TaxTMI 
TaxTMI 
2020 (6) TMI 127
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....he same stands corporatized since the assessment year 2008-09 onwards. The assessee had its Headquarters at Panvel and has branches at many places including Nashik. The Nashik Branch handles the contract work for resurfacing the roads at Nashik and it was assigned by the Public Works Department (PWD) and the Municipal Corporation of Nashik (MCN). There was search action u/s 132 of the Act on the business premises of the assessee on 07.02.2008 relevant to the assessment year 2008-09. The search action resulted in discovery of various incriminating papers and CDs. Inflation of expenses, understatements of profits etc are the issues discovered during the search action. Mr. Prashant Thakur and his father manage the business in India and outside of India respectively. Subsequently, Mr. Thakur disclosed the additional income of Rs. 6.5 crores under various heads of income involving the Firm and the Corporate Entities of the Group for the then current assessment year 2008-09. The said details are given in para 3.1 of the order of the CIT(A). The notice u/s 153A of the Act was issued for the said relevant assessment years including the assessment year 2006-07 to 2008-09. The search asse....
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....opriate and reasonable. Tribunal rejected the Assessing Officer's manner of making the itemised additions based on the incriminating documents in isolation. The Tribunal disapproved the existence of the huge/unusual profit percentage. In the language of the Tribunal, it is held that ".............. In the given circumstances, we need to find out the amount of addition liable to be made. Ordinarily, we would have gone with the evidence actually found at the time of search for making addition, but, the position as instantly prevails is that albeit there is evidence of inflation of expenses, but its precise quantification is not available". Thus, the Tribunal felt judicious to adopt the spirit of the provisions of section 44AD of the Act and increased the profits of the assessee marginally from the recorded GP rate of assessee @ 7.49% to 8% (difference of percentage is 0.51%). This is the finding of the Tribunal for the assessment year 2006-07 vide order dated 17.09.2019. Thus, while upholding the allegation of 'inflation of expenses', the Tribunal adopted the approach of estimation of profit @ 8% for the assessment year 2006-07 due to lack of "precise quantification" of such inflatio....
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.... "Grounds :- 1) The Learned CIT (A) has erred in law and on facts by sustaining/ confirming addition of Rs. 3773903/- on account of disallowance u/s 40(a) (ia) of the I.T.ACT. The addition of RS. 3773903/- being not warranted by facts and in law may be deleted. 2) The Learned CIT(A) has erred in law and on facts by confirming separate addition of RS. 3773903/- as per ground no 1, by not giving benefit of setoff (telescoping) against total estimated income and as such ignored provision of law and judicial decisions. 3) The Learned CIT(A) has erred in law and facts by confirming alleged expenses RS37,69005/ as unexplained expenditure u/s 69C on the basis of noting found on computer file/dumb document in course of search. The Learned A.O. as well as CIT(A) failed to appreciate that this were dumb one and addition was not being warranted by facts and in law may be deleted 4) The Learned CIT(A) has erred in law and facts by confirming alleged illegal expenses of Nasik Project Rs. 1,51,60,000/ as unexplained expenditure u/s 69C on the basis of noting found on computer file/dumb document in course of search. The Learned A.O. as well as CIT(A) fa....
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....ions Rs. 161 lacs assessable as income from Inflated Expenses for Nasik Project on the basis of erroneous inference drawn from various statements found as a computer file in the course of search action, as against apparent loss of Rs. 411 lacs in two years from these statements provided they are read in toto. 5. The learned C.I.T. (A) also erred in law and on facts same as A.O. by not considering and reading the statements as whole, found from the computer files in respect of Nasik Project in the course of search action, as decided and held by the Judicial Authorities. The Appellant craves leave to add, to alter, to delete and/or to amend any or all of the above grounds of appeal at any time." C. Facts/Developments for the Assessment Year 2008-09 9. The assessee filed the return of income for the year declaring the total income of Rs. 18,72,73,260/-. The Assessing Officer completed the assessment determining the assessed income of Rs. 33,01,50,750/-. The ratio of returned income and the assessed income (at Rs. 18.73 crores : Rs. 33.02 crores) too is extremely huge and abnormal. The details of additions as given in para 16 of the assessment order and the s....
