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TMI Blog2023 (9) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profit should be estimated on the gross receipts. This issue is partly allowed. Deduction under Chapter VIA - As we find that this issue has not been discussed in the ld. CIT(A) order and also no details have been discussed in the assessment order also. Therefore, we feel that this issue should be remanded back to the file of the ld. AO to examine the claim of deduction and onus is on the assessee to substantiate its claim for deduction and AO shall grant relief in accordance with law, if found admiissble. Post Search Assessment Appeals - addi tion on account of bogus sub-contract charges - search and seizure operation was carried out and in response to notice u/s. 153A assessee has declared income on estimated basis, because the books of accounts were already rejected by the ld. AO in the original assessment proceedings - HELD THAT:- The net profit in various years is ranging from 7.77% to 14.95%. The assessee in the return of income filed in response to notice u/s.153A had shown net profit rate of 8% in the contract receipts to factor in the sub-contract charges; and 4% from sub-contract receipts. The impact of this addition, if made on the net profit rate of 8% which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been challenged before the ld. CIT (A) also. Under these facts, we are not tinkering with the additional income declared by the assessee in the return of income and accordingly, this ground is dismissed. Additional income declared on the turnover of Directors - as argued it cannot be added as it is very high and excessive because in the seized documents, the turnover made by the Directors which was not according to regular books - The assessee estimated 12% from such turnover and offered it as additional income. Now the case of the assessee before us that, it is on higher side, not commensurate with the business of the assessee and lower percentage should be applied. We do not find any justification for such a plea that once the assessee has offered the income on the basis of seized document, then assessee cannot take a plea that the said additional income offered should be reduced by some adhoc percentage of net profit. Accordingly, ground No.4 is dismissed. Disallowance of Foreign travel expenses - foreign visit of directors alongwith their family members is not wholly and exclusively for the purpose of business - Undisputedly this assessment had abated at the time of search, bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Assessee : Shri Rajeev Khandelwal, Shri Gagan Khandelwal, Shri Khushiram Jadhvani For the Revenue : Ms. Zeenia Handa ORDER PER AMIT SHUKLA (J.M): The aforesaid appeals have been filed by the assessee and one batch of appeals are against quantum of assessment passed u/s.143(3) for A.Y. 2013-14 and 2014-15 vide separate order of even date 31/03/2023 passed by ld.CIT(A)-Pune-11. Another set of appeals pertaining to A.Y.2012-13 to 2017-18 have been filed by the assessee against common order passed by ld. CIT(A) vide order dated 31/03/2023 for the quantum of assessment passed u/s.153A r.w.s. 143(3). 2. In the sets of two appeals, which are pertaining to pre-search assessments passed u/s.143(3) for A.Y. 2013-14 and 2014-15, wherein the common issue involved pertains to estimation of income from direct contract receipts by taking 11% of turnover and estimation income of sub-contact receipts for taking 5.5% of its turnover. Apart from that, assessee had also raised estimation of income from rentals by the AO by taking 100% of the total receipts; and lastly, not allowing deduction of Rs.5,50,000/- as clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er proposed to estimate income @11% of the direct contract receipts and 5.5% of sub-contract receipts and 10% of other income. He further estimated 8% of other income. Thus, the income of the assessee was estimated in the following manner:- i. Income on direct contract receipt@11% Rs. 10,61,69,498/- ii. Income on sub-contract [email protected]% Rs. 35,00,615/- iii Income on sale of sand @ 10% Rs. 1,26,78,724/- iv Income on transport receipts @ 10% Rs 6,03,788/- v Rental Income @ 100% Rs. 2,61,66,205/- Total Rs. 14,91,18,830/- ================== 7. The ld. CIT (A) noted that in the case of the assessee another search search and seizure operation u/s.132 was conducted in the case of the assessee on 20/09/2017. During the course of said search, incriminating documents were found that assessee has been debiting bogus contract expenses in the books of accounts during the period for A.Y. 2012-13 to A.Y.2018-19. Shri J.M. Mhatre, the Managing Director of the assessee