TaxTMI 
TaxTMI 
2023 (9) TMI 1497
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....ontract receipts by taking 11% of turnover and estimation income of sub-contact receipts for taking 5.5% of its turnover. Apart from that, assessee had also raised estimation of income from rentals by the AO by taking 100% of the total receipts; and lastly, not allowing deduction of Rs.5,50,000/- as claimed by the assessee under Chapter VIA in A.Y.2013-14. 3. We will take up the appeal pertaining to pre-search assessments passed u/s.143(3) for the A.Y.2013-14 and our finding given therein will apply mutatis mutandis in the appeal for A.Y. 2014-15, because the finding of AO and ld. CIT(A) are exactly same based on similar set of facts. 4. The brief facts are that assessee is engaged in the business of undertaking construction contracts for various Government agencies like, Railways, National Highway Authority of India, Jawaharlal Nehru Port Trust, CIDCO etc. and other private organizations. Assessee is also doing business of quarrying and paver block manufacturing. For A.Y.2013-14 assessee had filed return of income on 30/09/2013 by declaring total income at Rs.12,22,22,534/-. During the course of assessment proceedings, ld. AO noted that assessee had shown net profit margin o....
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....1,69,498/- ii. Income on sub-contract [email protected]% Rs. 35,00,615/- iii Income on sale of sand @ 10% Rs. 1,26,78,724/- iv Income on transport receipts @ 10% Rs 6,03,788/- v Rental Income @ 100% Rs. 2,61,66,205/- Total ....
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....sp; Rs. 60,37,877/- Total Rs. 14,36,99,776/- =============== 8. Besides above, the assessee declared following additional income in the return filed u/s 153A: i. Additional income of Rs. 43,38,508/- by applying a GP Rate of 12% on unverified sub-contractors amounting to Rs. 3,61,54,230/- ii. Additional income of Rs. 5,01,954/- on the turnover of the directors to be considered in the hands of the company. In this manner, the assessee declared total income of Rs. 14,85,40,238/- (14,36,99,776 +43,38,508 +5,01,954) in the return filed u/s 153A of the Act. 9. The ld. CIT(A) furt....
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.... Additional income of Rs. 51,30,303/- by applying a GP Rate of 12% on unverified sub-contractors amounting to Rs 4,27,52,522/-. ii. Additional income of Rs. 30,455/- as per AB bundles. In this manner, the assessee declared total income of Rs. 26,88,65,450 (26,37,04,692 +51,30,303 + 30,455) in the return filed u/s 153A of the Act. Thus, ld. CIT (A) in A.Y.2013-14 has upheld the estimation made by the ld. AO. 11. After hearing both the parties and on perusal of the impugned order, we find that in the regular assessment order u/s. 143(3) passed by the AO for A.Y.2013-14 and 2014-15, income has been estimated by the ld. AO wherein on direct contract receipts he has estimated 11% of the turnover; on subcontract receipts 5.5% of the turnover and on rental receipts 100% of the receipts. The ld. CIT (A) has justified such estimation on the ground that after completion of the assessment, a search and seizure action has been taken u/s.132 on 20/09/2017 wherein the assessee itself has offered income from direct contract receipts @ 8% and sub-contract receipts @4%. In the search, various incriminating documents were found that assessee has been showing sub-contract receipts and inf....
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.... receipts. This issue is partly allowed. 14. Lastly, with regard to deduction of Rs.5,50,000/- under Chapter VIA, we find that this issue has not been discussed in the ld. CIT(A) order and also no details have been discussed in the assessment order also. Therefore, we feel that this issue should be remanded back to the file of the ld. AO to examine the claim of deduction and onus is on the assessee to substantiate its claim for deduction and AO shall grant relief in accordance with law, if found admiissble. Accordingly, appeals for the A.Y.2013-14 and 2014-15 in ITA No.1664 & 1666/Mum/2022 are partly allowed. Post Search Assessment Appeals 15. There are other bunch of appeals which are post search assessment wherein by and large the issue remains the same, i.e., estimation of profit on direct contract receipts and on subcontract receipts and on rental receipts. Since issues raised in all the years are by and large same arising out of identical set of facts and findings arising out of consolidated order passed by the ld. CIT (A), therefore, same are being disposed of in the consolidated order. 16. We will take up the appeal for A.Y.2012-13 wherein the main issue is of ad....
