to estimate profit of 17.5% on the total alleged bogus purchase which works out to Rs. 20,11,270(17.5% of Rs. 1,14,92,970/-). The appellant get the relief of the balance Rs. 94,81,700/-. The grounds raised are partly Allowed. 13. Thus as can be seen from the above, CIT (A) had relied upon the decision of the Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Nikunj Eximp Enterprises (P.) Ltd. [2013] 35 taxmann.com 384/216 Taxman 171 (Mag.)/[2015]/384 ITR 619. Infact, this court has also held following the decision of Nikunj Eximp Enterprises Pvt. Ltd. that the revenue is required to furnish the information received from the Sales Tax Department or from the Investigation Wing of the Department to the assessee allowing the assessee to test the veracity of such information otherwise such information could not be relied upon. This court in the case of Pr. CIT v. Vaman International (P.) Ltd. [IT Appeal No. 1940 of 2017, decided on January 29, 2020] held as under:- 17.1 Thus, from the above, it is seen that Tribunal had returned a finding of fact that the assessee had filed copies of purchase bills, copies of purchase/sale invoices, challan cum tax invoices in respect of the purchases, extracts of stock ledger showing entry/exit of the materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish the genuineness of the purchases. Thereafter, Tribunal held that Assessing Officer could not bring on record any material evidence to show that the purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee. While the CIT(A) had assessed profit at 2% which was added to the income of the assessee, Tribunal made further addition of 3% profit, thereby protecting the interest of the Revenue. We have also considered the two decisions relied upon by learned standing counsel and we find that facts of the present case are clearly distinguishable from the facts of those two cases to warrant application of the legal principles enunciated in the two cited decisions. 20. In Bholanath Polyfab Limited (supra), Gujarat High Court was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h March, 2015 was untenable in law, inasmuch as the assessee had clearly failed to prove the genuineness of purchases made during the course of execution of the works, despite having been granted opportunity to produce the twelve parties before the A.O. for purposes of verification. 10. The Tribunal upheld the findings recorded by the learned CIT(A) on two grounds. Firstly, that the consumption report with regard to material purchases had never been controverted by the A.O and secondly that the completion certificate in regard to the contract works submitted by the assessee had been accepted by the A.O., in the light of which, it could not be said that the purchases were totally bogus and consequently ought not to be fully disallowed. The Tribunal also upheld the addition estimated at Rs. 59,31,849/- based upon estimated proft at the rate of 12.5% on the total purchases in question. 11. We have heard learned Counsel for the appellant. 12. We are of the opinion that the view expressed by the Tribunal in upholding the order passed by the learned CIT(A), cannot be said to be in any manner perverse or legally untenable, inasmuch as, if the entire amount of Rs. 4,74,54,793/- were to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of the order impugned dated 20th January, 2017, which is impugned in the present appeal. The Tribunal upheld the view of the CIT(A) to treat the purchases from ten parties as bogus and also upheld the view expressed by the CIT(A) to sustain the addition to the extent of 12.5% of the amount of the disputed purchases relying upon the decision of Gujarat High Court in the case of CIT V/s. Bholanath Poly Fab Pvt. Ltd. In a case involving a similar issue, even this Court in Income Tax Appeal No. 398 of 2018 decided on 18th July, 2022, had dismissed the appeal filed by the revenue on the ground that if the entire amount of purchases were to be held as non-genuine purchases, then it would not be possible to justify as to how the works allotted to the assessee for execution by the semi-Government Agencies, could be completed. 7. Even in the present case the Appellant is a contractor, who had been allotted a subcontract for carrying out civil works of road and buildings repairs for which various types of building materials are stated to have been purchased from several suppliers including the ten suppliers, who are alleged to have been providing accommodation entries. It is not de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the water pipeline project from which the assessee derived revenues of Rs. 295 crores, it had incurred labour costs of Rs. 30.35 crores to undertake tasks involving excavation, laying of pipes, execution etc. which is only 11.49% of the total revenues. In our considered view, such a proposition is inherently flawed. The Ld. AR has shown us that even the MVAT Rules recognizes that labour component in any composite contract is 30% and therefore allows standard deduction accordingly. On these facts therefore, we are in agreement with the Ld. CIT(A) that the entire value of payments made to these vendors cannot added back to the total income of the assessee. 32. In fact, we note that, by disallowing the entire value of payments, the AO has effectively reduced the entire costs of the project to 65% of the revenues, which in our considered view, is improbable, particularly having regard to the fact that it was a government backed project. More specifically, it is noted that, as a consequence of the disallowance of the entire value of expenses, the assessable profit works out to 39% and 142% of gross receipts for the AYs 2014-15 and 2015-16, which again is noted to be illogical. