2021 (4) TMI 390 - AT - Income Tax

Tribunal decision: Assessments adjusted, issues referred back for verification.

TCI Constructions Limited, HYDERABAD Versus Deputy Commissioner of Income Tax, Circle-2 (3) HYDERABAD

The tribunal allowed the assessee's appeals partly, directing the deletion of additions related to unexplained cash credits, share application money, and ... Estimation of income on sub-contract receipts - estimating 8% profit element of its gross contractual receipts - CIT-DR vehemently argued the fact that the Assessing Officer’s remand report(s) have declined the assessee’s sub-contract receipts plea for want of original documents along with registration thereof - HELD THAT:- We see no reason to accept this mutually contradictory stand on the very books maintained and sub-contract receipts in furtherance to the corresponding contracts entered in the relevant previous year. And more particularly in view of the fact that the Assessing Officer has himself accepted the gross turnover figures in above terms. This tribunal’s co-ordinate bench’s decision in M/s.Maa highways [2013 (7) TMI 1013 - ITAT HYDERABAD] holds that subcontract receipts assessment @5% on lumpsum basis in the very business is just and proper. We thus direct the Assessing Officer to assess the assessee’s sub-contract receipts @5% income element only. Treatment on scrap sales income - under the head ‘business’ OR ‘other sources' - HELD THAT:- There is hardly any dispute that such scrap sales emanates in the ordinary course of civil constructions and contractor business amounts to business income as per DCIT Vs.Harjivandas Juthabhai Zaveri [1999 (12) TMI 5 - GUJARAT HIGH COURT] and M/s.J.V.K. Infra Pvt. Ltd. [2018 (6) TMI 545 - ITAT HYDERABAD] holding the very view. CIT-DR further fails to dispute clinching fact that the assessee’s books have indicated the impugned receipts from scrap sales than any ‘other’ source inviting application of Section 57 of the Act. We conclude in this factual backdrop that the assessee’s scrap sales income deserves to be treated under the regular business head followed by assessment thereof @8%. Un-explained cash credits - HELD THAT:- We come to the first investor party herein, assessee’s Managing Director Shri M.Venkatesh, who has duly filed his confirmation and all supportive documents. He continues to be assessed in the same range jurisdiction as well. Hon'ble Gujarat high court decision in PCIT Vs. Gyscoal Alloys Ltd.. [2018 (10) TMI 1725 - GUJARAT HIGH COURT] holds that the impugned section 68 addition on explained cash credits involving such related parties does not deserve to be treated as ‘un-explained. We further wish to emphasise here that the assessee’s first investor is none other than its Managing Director; taking all key decisions could not be treated as a bogus entity in other words. We thus direct the Assessing Officer to delete the impugned addition. For latter three investor parties who have not filed confirmations all along but they have also been allotted the assessee’s shares - The Revenue also fails to dispute that neither the Assessing Officer never found fault with all this evidence of filing of confirmations followed by assessment records and payments made through banking channels but also he has not indicated any cash deposits or withdrawals so as to raise any suspicion qua all of them. We held in this factual backdrop that the assessee has duly discharged his burden of proving identity, genuineness and creditworthiness of the impugned share application money of ₹ 55,36,609/- on facts in other words. We make it clear that although both the parties have sought to rely on a catena of case law, the same does not need a detailed discussion as the assessee has very well proved its genuineness of the investor parties on facts. Issues Involved:1. Admission of additional grounds at a belated stage.2. Correctness of estimating profit element of gross contractual receipts and treatment of scrap sales income.3. Unexplained cash credits.4. Share application money treated as unexplained cash credits.5. Unsecured loans treated as unexplained cash credits.6. Granting of TDS credit and difference in contract receipts.Issue-wise Detailed Analysis:1. Admission of Additional Grounds:The assessee sought to admit additional grounds at a belated stage. The Revenue objected, citing the assessee’s conduct. However, the tribunal found no merit in the Revenue’s technical stand, referencing the Supreme Court’s decision in National Thermal Power Co. Ltd. vs. CIT, which allows raising additional grounds to determine the correct tax liability if all relevant facts are on record. The tribunal accepted the assessee’s petition to raise additional grounds for both assessment years.2. Estimating Profit Element of Gross Contractual Receipts and Treatment of Scrap Sales Income:The assessee challenged the lower authorities’ action of estimating an 8% profit element on gross contractual receipts and the treatment of scrap sales income. The tribunal noted that the correct turnover figures were Rs. 40,42,82,012 for AY 2010-11, as per the assessee’s audited books. The tribunal affirmed the 8% profit assessment on contractual receipts but directed the Assessing Officer to assess sub-contract receipts at 5%, referencing a similar decision in M/s. Maa Highways.Regarding scrap sales income, the tribunal observed that such income, arising from the ordinary course of civil construction business, should be treated as business income. The tribunal directed that the scrap sales income be assessed under the business head at 8%.3. Unexplained Cash Credits:The issue involved unexplained cash credits of Rs. 5,53,66,019 for AY 2010-11 from four investors, including the assessee’s Managing Director. The tribunal found that the Managing Director had provided confirmation and supportive documents, and the Gujarat High Court’s decision in PCIT vs. Gyscoal Alloys Ltd. supported that such related party transactions should not be treated as unexplained. The tribunal directed the deletion of the addition.For the other three investors, the tribunal noted that the Assessing Officer had not found fault with the evidence provided, including confirmations and banking transactions. The tribunal concluded that the assessee had discharged its burden of proving identity, genuineness, and creditworthiness, and directed the deletion of the addition.4. Share Application Money Treated as Unexplained Cash Credits:For AY 2011-12, the issue of share application money treated as unexplained cash credits involved Rs. 40 lakhs out of Rs. 1 crore. The tribunal found that the relevant facts were similar to those in AY 2010-11, where confirmations and evidence were provided, and no suspicious circumstances were found. The tribunal directed the deletion of the addition.5. Unsecured Loans Treated as Unexplained Cash Credits:The issue involved unsecured loans of Rs. 50 lakhs treated as unexplained cash credits. The tribunal noted that the sum was received through banking channels, and the Assessing Officer’s remand report had accepted the verification of the sum as a performance deposit. The tribunal concluded that the assessee had proved the genuineness of the sum and directed the deletion of the addition.6. Granting of TDS Credit and Difference in Contract Receipts:The assessee raised issues regarding the non-granting of TDS credit as per books and Form 26AS and differences in contract receipts. The tribunal restored these issues to the Assessing Officer for necessary verification within three effective opportunities of hearing.Conclusion:The assessee’s appeals were partly allowed, with directions for necessary computation as per law. The tribunal pronounced the order in the open court on 06-04-2021.