9911796707
TMI Blog2025 (4) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... tals and ready-mix concrete. A search u/s 132 of the Act was conducted upon the assessee on 03.03.2021 pursuant to which, his books of accounts, documents and other materials were seized and sworn statements of the assessee and other key persons were recorded. Subsequent thereto, the AO issued notices u/s 153A of the Act to the assessee for AYs 2016-17 to 2019-20 on 05.08.2021. In response, the assessee filed returns of income declaring total income at amounts higher than the total income admitted in the return of income originally filed u/s 139 of the Act. The assessee also filed the returns of income for AYs 2020-21 and 2021-22 u/s 139 of the Act. The summary of the details of income returned by the assessee is as follows: (in Rs.) Asst Year Income as per return u/s 139 Income as per return u/s 153A Additional Income offered (Disallowance u/s 37 of Act) 2016-17 3,60,50,980 4,11,73,020 4,11,73,020 2017-18 3,69,68,290 4,16,78,090 4,16,78,090 2018-19 2,14,53,290 4,32,61,150 4,32,61,150 2019-20 4,22,89,140 7,16,52,270 7,16,52,270 2020-21 6,69,66,910 15,68,56,860 8,89,89,950 2021-22* 13,96,27,380 N.A. N.A. *It is noted to be the year of search and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venience, is summarized in the table below: Asst Year Bulk Entries identified & disallowed by AO 2016-17 28,78,75,490 2017-18 23,85,83,513* 2018-19 26,41,09,036 2019-20 37,92,16,935 2020-21 80,06,28,317 2021-22 52,69,89,703 *Due to arithmetical error, the disallowance was calculated at Rs.25,85,83,513/- instead of correct sum of Rs.23,85,83,513/- 5. According to AO, the above bulk entries debited in the books of accounts were bogus expenses and thus disallowed the same. For arriving at this conclusion, the AO referred to the voluminous vouchers in respect of 'Coolies & Wages' found during the search pertaining to FY 2020-21, which was ID marked ANN/KKP/IV/LS/S-2 to 10, ANN/JS/IV/LS/S-2 to 117 and ANN/JS/IV/LS/S-1 to 232. The AO noted that, these vouchers were self-made and contained both signed and unsigned vouchers, which according to him, raised clear suspicion regarding their genuineness. The AO further noted that, the employees of the assessee in their statements recorded u/s 132(4) of the Act had admitted that the assessee was generating self-made cash vouchers for claiming bogus cash expenses. The AO is further noted to have referred to the bank state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the foregoing, the Ld. CIT(A) is noted to have sent the explanation offered by the assessee along with certain additional evidences filed for AYs 2020-21 & 2021-22 to the AO for his comments, who furnished his remand report on 01.09.2023. After considering the findings of the AO, comments in the remand report, submissions put forth by the assessee, and taking into account the seized material and facts available on record, the Ld. CIT(A) in his exhaustive order is noted to have analyzed all the aspects and thereafter held that the disallowance of entire bulk entries as made in the assessment orders was unjustified and excessive. The Ld. CIT(A) held that, the entire bulk entries did not represent bogus expenses but at the same time inflation of expenses could not be ruled out. The Ld. CIT(A) concluded that the books of accounts of the assessee were clearly not reliable and was therefore required to be rejected. The Ld. CIT(A) is noted to have estimated the assessee's income from the construction contract business at 12.5%. After taking into account the additional income already offered by the assessee in the returns of income, the Ld. CIT(A) quantified the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per and reasonable and thus did not warrant any interference. In support thereof, the Ld. AR relied upon the certificate obtained by NHAI which had pegged the profit margin from such construction contracts at 10%. The Ld. AR also furnished the comparative details of his peers to show that the net profit of 10% was fair and justified. The Ld. AR also relied on the decisions rendered by the jurisdictional High Court and coordinate Benches at Chennai, wherein in the similar line of business, viz., execution of road contracts, profit margin in and around the range of 5% was held to be fair and reasonable. The Ld. AR thus urged that the estimation of income by the Ld. CIT(A) at 12.5% was excessive and ought to be reduced. 