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TMI Blog2025 (3) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand CIT(A) has examined the party wise additions on the basis of evidences filed by the assessee and their evidentiary value. AO has not doubted the fact of allotment of contract to the assessee and that the assessee had completed the contracts as per the work orders. Certainly, the completion of the contracts of the nature of street-lighting of various roads belonging to MCD would have required use of definitive material, in terms of quality and quantity. There may be allegation of escalation of prices and the matter may have be investigation by other agencies but that did not dispense with onus on the ld. AO, to cite discrepancy in the evidences of assessee to allege bogus expenditure on labour or material. Thus without bringing anything to discredit the expenditure in terms of labour and other charges corresponding to the use of the material in completion of the work order, AO had doubted the expenditures which have been rightly deleted by CIT(A) and findings need no interference. The grounds in hand deserve to be rejected. Addition made on substantive basis and protective addition - cash found the locker - HELD THAT:- What is material is that when the promoters o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate And Shri Shrey Jain, Advocate For the Revenue : Ms Jaya Chaudhary, CIT, DR ORDER PER ANUBHAV SHARMA, JM: These appeals are preferred by the Revenue against the orders dated 29.06.2014 of the Commissioner of Income-tax (Appeals)-XXXI, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') in appeals No.264/13-14, 265/13-14 and 266/13-14 arising out of the appeals before it against the orders dated 28.03.2013 passed u/s 153A/143(3) of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the ACIT, CentralCircle-5, New Delhi (hereinafter referred to as the Ld. AO). 2. Heard and perused the records. The two appeals were heard together and as they are set up with same background and contentions the same are being adjudicated together. The lead case being of AY 2011-12 which covers the issues of AY 2010-11 also. Thus wherever relevant the facts and impugned orders of AY 2011-12 shall be referred and reproduced. Infact the ld. CIT(A) has passed a consolidated order in appeal. While arguing the cases the ld. DR has relied the findings of ld. AO and submitted that same are quite reasoned and based on test of human probability. Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and 3 in AY 2010-11. The relevant background to these grounds is that the ld. AO took in to consideration the fact that the during the Commonwealth Games for the purpose of having world class infrastructure funds were specifically allocated for the improvement of infrastructure of Delhi and various civic / engineering agencies were assigned specific task for the same. Admittedly, the assessee company is supplying / installing / trading standard items eg. Poles, bulbs, cover etc. Looking at the financial details of the company the ld. AO was of opinion that assessee does not appear to be capable of executing big projects. The case of assessee is that it was formed in the year 2002, and Shri Tejinder Pal Singh and Shri Harbhajan Singh Giani were the director of the company. Later on in the year 2004, Shri Harbhajan Singh Giani resigned from the directorship of the company and Shri Jasminder Pal Singh, younger brother of Shri Tejinder Pal Singh joined as new director of the company. The main activities of the company are securing Government Contracts from Government and Semi Government agencies such as MCD, NDPL, and BSES etc. The company has executed various projects related to CW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment, Plot No. 92, LP. Extn., Patparganj, Delhi-92 g. Unique Electricals, 305, Parmesh Corporate Tower, Karkardooma Community Centre, Delhi-92 8.2 We find that the case of revenue is that the 'Investigation Team' could not execute the survey authorizations in case of following 4 parties out of the said 7 parties:- 1. M/s. R.C. Electricals 2. M/s. Rose Electricals 3. M/s S.S.R. Engineers 4. M/s. Swastik Hightech Associates 8.3 Admittedly on being directed by the Investigation Team, the assessee produced representatives/proprietors of 3 out of the above 4 entities. Assessee produced the representatives / Proprietors of M/s R.C. Electricals, M/s Swastik Hightech Associates and M/s S.S.R. Engineers. The assessee could not produce before the Investigation Team any representative or proprietor of the 4th entity namely M/s Rose Electricals. 8.4 We find that the findings of the department during search / survey actions in respect of the said 7 labour parties involved in supply of labour and erection of poles is that certain adverse inferences have been drawn indicating therein that the assessee could not have incurred expenditure on these labour contractors. During th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary and wages amounting to more than Rs. Eight crores, besides these erection sub contracts. As such, the labour expenses to the sub contractor appears to have been taken only for reducing the profits and no actual work has been done by these sub contractors. Hence, the payment amounting to Rs. 5, 24, 68, 150/- is held to be bogus to inflate the expenses and is liable to be added back to the total income of the assessee for respective assessment years. 6.5 The year wise and party wise break up of erection charges as debited in the books of accounts is tabulated as under:- Parties/Sub-contractors to whom payment under the head Erection Charges was made during the FY. 2008-09 to 2010-11 relevant to A.Y. 2009-10 to A.Y. 2011-12 S.No. Name of the Party Amount paid Rs. Amount paid Rs Amount paid Rs. Amount paid Rs. Α.Υ. 2009-10 Α.Υ. 2010-11 Α.