TaxTMI 
TaxTMI 
2025 (3) TMI 282
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....e ld.CIT(A) failed to appreciate that the assessing officer made clear finding in the assessment order before rejecting books of accounts u/s. 145(3) of the fact. The assessing officer mentioned that the assessee had not produced details of project wise contract revenue, as per ICDS-III as mandated by Sec.43CB r.w.s 145(2) of the Act. Further the assessee has not furnished explanation for increase in material and labour expenses. After recording these reasons, the AO proceeded to reject the books of accounts and to estimate the income from business. 2.2 As per the ICDS-III, a person doing construction contract business shall disclose in respect of completed contracts, (a) the amount of contract revenue recognized as revenue In the period; and (b) the methods used to determine the stage of completion of contracts In progress. And in respect of contracts in progress, he shall disclose (a) amount of costs incurred and recognised profits (less recognized losses) upto the reporting date; (b) the amount of advances received; and (c) the amount of retentions. Since the assessee failed to disclose the above details project wise, the assessing officer rejected the books of accounts u/s.....
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....evenue at 8% of the reported value of operations i.e. Rs. 10,78,42,468/- (8% of Rs. 134,80,30,855/-) and (b) Added a sum of Rs. 28,92,01,373/- being difference between the contract receipts as per Form 26AS (Rs.163,50,29,232/-) and the contract receipts declared by the assessee (Rs.134,80,30,855/-) as the undisclosed income of the assessee and (c) Added a sum of Rs. 23,91,28,611/- as waiver of loan amount as income under the head profits and gains of business or profession and (d) Disallowed a sum of Rs. 2,06,27,491/- u/s. 2(24)(x) r.w.s.36(1)(va). 5. In the meanwhile, a rectification order passed u/s. 154 r.w.s.143(3) wherein income was assessed at Rs. 25,56,25,243/- after giving effect to unabsorbed depreciation for assessment years 2014-15 to 2016-17, revising the tax liability to Rs. 7,76,98,940/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A). 4. The Ld.CIT(A) vide order dated 12/01/2024 deleted the addition in respect of 4(a), (b) & (c) mentioned in AO's order (supra) and upheld the addition of Rs. 2,06,27,491/- [4(d) of the AO's order] on account belated payment of ESI and PF. Aggrieved by the order of the Ld.CIT(A), the Re....
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....led to make necessary findings upon the rejection of books of accounts and such rejection of books of accounts without providing due opportunity is bad in law. He also stated that the Ld.CIT(A) has erred in deleting the addition of Rs. 10,78,42,468/- by estimating 8% of turnover. 7.2 The Ld.DR further stated, the ld.CIT(A) failed to appreciate that the assessing officer made clear finding in the assessment order before rejecting books of accounts u/s. 145(3) of the fact. The Ld.DR by asserting the action of the assessing officer mentioned that the assessee had not produced details of project wise contract revenue, as per ICDSIII as mandated by Sec.43CB r.w.s 145(2) of the Act. Further the assessee has not furnished explanation for increase in material and labour expenses. After recording these reasons, the AO rightly proceeded to reject the books of accounts and to estimate the income from business. 7.3 The Ld.DR further stated that as per the ICDS-III, a person doing construction contract business shall disclose in respect of completed contracts, (a) the amount of contract revenue recognised as revenue In the period; and (b) the methods used to determine the stage of complet....
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....ent's name Renault Nissan. f) The contract revenue details in respect of Bus Route Road Department would not form part of contract revenue workings for the impugned assessment year since this project was undertaken and completed by the assessee in an earlier year. g) The assessee did not enter into any transactions with Huchinson Industrial Rubber Products Pvt. Ltd. and thus there is no data pertaining to contract revenue for the impugned assessment year. h) The assessee had paid man power deputation charges to Radiance Realty Development India Pvt. Ltd. and had not undertaken any project for such project during the impugned assessment year. i) The assessee did not enter into any transactions with MOA Engineering Private Limited and thus there is no data pertaining to contract revenue for the impugned assessment year. j) The Ld.AR further more submitted that since the turnover reported in the books of accounts tallies with the contract revenue workings furnished at Pages 16 and 17 of the Index of Paper Book-1 goes on to disprove the contention of the Assessing Officer that details of contract revenue of some projects/ clients were not furnished by the assessee. He further....
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.... Annexure A2 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Albatross/Apollo Tyres 1470 Annexure A3 along with ledger accounts and bills Annexure A3 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project HCL 71 Annexure A4 along with ledger accounts and bills Annexure A4 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Enfield 547 Annexure A5 along with ledger accounts and bills Annexure A5 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Roop 284 Annexure A6 along with ledger accounts and bills Annexure A6 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Minda 589 Annexure A7 along with ledger accounts and bills Annexure A7 along with ledger accounts and bills : Details regarding expenditure inc....
