9911796707
TMI Blog2025 (3) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... counting method followed by an assessee continuously for a given time period has to be presumed to be correct till the AO comes to know the reasons to be given that system does not reflect the true profits. we are of the considered view that, the AO has grossly erred in rejecting the books of accounts of the assessee in the above factual matrix. We also gone through the reasons given for rejecting the books of accounts by the AO is not as per the provisions of Section 145 of the Act and allegations made in the AO's order is dehors the facts. Further, it is noted that the Assessee has furnished the details of all the projects giving true picture of turnover and the corresponding loss / profit earned in the respective projects in the consolidated statement showing the percentage of completion method by offering revenues on year-on-year basis by following the AS 7 along with ICDS prescribed under the Act. Thus, addition made by the AO, based on the estimation of profit @ 8% on the turnover derived from the books of accounts is not justified and arbitrary. Addition on account of difference in contract receipts as per 26AS and Books of accounts - CIT(A) deleted addition - HELD THAT:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the order of the Commissioner of Income Tax (Appeals), Chennai-19, for the assessment year 2018-19, vide order dated 12.01.2024. 2. The revenue has raised the following grounds of appeal: "1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2 The Ld.CIT(A) erred in holding that the AO failed to make necessary findings upon the rejection of books of accounts and rejection of books of accounts without providing due opportunity is bad in law. The Ld.CIT(A) erred in deleting the addition of Rs. 10,78,42,468/- made by AO estimating 8% of turnover. 2.1 The ld.CIT(A) failed to appreciate that the assessing officer made clear finding in the assessment order before rejecting books of accounts u/s. 145(3) of the fact. The assessing officer mentioned that the assessee had not produced details of project wise contract revenue, as per ICDS-III as mandated by Sec.43CB r.w.s 145(2) of the Act. Further the assessee has not furnished explanation for increase in material and labour expenses. After recording these reasons, the AO proceeded to reject the books of accounts and to estimate the income from business. 2.2 As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome on 26/09/2018 by declaring loss of Rs. 24,14,02,912/- for the A.Y.2018-19. The return was processed u/s. 143(1) on 15/02/2020 and after making adjustment of Rs. 2,02,67,165/- u/s. 36(1)(va) of the Act, by reducing the loss to Rs. 22,11,35,747/-. Further, the case was selected for complete scrutiny and statutory notices were issued to the assessee. The AO thereafter completed the assessment u/s. 143(3) r.w.s.144B vide order dated 18/09/2021 assessed income at Rs. 43,56,64,196/-. In completing the assessment, the AO has done the following: "4. In completing the assessment, the Assessing Officer has: (a) Estimated the revenue at 8% of the reported value of operations i.e. Rs. 10,78,42,468/- (8% of Rs. 134,80,30,855/-) and (b) Added a sum of Rs. 28,92,01,373/- being difference between the contract receipts as per Form 26AS (Rs.163,50,29,232/-) and the contract receipts declared by the assessee (Rs.134,80,30,855/-) as the undisclosed income of the assessee and (c) Added a sum of Rs. 23,91,28,611/- as waiver of loan amount as income under the head profits and gains of business or profession and (d) Disallowed a sum of Rs. 2,06,27,491/- u/s. 2(24)(x) r.w.s.36(1)(va). 5. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts are as under: * Workings of contract revenue furnished as per AS-7 and not as per ICDS III. * The assessee failed to explain: a) Reason behind rise in cost of operations which includes cost of machinery, power and fuel etc. and corresponding fall in the revenue. b) Reason behind incurrence of high labour charges and increase in cost of legal and professional charges. * Assessee did not furnish the Profit & Loss account for each project separately, especially for some projects / clients. 7. Submission of the Ld.DR on this issue : 7.1 The Ld.DR stated that the Ld.CIT(A) erred in holding that the AO failed to make necessary findings upon the rejection of books of accounts and such rejection of books of accounts without providing due opportunity is bad in law. He also stated that the Ld.CIT(A) has erred in deleting the addition of Rs. 10,78,42,468/- by estimating 8% of turnover. 