TaxTMI 
TaxTMI 
2019 (12) TMI 207
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....nue are reproduced as under: 1. The order of Ld. CIT(A) is not correct in law and on facts. 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition made on account of disallowance of excessive depreciation of ^ 2,10,53,292/- claimed by the assessee company, by ignoring the admitted fact that the contractors who had constructed the building for the assessee company inflated the cost of construction and thereby increased the value of capital assets which had resulted in excessive claim of depreciation. 3. The appellant craves leave to add, amend any/all the ground of appeal before or during the course of hearing of the appeal. 3. Briefly stated facts of the case are that the assessee company is one of the group company of M/s Educomp Group and was incorporated on 02/09/2006. It was engaged in business of providing infrastructural facilities to educational institution of the Educomp group. A search and seizure action under section 132 of the Income-tax Act, 1961 (in short 'the Act') was carried out on 18/08/2011 in the case of 'Educomp Group' including the assessee and its contractors. For the year un....
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....aining to its contractor group which were signed by Sh. Shalabh Raizada, Sr. Executive and Brig (Retd.) Vikram Singh, Vice President of the assessee company in the capacity of the authorized signatory of such contractor. Annexures A-3, A-4, A-5 and A-8 seized from the said premises contain details of the nature of work contracts given to the said contractor and sub contractors allotted by such contractor to its own parties at meager rate. Thus, substantial evidence was found and seized which reflected that various contractors are acting in collusion with the assessee company to enable it to raise its cost of capital asset in order to claim enhanced depreciation and evade tax." 3.1 Thus, according to the Assessing Officer, the assessee has claimed excess expenditure on construction of the building through these two contactors, and thus claimed excess capitalization of asset of building and consequently claimed excess depreciation on building, which the assessee was not entitled for. 3.2 The Assessing Officer issued a detailed show cause notice to the assessee, the reply of which has been reproduced by the Assessing Officer in the assessment order. The assessee explained that v....
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....tractors are different persons who are not related to the directors of the appellant company, and that the allegations of the AO that the activities of sub-contractors were being managed by the personnel of appellant is against the material on record, and that neither any document nor any evidence was found to establish the fact that the appellant had authorized its personnel to manage or supervise the affairs of subcontractors, nor any benefit in the form of salary or otherwise was derived by the personnel of the appellant from the contractors which may suggest in any manner that the operations of the sub-contractor companies were being used to inflate capital cost of assets. It has also been submitted that the total receipts offered by the sub-contractors is same as the cost of assets accounted for by the appellant and the appellant accounted for as the cost of assets the amount which was paid to the subcontractors and it is not the case of the AO that the cost of assets is more than the expenditure incurred by the appellant, nor has the AO brought on record any material to establish that the cost of assets accounted for in the books of accounts is more than the expenditure incur....
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....oned three financial years, the computation for excess capitalization of assets by the appellant is as under: S.No. Name of contractor Amount paid (In Rs.) FY 2009-10 FY 2010-11 FY 2011-12 (A) Jubilant Developers & Management Services Pvt. Ltd. i. Total Advance Given 158,59,85,370 180,71,91,299 (5,96,49,496) ii. Cumulative capitalization by EISML (101,77,25,278) (126,16,58,703) iii. Less: Cumulative inflated expenses offered 10,00,00,000 15,00,00,000 iv. Net capital work-in-progress (91,77,25,278) (111,16,58,703) V. Invoices raised by JDMS 101,77,25,278 24,39,33,425 vi. Cumulative invoices raised by JDMS 32,73,66,279 126,16,58,703 126,16,58,703 vii. Excess of invoices vs capitalization by EISML (iv - vi) (34,39,33,425) (15,00,00,000) viii. Depreciation on excess capitalization (B) OSN Infrastructure & Projects Pvt. Ltd. i. Total Advance Given 138,84,99,263 7,05,29,978 ii. C....
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....nstruction work, which is very small as compared to the payments made to those subcontractors and the contractors have accepted in their assessment, the receipt of the money by way of cash from those subcontractors. According to the Ld. DR, the documents seized in Annexures A-3, A-4, A-5 and A-8 seized from the premises of the assessee, wherein the actual low rate of the work is mentioned, clearly indicated that the assessee was aware of the actual rate of work and money which flowed back to the contractors. According to the learned DR, it is apparent that the money has actually routed back to the assessee as flow of cash back from the subcontractor to the contractor was within the knowledge of the assessee. In view of the learned Departmental Representative, it is against human probability that assessee would allow such bogus payment to the contractor knowingly that actual rate of the work is very low and money is routed back from the subcontractor to the contactor. Regarding the computation of the depreciation by the Ld. CIT(A), the learned DR submitted that in case of Jubilant Developers and Management Services Private Limited, the amount of excess capitalisation has been com....
