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TMI Blog2024 (7) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid lender parties have cleared the outstanding dues payable to the sub-contractors and the assessee company has paid interest on the amount of unsecured loan payable to these lenders as per the terms and conditions of the agreement. AO has not brought any relevant material on record to controvert and disproved the evidences and clam of interest expenditure incurred by the assesse in respect of unsecured loan amount. Therefore, we consider that decision of ld. CIT(A) in sustaining the disallowance of interest payment made by AO purely on presumption basis without disproving the relevant supporting evidences brought on record by the assessee is not justified. Therefore, this ground of appeal of the assessee is allowed. - SHRI NARENDRA KUMAR CHOUDHARY, JUDICIAL MEMBER SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Appellant : Rajiv Khandelwal For the Respondent : Ankush Kapoor ORDER Per Amarjit Singh (AM): This appeal filed by the assessee is directed against the order passed by the ld. CIT(A)-11, Pune, dated 31.03.2023 for A.Y. 2018-19. The assessee has raised the following grounds before us: 1. The Commissioner of Income-tax (Appeals)-11, Pune (hereinafter referred to as the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer in making the impugned disallowance of Rs. 1,16,82,953 inasmuch as the arrangement resulting in the unsecured loans is arising out of order of the NCLT dated 09.07.2021 and is genuine; the CIT(A) has brought nothing on record to prove that the same is non- genuine and hence, the impugned disallowance of Rs. 1,16,82,953 is bad in law and needs to be deleted. 2. The fact in brief is that return of income declaring total income of Rs. 85,32,38,690/- was filed on 30.09.2018. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 08.05.2019. A search and seizure action u/s 132 of the Act was carried out on the business and residential premises of the Mhatre Group of cases including the assessee on 20.09.2017 M/s J.M Mhatre Infra Pvt. Ltd. The assessee is a leading civil contractor in Panvel region and it has completed many civil contracts for construction of roads, bridges etc. In the case of the assessee it was found from the search action that assessee has been claiming sub-contract charges in the profit and loss account, these sub-contract charges were paid for labour engaged at its various sites and also at quarry and stone crushing units. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to the remarks Adjustment party as per Gagan', it is explained by Shri Jandhan Moru Mhatre that these are non-genuine sub- contractors [bogus sub-contractors], which are managed by Shri Gagan Koli, accountant of the assessee company. x. that bogus sub-contract charges have been booked in the last 6 years and he declare the same during the search action as the income of the assessee for respective years xi. That all the bogus sub-contractors have admitted to have not performed any contractual work for JMMIPL, but have in connivance with JMMIPL, indulged into providing bogus entries in the form of sub-contract charges. xii. Bank accounts of the alleged sub-contractors are in the same bank i.e Bank of Baroda, Panvel Branch, where the bank account of assessee company is operated. These bank accounts are operated and managed by the assessee company. Significantly, the assessee company came forward as introducer to open these bank accounts in the same bank i.e Bank of Baroda, where the assessee company has its bank account. xiii. Returns of income of the alleged sub-contractors have been uploaded by the assessee company as is evident from presence of same IP addresses in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.09.2023 wherein such disallowance was restricted to 4.5% of sub-contract receipts. 6. On the other hand, the ld. D.R supported the order of lower authorities. 7. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above we have perused the decision of coordinate bench of Mumbai as referred above by the ld. Counsel. The relevant operating part of the decision is reproduced as under: 29. We have heard both the parties at length and perused the relevant finding given in the impugned order as well as material placed on record before us. In the assessments which have been passed post search u/s. 153A/143(3), the issue is with regard to booking of bogus sub-contracting charges to inflate expenses or to appropriate cash. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the precise reason that the books of accounts have always been rejected and profits have been estimated in the case of contracting and sub-contract receipts. It was also explained before the authorities below that assessee has resolved to this pivot and decided to generate cash through employees of the relatives wherein at least there is a trail of payment made for the labours in cheque. The ld. Counsel has also tried to explain as to why these were required to be made in cash and also he has pointed out that in the books, assessee has reduced substantial payments in cash in the books to the labourers at various sites and this has been achieved so only through this mode. He pointed out that from F.Y.2010-11 to F.Y.2016- 17, the ratio of cash payment to the labour 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract is also determined at the level of