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same contract was continued in the relevant AY 2014-15, we hold that the profit of the assessee for the year is to be estimated at 8% of the contractual receipts. The Ld. AR had pointed out to us that, the assessee had offered 8% of contractual receipts in the return of income filed u/s 153C of the Act. The AO is accordingly directed to verify this contention and ensure that the total income is finally assessed at 8% of the contractual receipts for the relevant AY 2014-15. With these directions, these grounds are disposed off. Hence, Ground Nos. 1, 2 4 of Revenue s appeal stands dismissed and the grounds taken by the assessee are partly allowed. 36. Ground No. 3 of the Revenue s appeal is against the Ld. CIT(A) s action of deleting the contractual payments made to M/s Inderdeep Construction Company ( IDCC ) which was disallowed by the AO. The facts as noted in brief are that, the AO had disputed the genuineness of the contractual payments made by the assessee to IDCC aggregating to Rs. 29,99,72,505/- across AYs 2012-13 to 2015-16. After analyzing Pages 6 7 of Loose Bundle No. 3 along with Pages 3, 4, 20 21 the AO observed that the assessee had made noting of commission at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which according to him showed that ECC was giving back the payments after reducing their commission. The Ld. DR further argued that IDCC did not provide proof of actual work done which further corroborated the suspicion of the AO regarding its genuineness. Overall therefore, he urged that the entire payment made to IDCC ought to be disallowed. Per contra, the Ld. AR for the assessee fully supported the order of the Ld. CIT(A). 39. We have heard both the parties and perused the findings of the lower authorities in light of the material available on record. It is noted that the impugned addition emanated from Page Nos. 3, 4, 20, 21, 7 6 of Bundle No. 3. All these six pages are noted to have been scanned and extracted by the AO in the assessment order. It is noted that Page Nos. 3 4 are the extracts of tally ledgers comprising of the details of payments made to IDCC. These ledgers are noted to be forming part of the books of accounts and it is not in dispute that all these payments were made through banking channels. Accordingly nothing adverse can be discerned from these Pages. Now we examine, Page Nos. 6 7 which led to the impugned addition. The said Pages are also noted to be an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation given by the Ld. AR that the noting found on Page Nos. 6 7 were dumb in nature and that it nowhere suggested payment of commission for arranging accommodation invoices from IDCC. 42. The Ld. AR also brought to our notice that, another related entity viz., M/s Eagle India Infra Limited had also paid contract expenses to IDCC, which also was covered under the same search action. The income tax assessment of M/s Eagle India Infra Limited is noted to have been completed by the same AO in which no adverse findings were recorded qua the payments made to IDCC and it was allowed in full. Having regard to this factual position, we find force in the Ld. AR s plea that when the same AO had accepted the payments made by M/s Eagle India Infra Limited to IDCC as genuine, then it was incorrect for him to take a completely contrary view in the case of the assessee JV. 43. We further note that, even the interpretation of the AO that the amount mentioned on Page No. 4 i.e. 2% less which corresponded to the amount paid back by ECC, suggested that the monies were being received back after deducting commission, is also found to be far from reality. Before the Ld. CIT(A), the appellant had explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, because the payments details to IDCC after deducting TDS (as per ledger accounts of IDCC in the books of the appellant) matches with the details mentioned on seized page no. 4. iii) The Assessing Officer has interpreted that after keeping 5% commission, ECC has deposited the amount back in IDCC cheque account. There is inconsistency in the interpretation by the Assessing Officer because at one side the Assessing Officer is saying that the commission @ 5% was paid to ECC but on the other hand Assessing Officer is saying that the amount deposited back in IDCC cheque account' is 2% lower of the payments made to IDCC. In any case, the contents of seized page no. 4 stand explained by appellant as discussed above. iv) There is no noting or evidence on these seized pages regarding the cash received from IDCC similar to the case of 30 parties mentioned at seized page no. 18 and 19. In the case of these 30 parties, notings on page no. 19 indicate that amount in cash after reducing the commission was received back by the appellant for further utilisation. However, on the seized papers relied upon by the AO, there is no such noting regarding the payments made to IDCC. V) The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13, 2013-14 and 2014-15. Copies of Service Tax Returns filed by IDCC for AY 2013-14 to 2016-17. Copies of VAT Audit reports of IDCC for AY 2012-13 to 2016-17. 