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.... Annexure A18 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project KSTP 5099 Annexure A19 along with ledger accounts and bills Annexure A19 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Shimizu 1127 Annexure A20 along with ledger accounts and bills Annexure A20 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project HLL-Jimper 338 Annexure A2 Annexure 2 : Compilation of details of income recognised and income as per form 26AS 4 8.4 In this connection, Ld.AR submitted that AS-7 and ICDS III are not divergent in their approach and it is the percentage of completion method that is prescribed under both AS-7 and ICDS III for recognising contract revenue, which the assessee had duly complied with during the impugned assessment year. As per ICDS III, the relevant portion that deals with the recognition of contract revenue and expenses is as under- Refer Pages 2 and 3 of Index of Case Laws: "Reco....
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....mentioned the exact deviation from ICDS III on perusal of the workings as per AS-7. 8.7 The ld.AR further vehemently argued that the Assessing Officer on one hand rejects the books of accounts of the assessee and on the other goes on to adopt the contract revenue declared by the assessee in its books of accounts for the purpose of estimation of revenue at 8% which only goes to prove that the Assessing Officer accepts the value of turnover reported by the assessee in its books and has only arbitrarily rejected the books of accounts without giving any cogent reasons in doing so. 8.8 With regard to furnishing of explanation and supporting evidences regarding increase in cost of production despite fall in revenue, incurrence of high labour charges, increase in cost of legal and professional charges etc., the Ld.AR stated that the assessee had given detailed submissions along with supporting evidences wherever applicable before the Assessing Officer, details of which are as under: a) Refer Pages 12 to 15 of the Index of Paper Book - 1. b) Refer Pages 5 to 13 of the Index of Paper Book - 1. c) Refer Para 4 at Page 20 and Paras 6 to 9 at Page 21 of the Index of Paper Book - 1. 8.....
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....t been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2)], the Assessing Officer may make an assessment in the manner provided in section 144.] 9.2 It is noted that, the AO has observed that, the assessee had not submitted the Profit and loss account for the few projects of the clients and hence decided to reject the entire books of accounts, which is not permissible as per law. It is also noted that, the Assessing Officer on one hand rejects the books of accounts of the assessee and on the other goes on to adopt the contract revenue declared by the assessee in its books of accounts for the purpose of estimation of revenue at 8% which only goes to prove that the Assessing Officer accepts the value of turnover reported by the assessee in its books and has only arbitrarily rejected the books of accounts without giving any cogent reasons in doing so. 9.3 Further in the present case, the AO has not given any specific finding that the assessee has not followed continuously accounting method. The Hon'ble Supreme court in the case of CIT Vs. Woodword Governor (2009) 312 ITR 254 (SC) held that the accountin....
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....ooks of accounts by the AO is not as per the provisions of Section 145 of the Act and allegations made in the AO's order is dehors the facts. 9.6 Further, it is noted that the Assessee has furnished the details of all the projects giving true picture of turnover and the corresponding loss / profit earned in the respective projects in the consolidated statement showing the percentage of completion method by offering revenues on year-on-year basis by following the AS 7 along with ICDS prescribed under the Act. In light of the above factual matrix, the addition made by the AO, based on the estimation of profit @ 8% on the turnover derived from the books of accounts is not justified and arbitrary and hence we are inclined to delete the said addition by not interfering in the impugned order of the ld.CIT(A) on this issue. B. Addition on account of difference in contract receipts as per 26AS and Books of accounts : The AO in his order noted that, the assessee has failed to provide the complete reconciliation of the turnover between the books of accounts and 26AS and hence added the difference of contract receipts of Rs. 28,92,01,373/- to the total income as unexplained. 10. Submissio....
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.... 25 dated 27.03.2017 in the Financial Year 2016-17 and accounted the same as revenue in the financial year 2016-17 - Refer Page 20 (First line item) and Page 50 [Highlighted as (B)] of the Index of Paper Book-1. It may further be noted that the narration RA bill only refers to an internal billing reference number used by the assessee for accounting purposes. b) Difference of Rs. 1,07,76,437/- The difference of Rs. 1,07,76,437/- is nothing but the VAT component involved in each of the contract receipts after GST implementation. The assessee's client has shown the contract revenue as the gross value which includes the VAT component at the rate of 4% and tax was deducted at source on such gross value whereas the assessee has accounted for the VAT component separately in its books and that only the net value of the contract excluding VAT is accounted for as revenue in the books of the assessee. It is further submitted that the client had refused to pay GST on the transactions post GST implementation and hence the assessee in respect of those transactions had paid GST at the rate of 12% (i.e., 4% VAT collected from client plus balance 8% GST paid out of its own pocket)Refer Page 20 ....