tender document. Further, no where it has been brought on record or by any enquiry that during these years the percentage of labour expenses has reduced or it is not in parity with tender documents or the work awarded to the assessee has not been done by the assessee. If the work has been carried out in accordance with the contractual agreement and tender document, then one has to see if the work has been done then how much is the cost with regard to the labour expenses. Whether assessee has done the correct approach or has taken the dubious route by routing the payment of the labourers to the sub-contractors is immaterial. It can only entail rejection of books of account and estimating profit rate. Fact of the matter which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t profit rate of 9% on the direct contract receipts. 35. We also hold that addition made by the AO separately for some of sub- contract charges will get subsumed in the net profit rate of 9%. We have already held that this sub-contact charges was ultimately was part of contract work executed by the assessee, albeit ultimately accommodation of subcontract charges was to generate cash to be utilised for payment of wages. Looking into the fact that assessee did carry out the work during the year as per the awarded contract, both as the main contractor and also have got the work done through subcontractor, the bogus sub-contract charges shown by the assessee would be a part of the business and expense. At the most net profit on the bogus sub-contract charges can be added to the 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 ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to restrict the disallowance to the extent of 4.5% of sub-contract receipts for the reason as discussed in the finding of the ITAT order. Therefore, ground no. 1 of the appeal of the assessee is partly allowed. Ground No.2: Disallowance of Rs. 116,82,953/- being interest paid on unsecured loan: 9. During the course of assessment the assessing officer noticed that assesse has debited an amount of Rs. 182,31,15,911/- under the head interest to others . From the details filed the AO noticed that out of the aforesaid total interest the interest of Rs. 162,94,076/- has been debited in respect of the following persons: Sr. No. Name of the party Interest (amount in Rs. ) 1. Alka Securities Ltd. 3,64,271 2. Alka Securities Ltd. 43,90,924 3. Alka Securities Ltd. 70,255 4. Aidos Trades Ltd. 1,08,779 5. Aidos Trades Ltd. 15,51,543 6. Aidos Trades Ltd. 3,04,717 7. Mahesh Kothari Share Stock Brokers Pvt. Ltd. 1,32,708 8. Mahesh Kothari Share Stock Brokers Pvt. Ltd. 15,99,656 9. Mahesh Kothari Share Stock Brokers Pvt. Ltd. 2,09,299 10. Alka Commodities Ltd. 5,44,097 11. Alka Commodities Ltd. 20,09,445 12. Alka Commodities Ltd. 3,97,259 13. Aidos Trade Ltd. 15,51,543 14. Aidos Trade Ltd. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT for recovery of loan amount and NCLT has passed order dated 09.07.2021. The ld. Counsel referred the copy of agreement made with the aforesaid five parties placed in the paper book evidencing payment made by the such parties to the assessee, ledger account of the lenders dues settlement agreement dated 30.04.2018, petition filed by the Alka Commodity Ltd. before the NCLT and the order passed by the NCLT Mumbai on 09.07.2021 etc. 13. On the other hand, the ld. D.R supported the order of lower authorities. 14. Heard both the sides and perused the material on record. During the course of assessment the assessing officer found that unpaid bogus sub-contract expenses booked in the name of various entities: Sr. No. Name of the company [sundry creditor) 1. Takeshi Marketing P. Ltd. 2. FND Logistics P. Ltd. 3. Aster Merchantile P.Ltd. 4. Ashwin Trading P. Ltd. 5. JMDE packaging Realities Ld. 6. Saloni Express P.Ltd. 7. Tanvi Express Logistics Solutions P. Ltd. 8. Adios Trade Limited 9. Pushpanjali Enterprises 10. Radhaswami Infracon Engineers 11. Shubham Steel Traders 12. M.N. Enterprises Thereafter the outstanding amount payable to aforesaid sub-contractor were transferred to the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said company. Further, the assessee has also placed on record the copy of the order of the NCLT dated 09.07.2021 demonstrating that the matter was settled between the parties, and the petition was disposed off as settled. 14.4 The aforesaid facts and material placed on record evidencing that assessee has executed agreement with the 4 parties to clear the dues of the sub-contractor for which the assessee has defaulted in making the payment because of shortage of working capital funds. The material placed on record substantiate that aforesaid lender parties have cleared the outstanding dues payable to the sub-contractors and the assessee company has paid interest on the amount of unsecured loan payable to these lenders as per the terms and conditions of the agreement. 14.5 The AO has not brought any relevant material on record to controvert and disproved the evidences and clam of interest expenditure incurred by the assesse in respect of unsecured loan amount. Therefore, we consider that decision of ld. CIT(A) in sustaining the disallowance of interest payment made by the assessing officer purely on presumption basis without disproving the relevant supporting evidences brought on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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