7.2 The Ld.DR further stated, the ld.CIT(A) failed to appreciate that the assessing officer made clear finding in the assessment order before rejecting books of accounts u/s. 145(3) of the fact. The Ld.DR by asserting the action of the assessing officer mentioned that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue of Golden Oak Projects Pvt. Ltd. which is an offshoot project of Apollo Tyres is included under the client's name Apollo Tyres. b) The contract revenue of Executive Engineer KSTP Division PonkunnamKanjirapally which is a project undertaken for KSTP is included under client name KSTP - EM Upgradation Road Work. c) The contract revenue of Nam Estates Pvt. Ltd. is reflected under the client's name Embassy (NAM Estates). d) The contract revenue of NAPC Ltd. Anchor Consortium is included under the client's name CMWSSB Avadi. e) The contract revenue of Renault Nissan Automotive India Pvt. Ltd. is shown under the client's name Renault Nissan. f) The contract revenue details in respect of Bus Route Road Department would not form part of contract revenue workings for the impugned assessment year since this project was undertaken and completed by the assessee in an earlier year. g) The assessee did not enter into any transactions with Huchinson Industrial Rubber Products Pvt. Ltd. and thus there is no data pertaining to contract revenue for the impugned assessment year. h) The assessee had paid man power deputation charges to Radiance Realty Development India Pvt. Ltd. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Page 19 of index of PB-2 Annexures 2 and 3 : Detailed statement reconciling the income admitted with data appearing in form 26AS 3 Annexure 4, 4a, 4b and 4c Page 25 of index of PB-2 Annexure 4, 4a, 4b and 4c : Submissions regarding disallowance under section 36(1)(va) 29 4. Reply dated 10-5-2021 Annexure A1 along with ledger accounts and bills Page 33 of index of PB-2 Annexure A1 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project CMWSSB 67 Annexure A2 along with ledger accounts and bills Annexure A2 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Albatross/Apollo Tyres 1470 Annexure A3 along with ledger accounts and bills Annexure A3 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project HCL 71 Annexure A4 along with ledger accounts and bills Annexure A4 along with ledger accounts and bills : Details regarding expenditure incurred along with suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Embassy 1200 Annexure A16 along with ledger accounts and bills Annexure A16 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project TRMN 83 Annexure A17 along with ledger accounts and bills Annexure A17 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Hubli 100 Annexure A18 along with ledger accounts and bills Annexure A18 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project KSTP 5099 Annexure A19 along with ledger accounts and bills Annexure A19 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Shimizu 1127 Annexure A20 along with ledger accounts and bills Annexure A20 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of contract activity and performance during a period. (Emphasis supplied)" 8.6 The Ld.AR from the above, summarizes that there is no difference in the approach as regards recognition of contract revenue as per AS-7 and ICDS III as both standards recommend the percentage of completion method for recognition of contract revenue and thus, contended that the assessee had in fact duly followed the requirements of ICDS III despite furnishing the working of contract revenue recognition as per AS-7 and had not in any manner deviated from the requirements of law. It may also be noted that the Assessing Officer nowhere had mentioned the exact deviation from ICDS III on perusal of the workings as per AS-7. 8.7 The ld.AR further vehemently argued that the Assessing Officer on one hand rejects the books of accounts of the assessee and on the other goes on to adopt the contract revenue declared by the assessee in its books of accounts for the purpose of estimation of revenue at 8% which only goes to prove that the Assessing Officer accepts the value of turnover reported by the assessee in its books and has only arbitrarily rejected the books of accounts without giving any cogent reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time 2 [income computation and disclosure standards] to be followed by any class of assessee's or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) 3 [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2)], the Assessing Officer may make an assessment in the manner provided in section 144.] 