Υ. 2011-12 Total 1. Gill Electricals 6, 68, 936 66, 43, 069 18, 80, 598 91, 92, 603 2. Jayna Electricals --- 35, 61, 558 30, 89, 679 66, 51, 337 3. R. C. Electricals --- 11, 28, 242 39, 89, 597 51, 17, 839 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made to the aforesaid parties as bogus is reproduced below for ready reference. The assessee has not produced these parties till date along with the above documents. This clearly proves the assessee is not interest in any re-examination of these parties and cross examination by it of these parties. In view of the findings of the search and survey operations coupled with post search and during assessment enquiries, it is held that the transactions with the above parties are not genuine and the assessee has claimed these expenses to reduce the actual profit. Hence, the payment made to these parties is held to be bogus to inflate the expenses and is liable to be added back to the total income of the assessee for respective assessment years. 8.8 As we go through the impugned order of ld. CIT(A) we find that ld. CIT(A) has taken note of all the relevant documents and information furnished by the assessee before the Ld. AO, but which were not given any indulgence by the ld. AO to find any infirmity or discrepancy in them but instead the ld. AO has drawn adverse inference on the basis that some parties could not be produced and in survey necessary corroborative evidences could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis and protective addition of Rs. 11, 94, 800/- for the amount found the locker of Sh. Tejinder Pal Singh & Smt. Sweta Kaur of Rs. 11, 44, 800/- & Rs. 50, 000/- respectively, by the ld. AO in the hands of assessee company. We find that the sworn statement of Mr. T.P. Singh, J.P. Singh and Mrs. Shweka Kaur is the foundation of addition by the ld. AO. It is noted that Mr. T.P. Singh had allegedly stated during the search, before the beginning of actual search, that there was about Rs. 6 lac cash and out of it Rs. 4 lacs roughly belonged to the appellant company and the rest belonged to him and his family members. Mr. J.P. Singh had also stated on oath that he was having approximately Rs. 1.04 lacs of cash in his office brief case which belongs to the company. As he was not having a locker in his cabin, he kept the Company's cash which was at his disposal, in the brief case kept at his residence. He had also stated that some cash of the company was also held by Mr. T.P. Singh and that the exact amount was not known to him. The relevant answers of Mr. T.P. Singh and Mr. J.P. Singh have been reproduced by the ld. CIT(A). Same establish that the promoters of the appellant company had at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the MCD to release the payments the debts were written off. The ld. AO has however rejected the assessee's claim on the following grounds as mentioned at page 14 of the assessment order:- (a) CWG projects were still in progress in the year of claim of bad debts. (b) There is arbitration mechanism in such cases, which has not been tried, indicating that such works may be of sub standard quality or bill raised but not executed. (c) Further on perusal of projects agreement it is seen that the assessee company has reversed the entry in respect of invoice number 1432 amounting to Rs. 5, 39, 67, 805/- without even pursuing the matter with the authorities and resorting to the legal recourse. (d) Besides this amount of security deposit of Rs. 2, 46, 16, 149/- with MCD has also been claimed as bad debts, which is a capital loss. The reasons for forfeiture of such security are also not given by the assessee. Why are remedial action has not been taken so far. 12. The ld. AO, therefore, observed that the assessee could not claim bad debts in respect of payments which have not yet become bad and for which legal remedies have not been exhausted. He opined that the appellant was enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse to his letter dated 18.11.2010 informing that all rectification were carried out within the scope of the assessee to ensure smooth passage of common wealth games and Diwali festival and requested to resolve the issue and payment to made, copy of letter dated 17.10.2011 from the MCD to the assessee company which refers to the legal notice dated 29.7.2011 given by the assessee to MCD claiming outstanding Rs. 9, 62, 53, 749/-. MCD stated in the said letter that the amount demanded by the assessee is less than the recoveries pointed out by audit and other investigation agencies. 14. Thus quite apparently the company had made all reasonable efforts to recover the dues, but failed to do so. Accordingly they wrote off dues outstanding as required u/s 36(1)(vii) of the Act. It is not necessary that only after approaching the court of law and spending money on litigation an assessee can be given benefit of his claim that reasonable efforts for recovery were made. The amounts were due from a statutory body so if there was any denial on the basis of audit objections, then that was sufficient for assessee to assume that the amount is non-recoverable. 15. As regards the ld. AO's observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 15.07.2009 in HDFC bank account is actually Rs. 2, 85, 46, 232/- being net of TDS, WCT and labour cess. Similar is the next entry for Rs. 56, 78, 512/- in security deposit (MCD) dated 01.09.2009. Thus there is no error in the findings of ld. CIT(A) that assessee is only required to show that he has written off the bad debts in his books of accounts. The judicial pronouncements are uniform in this regard that it is the reasonable decision of the assessee which is relevant in examining whether a particular debt has become bad or not. In the present case it is an undisputed fact that due to allegations of the loss and mismanagement in the contracts awarded in connection with Commonwealth Games 2010, several government agencies were investigating the affairs. Because of this, MCD had refused to release the payments. Therefore, it would unreasonable to argue that the amount lying with MCD had not become bad merely because the appellant had not yet exhausted the legal remedies. Considering all these factors the deduction for bad debts written off claimed by the appellant is rightly allowed by the ld. CIT(A). The ground has no substance. 17. On the basis of aforesaid discussion we are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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