10. We have heard both the parties and perused the material available on record. It is noted that, the assessee is inter alia engaged in the business of constructing road projects for National Highway Authority of India (NHAI). The books of accounts in relation to this construction contract business is noted to have been maintained in the tally software under the title 'I.Vetrivel, Contractor'. Upon analysis of the entries found in the books of accounts mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 26,41,09,036 2019- 20 Coolie & Wages - ODC 31.03.2019 17,30,00,000 Cash (2,87,00,000); Cash Main office (10,87,87,758); Bills & Expenses payable (11,58,05,717); Oddanchathiram Site Expenses (11,99,338) Coolie & Wages - Natham 31.03.2019 8,15,32,250 Coolie & Wages - ODC 31.03.2019 2,04,81,919 Om Sakthi Constructions- I Vetrivel (JV) Site Operating Expenses - ODC 02.08.2018 2,64,67,334 Not mentioned in the assessment order 28.02.2019 2,05,85,080 Site Operating Expenses 01.03.2019 1,12,00,000 06.03.2019 1,12,00,000 20.03.2019 2,94,19,652 31.03.2019 53,30,700 TOTAL 37,92,16,935 2020- 21 Coolies and wages Various dates 17,65,97,837 Bills and Expenses Payable-Sundries Various dates 42,91,24,560 Sub-Total 60,60,23,497 Site operating expenses 21.09.2019 9,28,36,450 Bills and Expenses Payable-Sundries 21.03.2020 10,17,68,370 Sub-total 19,46,04,820 TOTAL 80,06,28,317 2021- 22 Coolies and wages Various dates 52,55,10,803 Cash Various dates 14,78,900 Coolie and wages advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or various bank works and project related works during most part of the year. As a result, very little time was devoted by the accounting staff for the maintenance and updating of accounts. As regards preparation of self-made vouchers for Coolies & Wages expenditure centrally at the head office, he explained that the maintenance of such vouchers at the work sites is not practicable and reliable as the same may lead to defalcation. 8.4. The AO did not offer any comments with regard to the said explanation of the Appellant in the remand report, though the furnishing of the written submission by the Appellant through the e-proceedings on 25.03.2022 has been acknowledged by him. On careful examination of the explanation furnished by the Appellant, it is considered that the same is reasonable and acceptable. The contract works of the Appellant are carried out at various remote work sites whereas his accounting staff are deployed at the head office. The head office of the Appellant is located in Madurai and the availability of accounting staff with good knowledge of accounting as necessary for maintaining the books of account of a super class I construction contractor is scarce in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account cannot be construed as booking of bogus expenditure by the Appellant in respect of the entire amount debited in such a manner, as sought to be done by the AO. In order to draw any inference regarding the bogus nature of the whole or any part of the expenditure represented by the bulk expense entries, it is necessary to take into consideration all other facts and circumstances of the case which have a bearing on the issue and appreciate them in a cumulative manner so that the assessment is not rendered an unreasonably high-pitched assessment. Accordingly, the other facts and circumstances having a bearing on this issue are examined in the following paragraphs." 12. Having perused the above in light of the facts on record, we agree with the Ld. CIT(A) that, the practice of making bulk entries was indeed an accounting anomaly, but the existence of such an anomaly cannot be straightaway construed as booking of bogus expenses. Rather, it is necessary to examine all the relevant facts and circumstances in a cumulative manner to ascertain whether these bulk entries were bogus or not and/or how much element of inflation/bogus expenses was embedded therein, which we will d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 14,78,900 14. The assessee is noted to have explained before the lower authorities that, such journal entries are passed at the end of the year for the purpose of transferring the amounts incurred during the year, which may have been erroneously debited to wrong ledger accounts, to the correct/appropriate ledger account, which is relevant to the concerned expenditure or for the purpose of consolidating the entries under primary ledger accounts. After examining the above entries, we agree with the Ld. CIT(A) that this explanation was tenable in as much as these journal entries passed to simply transfer the amounts debited under a wrong ledger to the correct ledger, and thus cannot be construed to be booking of bogus expense. The relevant findings of Ld. CIT(A) recorded in the common appellate order for AYs 2016-17 to 2019-20, is noted to be as under: - "9.5 The explanation furnished by the Appellant on this issue in the written submissions furnished during the course of the appellate proceedings has been carefully considered. In this regard, it is noticed that the AO has completely misunderstood the nature of the said entries and erroneously remarked that such credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The view adopted to the contrary by the AO is not tenable." 