9.2 It is noted that, the AO has observed that, the assessee had not submitted the Profit and loss account for the few projects of the clients and hence decided to reject the entire books of accounts, which is not permissible as per law. It is also noted that, the Assessing Officer on one hand rejects the books of accounts of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue for the impugned assessment year. h) The assessee had paid man power deputation charges to Radiance Realty Development India Pvt. Ltd. and had not undertaken any project for such project during the impugned assessment year. i) The assessee did not enter into any transactions with MOA Engineering Private Limited and thus there is no data pertaining to contract revenue for the impugned assessment year. 9.5 Therefore, we are of the considered view that, the AO has grossly erred in rejecting the books of accounts of the assessee in the above factual matrix. We also gone through the reasons given for rejecting the books of accounts by the AO is not as per the provisions of Section 145 of the Act and allegations made in the AO's order is dehors the facts. 9.6 Further, it is noted that the Assessee has furnished the details of all the projects giving true picture of turnover and the corresponding loss / profit earned in the respective projects in the consolidated statement showing the percentage of completion method by offering revenues on year-on-year basis by following the AS 7 along with ICDS prescribed under the Act. In light of the above factual matrix, the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed by assessee. 11.2 In respect of the above, the assessee had submitted as follows: Public Works Department Kerala State Transport Project TC With regard to this party, the Ld.AR submitted that, it is not a separate line item and the income received from this client is reflected under the ledger by name "Kerala Road Transport". The difference in contract receipts as regards to this party was Rs. 11,26,11,702/-. The said difference constituted 3 parts and the same was explained as under: a) Difference of Rs. 8,47,78,852/- This difference is due to the fact that the assessee raised a bill having reference number RA 25 dated 27.03.2017 in the Financial Year 2016-17 and accounted the same as revenue in the financial year 2016-17 - Refer Page 20 (First line item) and Page 50 [Highlighted as (B)] of the Index of Paper Book-1. It may further be noted that the narration RA bill only refers to an internal billing reference number used by the assessee for accounting purposes. b) Difference of Rs. 1,07,76,437/- The difference of Rs. 1,07,76,437/- is nothing but the VAT component involved in each of the contract receipts after GST implementation. The assessee's client has shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited, the assessee has shown higher value of contract receipts as compared to that reflected in the TDS Portal. The assessee in support of the above referred adjustments, had submitted the ledger account by name UNO Minda for assessment year 2018-19 to evidence that bills to the tune of Rs. 74,32,214/- were actually accounted as income under UNO Minda and the relevant entries are highlighted and marked as (A) - Refer Page 53 of the Index of Paper Book-1. NAM Estates Private Limited In this regard, the Ld.AR submitted that the assessee had raised a bill of Rs. 1,56,44,075/- in respect of development work done for NAM Estates Pvt. Ltd. (Client) vide bill having reference number RA 16 dated 14.06.2017. However, while making payment towards the said bill, the client had inadvertently declared the bill value as Rs. 1,63,43,819/- and deducted tax at source on the same which resulted in a difference of Rs. 6,99,747/-. It is further contended that the difference of Rs. 6,99,747/- is purely on account of an inadvertent mistake committed by the client. The assessee had correctly declared revenue in respect of the said bill in its books of account for the impugned assessment year- Refer P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertently stated in the remand report that the assessee did not furnish any submissions in respect of difference in contract receipts regarding Eicher Motors Ltd. On the contrary, the acknowledgement of filing the above submissions as additional evidence and as part of written submissions before the Commissioner of Income Tax (Appeals) and the same is enclosed at Pages 64 and 65 of the Index of Paper Book-1. 11.5 Therefore, in light of the above, the Ld.AR prayed before us that since the assessee has furnished detailed explanation along with supporting evidence to the extent of addition of Rs. 28,92,01,373/- in respect of difference in contract receipts of each party, more particularly the difference in respect of the 4 parties mentioned herein above, the addition made by the Assessing Officer on this account deserves to be deleted. 