TaxTMI 
TaxTMI 
2021 (2) TMI 1288
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....s. 2,58,66,2167- on account of labour sub contract expenses made by the AO u/s 37(1) for non-maintenance of books of accounts and acceptance of accommodation entries in the light of the fact that details of bills raised against the company were not produced during the assessment proceedings? ii. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 51,73,243/- being 20% of Rs. 2,58,66,2167- on account of labour sub contract expenses made by the AO u/s 37(1) by ignoring the aspect of admittance of fact of non-maintenance of books of accounts in the course of statement recorded by the AO of Mr. Kamal Jagdish Gupta Director of the assessee company during the course of assessment proceedings? iii. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in restricting the addition to Rs. 1,03,24,685/- from Rs. 6,88,31,236/- u/s 69C in respect of Cement purchases from Sagar Cement Ltd. and Chettinad Cement Corpn. Ltd., by ignoring the fact that assessee company failed to produce details of transport etc? iv. Whether on the facts and in the circumstanc....
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....ntract expenses of Rs. 2,58,66,216/- on the ground that assessee has not maintained any books of accounts. 4. The facts in brief are that assessee filed the return of income on 29.09.2015 declaring an income of Rs. 112,90,96,360/- which was processed under section 143(1) of the Act. Thereafter, a search and seizure action under section 132(1) of the Act was conducted on the J. Kumar Group on 30.08.2016 at the business premises at 16-A, Andheri Industrial Estate, Vasai Road, Andheri West, Mumbai- 400 058 and also at the residential premises of Shri Jagdish Kumar Madanlal Gupta, promoter of the J Kumar Group located at Ritu Apartment, Plot No.42, JVPD Scheme, N.S. Road No.3, Vile Parle (West), Mumbai. The assessee is engaged in the business of infrastructure development like roads, bridges, flyover bridges, railway over bridges, irrigation products, railway buildings, sports complexes and airport contracts, metro and mono rail projects etc. A notice under section 153A of the Act dated 24.04.2017 was issued to the assessee and duly served on 03.05.2017 which was complied with by the assessee by filing return of income on 25.05.2017 declaring the same income as was offered in ....
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....mpany; that they have started giving the address where they are now staying for about last one year when they got a fixed place to stay. The statement recorded of the CFO did not specify or admit that such labour sub-contract expenses were bogus. Shri Nalin Gupta Director of the appellant company also did not accept that these expenses claimed were bogus as seen from the extracts of the statements reproduced in the assessment order. A show cause notice was issued by the assessing officer as to why the expenses claimed as labour sub-contract expenses of Rs. 11.63 crores over AY 2010-11 to AY 2015-16 should not be disallowed. The appellant replied that these labour sub-contractors are associated with the company for last 10 years. When they started work they were small contractors and did not have any permanent address and lived in temporary labour colony at the project sites of the appellant. Their bank accounts were opened at same bank where appellant was having bank for their convenience and instant credit to their account. Thus the appellant explained the reason for opening the accounts of the labour contractors at bank where appellant was having their accounts. It was emphasized....
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.... the appellant cannot be penalized for the same. No evidence has been brought on record to show that labour was not provided. The nature of labour work has also been narrated. It is not unusual for labour contractors to rely on measurements of work and bill preparation by customer. Since the construction sites are varied and temporary, they do not have permanent establishment and employees to maintain accounts in the earlier years when the turnover was low. The labour contractors merely arrange for unskilled manual labourer and pay the daily wage to such labourer in cash. This is the reason for cash withdrawals. The assessing officer has disallowed 20% of labour sub-contract expenses on an ad-hoc basis. Looking at the entire fact matrix, in my view the ad-hoc disallowance is not warranted. The same is deleted. Hence the disallowance of Rs. 51,73,243/- is deleted and ground of appeal no 1 is allowed." 6. We have heard the rival submissions of both the parties and perused the material on record. We find that these individuals have been supplying labour to the assessee for the last for the last 10 years though they do not any permanent residences/addresses. These individuals ....