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....ming separate addition of Rs. 580399 + 41764 as per ground no.2 & 3 by not giving benefit of setoff (telescoping) against total estimated income and as such ignored provision of law and judicial decisions. 5) The Learned CIT(A) has erred in law and on facts by sustaining/ confirming part of estimated addition Rs. 182 Lacs by estimating income @ 14% of GTO, without considering the fact that assessee was having sub-contract receipt also. The assessee has made overall disclosure of Rs. 650 lacs to buy peace of mind though same was not supported by any undisclosed investment/seized assets etc in possession of assessee as per search documents and/or as per Assessment Order. 6) The Learned CIT(A) has erred in law and on facts by not considering the disclosure made by assessee of Rs. 6.50 u/s 132(4) in A.Y. 08-09 to buy peace of mind while sustaining/ confirming part of addition in the assessment. 7) The assessee craves leave to add/alter any of grounds of appeal before or at the time of hearing. Additional Grounds :- 1. On the facts and in the circumstances of the case and in law, the assessment proceedings initiated as well as the assessment ....
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.... 14. Referring to each of those business linked additions, ld. Counsel submitted that the decision of the Tribunal for the assessment year 2006-07 becomes relevant so far as the business linked discrepancies noted by the Investigation Wing during the search action. Stating that the Tribunal did not appreciate the Assessing Officer's way of making item-wise additions linked to the business and also the additions based on the said seized papers, common for all the assessment years under consideration, ld. AR submitted that the said order of the Tribunal for the assessment year 2006-07 assumes significant for determination of profits for the A.Y. 2007-08 as well. Referring to the order of the CIT(A), the ld. Counsel mentioned that the CIT(A) resorted to estimation of profits of the assessee and it is only way of computation of profits for the year meaningfully and judiciously. The fact that the Tribunal too preferred the method followed by the CIT(A) was also pressed before us. Referring to the recorded GP rate at 9.37% as disclosed by the assessee for the assessment year 2007-08 on the total turnover of Rs. 137.13 crores, ld. Counsel mentioned that the same is quite reasonable and ....
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....nds no.4 and 5 again relates to the business profits of the assessee. 19. Referring to the list of 11 additions made by the Assessing Officer in the assessment, the ld. Counsel for the assessee argued vehemently stating that all these additions can be grouped into two broad categories, namely (i) the additions connected to the business of the assessee; and, (ii) the other additions made under various provisions of the Act. In this regard, ld. Counsel for the assessee filed a statement (a chart) and submitted that, out of 11 additions, Item No.1 of the Chart (Rs. 48,69,491/-); Item No.2 (Rs. 2,29,00,000/-); Item No.3 (Rs. 8,59,200/-); Item No.4 (Rs. 2,61,05,121/-); and, Item No.5 (Rs. 8,74,27,755/-) pertained to the business of the assessee/seized materials. Further, referring to the additions on Item No.6 (Rs. 46,32,920/-); Item No.7 (Rs. 12,87,714/-): Item No.9 (Rs. 5,09,608/-); Item No.10 (Rs. 50,00,000/-); and, Item No.11 (Rs. 1,81,000/-), ld. Counsel submitted that these issues already stand settled and there is no dispute about these additions. Further also, referring to Item No.8 (Rs. 37,73,903/-), ld. Counsel submitted that this addition made u/s 40(a)(ia) of the Act bein....