12. OUR FINDINGS ON THIS ISSUE 12.1 Now, we adjudicate the next issue of addition made by the AO on account of undisclosed contract revenue of Rs. 28,92,01,373/-. The AO has observed that the assessee has not furnished the reconciliation of the turnover of few clients with the total turnover of Rs. 163.50 Crores shown and hence made an addition(supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the tune of Rs. 1,02,70,204/- dated 28.02.2018-Page 20 (2"° line item from the bottom of the page) of the Index of Paper Book-1 and Page 37 of the Index of Paper Book- 2. (iii) Credit Note to the tune of Rs. 17,57,069/- dated 30.03.2018- Page 20 (1= line item from the bottom of the page) of the Index of Paper Book-1 and Page 38 of the Index of Paper Book-2. 2. Minda Projects Limited - difference of Rs. 45,43,843/- Page 52 of the Index of Paper Book-1. Page 53 of the Index of Paper Book-1. 3. NAM Estates Private Limited-difference of Rs. 6,99,747/- Pages 61 and 62 of the Index of Paper Book-1. 4. Eicher Motors Ltd. Difference Rs. 1,12,89,428/- Page 63 of the Index of Paper Book-1. 12.3 It is further noted that, on perusal of the statement of turnover calculation as per AS 7 for the A Y 2018-19, (Paper book No.1 - page No.16 to 18, we find the argument of the Ld.AR as submitted (supra), the reconciliation of the Turnover along with 26AS has been carried out correctly. Therefore, we are of the view that the addition made by the AO is not justified on this issue and hence dismiss the ground of the revenue by affirming the impugned order of the Ld.CIT(A) on this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very clear that what the amount waived by the lender is the principal amount only which is per se a financial liability and not a trading liability. The lender as per the settlement agreement has not offered any waiver of interest but only waived the repayment of loan. In the Profit &Loss Account, the Appellant has claimed the interest amount only. The Appellant relied upon the decision of the Apex Court in the case of CIT vs. Mahindra & Mahindra Ltd (2018) 93 taxmann.com 32 (SC), wherein it has been held that "Section 41(1) specifically talks of cessation of trading liability, whereas in the instant case, waiver of loan amounted to cessation of liability other than trading liability. As such, there was no force in the Revenue's argument and section 41(1) is not applicable in this case. 8.6.8 The A.O. in the Assessment Order has considered the decision of the Apex Court cited supra but made an observation that the Appellant has claimed the deduction continuously including the present A.Y. The A.O. failed to appreciate that what the Appellant has claimed is only in respect of payment of interest, and not the principal amount paid in the earlier Assessment Years. The A.0.is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any application of mind, The undersigned has carefully examined all the evidences along with the submission made by the Appellant. The amount waived by the lender la only the loan amount and not the interest amount, obviously, it is not in the nature of trading liability but only a financial liability. In view of this, the undersigned is not inclined to accept the observation of the A.O, to treat such waiver of principal loan amount as Income of the Appellant, Accordingly, in the backdrop of discussion made supra the grounds raised by the Appellant upon this issue are treated as allowed, and the A.O, la hereby directed to delete the addition of Rs. 23,91,28,611/- by treating the waiver of loan an income. 8.7 Ground No. 22 to 25. 8.7.1 The Appellant in these grounds has agitated over the disallowance of employees contribution to PF and ESI amounting Rs. 2,06,27,491/-, It may be appreciated that the disallowance was made earlier while processing the return u/s143(1) of the Act. The Appellant has taken up this issue before the CIT(A), NFAC, and the Appeal was dismissed, The Appellant has taken up this issue before the Hon'ble ITAT, Chennai and the Hon'ble ITAT Its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding impugned assessment year and stated that the reliance placed on the decision of the Hon'ble Supreme Court in CIT v Mahindra &Mahindra Ltd. (cited supra) will not be of any use since the Hon'ble Supreme Court in that case had granted relief to the assessee in respect of waiver of loan where there was no claim of interest deduction. Further, the Assessing Officer stated that the assessee did not furnish details regarding usage of amount of Rs. 23,91,28,611/- being waiver of 50% of outstanding loan, in which case according to him, the personal use of such loan amount could not be ruled out. 14.2 The Ld.AR further stated that the waiver of loan in the instant case pertains only to the waiver of the principal portion of loan. The Ld.AR further argued that the interest portion of the loan obtained from 'Societe