company in his statement recorded u/s. 132(4) admitted that assessee company has been debiting the bogus sub-contract expenses in the profit loss account in order to inflate the expenses and he declared additional income on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service contracts @ 5% Rs. 8,26,786/- v Rental Income @ 100% Rs. 1,74,21,073/- Total Rs. 30,63,24,816/ - 10. In the year A.Y.2014-15 also the assessee in response to show-cause notice u/s.1 53A subsequent to the search had declared income by showing income of direct contract receipt @8% income of sub-contract receipt @4% and rental income @85%. Here also the additional income was offered in the return of income filed u/s.153A in the following manner:- i. Additional income of Rs. 51,30,303/- by applying a GP Rate of 12% on unverified sub-contractors amounting to Rs 4,27,52,522/-. ii. Additional income of Rs. 30,455/- as per AB bundles. In this manner, the assessee declared total income of Rs. 26,88,65,450 (26,37,04,692 +51,30,303 + 30,455) in the return filed u/s 153A of the Act. Thus, ld. CIT (A) in A.Y.2013-14 has upheld the estimation made by the ld. AO. 11. After hearing both the parties and on perusal of the impugned order, we find that in the regular assessment order u/s. 143(3) passed by the AO for A.Y.2013-14 and 2014-15, income has been estimated by the ld. AO wherein on direct contract receipts he has estimated 11% of the turnover; on subcontract receipts 5.5% of the turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5% is estimated, instead of 5.5% by the AO. Thus, assessee gets part relief in both the years. 13. In so far as the issue of rental receipts, it has been brought on record that in later years, ld. CIT(A) has estimated profit @85% of the rental receipts which has not been challenged by the department and has attained finality, therefore, we hold that on rental receipts, 85% of the profit should be estimated on the gross receipts. This issue is partly allowed. 14. Lastly, with regard to deduction of Rs.5,50,000/- under Chapter VIA, we find that this issue has not been discussed in the ld. CIT(A) order and also no details have been discussed in the assessment order also. Therefore, we feel that this issue should be remanded back to the file of the ld. AO to examine the claim of deduction and onus is on the assessee to substantiate its claim for deduction and AO shall grant relief in accordance with law, if found admiissble. Accordingly, appeals for the A.Y.2013-14 and 2014-15 in ITA No.1664 1666/Mum/2022 are partly allowed. Post Search Assessment Appeals 15. There are other bunch of appeals which are post search assessment wherein by and large the issue remains the same, i.e., estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company, wherein he has explained that even though the measurement book for bogus sub-contractors were prepared but basically no actual work was carried out by these bogus sub-contractors. The reasons given by the ld. AO based on various materials referred to by him for holding that the payment to the sub-contractors is bogus can be summarised as under:- i. That the Measurement Book is maneuvered so as to ostensibly provide virtual really to the bogus sub-contract changes. ii. That the Measurement Book is prepared only for record in the case of bogus sub- contractors with the main purpose to ensure that the staff in general in the company UMP does not know of the bogus accommodation entries carried out by company (MPL) is books. iii. That the normal procedure in the case of genuine subcontractor is followed in maintaining the Measurement Book in the case of bogus sub-contractor. iv. That in the case of genuine sub-contractors Measurement Book is prepared on the basis of actual work completed whereas in the case of non-genuine subcontractor, Measurement Book is prepared as per convenience as required v. That in the case of bogus contracts there is no work order issued, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the amount was credited in their bank account, which was subsequently withdrawn in cash by the employees of the assessee company after obtaining blank signed cheques from them. 18. AO has also noted the list of various sub-contractors in respective amount for F.Y.2011-12 to F.Y.2016-17 which has been tabulated in the assessment order. Thus, he made following addition from A.Y.2012-13 to A.Y.2018-19: Sr. No A.Y. Amount 1 2012-13 2,43,75,113/- 2 2013-14 4,20,07,333/- 3 2014-15 4,20,36,705/- 4 2015-16 6,02,00,657/- 5 2016-17 11,61,52,713/- 6 2017-18 2,29,38,184/- 7 2018-19 56,04,344/- 18. The ld. CIT(A) after considering the entire gamut of facts and findings of the ld. AO has confirmed the said addition of Rs.2,43,25,113/- after