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....he issues discussed above for assessment year 2007-08. A. Finding of the Tribunal on the itemised additions related to the business profits of the assessee/ appropriate GP rate/Relevance of turnover for A.Y. 2006-07 (Grounds No.3 to 7 and Additional Grounds no.3 to 5) 23. We heard both the sides on this issue of item-wise additions linked to the business of the assessee and also connected to the seized papers i.e. extracted from the seized CD and other papers at different locations including Nashik/Panvel Branch. The Assessing Officer followed the method of item-wise additions linked to the seized papers for all the assessment years under consideration. The similar pattern, relying on the seized material/seized CD, were followed by the Assessing Officer for the assessment year 2006-07. On perusal of the common facts, common CDs, common projects of the assessee at Nashik etc, we find the manner of assessment, the finding of the Tribunal for the assessment year 2006-07, etc becomes appropriate for the assessment year 2007-08 as well. In this regard, we perused the relevant paras from the order of the Tribunal in the assessee's own case for the assessment year 2006-07 and procee....
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....in expenses in two sets of books of account, was not appropriate. Considering the order passed by the Mumbai Benches of the Tribunal in ACIT Vs. Vijay Mhatre, he estimated the income at 10% of the turnover at Rs. 9.41 crore. Both the sides are in appeal on their respective stands. Whereas the claim of the assessee is that the entire addition ought to have been deleted, the Revenue has made out a case that the ld. CIT(A) was not justified in reducing the AO's estimation of net profit to 10% of the total receipts. 12. Having heard both the sides and gone through the relevant material on record, it is seen that the search and seizure action conducted on the assessee revealed the evidence of the assessee having inflated expenses under the heads Transport charges, Machinery hire charges, Labour charges and Sub-contract expenses. It was further seen that the assessee had maintained two sets of books of account for the A.Ys. 2006-07 and next assessment year. Various blank signed letter heads were also found and seized from the office of the assessee. When asked to explain, Sh. Paresh Thakur in his statement recorded u/s 131 on March, 2008 stated that : `These are blank l....
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....e need to find out the amount of addition liable to be made. Ordinarily, we would have gone with the evidence actually found at the time of search for making addition, but, the position as instantly prevails is that albeit there is evidence of inflation of expenses, but its precise quantification is not available. 14. Section 44AD of the Act, at the material time, with the caption "Special provisions for computing profits and gains of business of Civil Construction etc." starts with a non-obstinate clause and provides that in the case of an assessee engaged in the business of Civil Construction etc. a sum equal to 8% of the gross receipts or a sum higher than that declared in the return of income shall be deemed to be profits and gains of such business chargeable to tax under the head `Profit and gains from business or profession'. Though the section strictly applied only where the gross receipts did not exceed an amount of Rs. 40.00 lakh, but at any rate, it gave hint about the appropriate percentage of profit in the business of Civil Construction. Even though this section technically does not apply to the assessee because of the amount of gross receipts exceeding Rs. 40.....
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....Tribunal for the assessment year 2006-07, we hold that itemised addition is not appropriate due to lack of details for the precise quantification of the inflation of expenses entire for year and alternatively the estimation is the only available alternative for determining the reasonable profits. Regarding estimation of profits for the year under consideration, we find that the assessee reported the profits at 9.37% on the gross receipts of Rs. 137.13 crores. By increasing GP rate to 10%, the CIT(A) confirmed the additional profits @ 0.61% of the turnover. It is an alternative argument of the assessee before us that, the finding of the Tribunal for the assessment year 2006-07, i.e. bring additional profit to tax @ 0.51% of the turnover, need to be followed for the year under consideration as the same is binding due to commonness of the facts, the project and mode of inflation of expenses. Therefore, we have two rates for quantifying the additional profits i.e. 0.61% of CIT(A) and 0.51% of the Tribunal for the assessment year 2006-07. The turnover is found increased for the assessment year 2007-08. Considering the same, we are of the opinion that the additional profits at 0.51% n....