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....hat the Measurement Book is maneuvered so as to ostensibly provide virtual really to the bogus sub-contract changes. ii. That the Measurement Book is prepared only for record in the case of bogus sub- contractors with the main purpose to ensure that the staff in general in the company UMP does not know of the bogus accommodation entries carried out by company (MPL) is books. iii. That the normal procedure in the case of genuine subcontractor is followed in maintaining the Measurement Book in the case of bogus sub-contractor. iv. That in the case of genuine sub-contractors Measurement Book is prepared on the basis of actual work completed whereas in the case of non-genuine subcontractor, Measurement Book is prepared as per convenience as required v. That in the case of bogus contracts there is no work order issued, since, no actual work is carried out by them. vi. That the bank accounts are opened in the case of bogus subcontractors from whom pre-signed cheques are obtained, which are then used by the company (JMMIPL) lo withdraw the cash from these accounts whenever required vii That Shri Janardhan Moru Mhatre offer perusing the....
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....amount for F.Y.2011-12 to F.Y.2016-17 which has been tabulated in the assessment order. Thus, he made following addition from A.Y.2012-13 to A.Y.2018-19: Sr. No A.Y. Amount 1 2012-13 2,43,75,113/- 2 2013-14 4,20,07,333/- 3 2014-15 4,20,36,705/- 4 2015-16 6,02,00,657/- 5 2016-17 11,61,52,713/- 6 2017-18 2,29,38,184/- 7 2018-19 56,04,344/- 18. The ld. CIT(A) after considering the entire gamut of facts and findings of the ld. AO has confirmed the said addition of Rs.2,43,25,113/- after observing and holding as under:- 40. As regards to the merits of the addition, it may be stated that the facts elaborated by the assessing officer in the assessment order suggest that i. During the search operation page no. 7, Bundle No. 1 Party AB-1 was seized from the business premises of the appellant which suggests that the appellant company had taken adjustment entries which were managed by Shri Gagan Koli, Accountant of the company ii. In his statement recorded u/s 132(4) of the Act, Shri Gagan Koli admitted that the company had booked bogus sub-contract expenses in its P&L account. He explained t....
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.... contractor is bagus. The appellant has not rebutted these findings of the assessing 41.2 The appellant has relied on the Measurement Books of these persons. were in his statement recorded u/s 132(4) of the Act, Shri J M Mhatre has categorically stated that the Measurement Books for these subcontractors were maintained on random basis and were maintained only for creating records so that other employees do not come to know about such adjustment entries. In view of such categorical admission, the said contention of the appellant does not have any force. 41.3 The appellant has contended that seizure of blanked signed cheques of the subcontractors does not mean that the cash was withdrawn by the appellant company. This contention of the appellant is in complete contradiction to the confession made by Shri Gagan Koli wherein he admitted that the cash was withdrawn and given to director of the company. Shri J M Mhatre along with other directors bad agreed to this statement of Shri Gagan Koli. Therefore, this contention does not have any force. 41.4 It has been contended that the comments on seized page adjustment party as per Gagan does not denote any illegal ....