15. At the time of hearing, the Ld. CIT, DR was unable to rebut the above specific findings of the Ld. CIT(A). Accordingly, the disallowance of the above bulk journal entries aggregating to Rs.36,25,56,616/- added across AYs 2016-17, 2017-18, 2018-19, 2019-20 & 2021-22 is held to be unsustainable on facts. 16. Apart from the above, the AO, in AY 2019-20, is found to have noted that, certain bulk expense entries aggregating to Rs. 10,42,02,766/- was debited under 'site operating expenses' account whose corresponding credit entries was not found. The AO thus presumed the same to be bogus in nature and disallowed the aforesaid sum. The assessee however brought to notice before the Ld. CIT(A) that, these entries represented individual entries of sub-contract expenses in respect of which the corresponding credit was given to the concerned party accounts and the payments thereof were made to the parties through banking channel after due deduction of TDS u/s 194C of the Act. We find that, the Ld. CIT(A) after considering the details furnished by the assessee, noted that the AO had erroneously treated these bulk entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries were made in the respective party accounts. The inclusion of the said entries in the bulk expense entries considered by the AO for disallowance u/s 37 is found to be based on an incorrect factual premise. Therefore, it is held that the disallowance of relevant amount of expenditure of Rs.10,42,02,766/- u/s 37 by the AO is not sustainable on facts." 17. The above findings remained uncontroverted before us. We therefore uphold the finding of the Ld. CIT(A) that the disallowance of the above expenses of Rs.10,42,02,766/- u/s 37 of the Act was also unsustainable on facts. 18. We now come to those bulk debit entries whose corresponding credit was to 'Bills and expenses payable - Sundries' account, which was shown by way of liability in the balance-sheet to be discharged in the succeeding financial years. The AO observed that, such liabilities were continued in the subsequent years without any payments being made in relation thereto, which according to him, showed that these bulk entries were passed to book bogus expenditure. The assessee is noted to have explained that, following the matching principle of accounting, he had made year-end provisions for expenses relatable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153A of the Act for that year. Having taken note of this fact, we in principle are in agreement with the Ld. CIT(A) that, the disallowance of aforesaid bulk entry in the assessment order for AY 2020- 21 was not in order, as the same was not claimed as expenditure in the return filed u/s 153A of the Act. 20. Although the Ld. CIT, DR was unable to rebut the above factual position, but he disputed the exercise of re-casting the P&L A/c for AY 2020-21 itself wherein the assessee had re-drawn the accounts following the percentage completion method. It was brought to our notice that, the above-mentioned provision was originally created by the assessee in relation to the Chettikulam-Natham project awarded by NHAI. The said year-end provision was however removed, while drawing up the re-casted P&L A/c for AY 2020-21 under the recognized percentage completion method. The Ld. CIT, DR contended that, on one hand, the assessee had removed the year-end provision, but it had also re-stated the revenues in the re-casted P&L A/c, which according to him, was an after-thought and a ruse to net-off the reversal/removal of the provision. 21. We note that this particular aspect has been exhaustively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of work completed, revenues recognized vis-à-vis payments received and expenditure incurred for this particular project, which was further corroborated by an engineer's certificate. The assessee accordingly demonstrated that the balance sum of Rs.71,87,23,319/- had been offered as revenues in the subsequent year/s, under the percentage completion method. It was therefore not a case that the aggregate receipts were not offered to tax. Rather, the assessee had offered the receipts to tax in a phased manner, in line with the proportion of the construction work completed each year. 23. We note that, the Ld. CIT(A) had sought a remand report from the AO in relation to the above explanation furnished by the assessee. Before us, the Ld. CIT, DR reiterated the comments given by the AO in his remand report rejecting the foregoing explanation of the assessee and holding it to be an after-thought. The Ld. CIT, DR also doubted the reliability and completeness of the Engineer's certificate furnished by the assessee. We however find that, the Ld. CIT(A) had objectively analyzed the entries passed in the re-casted P&L A/c, manner of accounting under the percentage completion m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ham project and arrived at the recast P & L account for AY 2020-21 and updated books of account and P & L account for AY 2021-22 in accordance with the said method. Hence, it is held that the adoption of percentage completion method for recognition of revenue by the Appellant, which is in accordance with the mandatory provisions of the Act, is in order. 