observing and holding as under:- 40. As regards to the merits of the addition, it may be stated that the facts elaborated by the assessing officer in the assessment order suggest that i. During the search operation page no. 7, Bundle No. 1 Party AB-1 was seized from the business premises of the appellant which suggests that the appellant company had taken adjustment entries which were managed by Shri Gagan Koli, Accountant of the company ii. In his statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of each sub- contractor separately in the assessment order explaining as to why the said contractor is bagus. The appellant has not rebutted these findings of the assessing 41.2 The appellant has relied on the Measurement Books of these persons. were in his statement recorded u/s 132(4) of the Act, Shri J M Mhatre has categorically stated that the Measurement Books for these subcontractors were maintained on random basis and were maintained only for creating records so that other employees do not come to know about such adjustment entries. In view of such categorical admission, the said contention of the appellant does not have any force. 41.3 The appellant has contended that seizure of blanked signed cheques of the subcontractors does not mean that the cash was withdrawn by the appellant company. This contention of the appellant is in complete contradiction to the confession made by Shri Gagan Koli wherein he admitted that the cash was withdrawn and given to director of the company. Shri J M Mhatre along with other directors bad agreed to this statement of Shri Gagan Koli. Therefore, this contention does not have any force. 41.4 It has been contended that the comments on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant is rejected. 41.8 .. 41.9 . 41.10. The reasons for holding the sub-contract charges claimed to have been paid to the persons mentioned at Sl. No. 10 to 14 above as bogus, have been discussed in detail in the assessment order particularly at page 75 wherein the assessing officer has stated that all these persons in their statements have admitted that they did not carry out any sub-contract work for the appellant. During the appellate proceedings, the appellant has not filed any specific submission denying these findings of the Assessing Officer, therefore, for the reasons given in detail in the assessment order, it is held that the sub-contract expenses claimed to have been given to these persons are bogus. 42. In view of above discussion and after considering the facts as discussed in the assessment order as well as the fact that the appellant company on various occasions has admitted that it has booked bogus sub-contract expenses in its P L account and the fact that in the return filed u/s 153A of the Act, the appellant company has declared additional income @12% on such bogus sub-contract expenses, the action of the assessing officer in holding that the appellant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so on. This way the payments were made in cheques to some of sub-contractors and then they use to withdraw cash for the purpose of making payments to labours and assessee didn t had to then make payments in cash to labours directly which were in thousands in number. The fact that the assessee have reduced payments in cash (per books of account) to labourers at various sites is also evident from the following table Financial year ended Labour Charges paid in cash (Rs) Total labour charges debited (Rs) Ratio Of Cash Payment to total labour charges Contract Receipts for the year (Rs) Total subcontract charges debited (including alleged bogus) (Rs) 31.03.2011 3,34,98,454 6,48,87,399 51.63 170,07,84,189 35,03,72,971 31.03.2012 5,86,17,731 9,72,76,658 60.26 148,80,57,045 29,67,96,333 31.03.2013 7,05,24,217 11,23,77,987 62.76 160,33,70,259 29,32,74,331 31.03.2014 9,08,85,940 19,72,95,932 50.35 405.23,43,543 91,48,50,895 31.03.2015 8,48,35,728 26,45,34,053 42.59 356,81,00,077 75,51,57,795 31.03.2016 4,39,39,345 17,70,36,381 29.47 388,77,20,367 44,37,94,697 33.03.2017 1,57,77,456 12,57,69,771 12.54 366.64,92,999 54,59,82,615 31.03.2018 6,32,82,623 29,22,11,369 25.58 653,50,63.231 113,16,65, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AY 2017-18). It is submitted that this huge quantum of cash has to be utilised somewhere and in the absence of any cash/ unexplained assets found, the explanation made by the assessee-company is a plausible one and needs to be accepted. 