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........................................... 41.9........................................ 41.10. The reasons for holding the sub-contract charges claimed to have been paid to the persons mentioned at Sl. No. 10 to 14 above as bogus, have been discussed in detail in the assessment order particularly at page 75 wherein the assessing officer has stated that all these persons in their statements have admitted that they did not carry out any sub-contract work for the appellant. During the appellate proceedings, the appellant has not filed any specific submission denying these findings of the Assessing Officer, therefore, for the reasons given in detail in the assessment order, it is held that the sub-contract expenses claimed to have been given to these persons are bogus. 42. In view of above discussion and after considering the facts as discussed in the assessment order as well as the fact that the appellant company on various occasions has admitted that it has booked bogus sub-contract expenses in its P&L account and the fact that in the return filed u/s 153A of the Act, the appellant company has declared additional income @12% on such bogus sub-contract expenses....
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....the vouchers such as no signatures, no name, not mentioning of work done and so on. This way the payments were made in cheques to some of sub-contractors and then they use to withdraw cash for the purpose of making payments to labours and assessee didn't had to then make payments in cash to labours directly which were in thousands in number. The fact that the assessee have reduced payments in cash (per books of account) to labourers at various sites is also evident from the following table - Financial year ended Labour Charges paid in cash (Rs) Total labour charges debited (Rs) Ratio Of Cash Payment to total labour charges Contract Receipts for the year (Rs) Total subcontract charges debited (including alleged bogus) (Rs) 31.03.2011 3,34,98,454 6,48,87,399 51.63 170,07,84,189 35,03,72,971 31.03.2012 5,86,17,731 9,72,76,658 60.26 148,80,57,045 29,67,96,333 31.03.2013 7,05,24,217 11,23,77,987 62.76 160,33,70,259 29,32,74,331 31.03.2014 9,08,85,940 19,72,95,932 50.35 405.23,43,543 91,48,50,895 31.03.2015 8,48,35,728 26,45,34,053 42.59 356,81,00,077 75,51,57,795 31.03.2016 ....
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....ets found during the course of search-neither with the assessee-company nor with its promoters/ directors/ shareholders. He also pointed out that sub-contract charges aggregating Rs 82.23 crores has been alleged to be bogus across six years (AY 2012-13 to AY 2017-18). It is submitted that this huge quantum of cash has to be utilised somewhere and in the absence of any cash/ unexplained assets found, the explanation made by the assessee-company is a plausible one and needs to be accepted. 25. He further submitted that if the case of the Assessing Officer is accepted and the sub- contract charges are held to be bogus, and not utilsed for labour payments, it will lead to absurd results with net profit spurting to as high as 17.19% for the year ended 31.03.2015, which is simply not possible, or even imaginable. It is not possible to earn this high a profit in contractors' business, that too a government contractor. He also referred to the following documents furnished during the course of hearing- (a) Statement showing net profit earned by the assessee for various years, including the net profit if the disallowance of bogus sub-contract charges is considered. (....
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....29. We have heard both the parties at length and perused the relevant finding given in the impugned order as well as material placed on record before us. In the assessments which have been passed post search u/s. 153A/143(3), the issue is with regard to booking of bogus sub-contracting charges to inflate expenses or to appropriate cash. The ld. Assessing Officer has held that subcontract charges are bogus based on various reasons as has been discussed in the foregoing paragraphs. In sum and substance, his finding is based on; firstly, list of sundry creditors found during the course of search where in the names of various sub-contractors and against their names it has been remarked as "adjustment party as per Gagan" and on enquiry it was found that these sub-contractors are providing bogus entries to the assessee company and Shri Gagan Koli, a key employee of the assessee company who was looking after the payment of the subcontractors was handling the cash generated from such adjustment of sub-contract charges; secondly, the statement on oath of Shri Gagan Koli, wherein he has admitted and explained the modus of booking of bogus sub-contractor charges. Thirdly, statement on oath of....