18.14 As regards the percentage of work completed in respect of Chettikulam Natham project as on 31.03.2020 and 31.03.2021 considered by the Appellant for recasting the P & L account for AY 2020- 21 and preparing the P & L account for AY 2021-22, it is noticed that the Appellant has relied on the Engineer's certificates issued by M/s Infra Design Consultants and the same were furnished as additional evidence during the course of the appellate proceedings. In the remand report, the AO observed that the said certificates cannot be considered as reliable since they have been prepared on 10.02.2022 with regard to the estimation of percentage of completion of the work as on 31.03.2020 and 31.03.2021. The AO observed that the said certificates are not based on physical examination of the completion of the project. The AO expressed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the engineer's certificates that the amount of estimated actual cost incurred is calculated on the basis of the amount of total estimated cost. In the said context, the AO referred to the following qualifications given in the notes to the engineer's certificates to express the view that the said certificates cannot be considered as complete and reliable: 1) As this is an estimated cost, any deviation in quantity required for execution of the project will result in amendment of the cost incurred/to be incurred. 2) All components of work with specifications are indicated and not exhaustive. 18.17 The explanation furnished by the Appellant in the rejoinder with regard to these observations of the AO has been carefully examined and the same is found to be acceptable. The notes to the engineer's certificates contained general disclaimers which do not render the certificates as incomplete, as erroneously appreciated by the AO. The percentage of completion of work has been worked out in the engineer's certificates having regard to the estimated actual cost incurred as on the relevant date and the total estimated project cost. Since the total estimated project cost a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has already been discussed in detail earlier in this order and the same has been held to be justified. Apart from the re-alignment, the Appellant also has effected reclassification/re-grouping of certain expenses from direct expenses to indirect expenses and vice versa in order to work out the gross profit correctly. Such reclassification/re-grouping of certain expenses has resulted in increase/decrease in some expenses and deletion of some expenses. The Appellant has furnished the necessary details and demonstrated the effect of such reclassification/re-grouping of expenses in respect of "Repairs and maintenance" and "Power and fuel" in the Rejoinder. On examination of the said details, the same are found to be in order. 18.20 In the remand report, the AO observed that the fresh claim of the Appellant of recasting the P & L account based on the percentage completion method is an afterthought since he could not substantiate the expenses debited in the P & L account with evidence. The AO also stated that the Appellant is unable to produce any evidence by way of bills/vouchers in support of the relevant expenses shown in the recast P & L account also. As rightly explained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in obtaining third party vouchers, there is no alternative to the Appellant other than supporting the expenses under the head "Coolies and wages" with self-made vouchers. As explained by the Appellant, the said vouchers were prepared on the basis of the disbursement sheets received from the site offices and this fact has not been disputed by the AO. Further, as discussed earlier in this order, the expenditure incurred in cash towards purchase of gravel and aggregates from local villagers in small loads is being accommodated by the Appellant under the head "coolies and wages" in view of non-issue of any bills by such suppliers in the unorganized sector. Since the maintenance of self-made vouchers in respect of "coolies and wages" expenditure and non-availability of third- party bills/vouchers has been admitted by the Appellant, the said deficiency remains unaffected by the recasting of P & L account subsequent to the search based on adoption of percentage completion method of revenue recognition. The said deficiency cannot be quoted as a reason for non-acceptance of the recast P & L account, as sought to be done by the AO in the remand report. 