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....per the Income-tax provisions and rates prescribed in Income-tax Rules, 1962. Out of the depreciation claimed on building in the Income-tax Return, the Assessing Officer has disallowed depreciation to the extent of Rs. 2,10,53,292/-being depreciation on account of no assets created in respect of the contracts given to M/s OSN Infrastructure and Project Private Limited (in short 'OSN') and M/s Jubilant Developers and Management Services Private Limited ( in short 'JDMS') to the extent of amount accepted by them in the return of income as expenditure not incurred actually. Thus, the Assessing Officer has excluded out of cost of building, the amount which has been admitted by the two contractors as not actually incurred. In facts of the case, the issue in dispute is what should be the depreciation which the assessee should have been allowed. In terms of section 32 of the Act and Rule 5(1) of Income-tax Rules 1962, the deduction of depreciation is allowed on building owned, wholly or partly by the assessee , and used for the purposes of the business or profession at the rate of 10 % of the written down value of the capital asset of building. The term "written down value" has been de....
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.....8.2011, on verification, it was found and asserted by you that no genuine activities have been conducted by your group. It was a iso found that corroborative evidences of various expenses claimed in your companies were also missing. You had also stated that Sh. Ashish Mittal is at helm of the affairs. Various records and other documents pertaining to your activities were also not produced and no satisfactory explanation to the quarries raised were rendered by you and other office bearers of your group. Do you agree on the said state of affairs? Explain the same? Ans. I agree that certain corporative evidences to establish the genuineness were missing at the time of survey. To cover the stated discrepancies, we in consultation with Sh. Ashish Mittal, the person supervising the accounting/compliance/other business activities, agree to offer Rs. 75 crore as income of the OSN group, its principals who have allotted contracts/ jobs other vendors/contractors who have performed work for as or our principals or our sub-contractors for the relevant period i.e. FY 2010-11 and 2011-12 with the understanding that neither any penalty nor any punitive action of any nature., whatsoever ....
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....e papers are an indubitable and concrete record of the transactions undertaxen by M/s. OSN Infrastructure & Projects Pvt. Limited. Page No 128 & 129 of Annexure AA-1 and page no. 36 of Ann.AA-2 are summary sheets highlighting the following details: a) Value of total contracts obtained by OSN Infra from EISML, b) Billing for work to be done during the financial year 2010-11 and 2011-12 c) Amount of cost of work and bills issued by various sub contractors along with their names for FY 2010-11 & 2011-12. d) Actual cost incurred for the work and e) The difference received in cash by M/s. OSN Infrastructure & Projects Pvt. Limited from such sub contractors. f) Details of brokerage received from the sellers of land not booked in the books of accounts of M/s. OSN Infrastructure & Projects Pvt. Limited. g) Details of cash received back from sellers of land at Distt. Alwar, Rajasthan and Hyderabad not booked in the books of accounts of M/s. OSN Infrastructure & Projects Pvt. Limited. 5.8 Scanned copies of pageds 128 and 129 of Annexure AA-1 and Page 36 of Annexure AA-2 respectively are reproduced herein 5.9 The....
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....ining to this contractor are available on pages 128 &129 of Annexure AA-1 and it was seen that out of total bills of Rs. 8.01 crores on account of Hanumangarh work, the actual cost was for Rs. 0.91 crores and the balance amount of Rs. 7 10 crores represented undisclosed income of the assessee for the relevant period under consideration. 5.13 incriminating documents were also found and seized pertaining to the contract allotted for clearing, leveling, filling, removal of boulders, rock excavation, blasting, stacking, consolidation of soil, kuchha road etc. of agriculture land at Village Pata, Tehsil Ramgarh, Distt. Alwar, Rajasthan to subcontractor M/s. Patel Engineering Limited. A part of this work was also performed by M/s. Orris Infrastructure Pvt. Limited. The details of these two subcontracts are available on page 14 to 24 of Annexure AA-1. On page number 128 & 129 of Annexure AA-1 it is shown that out of total bills of Rs. 9 crores on account of Alwar work, the actual cost was for Rs. 1 25 crores and therefore, amount of Rs. 7.75 crores represented excess/bogus billing. 5.14 In addition to the above there were other small works which were handled by the asses....