25. He further submitted that if the case of the Assessing Officer is accepted and the sub- contract charges are held to be bogus, and not utilsed for labour payments, it will lead to absurd results with net profit spurting to as high as 17.19% for the year ended 31.03.2015, which is simply not possible, or even imaginable. It is not possible to earn this high a profit in contractors' business, that too a government contractor. He also referred to the following documents furnished during the course of hearing- (a) Statement showing net profit earned by the assessee for various years, including the net profit if the disallowance of bogus sub-contract charges is considered. (b) Statement giving comparables - net profit declared by other firms/ corporates in the same business. (c) Photo copy of letter of acceptance dated 02.09.2016 issued by CIDCO to the assessee together with Bill of Quantities (BOQ) to show that the assessee has accepted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. Assessing Officer has held that subcontract charges are bogus based on various reasons as has been discussed in the foregoing paragraphs. In sum and substance, his finding is based on; firstly, list of sundry creditors found during the course of search where in the names of various sub-contractors and against their names it has been remarked as adjustment party as per Gagan and on enquiry it was found that these sub-contractors are providing bogus entries to the assessee company and Shri Gagan Koli, a key employee of the assessee company who was looking after the payment of the subcontractors was handling the cash generated from such adjustment of sub-contract charges; secondly, the statement on oath of Shri Gagan Koli, wherein he has admitted and explained the modus of booking of bogus sub-contractor charges. Thirdly, statement on oath of J.M. Mhatre, MD of the assessee company who too have admitted to book bogus sub-contract charges for inflating expenses. Lastly, statement on oath of various subcontractors and other persons who also corroborated the same fact coupled with other enquiries. Thus, on these facts it stands concluded that assessee did debited few of subcontra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r have reduced from 51-60% to 12.5%, despite contract receipts have been increased multi fold over the period of time. It has been pointed out that after the search, assessee has continued this payment made to sub-contractors through cheque and taking back cash from them to make the payments of labourers against the quantum of cash payments have increased substantially. This goes to show that the entire modus operandi was adopted only to reduce the cash expenses in the books and also not its construction activity suffer by making the payment to the labourers in cash. 31. This explanation from the records and circumstances seem to be plausible and we accept that sub-contract charges were booked to generate cash to make payments to labourers. The submission of the assessee cannot be brushed aside completely because looking to the nature of business and the manner of conducting business specially when huge construction activities are carried out in remote areas and it is unskilled labour intensive work which is highly disorganized. It is a well known fact that labourers demand the wages in cash on daily basis or short periodic basis. It is also a matter of fact that in the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be seen is here that, whether assessee has executed the work and whether has made the payment to the various subcontractors and the labourers for getting the work done. If the entire sub-contract charges are to be disallowed, then the gross profit rate or net profit rate of the assessee will go multi-fold which is much more than tender document and also in this line of business such a huge quantum of profit is not comparable. 33. Before us, ld. Counsel has tried to demonstrate that if in all the years this sub-contract charges are added, the net profit rate in various years will go very high and the gross profit itself will increase multifold. First of all he pointed out that as per the books the net profit on all the contract receipts and other receipts is ranging from 5.43% to 7.32 % in AYS. 2012-13 to 2017-18. But if a sub-contact charges which has been added by the AO is included then net profit goes to 8.68 % to 14.65% in these years. Already assessee in its return of income filed u/s 153A, assessee has shown 8% net profit and has declared much higher income than original return of income. If on this further addition is made the net profit rate will go even higher. Fot in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he net profit declared, because it is part of the contract work carried out by the assessee and if these sub-contract charges are treated to be bogus, then it means that assessee has tried to suppress profit from its contract business. In such a situation the best recourse would be to estimate the net profit rate in all these years instead of making separate addition of the subcontract charges over and above the net profit shown in the books of accounts. Thus we hold that estimate of 9% as held above is far reasonable to factor in the sub-contract charges added by the AO. Accordingly, assessee gets part relief and now instead of net profit on direct contract receipts declared at 8% in the return filed u/s 153A, it will be 9% and separate addition as held will get subsumed. 