18.23 Further, the AO made an obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the extent whether the bulk provision of Rs.62,37,29,380/- disallowed by the AO is tenable or not. As held above, since there was no such debit of year-end bulk provision in the re-casted P&L A/c filed u/s 153A of the Act, the disallowance made by the AO was untenable on facts. 25. We now take up the remaining bulk debit entries which are noted to comprise of those entries, where corresponding credit was made to 'Cash Account'. The details thereof, as tabulated by us, is noted to be as follows: - AY Head of Expenses Date of Debit Amount of Expenditure debited (Rs.) Account to which corresponding credit is given 2016- 17 Coolie and Wages 30.04.2015 1,96,98,887 Cash 31.05.2015 1,96,98,887 Cash 30.06.2015 1,96,98,887 Cash 31.07.2015 1,96,98,887 Cash 31.08.2015 1,96,98,887 Cash 30.09.2015 1,96,98,887 Cash 31.10.2015 1,96,98,887 Cash 30.11.2015 1,96,98,887 Cash 31.12.2015 1,96,98,887 Cash 31.01.2016 1,96,98,887 Cash 29.02.2016 1,01,00,000 Cash 31.03.2016 80,00,000 Cash Fuel Expenses - Diesel 31.03.2016 1,96,56,758 Cash Repairs & Maintenance - Vehicle / Equipments 31.03.2016 39,34,226 Cash TOTAL 23,86,79,854 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO did not set forth any cogent reasons and evidence to prove that the expenditure in this regard is excessive or over and above the acceptable standards and instead resorted to disallowance of huge quantum of expenditure as being bogus in nature which cannot be reflective of the actual situation." 28. It is not in dispute before us that, vouchers in support of the above expenses 'Coolie & Wages' were also found and seized during the course of search. The AO however found these vouchers to be self-made and therefore disputed its genuineness. The Ld. AR however explained to us the modus followed by the assessee for maintenance of these self-made vouchers. It was pointed out that, the assessee was executing construction road projects at different locations which were having substantial magnitude. Accordingly, the local engineers or the site-office in charge to regularly maintain the disbursement sheets for the daily coolie & wages, which would be later on shared by the site offices for centralized preparation of vouchers. This was done as a measure of internal control to prevent any defalcation of cash at the local sites. The Ld. AR thus contended that mere centralized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and wages'. The Ld. AR showed us that, the assessee had accordingly re-aligned the cash expenses recorded under the 'coolies and wages' and 'purchases' and demonstrated that post the re-alignment, the overall value of expenses debited in the books of accounts remained the same and it did not have any impact on the overall profit. Referring to the re-aligned expenses, which has not been disputed by the AO in the impugned assessment orders, the Ld. AR took us through the details of total coolie & wages debited in re-casted P&L A/c and the amount disallowed by the AO to show that, if the disallowance made is upheld, then it would give rise to an anomalous situation wherein such huge value of road projects had been executed by incurring minimalistic coolie & wage expenses. He accordingly contended that, the AO's finding that, the bulk entries under the head 'Coolie & Wages' whose corresponding credit was made to 'Cash' Account represented bogus expenses, was unjustified. 30. We note that, the Ld. CIT(A) has taken note of the above submissions, the nature of business of the assessee viz., construction of road contracts and its magnitude and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, it is held that making disallowance of whole of the expenditure, which is supported only of self-made vouchers, as sought to be done by the AO without regard to the requirements of the business to incur the relevant expenditure, is held to be untenable. At the same time, since the relevant expenditure is supported only by self- made vouchers without third party evidences, there is a distinct possibility that there may be inflation of such expenditure and it may not be correct to accept the entire expenditure as genuine. This aspect is required to be borne in mind in determining the income of the Appellant from contracts business." 