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TMI Blog2024 (6) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... te Government or other agencies against such contractors so that there should not be any siphoning or diversion of funds meant for development by any unscrupulous contractor. If today we decide this issue against the Revenue, by legalizing the payment merely because the contractor had submitted the confirmations of grant of contract then it would set a wrong precedent and there would not be any actual construction / development works would take place. Since in the present case, the Revenue authorities have failed to examine the details of the work contracts awarded and the payment made by the Government which are relatable to various stages of work contract, therefore, we remit back the matter to the file of Assessing Officer for fresh examination. Needless to say while examining the matter afresh, the Assessing Officer shall take the assistance from state Government Development Agencies and other statutory enforcement agencies to find out the terms of the allotment of the contract, execution, performance, quality control etc., and whether the assessee can divert the funds meant for development to its other activities namely, aircraft / solar power business. Thereafter, considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued to the assessee from time to time. The submissions were made by the assessee in response to the above notices. After considering the submissions made by the assessee, the Assessing Officer completed the assessment interalia making additions of Rs. 21,24,00,000/-, Rs. 8,91,35,102/- and Rs. 116,04,55,413/- on account of settlement rights, non-explanation of short term capital gains and excess receipts from contract works, respectively, u/s 68 of the Act. Thereafter, the Assessing Officer passed assessment order on 31.12.2019 u/s 143(3) of the Act. 4. Feeling aggrieved by the order of Assessing Officer, assessee has filed the appeal before the ld.CIT(A) and the ld.CIT(A) had deleted the addition vide pages 69 to 77 of his order (Pages 227 to 234 of the paper book), which is to the following effect : Addition of Rs.116,04,55,413/- made u/s 68 of the Act on account of excess receipts from contract works: During the course of assessment proceedings, the appellant was asked to submit the nature of real estate and construction activities and details of revenue generated from and related expenditure incurred on such real estate activities. In response, the appellant submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s receipt of Rs. 116,04,55,413/- (Rs. 131,97,66,135/- less Rs. 15,93,10,722/-) as unexplained cash credits u/s 68 of the Act. The first issue and the primary issue is to consider the amount received by M/ so MEIL under section 68 of the Income Tax Act, 1961. It is seen that while passing the assessment order, everything has been considered u/s 68 by the Assessing Officer with regard to the additions made. In all the three cases of addition, the appellant has offered the whole quantum in the books of account. and the same has been included in computing the total income of the appellant and none. of the receipts have been offered at any concessional rate. The additions regarding the other two issues are discussed in prior paragraphs on the. basis of additional evidence and no element of these receipts to be unexplained has been found. The Assessing Officer has invoked the said section 68 in all the issues of addition. The receipt from the parties is not in dispute and the same was confirmed before the Assessing Officer and the Assessing Officer has also not denied the receipt of the same from the said parties, therefore invoking the section 68 appears to be primarily harsh incorrect. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and genuineness of the transactions with M/s MEIL. Since the Assessing Officer found the contention of the appellant that the addition of Rs. 116,04,55,413/- cannot be made u/s 68 of the Act, to be genuine in the remand report, no further comments on the said addition u/s 68 of the Act are required to be made. Therefore, the said addition cannot be sustained u/ s 68 of the Act. The next issue raised in the remand report is regarding the observation of the AO regarding the addition to be made u/ s. 69C implying that the appellant has done and executed the work with regard to the contract given by M/S. MDIL through means which were not recorded in books of accounts. The AO has made this observation on account of the fact that the expenses pertaining to the contract work have not been accounted but for direct expenses only and the other expenses pertain to the other activities of the appellant. It is important. to note that during the remand proceedings, the appellant had submitted the bifurcation segmental wise for the activities conducted which is reproduced as under: LEPL PROJECT LIMITED Annexure of Allocation of Expenditure for the year ended on 31.03.2017 (Amount in Cr.s) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order. The AO in the assessment proceedings had only considered direct expenditure without considering the other expenses in the P L account and further, has connoted that the work has been done but the sum of Rs. 106,76,18,980/- has been incurred outside the books of accounts to complete the said contract to the extent of Rs. 116,04,55,413/-. Thus, the AO considered that the work has been done and executed and further has now stated that to complete the work done after considering profit margin arrived at an expenditure which is unexplained to the extent. or Rs. 106,76,18,980/- and after that discussion, has considered