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....plain as to why these were required to be made in cash and also he has pointed out that in the books, assessee has reduced substantial payments in cash in the books to the labourers at various sites and this has been achieved so only through this mode. He pointed out that from F.Y.2010-11 to F.Y.2016-17, the ratio of cash payment to the labour have reduced from 51-60% to 12.5%, despite contract receipts have been increased multi fold over the period of time. It has been pointed out that after the search, assessee has continued this payment made to sub-contractors through cheque and taking back cash from them to make the payments of labourers against the quantum of cash payments have increased substantially. This goes to show that the entire modus operandi was adopted only to reduce the cash expenses in the books and also not its construction activity suffer by making the payment to the labourers in cash. 31. This explanation from the records and circumstances seem to be plausible and we accept that sub-contract charges were booked to generate cash to make payments to labourers. The submission of the assessee cannot be brushed aside completely because looking to the nature of bus....
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....ee if the work has been done then how much is the cost with regard to the labour expenses. Whether assessee has done the correct approach or has taken the dubious route by routing the payment of the labourers to the sub-contractors is immaterial. It can only entail rejection of books of account and estimating profit rate. Fact of the matter which is to be seen is here that, whether assessee has executed the work and whether has made the payment to the various subcontractors and the labourers for getting the work done. If the entire sub-contract charges are to be disallowed, then the gross profit rate or net profit rate of the assessee will go multi-fold which is much more than tender document and also in this line of business such a huge quantum of profit is not comparable. 33. Before us, ld. Counsel has tried to demonstrate that if in all the years this sub-contract charges are added, the net profit rate in various years will go very high and the gross profit itself will increase multifold. First of all he pointed out that as per the books the net profit on all the contract receipts and other receipts is ranging from 5.43% to 7.32 % in AYS. 2012-13 to 2017-18. But if a sub-cont....
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....or payment of wages. Looking into the fact that assessee did carry out the work during the year as per the awarded contract, both as the main contractor and also have got the work done through subcontractor, the bogus sub-contract charges shown by the assessee would be a part of the business and expense. At the most net profit on the bogus sub-contract charges can be added to the net profit declared, because it is part of the contract work carried out by the assessee and if these sub-contract charges are treated to be bogus, then it means that assessee has tried to suppress profit from its contract business. In such a situation the best recourse would be to estimate the net profit rate in all these years instead of making separate addition of the subcontract charges over and above the net profit shown in the books of accounts. Thus we hold that estimate of 9% as held above is far reasonable to factor in the sub-contract charges added by the AO. Accordingly, assessee gets part relief and now instead of net profit on direct contract receipts declared at 8% in the return filed u/s 153A, it will be 9% and separate addition as held will get subsumed. 36. In so far as appeals for A.Y.....
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....ns for obtaining various contracts and for overdraft facility from the banks his FDs were created only out of the overdraft facility. Since assessee has to pay interest on overdraft facility and has earned interest from such FDs. Thus, interest paid is more than the interest earned therefore, interest should have been allowed. In support, he has relied upon various propositions and case laws. 39. We find that before the ld. AO assessee has not made any such claim and it has offered it as income in the return of income. Further, this issue has not been challenged before the ld. CIT (A) also. Under these facts, we are not tinkering with the additional income declared by the assessee in the return of income and accordingly, this ground is dismissed. 40. Further, in ground No.4 in A.Y.2012-13 assessee has challenged that additional income declared on the turnover of Directors of Rs.7,88,469/- cannot be added as it is very high and excessive because in the seized documents, the turnover made by the Directors which was not according to regular books was Rs. 65,70,571/-. The assessee estimated 12% from such turnover and offered it as additional income. Now the case of the assessee b....
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.... accordingly, sub- contract charges offered @4% by the assessee is upheld. Accordingly, ground No.3 is dismissed. 48. In ground No.4 assessee has raised cash sales at UlweBambavi of Rs.2,53,790/-. Ld. AO has made addition of entire 100% of unaccounted cash sales during the course of search before us. The only ground raised is that the entire cash sales cannot be added. Ld. Counsel submitted that these cash sales pertain to quarrying activities. We agree with the contention of the ld. Counsel that the entire 100% of the sales cannot be added. In absence of any details of expenses, the sale from cash sales found during the course of search, we direct the ld. AO to apply profit of 9% to the same as 'other income' estimated in respect of contract receipts. 49. In ground No.5, assessee has raised the disallowance of foreign travel expenses. The ld. AO has made disallowance of Rs.5,48,700/- being foreign travel expenses debited to the profit and loss account for the reason that foreign visit of directors alongwith their family members is not wholly and exclusively for the purpose of business. Before us, ld. Counsel submitted that this disallowance is not arising out of any incrimin....