31. We further note that, the Ld. CIT(A) had also examined the assessee's action of re-aligning the expenses debited to 'Coolie & Wages' in the re-casted P&L A/c furnished for all these AYs and after giving due consideration to the relevant facts and prevailing circumstances then, found the same to be tenable. The relevant findings in this regard as taken note of by us are as follows :- "15.3 The Appellant further explained in the submission furnished on 25.03.2022 that in view of the scarcity of gravel and aggregates in the organized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating expenses" was unfairly ignored by the AO. 15.5 The factual situation as mentioned above also explains the reason why it was noticed during the course of the search that self- made vouchers were being prepared at the head office of the Appellant by his own staff in support of the expenditure debited under the head "coolies and wages". As no third-party bills were available in respect of the actual purchase of gravel and aggregate, the concerned expenditure was booked under the head "coolies and wages" and self-made vouchers were prepared in support of the expenditure booked under the said head. 15.6 In this backdrop of the facts of the case and in order to demonstrate that the expenditure debited under the head "coolies and wages" in the seized books of account is not excessive, the Appellant has resorted to re-alignment of the relevant heads of expenditure and re-cast the P&L account based on such re-alignment for the assessment years under consideration, while filing the returns of income in response to notice u/s 153A of the Act. The details of such re-alignment are furnished in the tables below: Head of Expenses AY 2016-17 AY 2017-18 Before Realignment After R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid agreement is extracted as under: Cost Component Item Road Works Major Bridges and Structures Earthwork, Granular work, and Other works Bitumin ous work Cement Concrete pavement Culverts, minor bridges and other structures 1 2 3 4 5 6 Bitumen (PB) - 15% - - - Steel (PS) - - - 15% 20% Cement (PC) 5% - 20% 15% 15% Plant, machinery usage and spares.(PA) 15% 15% 15% 15% 15% Other Materials(PM) 50% 40% 35% 30% 25% Fuel and lubricants(PF) 10% 10% 10% 10% 10% Labour (PL) 20% 20% 20% 15% 15% Total 100% 100% 100% 100% 100% 15.10 It is observed on perusal of the above that NHAI (the contractee) has stipulated the proportion of various heads of direct expenses in the total direct cost based on its evaluation and assessment of the cost structure of the road / highway project works awarded by it to the contractors. The proportion of direct expenses specified in the EPC agreement for the purpose of price adjustment can be considered to be a reliable indicator of the proportion of various direct expenses involved in the execution of such projects by the contractor. On making reclassification of the heads of direct expenses shown i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnme nt After Realignme nt Before Realignme nt Purchase & Site operating 72 64.8 59.75 32.13 57.45 48.94 Coolie and Wages 18 16.2 20.77 38.85 20.51 28.95 Fuel Expenses 10 9 10.11 19.64 11.09 11.09 15.12 Having regard to the discussion above, it is held that there was justifiable reason for the re-alignment of the expenses carried out by the Appellant while filing the returns of income in response to notices u/s 153A. Further, it is held that the basis adopted by the Appellant for such re-alignment of expenses constitutes a sound and rational basis." 32. Having regard to the above findings of the Ld. CIT(A), we find ourselves in agreement with his conclusion that, it was not a case that the assessee did not incur any expenses towards 'Coolie & Wages' at all so as to disallow the bulk entries of cash payment in its entirety. The above reasoning of the Ld. CIT(A) is found to be supported by his subsequent analysis that, if the AO's reasoning is upheld, then the disallowance would result in abnormally and unrealistically high net profit margins, which again underlines the lack of rationale in the disallowance of bulk entries made by the AO. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /c and reported higher profits. Hence, we find that the Ld. CIT(A) had rightly denounced the AO's action of disallowing the entire sum and instead estimated the profits derived from this business. 35. The Ld. CIT, DR however still urged before us that, the entire expenditure debited under the head 'Coolie & Wages' where corresponding entry was cash, ought to be held as bogus, on the basis of admission made by the employees and the assessee, which were recorded during the search. We however find that, these statements had been later on retracted, albeit almost after a year. The Ld. CIT(A) is noted to have taken due cognizance of the same and found the reasons adduced by the assessee for delayed filing of retraction to be tenable. The Ld. CIT(A) also examined the factual aspects mentioned in the retraction against the original statement and found the explanation put forth by the assessee and other key persons to be justifiable. The relevant findings taken note of by us are as follows :- "11.1 During the course of the assessment proceedings, the Appellant filed a retraction statement dated 10.03.2022 on 14.03.2022. A physical copy of the same was furnished to the AO on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent to the search, the averments made by them in their statements are found to be incorrect. 