the whole receipt of Rs. 116,04,55,413/- as unexplained and suggested the addition to be made u/ s 69C of the Act. The relevant section 69C of the Act is reproduced as under: Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer u/s 68 of the Act. Since the above additions are deleted u/s 68 of the Act, the invocation of section 115BBE which is consequential in nature, is not valid. Accordingly, ground no.12 of the appeal is in consequential for adjudication. However, any addition made u/ s. 68 or 69C will be liable for charge u/s. 115BBE. In ground no.6, the appellant contended that the AO did not consider the explanation of the appellant submitted vide letter 30.12.2019 and did not adhere to the principles of natural justice. It is seen that now the additional submissions/ evidence made by the appellant were considered by the Assessing Officer in the remand proceedings and relevant comments were also offered and thus, 'due opportunities and principle of natural justice have been followed and the grievance, if any of the appellant is addressed. Therefore, the said ground is irrelevant in view of the remand proceedings and thus is not relevant for adjudication. 4. Feeling aggrieved by the order of ld.CIT(A), the Revenue is in appeal now before us on the grounds mentioned here in above. 5. The submission of the ld. DR for the Revenue that the Assessing Officer before passing the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad by Govt. of Telangana, Govt of Andhra Pradesh. Since the assessee has recognized the revenue in its books of accounts, the work thereon was completed by incurring commensurate expenditure. Such expenditure incurred in the normal course should be Rs. 121 where as the company actually claimed to have incurred Rs. 14,65,6,5865/- which is beyond human comprehension. Hence the excess expenditure to the extent of which is actually incurred but not shown in the books of accounts and also which was not explained in spite of opportunities given is to be treated as unexplained expenditure u/s.69C of the IT Act. Hence, it is clear that the assessee should have incurred unaccounted expenditure to the extent of which was not brought into the books and conveniently inflated the profits so that the company can set off these profits against the loss from Air Line Division. Also the assessee has never furnished the ledger extracts of MEIL expect project wise receipt details from MEIL. Also MEIL in response to this office letter has furnished only work contract agreements but not furnished the extract of the assessee in its books of accounts. The assessee neither substantiated that the Work has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been reflected in the manner as pointed by the ld. DR but nonetheless, the expenditure was duly accounted for, and that sufficient explanation was given by the assessee giving breakup of the expenditure. It was submitted that once the assessee has shown the entire contract receipts in the books of accounts and had suffered the taxes thereon, then there was no question of making the alternative addition u/s 69C of the Act. 10.1. Ground no.1 is general in nature and requires no adjudication. GROUND NO.2 11. We have heard the rival submissions and perused the material on record. The Assessing Officer in the present case, had issued notice u/s 142(1) of the Act and in response thereto, the assessee had filed reply on 03.04.2019 (Page 34 of the paper book) and in the said reply, the assessee at Sl.No.5 has mentioned as under : 5. Furnish the break-up of revenue from operations of Rs. 372,22,47,614/- and cost of sale of real estate and construction expenses of Rs. 14,65,65,865/-. You may furnish relevant ledger extracts also. 5(d) Cost of sales of real estate and construction expenses of Rs.14,65,65,865/- Ledger extract enclosed. (Re. Annexure-V). (Emphasis supplied by us) 11.1 Simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons for earning huge profit of Rs. 117,32,00,270/- in carrying out construction work wherein he incurred expenditure of Rs. 14,65,65,865/- only. No prudent business man can give an amount of Rs. 131,97,66,135/- for any work the cost of which will be Rs. 14,65,65,865/-. Hence earning such a huge profit of Rs. 117,32,00,270/- being 88.89% of the total receipts of Rs. 131,97,66,135/- is beyond human comprehension. The actual profit at the rate of 8% on this work of Rs. 14,65,65,865/- works out to Rs. 1,27,44,857/-. Hence, assessee should have received an amount of Rs. 15,93,10,722/- whereas the assessee received an amount of Rs. 131,97,66,135/-. In spite of giving opportunities, the assessee has not produced any evidence explaining the strange situation. Hence, the excess receipt of Rs. 116,04,55,413/- (Rs. 131,97,66,135 (-) Rs. 15,93,10,722/-) has to be treated as unaccounted cash credit u/s.68 of the IT Act in the books of accounts of the assessee. 11.6 In the present case, it is evident that the work contract valued at Rs. 1,31,97,66,135/- was allotted by MEIL to the assessee. It is the case of the assessee that the cost of sale of real estate and construction expenses was Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / real estate business are available on record. At page 40 of the paper book, the amount spent towards fuel charges and construction work is available, which shows that assessee had spent only Rs. 9.94 crore as against Rs. 28.62 crore claimed before the ld.CIT(A). This claim of Rs. 28.62 crore as fuel charges was false and incorrect. The amount spent towards fuel charges and construct work is to the following effect : - left intentionally - 11.10 Similarly, in the table, the assessee has mentioned Rs. 192.87 crores towards the other expenses. However, the details submitted by the assessee at page 35 of the paper book, reproduced hereinabove (refer page 13 of this order) clearly shows that the amount of Rs. 214,00,72,632/- were incurred towards the solar and aircraft business of the assessee. However, the assessee before the ld.CIT(A) had wrongly bifurcated the amount and shown Rs. 19.23 crores were spent towards the contract work. Thus, made a false statement. 