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....ertain to the various bills raised by the sub contractors of OSN Infrastructure and Projects Pvt Ltd, their ledger accounts and a summary sheet of 1) Contract Value 2) Amount of total bills raised 3) Cost of bills 9) the actual cost incurred and 5) the difference received by us in cash from the said sub contractors on account of inflated/excessive expenditure charged by us in our books of account. As apparent from the papers, the said excessive/inflated expenditure aggregates to Rs. 30 crores (Approx) for the financial years 2010-11 which is appearing in a summarized manner on page 129 of the above stated Annexure AA1. The same may kina'iv be treated as part of the total income offered by us to the extent of Rs. 75cr in the course of my statement recorded on oath dated 25/08/11. Q. 2A I am showing you pages 1 to 36 of Annexure AA -2 of the material found and seized/impounded during the course of lifting of restraints placed at the premises of your consultant, Mr. Ashish Mittal who has stated to belong to you. Kindly identify the papers and explain the contents thereof. Ans. The said papers/documents pertain to the bills raised by one of the sub contra....
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....d Rs. 1.50 crores during the financial years 2010-11 and 2011-12 respectively. The said vendors agreed to pay the brokerage to be computed at the rate of 2.5 % of the value of sales consideration, to be paid 2/3rd during the financial year 2010-11 and the balance 1/3*during the financial year 2011-12. The same was accordingly received to the extent of Rs. 3crores and Rs. 1.5 crores during the financial year 2010-11 and 2011-12 respectively. The samemay kindly be treated as part of the total income offered by us to the extent of Rs. 75 crores inthe course of my statement recorded on oath dated 25/08/2011 Q. 26 You have stared that certain bogus/inflated expense has been charged by you to the profit and loss account of OSN Group companies through the aid of various sub contractors. Please state whether any other expenses over and above the payment to sub contractors of similar nature also exist or not? Ans. We are not able to verify the same at this moment However, to cover up the same, we hereby offer amounts of Rs. 18 Lakhs and Rs. 50 Lakhs for the financial years 2010-11 and 2011- 12 to cover any other disallowances on account of other excessive or unreasonable e....
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....were inadvertently left by Mr. Arun Kumar during one of his visits to his office at the above stated premises. Mr. Sanjay Saini also confirmed that the impugned papers contained details of bogus expenditure booked by the assessee company and accordingly after consultation with the director of the assessee company, he offered amounts of Rs. 10 crores and Rs. 5 crores for the F.Y. 2010-11 and 2011-12 respectively as undisclosed income of the assessee company. 1.1 The statement of Sh. Arun Kumar, director of M/s. Jubilant Developers & Management Services Pvt. Limited (JDMS) was recorded on oath on 13.09.2011. In his statement recorded on oath on 13.09.2011 he admitted that the papers seized vide Ann. AA-3 were containing details of transaction taken by his company with various subcontractors for FY 2010-11 & 2011-12. In his statement he admitted of having received back the cash from M/s. StartrekBuildcon Pvt. Limited during FY 2010-11 & 2011-12 against various cheques issued for Rs. 9.45 cr. & 4.90 Crore for FY 2010-11 & 2011-12 respectively. He explained that these amount were in the nature of excess expenditure charged, therefore, it has over booked the revenue expenditure ....
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....d his group companies, M/s OSN Infrastructure and Projects Pvt. Ltd for meeting the additional requirements of execution of the construction contracts of the above said Educomp Group in the month of June 2010. Various constructions contracts were allotted to them by the Educomp Group on our recommendation and the same are being executed by Sh. Sanjay Saini and his companies till date. I often used to visit the business premises of Sh. Sanjay Saini and his consultant, Sh. Ashish Mittal in order to discuss various aspects of the common construction business. During the course of survey/search of Sh. Sanjay Saini and his group companies, he discussed the matter with me and after due consultation with him, I advised him to include an amount of Rs. 15 crores as income of Jubilant Developers and Management Services Pvt Ltd also. It was on this basis that I reiterated and confirmed the offer of Rs. 15 crores in the hands of M/s Jubilant Developers and Management Services Pvt Ltd. in my statement on 05/09/2011. I hereby reconfirm that out of the total amount of Rs. 15 crores, Rs. 10.00 crores will be offered to tax for the financial year 2010-11 and Rs. 5.00 crores for the financi....