36. In so far as appeals for A.Y.2012-13, 2013-14 2014-15 is concerned, there is no addition are tinkering with the accounts of the sub-contract charge by the ld. AO and therefore, in these years this is not the issue at all. 37. Now coming to the issue of bogus sub-contract charges for A.Y.2015-16, 2016-17 and 2017-18, the facts leading to the additions made by the ld. AO are exactly same. In these years also we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws. 39. We find that before the ld. AO assessee has not made any such claim and it has offered it as income in the return of income. Further, this issue has not been challenged before the ld. CIT (A) also. Under these facts, we are not tinkering with the additional income declared by the assessee in the return of income and accordingly, this ground is dismissed. 40. Further, in ground No.4 in A.Y.2012-13 assessee has challenged that additional income declared on the turnover of Directors of Rs.7,88,469/- cannot be added as it is very high and excessive because in the seized documents, the turnover made by the Directors which was not according to regular books was Rs. 65,70,571/-. The assessee estimated 12% from such turnover and offered it as additional income. Now the case of the assessee before us that, it is on higher side, not commensurate with the business of the assessee and lower percentage should be applied. We do not find any justification for such a plea that once the assessee has offered the income on the basis of seized document, then assessee cannot take a plea that the said additional income offered should be reduced by some adhoc percentage of net profit. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the entire 100% of the sales cannot be added. In absence of any details of expenses, the sale from cash sales found during the course of search, we direct the ld. AO to apply profit of 9% to the same as other income estimated in respect of contract receipts. 49. In ground No.5, assessee has raised the disallowance of foreign travel expenses. The ld. AO has made disallowance of Rs.5,48,700/- being foreign travel expenses debited to the profit and loss account for the reason that foreign visit of directors alongwith their family members is not wholly and exclusively for the purpose of business. Before us, ld. Counsel submitted that this disallowance is not arising out of any incriminating material found during the search of assessee. In support, he has relied upon the decision of the Hon ble Supreme Court in the case of Abhisar Buildwell reported in 454 ITR 212. It is an undisputed fact that the assessment for the A.Y. 2015-16 had attained finality at the time of search on 20/09/2017 and therefore, in absence of any incriminating material such disallowance of expenses cannot be made in the assessment made u/s.153A. Therefore, the additional ground of foreign travel expenses is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an unabated assessment and assessment has attained finality, therefore, this addition is beyond the scope of Section 153A, accordingly, ground No.6 is allowed. 56. In A.Y.2016-17 in so far as bogus sub-contract charges are concerned, we have already held that since it is part of contract business of the assessee and no separate addition should be made and once we have estimated the net profit, this addition gets subsumed in the estimation of net profit. For this year also have already estimated 9% on the contract receipts and therefore, this ground of the assessee is treated as partly allowed. 57. In so far as ground No.2 regarding cash sales at Ulwe Bambavi of Rs.41,62,085/-, we have already held that no profit rate of 9% should be applied instead of entire cash sales. Accordingly, this ground is partly allowed. 58. In ground No.3, assessee has challenged that depreciation suomoto disallowed of Rs.3,09,98,065/-. The assessee had suomoto recomputed depreciation and made a disallowance of Rs.3,09,98,065/-. The case of the assessee before us is that assessee has wrongly offered additional disallowance of depreciation in the return of income filed u/s.153A and moreover this addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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