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....on (Nhava Sheva) (supra) wherein it has been held that no addition can be made in respect of assessment which have become final on the date of search if no incriminating material was found during the course of search. Therefore, we are inclined to dismiss the ground No.1 & 2 raised by the Revenue. 7. The issue raised in ground No.3 & 4 is against the restriction of addition to Rs. 1,03,24,685/- by Ld. CIT(A) as against the addition of Rs. 6,88,31,236/- made by the AO under section 69C of the Act in respect of bogus cement purchases from M/s. Sagar Cement Ltd. and M/s. Chettinad Cement Corporation Ltd. on the ground that assessee has deviated from SOP which could not be explained during the assessment proceedings. 8. The facts in brief are that the AO during the course of assessment proceedings observed that assessee has made huge cement purchases, however, followed no standard operating procedure in respect of such purchases. The AO noted that as is apparent from the statement recorded of transporters, suppliers and other personnel of the assessee company these purchases are bogus as all these bills of purchases of cement were being received by the head office directly ....
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....n. The main issue raised was the documentation maintained in respect of purchases from Ambuja Cements Ltd., which was treated as genuine and the impugned purchases which were considered to be bogus. Statements were recorded of the store keepers and project managers at three Ready Mix Plants (RMC) at Wadala, Gaymukh and Kandiwali. Some bills for February 2016 of Parasakti Cement Industries having marks of RMC division Gaymukh, some bills for January /February 2016 of Sagar Cement and Bhavya Cement having marks of Wadala RMC and some bills for February 2016 of Parasakti Cements and some bills of March 2016 of Bhavya Cements having marks of Kandivali RMC were shown, and in respect of which these persons at the RMCs could not explain why they did not appear in the cements registers at the respective RMCs. Statement of the accountant and account manager, and CFO were also recorded. Shri Ravi Airan Account manager and Shri Ravindra Kulkarni Vice President were shown two bills of Sagar Cements Ltd. dated 24.8.2015 which were compared with a bill of Ambuja Cement Ltd. dated 19.10.2015 and questioned on the differing documentation on them. Shri Arvind Gupta CFO stated that he was aware that....
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....td of 12 February 2016, Chettinad Cement Corporation Ltd. dated 20.8.2015 itself shows the transport vehicle registration nos lending support to the claim of the appellant that transport details were mentioned on the bills itself but was ignored by the assessing officer. Further the copy of bills reproduced in the assessment order such as Deccan Cements Ltd. dated 25.7.2016 shows consignee details as Belapur Barrage, Thane and similarly bill of Penna Cement Industries Ltd dated 24.12.2015 shows consignee details as work site Osman Nagar, Kandhar, Nanded District This does suggest that the conclusion that delivery details are not available or that transport mode is not mentioned is not correct. Further, this also lends credence to the claim of the appellant that the delivery is to project sites and not to the three RMC plant which were covered in hot pursuit. It is also observed that based on a few bills with marking as RMC Gaymukh, Wadala and Kandivali, a sweeping assumption has been made that the entire purchases from all these seven parties for the AY 2012-13 to AY 2016-17 are bogus. 5.11. The assessing officer has conducted verification by calling for details from the s....
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....s have approved the construction which implies that cement was used. 5.13. At this stage, the profits disclosed by the appellant was analyzed and was compared with the industry as available from published data. The comparison is tabulated below. Comparability chart of different companies in same industry Name of the Company A.Y. Gross profit margin % Operating margin/ (PBT %) JKIL 2011-12 15.11 11.27 2012-13 16,10 10.86 2013-14 16.73 11.11 2014-15 17.34 10.47 2015-16 18.65 10.38 2016-17 17.62 10.91 2011-12 8.71 4.17 2012-13 7.78 2.26 Simplex Infra 2013-14 8.04 1.55 2014-15 9.36 1.55 2015-16 10.07 1.68 2016-17 11.55 2.57 2011-12 17.05 10.46 Supreme Infra 2012-13 16.17 8.39 2013-14 15.52 8.04 2014-15 14.42 6.75 2015-16 16.48 2.20 2016-17 16.11 (-) 2.66 Patel Engineering 2011-12 14.49 5.34 2012-13 13.44 3.75 2013-14 14.22 2.47 2014-15 13.75 1.34 2015-16 17.42 0.88 2016-17 14.88 (-) 1-28 NCC 2011-12 9.57 5.23 ....