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....rchased of earth/"Murrum' from various parties for resurfacing the roads the party supplying earth/'Murrum' send the earth/'Murrum' in truck/trolley. The Assessing Officer has estimated that 25% of the purchase prize represent the transportation charges/earth/Murrum and has made a disallowances of Rs. 19,20,995/- u/s 40(a)(ia) of the Act as the assessee has not deducted any TDS from this amount. CIT(A) - The CIT(A) has confirmed the disallowance because of the failure on the part of the assessee to deduct TDS. Comments of the assessee. It is submitted that the Assessing Officer has only estimated that 25% of the purchased cost of earth/murrum represent transportation charges of the earth/murrum purchase by the assessee. As such the disallowances u/s 40(a)(ia) is basis only on estimate. In their judgement in the case of M/s J.M. Mhatre ITA No. 2345/MUM/2011 the Hon'ble Bombay 'J' Bench of the Tribunal have held in para 6 of the order has held that the disallowances cannot be upheld u/s 40(a)(ia) of the Act when the income was estimated. The disallowances made by the Assessing Officer therefore not sustainable. The Hon'ble Pune ....
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....legal grounds and they are not insisted by the ld. AR for the assessee. Consequently, they are dismissed as academic. Regarding additional ground no.3, we find the same does not emanate from the orders of the lower authorities. Therefore, the same are dismissed. Regarding the additional grounds no.4 and 5, we find that our finding on grounds no.3 and 7 of the assessee's appeal takes care. Accordingly, these grounds also stand dismissed. 31. In the result, the appeal of the assessee in ITA No.4169/Mum/2011 for the assessment year 2007-08 is partly allowed for statistical purposes. ITA No.5002/Mum/2011 - A.Y. 2007-08 - By Revenue 32. In this appeal, the Revenue raised the following grounds of appeal :- "1. In the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 11,00,486/- stating that it pertains to outstanding expenses whereas no outstanding expenses would have voucher number. The very fact that voucher numbers were given proves that expenses were not payable but paid, thereby granting excessive relief of Rs. 11,00,486/-. 2. In the fact and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of....
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....n of GP of the business of the assessee. This is a case of the counsels that if the grounds no. 2 to 7 of the assessee's appeal are decided in the spirit of the order of the Tribunal in assessee's own case for the assessment year 2006-07 (supra), the revenue's grounds no.1 to 5 stand covered by the said decision (i.e. GP estimation) as well. Further, ld. DR for the Revenue relied upon the order of the Assessing Officer and the manner of completion of assessment. Decision of the Tribunal - Ground Nos.1 to 5 35. Regarding ground no.1 to 5, we find that all of them are relatable to the quantification of the business profits of the assessee for A.Y. 2007-08 as well as the GP estimation as done by the CIT(A). Essentially, these grounds are raised for upholding the Assessing Officer's approach of the item-wise additions and disapproving the CIT(A) manner of estimation of the profits of the assessee adopting the GP rate of 10% of the gross receipts. We find this aspect of estimation of profits has been discussed elaborately while dealing with the grounds no.2 to 7 of the appeal of the assessee for the assessment year 2007-08. In the said order (supra), we have followed the precedent....
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.... parties on this issue and find this issue is raised before us for the first time in this shape. The argument of the ld. Counsel is that this issue is raised by the Revenue for the first time and, therefore, the same should not be admitted and adjudicated. Therefore, the ground no.6 should be dismissed. 40. Notwithstanding the above argument, ld. Counsel for the assessee submitted that the relevant details relating to the miscellaneous receipts of Rs. 88,95,333/- were already called for by the authorities and the same are available on record. Although, the details were available on record, the Assessing Officer did not find it relevant to adjudicate this issue as the assessment was made in the light of the incriminating material seized during the search action and the assessment resulted in itemised additions and not based on the estimation of gross profits. Further, ld. Counsel mentioned that the CIT(A) rejected the above manner of assessment by the Assessing Officer and resorted the estimation of profits at the rate of 10% of the gross receipts. At this stage, the CIT(A) did not understand that the said gross receipts of Rs. 137.13 crores includes Rs. 88,95,333/- of the miscel....
