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2024 (6) TMI 562
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....ons of section 143(3)/147 of the Act. The appellant company had been earlier subjected to scrutiny assessment for the year under consideration vide order dated 17.10.2012 in which the returned income of Rs. 2,10,24,810/- was accepted except for an estimated addition of Rs. 3 lakhs on account of probable inflation of expenses on labour and wages in the accounts. However, based on survey at the business premises of the appellant located at Delhi and Bathinda on 27.05.2011. Search and seizure action under section 132(1) of the Act were conducted in the case of M/s Shiv Naresh Sports Private Limited (henceforth "SNSPL") on 28.10.2010 and M/s SNSPL was searched in connection with the Commonwealth Games Scam of 2010 with allegations of blatant irregularities and fleecing and siphoning of public money by obtaining unrealistically high- value bogus contracts through underhand means. As Per the CIT(A) order, post the survey, the appellant's case was reopened by issuance of notice under section148 of the Act and assessment was reframed, assessing the taxable income at Rs. 7,62,98,570/-, raising a tax demand of Rs. 2,79,95,470/-. 2.2 In appeal before the ld.CIT(A), the question of re-ope....
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....work- contract as pleaded by the appellant, the AO requisitioned the site report in terms of log book, receipt of materials to be utilised at the site as well as the report of the technical expert as the purported work-contract was a typically & technically specific work. However, none of the aforesaid documents/materials were made available to the AO for his examination and verification. On the contrary, the appellant indulged in obfuscation by giving the following reply: "... That during the year under consideration the company had executed work contract for M/s Shiv Naresh Sports Private Limited (SNSPL) amounting to Rs. 3.46 crores at for the stadiums in New Delhi namely Jawahar Lai Nehru Stadium, Tyagraj Stadium, Chhatarsal Stadium and Commonwealth Games Village. The company was simultaneously executing another work contract in New Delhi for M/s Delhi Metro Rail Corporation (DMRC) of approximately Rs. 20 crores. The said work contract being larger in size and duration as compared to the work contract from SNSPL, all the material, labour and other services and components used were kept centralised at the site of DMRC. As and when any material or labour or any other equipment/....
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....te of 10% of the gross receipts less the receipts from SNSPL and thereafter allowed the claim of depreciation of Rs. 1,07,64,386/-, thereby assessing the business income at Rs. 4,16,17,640/-. To this, was added the receipt of Rs. 3,46,80,925/- from SNSPL treated as "income from other sources" to arrive at the net taxable income at Rs. 7,62,98,565/-, rounded off to Rs. 7,62,98,570/-. 7. Challenging the action of the AO in rejecting the book results, the same plea was reiterated that all the receipt and expenditure relating to both the work contract of DMRC & SNSPL was accounted for in the single set of books and an averment was made that perhaps the AO failed to appreciate the concept of recording accounts of projects in a single set of books. It was further contended that in the assessment of SNSPL framed under section 153A/143(3) for the same assessment year, the payment made to the appellant was neither doubted nor adversely commented upon and the GP rate disclosed was accepted as such in the post-search assessment. The past assessment history of the appellant company was also canvassed to show that the books of accounts were regularly accepted and never before a NP rate of 10....
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.... domain of the appellant itself on whom the onus lay to show the expenses out of such receipts, which the appellant has miserably failed to discharge. So far as the payout from SNSPL is concerned, the same could be verified upfront as the same was made through banking channels on which TDS was effected. There is no dispute or struggle regarding the veracity of the amount of payment made by SNSPL to the appellant company and its receipt in so far as the same is reflected in 26AS. The dispute arises only with regard to expenses out of the said receipts, which had to be proved by the appellant before the AO. At the risk of reiteration, it is stated here that the appellant despite innumerable opportunities failed to discharge its onus. Since the assessment of income is a civil proceedings, rules of probability of circumstances apply. It is probable in the circumstances that the appellant garnered the impugned receipt of money to window-dress its gross turnover, increment or maximisation of which entitles the appellant or puts him in a sound position to bid for bigger contracts of MES or DMRC. Such gratuitous receipts are generally masqueraded as contractual receipts against which bogus....