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....ention raised by the ld. Counsel cannot be accepted because if the assessee has disallowed depreciation suo-moto in the return of income filed u/s 153A, then it cannot be held that same is beyond the purview of Section 153A. It is not a case of any addition made on account of incriminating material or not. But then it had been offered it as a disallowable depreciation and the same cannot be allowed unless the facts are brought on record. Thus, this ground raised by the assessee is dismissed. 55. In so far as disallowance of foreign travel expenses of Rs.4,69,420/-, in this year also since it is an unabated assessment and assessment has attained finality, therefore, this addition is beyond the scope of Section 153A, accordingly, ground No.6 is allowed. 56. In A.Y.2016-17 in so far as bogus sub-contract charges are concerned, we have already held that since it is part of contract business of the assessee and no separate addition should be made and once we have estimated the net profit, this addition gets subsumed in the estimation of net profit. For this year also have already estimated 9% on the contract receipts and therefore, this ground of the assessee is treated as partly ....
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....be applied instead of entire cash sales. Accordingly, this ground is partly allowed. 62. In ground No.4, assessee has challenged that depreciation suomoto disallowed of Rs.3,56,49,800/-. The assessee had suomoto recomputed depreciation and made a disallowance of Rs.3,56,49,800/-. The case of the assessee before us is that assessee has wrongly offered additional disallowance of depreciation in the return of income filed u/s.153A and moreover this addition is not based on any incriminating documents found during the course of search. However, the contention raised by the ld. Counsel cannot be accepted because if the assessee has disallowed depreciation suomoto in the return of income under Section 153A, then it cannot be held that same is beyond the purview of Section 153A. It is not a case of any addition made on account of incriminating material or not. But then it had offered it as a disallowable depreciation and the same cannot be allowed unless the facts are brought on record. Thus, this ground raised by the assessee is dismissed. 63. In so far as of foreign travel expenses of Rs.3,83,482/-, in this year assessment for A.Y.2017-18 had abated at the time of search because t....
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....,046 Site & Misc Exp. 1,30,53,604 14,42,114 42,62,708 92,89,400 1,50,93,278 2,51,18,039 Transportation Charges 4,17,91,468 1,82,79,133 1,56,58,216 30,10,114 7,13,79,602 2,24,27,148 Rent Rates and Taxes 1,71,92,930 2,45,87,043 3,60,21,488 2,60,34,635 1,95,77,552 1,48,61,968 Direct Taxes Paid 3,45,15,081 3,06,99,536 3,97,14,152 4,01,85,449 5,37,38,394 19,16,03,958 Repairs & Maintenance 1,34,67,928 1,45,92,439 47,74,908 96,11,039 3,63,12,044 2,43,03,226 Plant Operating Expenses 1,12,48,938 1,93,72,747 Cost of Production B 1,30,97,17,343 1,52,50,44,798 3,43,00,10,071 2,89,21,03,326 2,72,20,53,228 3,09,17,65,065 Gross Profit-A-B X 44,03,78,986 49,17,75,699 73,34,61,552 75,01,47,455 1,43,19,22,101 1,37,71,10,236 Gross Profit Ratio 25.16 24.38 17.62 20.60 34.47 30.82 Assessment year Year ended 2012-13 31.03.2012 2013-14 31.03.2013 2014-15 31.03.2014 Amount Amount Amount 2015-16 31.03.2015 Amount 2016-17 31.03.2016 Amount 2017-18 31.03.2017 Amount Indirect incomes Indirect inco....