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....ses. ITA No.4171/Mum/2011 - A.Y. 2008-09 - By Assessee ITA No.5003/Mum/2011 - A.Y. 2008-09 - By Revenue 44. We shall now take up the cross appeals for A.Y. 2008-09 (ITA No.4171/Mum/2011 - appeal by assessee and ITA No.5003/Mum/2011 - appeal by Revenue). The details of additions and grounds as well as the additional grounds of the assessee are already extracted in para 11 of this order above. The background facts are more or less same as that of A.Y. 2007- 08 so far as seized material, details and additions - the reasons thereof, etc. However, the A.Y. 2008-09 is relevant assessment year for search action (search action took place on 07.02.2008). As discussed in the precedent paragraphs, the assessee disclosed sum of Rs. 6.5 crores and the same is offered while filing the return of income. The same is part of the total turnover of the assessee i.e. part of Rs. 146,76,65,391/- for A.Y. 2008-09. This amount is credited in the Profit & Loss Account of the assessee. For the sake of completeness, the details of additions are extracted in the following table. The total income determined by the assessee by virtue of itemize addition is Rs. 33,01,50,750/-. The details as given a....
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....65,391 PB Page 18 Rs. 6,50,00,000/-As per Profit and Loss A/c Less - Amount surrendered in search operation : 6,50,00,000 Net Turnover 1,40,26,65,391 (C) Total Income Net Profit at (A) 13,31,74,700 Add - 0.51 % of Net Turnover (B) 71,53,593 14,03,38,293 Add - Amount disclosed during search 6,50,00,000 Note - % of Net Profit (A) to Net Turnover at (B) 8.78% Sd/-" 48. At the end of the arguments ld. Counsel mentioned if the profits of business are estimated on the net turnover of Rs. 140,26,65,391/- @ 0.51% adhering to disclosure of additional income of Rs. 6.5 crores, the additional profit [The 0.51% as already approved by the Tribunal in the appeal for A.Y. 2006-07 in assessee's own case (supra)], the net addition works out to Rs. 71,53,59....
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....khs (Ground no.1) 52. Regarding the addition of Rs. 80,00,000/- made by the Assessing Officer u/s 69C of the Act, the relevant facts include that the seized papers gave rise to the cash payments of Rs. 80,00,000/- to the government authorities, commissioner, MLA Balance, Ajit Gavane. These transactions emanate from the seized papers and were considered as bribe paid which is not allowable u/s 37 of the Act. The Assessing Officer invoking the provisions of section 69C of the Act made the addition of Rs. 80,00,000/-. In the first appellate proceedings, the assessee got part relief to the extent of Rs. 5,00,000/- and balanced of Rs. 75,00,000/- stands confirmed by the CIT(A). In this regard, the relevant discussion given by the CIT(A) in his order in para 6.3 at page 15 and the same are extracted hereunder :- "6.3 From the narration "MLA balance", it could be seen that, this an amount payable as on date and, therefore, it could not be held to be an expenditure already incurred. The addition of Rs. 5,00,000/- being unwarranted is directed to be deleted. However, as regards the other items of expenses, I find the explanation of the assessee to be unconvincing. Substance is l....
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....ances of the case, the Ld. CIT(A) has erred in including the following items as part of contract turnover whereas these items represents income which needs to be taxed over and above contract income. a) Miscellaneous receipts : Rs. 62,68,372/- b) Profit from TMU-JV : Rs. 9,01,440/- c) Discount received : Rs. 4,17,164/- d) Interest on FDR : Rs. 88,75,229/- e) Disclosure during search : Rs. 6,50,00,000/- f) Interest on unsecured loan : Rs. 6,18,715/- g) Insurance claim received : Rs. 14,08,914/- Balance Rs. 8,34,89,834/- 5. The Appellant prays that order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." Groundwise adjudication 59. Referring to the ground nos.1 and 2, ld. DR submitted that this part of 80 lakhs, the Assessing Officer added based on the seized papers. Narrating the background facts, ld. DR mentioned that the seized papers contained a reference to the illegal payments. The CIT(A) granted part relief out of Rs. 80 lakhs and made addition to the extent of Rs. 5 lakhs. Mentioning that the said amount is m....