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....ower upon him - nay it imposes a duty upon him to make such computation in such manner as he determines for deducing the correct profits and gains. The only safeguard that he has to undertake is to abstain from capriciousness and to base his conclusion on necessary and connected aspects in regard thereto. If there is a guess work, that, too, has to be a reason. In the appellant's case, the AO in the absence of the accounts produced before him in the manner in which he wanted so as to deduce the correct profits, treated a part of the disclosed turnover as not related to business of civil construction. He was given to understand that the books contained debit of expenses with respect to that portion of the contractual receipt in the gross turnover, which actually was not a business turnover. In such a scenario, the AO was well within his rights to treat the books as incorrect and even incomplete, which he did and rejected the book results. Once the books were rejected, the AO had to estimate the profits. He could not have been bound by the consistent GP rate shown by the appellant as in the present circumstances, the situation was entirely different in as much as non-contractual ....
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....the same rate of 30% tax, and secondly, the Assessing Officer has not specified in the reason that any expense debited by the assessee to its Profit & Loss Account is bogus or inflated expenditure or otherwise not allowable under any provision of the Act, thus resulting into neither escapement of income nor under assessment of income at lower tax in initial assessment order dated 17/10/2012, and, therefore, the assumption of jurisdiction u/s 147 by the Assessing Officer is illegal and thus the resultant reassessment order dated 08/01/2015 deserves to be quashed. 4. Without prejudice to the above, the assumption of jurisdiction u/s 147 by way of issuance of notice u/s 148 dated 11/08/2014 by Assistant Commissioner of Income Tax, Circle I, Bathinda, who was neither the Assessing Officer of the assessee nor had made the original assessment order u/s 143(3) dated 17/10/2012 for the impugned assessment year, is illegal and, therefore, the resultant reassessment order dated 08/01/2015 deserves to be quashed. 5. Without prejudice to the above, the notice u/s 143(2) dated 12/08/2014 served by the Assessing Officer upon the Authorized Representative of the assessee on the same date on....
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....n the form of past history of assessee or comparable industry trend, is illegal and unjustified and, therefore, the addition of Rs. 5,52,73,760 deserves to be deleted. 9. Without prejudice to the above, the estimation of profit @ 10% of turnover subject to deduction of depreciation allowance is illegal and unjustified because estimated NP rate cannot exceed the NP rate of the immediate preceding assessment year of 2.47% while the net profit declared by the assessee as per its audited accounts for the impugned assessment year was 3.55%." 5. On behalf of the assessee, it was submitted that grounds of appeal No. 1-5 relates to the challenge to the assumption of jurisdiction u/s 147 of the Act and framing of assessment u/s 143(3)/148 of the Act. The remaining grounds no. 6-9 relates to the challenge to the rejection of accounts and addition made in the assessment order u/s 143(3)/148 of the Act. 5.1 As to challenge to the assumption of jurisdiction u/s 147 and framing of assessment u/s 143(3)/148 of the Act, it was submitted, in regard to Ground No. 2, that the only basis of the Reason dated 11/08/2014 is stale information and change of opinion. Referring to the Reason dated 11/0....
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.... 3.46 crore from SNSPL does not at all result into belief of escapement of income or assessment at low rate of tax in initial assessment order dated 17/10/2012. 7. As with regard to Ground No. 4, Ld. AR submitted that the issuance of notice u/s 148 dated 11/08/2014 by Assistant Commissioner of Income Tax, Circle I, Bathinda, who was neither the Assessing Officer of the assessee nor had made the original assessment order u/s 143(3) dated 17/10/2012 for the impugned assessment year, is illegal. He submitted that the original assessment order dated 17/10/2012 (Pg. No. 912-914 of Paper Book) was passed by the Joint Commissioner of Income Tax, Range-I, Bathinda. In paragraph No. 2 of the original assessment order dated 17/10/2012, the Joint Commissioner of Income Tax, Range-I, Bathinda noted that the case was received by him on transfer from the then AO. He submitted that the notices under section 142(1) of the Act dated 09/04/2012 and 18/09/2012 (Pg. No. 134- 136 of Paper Book), calling for information and explanation from the assessee for the impugned assessment year, were issued by the Joint Commissioner of Income Tax, Range- I, Bathinda. Eventually, the Joint Commissioner of Income....
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....made in the Assessment Order u/s 143(3)/148 of the Act covered by ground no. 7 to 9 the Ld. AR has filed a comprehensive submission to supplement to what he argued and we consider it advantageous to reproduce the same hereinbelow to avoid anything being left out:- "7.1 Firstly, No incriminating material or document or evidence, pointing out any suppressed sale or unrecorded income or bogus or inflated or unrecorded expenditure, that contradicted the transactions recorded in assessee's book of accounts, was found during the course of survey upon the premises of the assessee or during the course of search upon the premises of SNSPL. No incriminating material indicating any cash received or paid by the assessee from any of the creditors or debtors against cheques issued or received to such creditors or debtors, including but not limited to SNSPL, was found from any of the premises of the assessee surveyed by the revenue. It is not the case of the AO that any creditor or debtor denied its transactions with the assessee. 7.2 Secondly, in assessment order of SNSPL for the impugned AY 2010- 11 (Pg. No. 1144- 1148 of Paper Book), the AO of SNSPL has not taken adverse inference with re....