11.3 The explanation furnished by the Appellant on this issue in the written submissions furnished during the course of the assessment proceedings and appellate proceedings has been carefully considered. In the Assessment Orders for A.Ys 2016-17 to 2019-20, the AO rejected the retraction statements of the Appellant and his employees on the ground that they are merely an after-thought having been filed almost 1.5 years after the recording of their sworn statements. In this regard, it is noticed that the time taken for filing retraction statements by the Appellant and his employees is less than one year as they were filed in March 2022, while the sworn statements during the search were recorded in March and April 2021. Further, it is noticed that the AO has failed to appreciate the detailed reasons furnished by the Appellant in his retraction statement regarding the reasons for the long time taken for filing the retraction statements. He explained therein that there was exponential surge in covid-19 cases from the end of March 2021 leading to the dreadful second wave of the pandemic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andemic in 2021, the CBDT had issued several circulars and notifications during 2021 extending the due dates for filing the returns of income, TDS statements and other statutory forms. The Hon'ble Supreme Court has also taken cognizance of the covid situation and issued directions for extending the limitation of time for filing of any suits, appeals, etc. in such cases where the limitation date fell during the period from 20.03.2020 to 28.02.2022. Since the covid pandemic had paralyzed the operations in all walks of life, it would be unreasonable and unfair to disregard the reasons furnished by the Appellant for the delay in filing the retraction statement. It is therefore held that the filing of retraction statements by the Appellant and his employees with a delay of one year cannot be viewed adversely as a mere after-thought and the same need to be given due consideration on merits. 11.6 With regard to the retraction statements, the AO also observed in the assessment orders that the transactions of bulk expense entries communicated to the Appellant in the notice u/s 142(1) issued during the course of the assessment proceedings were based on the data extracted from the seize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the search is not correct since he lacked personal knowledge of accounts and he could not take any inputs from the accounting team or any other professional while giving the statement. It is therefore evident that the admission made by him during the search is on account of misapprehension of facts. The retraction of the statement which was rendered with such misapprehension needs to be treated as valid and acceptable, where the admission made in the statement is shown to be contrary to other facts available on record. Accordingly, it is held that the retraction of the Appellant is required to be treated as valid and that the reliance placed on his sworn statement recorded during the search in support of the disallowances made in the assessment orders is not tenable." 36. We countenance the above findings of the Ld. CIT(A) and thus hold that these statements, which have since been retracted, does not aid the case of the Revenue that the entire bulk entries has to be disallowed and added to the total income. 37. The Ld. CIT, DR further sought to justify the action of the AO by referring to the quantum of cash withdrawals made from the bank accounts by the assessee in AYs 2018-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inemas. As already discussed earlier in this order, the said debit and credit entries represented the transfer of expenditure incurred by the other Proprietary concerns of the Appellant on behalf of his contracts business and debited in the accounts of such Proprietary concerns to the relevant heads of expenditure in the accounts of the contract business of the Appellant at the end of the year. Hence, the cash withdrawals made from the bank accounts have no relevance to the interpretation of the nature of the said debit and credit entries for A.Y 2018-19. 12.2 In respect of A.Y 2019-20 also, the finding of the AO is found to be erroneous on facts. It is noticed from the details available in the assessment order with regard to the bulk expense entries aggregating to Rs.37,92,16,935/- that expenditure to the extent of Rs. 13,74,87,758/- (Rs.2,87,00,000/- + Rs.10,87,87,758/-) only has been incurred in cash. It is noticed that the corresponding credit entry has been made either in the 'Bills and expenses payable - sundries' account or in other ledger accounts in respect of the balance expenditure of Rs.24,17,29,177/ -. In view of this, it is noticed that the AO is not correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt towards the same are made in cash either on a daily basis or a weekly basis in contracts