Generale' is not waived since the interest portion on such loan has been fully paid and that only the principal portion of the loan was waived off during the impugned assessment year. 14.3 The Ld.AR furthermore argued that as per the loan agreement dated 11.04.2014, the assessee had availed a loan of Rs. 50.00 crores from Societe Generale. As on 25.07.2017 (date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loan obtained from SocieteGenerale is only with respect to the principal portion of the loan and not the interest portion. The said waiver pertained to the principal portion of the loan as one-time settlement of the loan borrowed by the assessee. The Ld.AR further argued that the interest charged on such loan borrowed has been fully paid by the assessee and thus the waiver cannot be in respect of waiver of interest at all. 14.7 In view of the above, the ld.AR submitted that the addition of Rs. 23,90,00,000/- being only the principal portion of the loan being waived cannot be taxed as income under the head profits and gains of business or profession and hence cannot be subject to tax as per the provisions of section 28(iv) by treating the same as income of the assessee. 14.8 The ld.AR further relied upon the decision of the Hon'ble Supreme Court in the case of CIT v Mahindra and Mahindra Ltd. (cited supra) - Refer Pages 12 to 17 of Index of Case Laws paper book wherein in respect of application of section 28(iv), which refers to 'non-monetary' benefit or perquisite, whether convertible into money or not, it was held that in the context of waiver of loan, the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act and therefore the ratio laid down in the decision of Logitronics Pvt. Ltd. v CIT (cited supra) is no longer good law. The fact that the decision of Logitronics Pvt. Ltd. v CIT (cited supra) is no longer good law and that the same has been overruled by the decision of the Hon'ble Supreme Court in CIT v Mahindra and Mahindra Ltd. (cited supra) is reaffirmed in clear terms in the decision of the Hon'ble Karnataka High Court in the case of I.G.Petrochemicals Ltd. The Ld.AR further argued and submitted that the purpose of the loan taken which was ultimately waived will not have any effect on the taxability of waiver of loan, be it either for the usage on the working capital front or fixed asset purchase. In this connection, he placed reliance on the decision of the Hon'ble Karnataka High Court in the case of I.G.Petrochemicals Ltd. Vs ITAT [2023] 295 Taxman 569 (Kar) - Refer Pages 18 to 28 oflndex of Case Laws paper book which was decision rendered following the ratio laid down in the case of Mahindra and Mahindra Ltd. cited supra wherein it was observed as follows: "30. The clinching factor as per the Apex Court in Mahindra and Mahindra (supra) to bring the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from M/s. 'Societe Generale' and has not added in the computation of Income. The same has been added as Income by the AO while framing the assessment order holding as under: The claim of the assessee is not as per law. Even the judgement of the Hon'ble Apex court in the case of Mahindra & Mahindra relied upon by the assessee does not come to rescue of the assessee. The ground on which the Hon'ble court allowed relief to the petitioner was that the assessee never claimed deduction on this loan amount. But in the instant case, the has claimed deduction continuously for the last 3 years, including the present assessment year by saying that the details of usage / application of loan amount of Rs. 23.91 Crore which has been waived with full supporting documentary evidence but the assessee did not submit any such evidence. Thus, personal use of loan amount cannot be ruled out. 15.2 According to the Ld.AR the waiver of loan in the instant case pertains only to the waiver of the principal portion of loan, the interest portion of the loan obtained from 'Societe Generale' is not waived since the interest portion on such loan has been fully paid. 15.3 According to ld.AR the assessee pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains of business or profession and hence cannot be subject to tax as per the provisions of section 28(iv) by treating the same as income of the assessee. The reliance made by the ld.AR upon the decision of the Hon'ble Supreme Court in the case of CIT v Mahindra and Mahindra Ltd. (supra) - wherein in respect of application of section 28(iv), which refers to 'nonmonetary' benefit or perquisite, whether convertible into money or not, it was held that in the context of waiver of loan, the provisions of section 28(iv) would not be applicable since the benefit derived is in the form of money. It was held as follows: "13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