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....the assessee has not maintained separate accounts for SNSPL project. The AO has admitted that the assessee has maintained project-wise accounts for all projects undertaken by him, but books of accounts of SNSPL project and DMRC project (both projects at Delhi) are consolidated. In this regard, it would suffice to state that there is no statutory obligation on assessee to maintain project-wise books of accounts. Further, the contract revenue of SNSPL Project at Delhi was Rs. 3.46 crore. The assessee was simultaneously executing another works contract in Delhi for Delhi Metro Rail Corporation (DMRC) of approximately Rs. 20 crores. The said works contract, being larger in size and duration as compared to the works contract from SNSPL, all the material, labour and other services and components used were centralised at the site of the DMRC. As and when any material or labour or any other equipment/machinery etc. was required for execution of works contract of SNSPL, the same was provided and mobilised from the company's site at DMRC. Therefore, all the books of accounts, vouchers, muster rolls, etc. were maintained centralised at the company's site at DMRC. The assessee produced all ....
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....e initial assessment order U/s 143(3), and mentioned in reassessment order for namesake is that muster roll maintained by assessee for payment of wages to construction labour does not contain their address. In this regard, it would suffice to state that in the absence of any legal requirement regarding address of construction workers and in view of ground reality relating to their engagement, no adverse inference deserves to be drawn by AO in respect of non-availability of addresses of construction labour/workers in Muster Roll to justify Rejection of Accounts (copy of Specimen Register required to be maintained by the assessee under applicable statutes enclosed at Page No. 1063-1065 of Paper Book submitted on 24/03/2021). Further, Commissioner (Appeal) is wholly silent on this issue in his order, meaning that he did not find any force in the AO's ground to confirm his order of rejection of accounts on this ground. Furthermore, this point had already been duly considered by the Assessing Officer while passing the initial assessment order u/s 143(3) dated 17/10/2012 (Pg. No. 912-914 of Paper Book) where the Assessing Officer assessed the assessee accepting its books of acco....
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....s), which is well in line with the ratio of preceding and succeeding years, wherein revenue has accepted ratio in scrutiny assessment cases. Assessment Year Labour & Wages Expense (Rs.) Turnover (Rs.) Labour exp. To Turnover Ratio (%) 2008-09 59,893,901 463,072,775 12.93 2009-10 77,213,420 430,342,440 17.94 2010-11 70,713,250 558,501,192 12.66 2011-12 169,166,238 744,475,854 22.72 2012-13 113,546,124 798,098,020 14.23 Copy of the audited accounts of assessee for AYs 2008-09 to 2012-13 is enclosed at Page No. 1066-1143 of Paper Book submitted on 24/03/2021. f) Labour expenses to gross turnover ratio of 12.66% is much more than reasonable when compared with Rule 15(4) of the Punjab VAT Rules, wherein value added tax is chargeable on the value of material embedded in the receipts of a contractor and to work out the value of the material, a deduction to the extent of 30% is allowed on account of labour component involved in execution of the contract. g) Assessee has been maintaining muster roll and other labour records in the same manner consistently in past and succeeding years, and revenue has never rejected assessee's accounts on this ....
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....ented by the entries or to the genuineness of the entries, then it is not open to the revenue or other side to contend that what is shown by the entries is not the real state of affairs. See, CIT v. Amitbhai Gunwantbhai, (1981) 129 ITR 573, 580 (Guj). It, therefore, follows that assessee's account books are to be accepted, unless, on verification, they disclosed any faults or defects, which cannot be reasonably and satisfactorily explained by the assessee See, R.B. Jessaram Fetehchand (Sugar Deptt.) v. CIT, (1970) 75 ITR 33,37 (Bom). If evidence is produced by the assessee in support of his return, it should be accepted unless it is rebutted by other admissible evidence and not by hearsay. See, Dunichand Dhani Ram v. CIT, AIR 1926 Lah 161; George Oommen v. C. Ag. IT (1963) 52 ITR 977 (Cal). Section 145(3) cannot be invoked unless accounts are non-genuine and the reasons for rejecting accounts are just and proper. See, CIT v. Shiv Agrevo Ltd. 398 ITR 608 (Raj)." 10. As to Ground No. 8 & 9 challenging the estimation of Net Profit @ 10% of turnover again the Ld. AR has filed a comprehensive submission to supplement to what he argued and we consider it advantageous to reproduce the s....
