AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (6) TMI 562
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....15 pertaining to A.Y. 2010-11 under the provisions 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 ap....
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.... SNSPL. In order to be convinced about the fact of execution of 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 si....
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.... invoked the provisions of section 145(3) of the act and adopted the net profit rate 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 ....
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....rd to the impugned payment in the assessment of SNSPL. The answer to this question lies in the 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. ....
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....hat the account produced before him is not correct or is incomplete, there is an automatic conferment of power 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 appe....
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.... as income from other sources, is illegal because firstly, both business receipts and income from other sources are liable to 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....
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.... of those years. 8. Without prejudice to the above, the estimation of profit @ 10% of turnover subject to deduction of depreciation allowance, without giving any basis thereof in 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 14....
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..... DCIT 234 ITR 170 (Del); • Arvind Boards & Paper Products Ltd. v. ITO (1980) 124 ITR 626 (Guj) 6. As with regard to Ground No. 3, Ld. AR submitted that indisputably, mere change of head of income from business to income from other source of the receipt of Rs. 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 A....
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.... illegal and liable to be quashed: • Director of Income Tax V. Society for Worldwide Interbank Financial Telecommunication (2010) 323 ITR 249 (Del); • Satish Kumar Vs ITO - ITA No. 3586/Del/2018 - ITAT Delhi; • Micron Enterprises Pvt. Ltd. v. ITO - ITA No. 901/Del/2016 - ITAT Delhi. 9. In regard to challenge to the rejection of accounts and addition 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....
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....accounts. Non-issuance of SCN gets substantiated from a bare perusal of the Order Sheet entries (Pg. No. 926- 930 of Paper Book). In this regard, please see: • Maruti Suzuki India Ltd. v. Addl. CIT [2010] 192 Taxman 317 (Delhi); • Sahara India (Firm) v. CIT [2008] 169 Taxman 328 (SC); • State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC). 7.6 Fifthly, the objection of the AO with regard to accounts is that 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 ....
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....or AY 2010-11 (copy of Order enclosed at Page No. 1144-1148 of Paper Book submitted on 24/03/2021), the AO has made no adverse inference in regard to allowance of expense of Rs. 3.46 crores to SNSPL. If no objection is raised while allowing expense of such sub-contract expense of Rs. 3.46 cr to SNSPL, raising doubt on the nature of receipt as contract revenue in the hands of the impugned assessee is unfair. AO's second objection though already considered in the 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 o....
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....d) Assessee hires Construction workers/labour on temporary basis for construction sites located at different places in different States of India. Importantly, such sites frequently keep on changing on yearly basis. e) Labour & wages expenses and gross turnover of construction business during FY 2009-10 relevant to the assessment year under consideration are Rs. 7.07 crores and Rs. 55.85 crores respectively. It results into labour expenses to gross turnover ratio of 12.66% (7.07 crores as percentage of 55.85 crores), 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 t....
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.... See, Ramswarup Bengalimal v. CIT 25 ITR 17 (All). The department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can reject accounts, which may be done by showing that important purchases are omitted therefrom or proper particulars or vouchers are not forthcoming or accounts do not include entries relating to a particular class of business. Rejection of accounts should not be done light-heartedly. [St. Teresa's Oil Mills v. State of Kerala, (1970) 76 ITR 365, 367-8 (Ker); Tola Ram Daga v. CIT (1966) 59 ITR 632 (Assam)]. If there is no challenge to the transaction represented 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 ass....
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....2009-10 4303.42 548.31 12.74 455.78 10.59 224.30 5.21 106.21 2.47 2010-11 5585.01 659.61 11.81 572.07 10.24 317.57 5.69 198.37 3.55 Copy of the audited accounts of assessee for AYs 2008-09 to 2010-11 is enclosed at Page No. 1066-1110 of Paper Book submitted on 24/03/2021. In this regard, reliance is also placed upon the following judicial orders: • Brij Bhushan Lai Parduman Kumar, etc. v. CIT (1978) 115 ITR 524 (SC). • CIT v. Gupta, K.N. Construction Co. 371 ITR 325 (Raj). • Action Electricals v. Deputy CIT [2002] 258 ITR 188 (Delhi) • ITO v. Kundanmal Surana [2004] 3 SOT 632 (Jodh) • Jupiter Textile v. ITO [2002] 77 TTJ (Jodh.) 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 ....