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....llant gets a relief of Rs. 5,85,06,551/-. Ground of appeal no 2 is partly allowed." 10. The Revenue has challenged before us the deletion of disallowance to the extent of 85% by raising ground No.3 & 4 whereas the assessee has challenged in its appeal the sustaining of addition to the extent of 15% by the ld CIT(A). The Ld. A.R. submitted before the Bench that the assessee is having a fairly large operation and maintaining proper books of accounts qua all the transactions including purchases and the accounts of the assessee are audited and return is filed accordingly. The Ld. A.R. submitted that during the course of assessment proceedings, the AO carried out verification by calling details from cement suppliers which has been confirmed by the suppliers and none of them denied to have supplied materials to the assessee. The Ld. A.R. submitted that all these suppliers are listed companies of repute in the market. The Ld. A.R. also submitted that payments are made through banking channel and taxes such as VAT and excise have been paid by them. The mere fact that SOP has not been followed can not be a ground for treating these purchases as bogus. The Ld. A.R. submitted that assessee....
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.... the statements of CFO and director of the assessee company recorded during the course of search and also the statements recorded during the course of assessment proceedings of various employees of the assessee and thus rejected the claim of the assessee primarily on the ground that SOPs have not been followed. We find that assessee is a fairly big company having various work sites and therefore the contentions of the AO that it has not followed SOPs in the matter of purchase of materials without bringing any concrete/substantive evidences to corroborate bogus purchases on record and thus the same can not be sustained. The undisputed facts are that the payments were made through the banking channels, materials were received through invoices cum delivery challans which were furnished before the authorities below and even the suppliers have confirmed to have supplied these materials to the assessee before the AO. We find that even Ld. CIT(A) has prepared a comparability chart of different companies in the same industries comparing their GP and operating margin in para 5.13 of the appellate order and observed that the margin of the assessees are comparable and even better than the ave....
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....relevant A.Y. 2012-13 to A.Y. 2016-17, the details whereof are given in para 9.1 of the assessment order. Accordingly, the AO called upon the assessee to furnish the details of the said sub contract expenses during the course of assessment proceedings and accordingly same was furnished by the assessee along with bills and vouchers. Thereafter, the AO issued a show cause notice to the assessee as to why the bogus award of sub contract to paper companies/entities should not be disallowed. The said show cause notice was replied by the assessee vide written submission dated 02.04.2018 submitting therein that the profit made in sub contracting of contracts to five entities M/s. Safal Infraprojects Pvt. Ltd., M/s. Potential Infraprojects Ltd., M/s. Silicon Infracon Pvt. Ltd., M/s. Akruti Infraprojects Ltd. and M/s. Akruti Infrastructure Pvt. Ltd. during financial year 2012- 13 relevant to assessment year 2013-14 and profit from subcontracting to two entities NaftoGaz India Pvt Ltd and Vayu Tradelink Pvt Ltd. during financial year 2011-12 relevant to assessment year 2012-13 have duly been offered to tax in the respective assessment years. The assessee submits that the contracts awarded to....
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....hat due to voluminous seized material and documentary evidences submitted by the assessee and the difficulty in reconciling the same, the adhoc disallowance of 20% was made as stated above. Finally ,the AO not accepting the contentions of the assessee, observed that sub contract expenses are not wholly and exclusively incurred for the business of the assessee and made adhoc disallowance equal to 20% of the total sub contracting expenses claimed by the assessee of Rs. 7,43,04,797/- which worked out to Rs. 1,48,60,959/- with there being any finding as to the expenses being non genuine and bogus. 15. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: "6.5 I have considered the facts, the assessment order and the submissions of the appellant carefully. The issue that was investigated in the assessment proceedings was the claim of sub-contract expenses of Rs. 187.81 crores for AY 2012-13 to AY 2016-17. In the appellate proceedings, some further details in respect of contracts and sub-contracts were called. From the details filed it is noted that the amount of contracts and subcontracts are as follows. A....