45. Having perused the above documents, we note that IDCC is a registered contractor with Class I-A grade with government departments. The said sub-contractor is noted to hold all relevant registrations to perform the tasks sub-contracted by the assessee. The assessee is noted to have provided the copies of invoices, proof of payments and confirmation letter from IDCC. The work certificate issued to IDCC was also placed before the lower authorities. It is noted that the AO had made independent enquiry u/s 133(6) of the Act from IDCC, which in their reply had inter alia also provided the ledger account of the assesse JV as appearing in their books, the expenses incurred towards execution of the works contract and the year-wise work completion certificate issued by the assessee. It is also noted that, IDCC had regularly filed their service tax returns and VAT Audit reports and that it had fully discharged its service tax and VAT liabilities levied on their invoices to the credit of the Government. Having perused the financials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties. I tend to agree with the appellant because IDCC and the appellant filed various documents in this regard and the AO has not find any fault in these documents. In my opinion, merely because there was no written agreement between the appellant and IDCC, the sub-contract expenses paid to IDCC cannot be termed as bogus especially when there is no conclusive evidence proving the bogus nature of these subcontract expenses. 79.10 Another argument mentioned by the Assessing Officer in the remand report is that M/s IDCC did not file the details of expenses incurred for the work carried for the appellant along with supporting evidences. In the rejoinder, the appellant has submitted that IDCC vide letter dated 18/12/2019 sent to the Assessing Officer in response to notice u/s 133(6) of the Act had clarified that the expenses incurred for execution of work for the appellant was debited to P/L Account along with expenses incurred for execution of other contracts. The appellant has contended that the Assessing Officer has not appreciated that no contractor maintains contract-wise books of accounts and the books of accounts give overall picture of expenses incurred on all the contracts bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Hence, Ground Nos. 1, 2 and 4 of Revenue s appeal stands dismissed and the grounds of appeal taken by the assessee are partly allowed. 51. Ground No. 3 of the Revenue s appeal relates to the Ld. CIT(A)'s action of deleting the disallowance made by the AO on account of sub-contract charges paid to IDCC. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 3 of Revenue's appeal in A.Y. 2014-15. Following our conclusion drawn in A.Y. 2014-15, we dismiss this ground of the Revenue. 52. We now take up the appeals of the assessee and the Revenue in ITA Nos. 3024/Mum/2023 3059/Mum/2023 for AY 2017-18. The common issue involved in both these appeals relate to the protective addition of Rs. 8,00,00,000/- made by the AO on account of unexplained cash credit in the hands of the assessee JV. The facts relating to this protective addition are that, the AO had found that there were two noting s on Page Nos. 20 21 under the nomenclature INVT in Cash in the names of the JV partners, KIL and Shri U.M. Rupchandani of Rs. 3,00,00,000/- and Rs. 5,00,00,000/- each. According to the AO, these pages contained the noting s r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in his account books. The intangible additions were held to be available to the assessee as the regular book profits could be. The Apex Court thus held when the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or by reference to concealed income earned in that very year then no addition is warranted on account of such cash deficits or cash credits. 55. Similar view was expressed by Hon ble Madras High Court in the case of CIT v. K. S. M Guruswamy Nadar and Sons, [1984] 149 ITR 127. In the decided case, it was held that when there are two separate additions viz., one on account of suppression of profit and another on account of cash credit, then it is open to the assessee to explain that, the suppressed profits had been brought in as cash credits and has to be telescoped into the other. 56. Gainful reference may also be made to the decision of the Hon ble jurisdictional Bombay High Court in the case of CIT vs J.J. Gandhi (39 CTR 127). In this judgment also, the Hon ble High Court had approved the theory of telescoping and held that it could be applied in cases where additions in relation of unexplained money/i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective whether the investment was made in 2015 or in FY 2016-17, the admitted facts show that the assessee JV had disclosed income of Rs. 9,50,56,072/- in AY 2013-14 and had specifically declared the same to be the sum available for investment by the JV partners towards the water pipeline project. Further, the assessee JV had also declared additional income aggregating to Rs. 3,36,55,357/- in AYs 2014-15 to 2016-17, which was also available to be set off against any unexplained money/ investment of Rs. 8,00,00,000/- added by the AO in AY 2017-18. On these facts, we thus uphold the Ld. CIT(A) s action of allowing the telescoping benefit and set-off of the amount of undisclosed income aggregating to Rs. 12,87,11,429/- (Rs. 9,50,56,072 + Rs. 3,36,55,357), towards the cash investment of Rs. 8,00,00,000/- found mentioned on seized pages 20 21. Hence, having regard to the judicially approved principle of telescoping, according to us, since the additional income offered to tax in earlier years was sufficient to cover such cash investment alleged to have been made by JV partners, no separate protective addition was required to be made in the hands of assessee JV. Accordingly, the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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