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.... the auditors have not found any fault and, therefore, had not expressed any qualification in the accounts of the assessee. Copy of statutory auditors' report with audited accounts and tax audit report is enclosed at Page no. 103-115 of Paper Book submitted on 24/03/2021. Therefore, rejection of accounts by AO is illegal. See, CIT v. Paradise Holidays 325 ITR 13 (Del). 8.7 Seventhly, Construction business carried on by the assessee is subjected to VAT. The assessee was regularly filing returns with these authorities. Such returns were periodically subjected to check by the relevant statutory authorities who had not found any discrepancy in the returns filed. Copy of VAT audit report and returns filed with VAT authorities for FY 2009- 10 relevant to the impugned assessment year is enclosed at page no. 1149- 11184 of Paper Book submitted on 24/03/2021. See, CIT v. Paradise Holidays 325 ITR 13 (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....
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....t. The books of account were again not produced. 10.3 Thereafter, the ld. AO makes the following relevant observations:- "From the above discussion it is clear that the above noted company has received an amount Rs. 3,46,80,925/- under the head sub contractor job whereas from the enquiry it is emerged that the assessee was not able to justify the work done for the company M/s Shiv Naresh Sports Pvt. Ltd. and the assessee has taken this amount in its gross receipt for the assessment year 2010-11 and after claiming the huge business expenses the assessee has shown net profit of Rs. 1,98,36,757/- against the total gross receipt of Rs. 55,85,01,192/- @3.97% whereas the amount under consideration of Rs. 3,46,80,925/- is required to be assessed under the head 'income from other source' as the assessee company is not entitled to allow the business expenses as claimed it against this amount as the same is not 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....
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....ion was subsequently considered at the time of recording of reasons for reopening was, in fact, part of the assessment record on the basis of which assessment was completed on 17.10.2012 u/s 143(3) of the Act. As observed earlier, at the time of recording of the reasons, there is specific reference to a notice dated 30.05.2011 by which the assessee was said to have been given a final opportunity to produce books of account and copy of bank statement in compliance of which Shri Suraj Garg, CA and AR of the assessee filed bank statements and copy of the last audited balance sheet. 10.6 Thus, it is established that at the time of recording of the reasons on 11.08.2014 there was no fresh information with the AO. It appears that only because there was a new Assessing Officer the case was reopened. As a matter of fact, the assessment u/s 143(3) of the Act and the survey was done by the same Assessing Officer Mr. S.K. Mittal, who was Joint 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 ....
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....10.9. The ld. DR has also submitted that there was a duty on the part of the assessee to disclose facts fully and truly but this contention is not of any assistance to the Revenue as it is not a case of escapement due to furnishing of false or incorrect facts by the assessee, but, here in this case, the AO had invoked the reassessment powers on basis of information said to be emanating merely out of survey operations or post survey/search enquires. 10.10 The Ld. CIT(A) seems to have missed the vital fact that all the enquires referred in re-opening reasons were collected before the original assessment u/s 143(3) of the Act. The ld.CIT(A) has merely gone on the question: 'if there was prima facie some material for reopening and not sufficiency or correctness of the material', relying on the judgement of the Hon'ble Supreme Court in the case of Raymond's Woolen Mills vs. ITO (1999) 236 ITR 34, where there was allegation of suppression of material facts by the assessee during initial assessment, which is not the case here at all. Every aspect was enquired in initial assessment and there was no further information to show that was accepted out of enquiry in initial assessment was er....