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....735 * Bathinda Truck Operator Union v. ITO [2007] 158 Taxman 148 (Asr.)(Mag.) For detailed discussion on this argument, the Assessee places reliance upon Para No. 43-46 at Page No. 84-91 of Paper Book submitted on 24/03/2021. 8.2 Secondly, NP rate of 8% specified u/s 44AD, as contended by the Commissioner (Appeal) to justify the NP rate of 10% subject to depreciation allowance fixed by the AO, cannot be used as yardstick to those cases where turnoverof assessee is higher than the amount specified in the said section, being rupees one crore for the impugned assessment year 2010-11, and where assessee is maintaining books of accounts. In this regard, reliance is placed upon: * Shri Ram Jhanwar Lal v. ITO (2010) 321 ITR 400 (Raj) * CIT v. Dolphin Builders Pvt. Ltd. 356 ITR 420 (MP). For detailed discussion on this argument, the Assessee places reliance upon Para No. 47 at Page No 91-92 of Paper Book submitted on 24/03/2021. 8.3 Thirdly, Estimated NP rate cannot exceed the NP rate of the immediate preceding assessment year. Please see, * CIT v. Jas Jack Elegance Exports 324 ITR 95 (Del) * CIT v. Inani Marbles P. Ltd., (2009) 316 ITR 125 (Raj) For detailed ....
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....3 (Del)." 10. The Ground No.2 and 3 being interconnected are taken up first of discussion. It comes up from the material on record in the form of 'reasons for issuance of notice u/s 148 of the Act' as made available at page 918-921 of the paper book that more than reasons it appears to be a narration of sequence of events by the AO wherein he opens reasons from the background of the survey operations conducted on the business premises of the assessee on 23.05.2011 at Bhatinda and New Delhi. The AO mentions that during the course of this survey, a number of incriminating documents were found and impounded and during post search investigation, statement of one Shri Shiv Prakash Singh, director of M/s Shiv Naresh Sports Private Limited was recorded seeking details of the sub-contract executed by the assessee. The ld. AO mentions in the reasons that during the inquiries it was found that the quality of the material used in the execution of sub-contract was poor. Further, it came up in inquiry that the sub-contract was executed by another sub-contractor M/s Chaudhary Construction Company at a cost of Rs. 2.86 crores and, as such, the assessee company had not done the work under the su....
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....t received by the assessee company against any execution of any work done under the head sub contractor as discussed above. In the light of the above, I have reasons to believe that the assessee company has escaped assessment an amount of Rs. 3,46,80,925/- by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Accordingly, notice u/s 148 is to be issued to reassess the income which has escaped assessment besides any other income chargeable to tax which would have escaped assessment and would come to my notice subsequently in the course of assessment proceedings under this section, within the meaning of section 147 of the Income Tax Act, 1961." 10.4 Now, what is relevant is that in the reassessment order passed on the basis of the aforesaid reasons, the ld. AO mentions that for the AY 2010-11, the return of income was filed on 28.09.2010 and the same was assessed u/s 143(3) of the Act on 17.10.2012 by 'the then AO' by making an addition of Rs. 3 lakhs. The AO has reproduced the observations of the 'then AO' while making addition of Rs. 3 lakhs and we consider it appropriate to reproduce the same below....
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....t Commissioner of Income-tax, Range-1, Bathinda who had concluded the assessment on 17.10.2012. The subsequent notice u/s 148 of the Act dated 11.08.2014 is issued by the Asstt. Commissioner of Income-tax, Circle-1, Bathinda while taking cognizance of only so much of the information which was available on record with Shri S.K. Mittal, the Assessing Officer at the time of conclusion of assessment u/s 143(3) of the Act. 10.7 The law in regard to reopening stands settled that the reasons to believe for the purpose of section 147/148 of the Act reassessment should be recorded or based on some information which was not available or not considered or left out of consideration due to any act of assessee or assessing officer, at the time of original assessment. Any information which has been consciously procured and processed becomes stale and if same used will amount to a mere change of opinion. Reliance in this regard is placed on judgments relied by the ld. AR on of the Hon'ble Delhi High Court in the cases Rasalika Trading & Investment Co. Pvt. Ltd. v. DCIT (supra); and CIT V/s Kelvinator of India Ltd. (supra). The Hon'ble Supreme Court confirmed the decision of the Hon'ble Delhi High....