11.11 Similarly, the assessee had claimed Rs. 12.77 crores towards the finance charges. However, no such details were provided either to the Assessing Officer or to the ld.CIT(A). In the audited balance-sheet of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act. In our opinion, the expenditure claimed by the assessee for executing the work, over and above the cost of construction work of Rs. 14,65,65,865/- has not been thoroughly examined by the ld.CIT(A), though he has co-terminus powers. In our opinion, prima facie, the entire expenditure of Rs. 94.46 crores (Rs. 109.11 crores Rs. 14.65 crores) is not relatable to the activities of the construction and the assessee had wrongly and falsely claimed the same as expenditure incurred towards the contract work. This view of ours is supported by the decision of Hon ble Delhi High Court in the case of in the case of CIT Vs. Jansampark Advertising and Marketing Pvt. Ltd. (2015) 56 taxman.com 286 (Delhi). Since the ld.CIT(A) granted relief without adequately verifying the facts and figures provided by the assessee, before the Assessing Officer, therefore, we are of the opinion that this issue needs to be remanded back to the file of Assessing Officer with a direction to verify and pass a reasoned speaking order. The order of ld.CIT(A) is considered to be cryptic and non-speaking, because he has failed to exercise the powers bestowed upon him under the Act, as held by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-17 for a total value of Rs.18,36,73,470/- 22.07.2016 2 Nellore WSS Project MEIL/NWSS/16-17/744 for a total value of Rs.6,29,76,000/- 26.09.2016 3 Purushothappatnam Lif Irrigiation Project MEIL/PPLIS/16-17/1083 for a total value of Rs.26,15,05,000/- 14.12.2016 4 Kaleswwaram Medigadda MEIL/KP-New/1189/LEPL/W.O.174/16-17 for a total value of rs.10,22,81,150 29.11.2016 5 Kleswaram Sundilla MEIL/KP-New/1189/LEPL/W.O.200/16-17 for a total value of Rs.8,07,53,975/- 16.12.2016 6 Kaleshwaram Annaram MEIL/KP-New/1189/LEPL/W.O.144/16-17 for a total value of Rs.6,13,43,625/- 29.11.2016 7 Nizamabad Singur Water grid MEIL/Nizamabad Singoor Water Grid (4128)/W.O.441/16-17 for a total value of Rs. 9,02,50,000/- 10.10.2016 8 Adilabad Water gird MEIL/ADWG-Adilabad/4127/16-17/150 for a total value of Rs.6,12,00,000/- 10.10.2016 9 Warangal Paleru MEIL/Warangal Paleru (4125)/330/2016-17 for a total value of Rs.12,03,62,500/- 03.10.2016 10 Somasila MEIL/SLIS/16-17/792 for a total value of Rs. 8,31,07,500/- 06.10.2016 11 Mahbubnagar Grid MEIL/MBNR/1178/WO/3159/16-17 for Rs.6,02,74,241.50 09.02.2017 12 -do- MEIL/MBNR/1178/WO/2197/16-17 for Rs.8,22,09,450 07.11.2016 13 -do- MEIL/MBNR/1178/WO/2264/16-17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Telangana and Government of Andhra Pradesh. The assessee claimed to have earned such a huge profit approximately more than 92% of the total cost of the project. Out of which, assessee had only spent a sum of Rs. 14,65,65,865/- on the construction work. In our view when the work is allocated by the State Government, the technical and commercial bids are called for and the payments are typically released based on the amount of work certified by the State Agency. 11.21 However, the Assessing Officer and ld.CIT(A) had failed to apply their mind to the basic fact that earning of more than 92% profit in the case of development activities, especially those intended for boosting the infrastructure meant to benefit the citizens, is highly unusual. In the present case, it is the case of the assessee that it had earned a huge profit of 113 crores out of a total cost of Rs.131 crores apparently and thus pocketed more than 90% of the contract work. The earnings of such a huge profit and declaration of income by the assessee is unimaginable and beyond the preponderance of human probability and against the commonsense. The Assessing Officer / ld.CIT(A) should have raised eyebrow, scrutinized t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ledger account and other details of the expenditure to the lower authorities. As observed hereinabove, that 12 work contracts were issued after October, 2016, therefore, it is highly unimaginable and unfathomable that the major work has been completed and running bills were raised and the payments were made for the said work done by the assessee before March 2017. In our view, a livelink is required to be established with respect to the allotment of the work and its commencement, execution and completion and payment thereof. No such information was provided to any of the lower authorities by the assessee. Further, we are of the opinion that the release of payments is directly linked with bench mark fixed for various stages of completing the project. 11.24. In our view, though the identity of MEIL is established however, neither the genuineness nor the creditworthiness has been examined and proved by the assessee before the lower authorities. Merely granting sub-contracts without any corresponding development activities will not legalize the unlawful amount paid by the said MEIL to the assessee in the guise of the running bills. Further nothing had been brought out on record that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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