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....ad been given work in respect of ESIC Hospital & Medical College at Alwar, the scope of which was elaborated. Shri Vijay Yadav Partner of M/s.O.P. Engineering in his statement recorded on 1.5.2018 before the assessing officer has also confirmed that work has been executed by M/s.O.P. Engineering. Both Shri Rupesh Kumar and Shri Vijay Yadav were called by and appeared before the assessing officer in the assessment proceedings. Their statements recorded are reproduced in the assessment order. Shri Vijay Yadav confirmed that the firm is engaged in fabrication and erection work. When questioned about his response in the statement recorded at the time of search earlier on 30.8.2016, he clarified that they are not engaged in labour supply. They in fact carry out labour contract. The payment is received on the basis of per KG of steel fabrication work carried out. The Measurement Book contains the details of measurement which is signed by them and is then taken by JKIPL, the appellant company, for preparation of bills. The originals are kept there. After verification, JKIL makes payments after deducting TDS and retention money. Returns of Income have been duly filed for AY 2011-12 onwards....
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....ling is done. These two entities have given details of the bills raised and the work carried out by them. The details are also available in the papers impounded in the course of search action. These two parties are also carrying out work for other customers. They are also filing their tax returns. The assessing officer has been overwhelmed by the volume of documents and hence has not been able to verify the documents as regards measurement mentioned on the bills and certification. However the fact remains that nothing incriminating has been brought on record to sustain the disallowance. On verification the assessing officer has accepted the sub-contract expenses of Rs. 165 crores in respect of seven sub-contractors. In this fact matrix, I do not find the adhoc disallowance made by the assessing officer of 20 % of the expenses claimed in respect of sub-contract paid to M/s. O.P. Engineering and M/s. Umang Town Planner Pvt. Ltd. of Rs. 4.82 crores and Rs. 18.63 crores respectively during AY 2012-13 to AY 2015-16, to be Justified. Hence the disallowance made of Rs. 1,48,60,959/- being 20% of Rs. 7,43,04,797/- claimed as sub contract expenses, is deleted. Ground of appeal no 3 is allow....
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....s and submitted that the adhoc disallowance made by the AO has rightly been deleted by the Ld. CIT(A). The Ld. A.R. also made a without prejudice plea before the Bench that Ld. CIT(A) has rightly pointed out that in absence of any incriminating documents found during search, no disallowance can be made for which he relied on the various decisions namely PCIT vs. Meeta Gutgutia (2018) 96 taxmann.com 478 (SC), CIT vs. Gurinder Singh Bawa (2017) 79 taxmann.com 398 (Bombay), CIT vs. Deepak Kumar Agarwal (2017) 86 taxmann.com 3 (Bombay) and CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 58 taxmann.com 78 (Bombay). Finally, the Ld. A.R. prayed before the Bench that the order of Ld. CIT(A) may kindly be sustained by dismissing the ground Nos. 5 & 6 of the Revenue. 18. We have heard the rival submissions of both the parties and perused the material on record. We note that in this case the CFO and director of the assessee company have admitted to taking bogus sub contract expenses but the same was retracted. Thereafter, out of these 9 entities to whom the sub contract work was awarded by the assessee only two were found to be bogus by the AO namely M/s. Umang Town ....
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....cation of section 153A to reopen the concluded assessment was not justified in absence of any incriminating material found during the course of search and thus dismissed the SLP filed by the Revenue against the decision of Hon'ble Delhi High Court as reported in PCIT vs. Meeta Gutgutia (2017) 82 taxmann.com 287 (Delhi). The Hon'ble High Court has also laid the similar ratio in the case of CIT vs. Gurvinder Singh Bawa (supra), CIT vs. Deepak Kumar Agarwal (supra) and CIT vs. Continental Warehousing Corporation (Nhava Sheva) (supra) wherein it has been held that no addition can be made in respect of assessment which have become final on the date of search if no incriminating material was found during the course of search. Considering these facts and circumstances in the light of the ratio laid down in the decisions as discussed above, we are inclined to uphold the order of Ld. CIT(A). The ground No. 5 & 6 are dismissed. Consequently the appeal of the revenue is dismissed and appeal of the assessee is allowed. 19. The issue of bogus purchases raised in ground no. 1 in ITA No. 3449/Mum/2019 AY 2012-13, 3450/Mum/2019AY 2013- 14, 2452/Mum/2019(All Assessee's Appeals) and ground no. 3 ....