business. As correctly explained by the Appellant, the wages paid to each worker on each occasion does not exceed the threshold limit of Rs.20,000/- for A.Ys 2016-17 and 2017-18 and Rs.10,000/- for A.Ys 2018-19 and 2019-20 specified in sec 40A(3) of the Act, since the average wages payable to the workers per day does not exceed Rs.500/ -. Hence, it can be concluded that the provisions of sec 40A(3) of the Act are not attracted to the bulk expenditure debited towards "Coolies and wages" which was paid in cash." 43. On the applicability of Section 40(a)(ia) of the Act, we find that both the AO and the Ld. CIT, DR were unable to adduce any reasons as to why the said provision would apply to such expenditure. Understandably, the wages paid to the labour would not exceed the tax exemption limit and therefore the TDS provisions had no application. Also, the provisions of Chapter XVII-B would not apply to expenses on fuel & diesel, staff welfare expenses etc. We thus agree with the following findings of the Ld. CIT(A) in this regard :- "13.7 As regards "coolies and wages" expenditure aggregating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was therefore not fully reliable. This is further corroborated by the fact that, the assessee had re-aligned and re-casted the Profit & Loss Account for AYs 2016-17 to 2019-20, primarily because there was improper recording of the expenditure incurred towards purchases of gravel and aggregates under the "coolies and wages". It is further noted that, the assessee himself also adopted the average proportion of various heads of direct expenses as specified by NHAI for effecting re-alignment of expenses and thereafter reported higher profits in each of these AYs 2016-17 to 2019-20 in the returns filed u/s 153A of the Act. It is thus evident that, the books of accounts of the assessee in relation to his contracts business are not correct and complete and income cannot be correctly deduced from the said accounts. We find merit in the following findings rendered by the Ld. CIT(A) while rejecting the books of accounts of the assessee by invoking Section 145(3) of the Act :- "19.0 The reasons cited by the AO in the assessment order in support of the disallowance of expenditure represented by the bulk expense entries found debited in the books under certain heads of expenditure have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been denied by the Appellant. Though the Appellant has undone the said anomaly subsequent to the search while recasting the accounts for the previous year relevant to A.Y 2020-21 by reversing the entire outstanding balance brought forward on 01.04.2019 in the `Bills and Expenses Payable' account, the fact remains that such reversal has not been effected in the year immediately succeeding the year in which the corresponding provision was credited in the books. This anomaly in the accounts has also affected the correctness and completeness of the accounts of the Appellant, as a result of which it is not possible to deduce the income correctly based on such accounts. 19.3 Another accounting anomaly/deficiency which is prevalent in the case of the Appellant is the absence of bills and vouchers in support of the expenditure debited in the books of account by way of such bulk expense entries wherein the payments were shown to have been made in cash, barring self- made vouchers with regard to 'Coolies & Wages' expenditure for the F.Y 2020-21 found during the search. In view of the said deficiency, the veracity of the quantum of expenditure debited by means of such bulk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. AR has sought to justify the net profit rate of 10% disclosed by it in the returns filed u/s 153A of the Act, which according to him, was considered acceptable by NHAI in the road construction projects awarded by it. Having gone through the facts, it is noted that, due to the change in the indirect taxation regime in 2017 i.e., post introduction of GST, the assessee had approached the NHAI to claim GST on the contracted value. Accordingly, an external engineering agency was appointed from the engineers empaneled with NHAI, who had furnished a GST impact sheet, which is found to be extracted in the Ld. CIT(A)'s order. It is noted from the said calculation that, the external engineering agency had pegged the profitability from the NHAI projects at 10%. Similarly, the assessee also placed on the record contemporaneous details available in public domain regarding the lowest and highest bid for the Chettikulam Project of NHAI wherein the Project cost as per Request for Proposal issued by NHAI was Rs.483.77 crores whereas the successful bid of the assessee was Rs.345.54 Crores, which was less by almost 28% of the project cost fixed by the NHAI. We thus find force in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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