AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 133
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....nd perused the paper books placed on record from pages 1 to 412. 2. Briefly stated, assessee is a company engaged in the business of civil contracts. During the impugned assessment years it has executed the following types of contracts - i. own contracts ii. sub-contract given to others iii. back to back contracts iv. sub-contract received from others. 2.1. Search and seizure operations were carried out in this case on 16.12.2008. Consequent to search, notices under section 153A were issued and assessee has filed returns of income declaring incomes as per the books of accounts. A.O. considering that there are various adjustments made to the accounts and various sub-contracts given, referred the accounts to special audit under section 142A and final assessment has been made on the basis of findings in the special audit report as well as his enquiries. In various assessment years, the main contention of A.O. was that assessee has given sub-contracts to his employees/relatives, to companies based in Kolkata, West Bengal which could not be traced and contracts to entities which do not exist. T....
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....ver, considering that work got executed and assessee has billed amounts to main contractor and since A.O. had not disputed the receipt of the contract amounts, Ld. CIT(A) rejected the disallowance of the entire sub contract amounts. Based on the remand report of the A.O. as well as Addl. CIT, he rejected the books of accounts and estimated the incomes at 12.5% on the contracts, including the sub-contracts given by assessee whose turnover has already reported by the assessee as its turnover and 8% on sub-contracts undertaken by the assessee where assessee is not the main contractor. Accordingly, he directed the A.O. to estimate the incomes. In the process, some of the statutory disallowances made by the A.O. under section 40(a)(ia) and 43B were also adjusted. 3.1 In view of this, Revenue is in appeal raising the grounds as under : 1. "The Ld. CIT(A) erred both in facts and in law in deleting the additions made. 2. The Ld. CIT(A) has erred in not appreciating the facts that the case has referred to special audit u/s.142(2A) and has decided merely on the legality of the additions. 3. The Ld. CIT(A) erred in ignoring ....
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....IT(A) estimated the income, as considered by the ITAT in similar cases and particularly relied on the Coordinate Bench decision in the case of KNR Constructions vs. DCIT, CIT(A)-2 in MA.Nos.113 & 114/Hyd/2012 dated 12.10.2012. in view of this, assessee is not objecting to estimation of income, whereas assessee's crossobjections is on the jurisdiction issue. It was contended that A.O. sent draft order for approval to the Addl.CIT and later on due to change of incumbent, revised the draft order on altogether different issues and made additions. It was the contention that A.O. was precluded in revising the order once draft order was prepared and sent to the Addl. CIT for approval on which approval was already granted. However, in the course of arguments, these cross objections are not pressed, as there is no evidence on record that the original draft orders were approved by the Addl. CIT. 6. We have considered the rival contentions and perused the paper book placed on record. There is no dispute with reference to the fact that A.O. disallowed various amounts only of sub-contracts given by assessee and in some cases monies seems to have deposited or advanced to the Directors of ....
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....me vis-a-vis the facts of the case, I am of the opinion that there is considerable force in the contention of the appellant with regard to disallowance of sub-contract expenditure. As is evident from the detailed sub-contract submissions made by the appellant, with regard to the grounds of disallowance of sub-contract expenditure, such disallowance made by the AO was primarily based on certain presumptions, suspicion and on the ground of unverifiable nature of expenditure. It is an undisputed fact that all the receipts in respect of the works given on subcontract were offered as income by the appellant and no suppression of receipts was noticed either during the course of search or assessment proceedings. Even the AO has accepted such receipts as income of the appellant. Neither the Special Auditor had given any adverse finding, with any cogent evidence, nor the AO had brought any clinching evidence on record to prove that either the work was not actually executed or any other work expenditure was debited in its books, in addition to the sub-contract expenditure, in respect of works sublet to such sub-contractors. Further, the AO inferred from the seized documents enclosed as Annex....
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.... huge additions/ disallowances made in the impugned assessment. The AO failed to establish any nexus between the alleged suppressed income and corresponding investments in assets. However, it is also a fact that the appellant could not establish the entire subcontract expenditure to the satisfaction of the AO. Neither the appellant nor the AO/had conclusively proved that books maintained by the appellant are reliable and results shown there off reflect the true and correct income of the appellant. The AO even after Special Audit had not brought out any clinching evidence for non execution of work and bogus nature of expenditure. In view of the above facts, I am of the opinion that it is a fit case for rejection of books and consequent estimation of income, presuming that sub-contract works including back-to-back were executed by the appellant company itself. In fact, the Additional CIT, Central Range-2, vide his letter dated 19.02.2013, recommended alternatively for estimating the income and wherever clinching evidence was available against the appellant regarding non-execution of work or unexplained expenditure, the same should be kept out of the purview of estimation, while decid....
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....and executed by assessee own. Hence we direct the AO to re-compute the profit on main contract at 12.5% as held by Tribunal in the case cited supra and on sub contract 8% of the contract receipt. In the instant case, the AO has not disputed the subcontracts received by the appellant. He has only disputed the sub-contracts given to others. This office has obtained the details of work orders relating to sub-contracts received by the appellant, which were furnished by the appellant during the course of appellate proceedings. Hence, the above method of 8% on sub-contracts received by the appellant is squarely applicable in this case, and is accordingly estimated, which is shown in the above table. It is further clarified that this estimation directed above takes care of the shortcomings/discrepancies noticed with regard to various contract works of the appellant for the AY 2007-08. Therefore, no further disallowance/statutory deductions envisaged in section 30 to 43D of the Act, is called for separately, since, the estimation takes care of the above statutory disallowances/deductions. However, it may be clarified that if....