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.... of Rs. 10 crores and Rs. 5 crores for the financial years 2010-11 and 2011-12 respectively, as income with an understanding that neither any penalty nor any punitive proceedings of any nature will either be initiated or imposed against our companies or individuals of our group in future. Q. No. 20: - During the course of recording of your statement in the office of the undersigned on 05/09/2011, you had offered an aggregate amount of Rs. 15 crores to tax in the hands of Jubilant Developers and Management Services Pvt Ltd. Explain the basis of the same. Answer: - As stated above, it is fact that our company, M/s Jubilant Developers and Management Services Pvt Ltd was executing various construction contracts as allotted by Educomp Infrastructure and Projects Ltd since May/June 2009, In fact we introduced Sh. Sanjay Saini and his group companies, M/s OSN Infrastructure and Projects Pvt. Ltd for meeting the additional requirements of execution of the construction contracts of the above said Educomp Group in the month of June 2010. Various constructions contracts were allotted to them by the Educomp Group on our recommendation and the same are being executed by Sh. Sa....
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....y of the computation of assessable income filed for the relevant period is enclosed to substantiate that the relevant additional income to the extent of Rs. 5 crores stands duly included in addition to the regular income for the said period. Necessary tax liability due thereon has already been discharged which is apparent from the said return filed. It is also clarified that the said additional income has been offered in addition to the income derived on the basis of the books of account. Therefore, no adverse inference may kindly be drawn against the same. No fresh contracts were entered during the relevant period. A confirmed copy of the ledger account of M/s EISML as per our books of account is enclosed. No fresh contracts were allotted to any sub contractor during the relevant period." The assessee has already furnished detailed reply regarding the manner of inclusion of additional income offered of Rs. 5 crores for the relevant period under consideration. Keeping in view the above said facts, no adverse cognizance is taken in this regard." 6.3 On perusal of the above finding in the case of OSN and JDMS, it is evident that OSN and JDMS in their boo....
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....o bring the truth as on whose direction they signed document as authorised signatory of the contactors. The assessee has failed to discharge its onus and cannot shift the burden on the Revenue that no document authorising those persons to manage the affairs of the contractor was found during the course of the search. The assessee contended that the cost of the assets accounted for in the books of account of the assessee is not more than the receipt offered by the contractors in their books of accounts. This argument is also of no help to the assessee, as the contactors have already accepted the fact of obtaining bogus bills from the subcontractors and routing of the money back in the form of cash, without doing actual work or doing work less than billed for. 6.6 In view of the above factual observations, it is beyond doubt that the relevant capital asset in the form of the building of the assessee corresponding to the expenditure not incurred actually by those two contractors mentioned above, did not come into existence and thus the assessee cannot be entitled for depreciation in respect of the capital asset which has never come into existence. The bills raised by the contrac....
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....probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf." 6.7 Thus, facts and circumstances of the cases relied upon by the assessee being distinguishable, the ratio of those decisions cannot be applied in the case of the assessee. In the facts of the case the preponderance of the probability suggests that raising of bogus bills by the subcontractors to the contactors and then routing back of the money in the form of the cash definitely must have been done on the direction of the assessee as assessee is the ultimate beneficiary by way of excess deduction of depreciation on the capital asset in the form of building. 6.8 In view of the facts and circumstances discussed above, in principle we hold that the assessee is not entitled for the....
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....r 2013-14 deleted the disallowance of depreciation in view of his finding in assessment year 2012-13 observing as under : "4.2.2 This matter emanate from the disallowances in the immediately preceding assessment year wherein the AO had, based on his observation that the contractors, M/s Jubiliant Developers & Management Services Pvt. Ltd. (JDMS) and M/s OSN Infrastructure & Projects Pvt. Ltd. (OIPPL), had disclosed certain expenses on account of the contract work of construction awarded to them by the appellant, held that the appellant has inflated cost of capital assets through booking of inflated bills raised by these contractors and had worked out the excess invoices against work done by the contractors vis-a-vis the capitalization of asset by the appellant after considering the expenses on contract allegedly inflated by the contractors, and had disallowed commensurate depreciation. After detailed discussion in the appellate order dated 07.10.2015 in Appeal No.81/14-15 in the case of the same assessee for AY 2012-13 I have held that there is no case of excess capitalization and therefore the depreciation disallowed by the AO was deleted. The disallowance of depreciation....