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....tes Pvt. Ltd. (Client) vide bill having reference number RA 16 dated 14.06.2017. However, while making payment towards the said bill, the client had inadvertently declared the bill value as Rs. 1,63,43,819/- and deducted tax at source on the same which resulted in a difference of Rs. 6,99,747/-. It is further contended that the difference of Rs. 6,99,747/- is purely on account of an inadvertent mistake committed by the client. The assessee had correctly declared revenue in respect of the said bill in its books of account for the impugned assessment year- Refer Pages 61 and 62 of the Index of Paper Book-1. Eicher Motors Ltd. In this regard, the Ld.AR pointed out that the assessee had submitted a table showing the reconciliation of difference between contract receipts between Form 26AS and book of accounts in respect of Eicher Motors Ltd. which can be seen at Page 63 of the Index of Paper Book-1. the Ld.AR drew our attention to the said table, the manner in which income is being offered to tax right from financial year 2011-12 to financial year 2021-22 based on mercantile system of accounting can be seen clearly. 11.3 The Ld.AR stated that the assessee had taken up contract work....
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....ifference in contract receipts of each party, more particularly the difference in respect of the 4 parties mentioned herein above, the addition made by the Assessing Officer on this account deserves to be deleted. 12. OUR FINDINGS ON THIS ISSUE 12.1 Now, we adjudicate the next issue of addition made by the AO on account of undisclosed contract revenue of Rs. 28,92,01,373/-. The AO has observed that the assessee has not furnished the reconciliation of the turnover of few clients with the total turnover of Rs. 163.50 Crores shown and hence made an addition(supra). During the appellate proceedings before the ld.CIT(A), the AO submitted the remand report and mostly accepted the explanation of the assessee. The AO has objected for the turnovers relating to the following parties as reasoned below: 1. Public Works Department Kerala State Transport Project TC: Not acceptable, since assessee had not submitted evidence of reversal of RA Bill. 2. Minda Projects Limited: Not acceptable, since reason for accounting in two difference heads not explained properly. 3. NAM Estates Private Limited: Not acceptable, since confirmation letter from party not submitted. 4. Eicher Motors Ltd.: N....
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....ors Ltd. Difference Rs. 1,12,89,428/- Page 63 of the Index of Paper Book-1. 12.3 It is further noted that, on perusal of the statement of turnover calculation as per AS 7 for the A Y 2018-19, (Paper book No.1 - page No.16 to 18, we find the argument of the Ld.AR as submitted (supra), the reconciliation of the Turnover along with 26AS has been carried out correctly. Therefore, we are of the view that the addition made by the AO is not justified on this issue and hence dismiss the ground of the revenue by affirming the impugned order of the Ld.CIT(A) on this issue. C. Addition of Rs. 23,91,28,611/- in respect of waiver of loan: The Assessing Officer has added a sum of Rs. 23,91,28,611/- in respect of waiver of loan as income under the head profits and gains of business or profession during the impugned assessment year. The said addition has been deleted by the Ld.CIT(A) by holding as under : "8.6.4 The undersigned has carefully examined the issue under consideration. While going through the Assessment Order and submission of the Appellant, it can be seen that the Appellant is contending that what the loan waived by the financier is the principal amount and not the interest. Th....
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....mounted to cessation of liability other than trading liability. As such, there was no force in the Revenue's argument and section 41(1) is not applicable in this case. 8.6.8 The A.O. in the Assessment Order has considered the decision of the Apex Court cited supra but made an observation that the Appellant has claimed the deduction continuously including the present A.Y. The A.O. failed to appreciate that what the Appellant has claimed is only in respect of payment of interest, and not the principal amount paid in the earlier Assessment Years. The A.0.is of the view that the Appellant has not submitted any details by way of evidence during the course of Assessment Proceedings and made a finding that personal use of loan amount cannot be ruled out. The Appellant during the course of Appellate Proceedings before the CIT(A), NFAC, all the evidences to support the claim by way of additional evidence in terms of Rule 46A. The CIT (A) has called for the Remand Report from the A.O. and the A.0. after examining the evidences has submitted a Remand Reno on 06.06.2023. While going through the Remand Report of the A.0. dated 06.06.2023, the A.O., NFAC, has not at all made any submission....
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....d to delete the addition of Rs. 23,91,28,611/- by treating the waiver of loan an income. 8.7 Ground No. 22 to 25. 8.7.1 The Appellant in these grounds has agitated over the disallowance of employees contribution to PF and ESI amounting Rs. 2,06,27,491/-, It may be appreciated that the disallowance was made earlier while processing the return u/s143(1) of the Act. The Appellant has taken up this issue before the CIT(A), NFAC, and the Appeal was dismissed, The Appellant has taken up this issue before the Hon'ble ITAT, Chennai and the Hon'ble ITAT Its order dated 02.08,2023 in ITA No. 487/Chny/2023, has dismissed the assessee's Appeal by following the decision of the Apex Court in the case of M/s, Check Mate Services Pvt. Ltd, v/s, CIT. 8.7.2 The grounds raised in the present Appeal by the Appellant is relating to the same issue which was decided by the Jurisdictional Tribunal in respect of the Appellant's own case for the A.Y. 2018-19, The Appellant during the course of Appellate Proceedings has not pressed the Grounds of Appeal. In view of this, by following the decision of the Hon'ble Apex Court and the Jurisdictional Tribunal, the grounds raised by the Ap....
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.... stated that the waiver of loan in the instant case pertains only to the waiver of the principal portion of loan. The Ld.AR further argued that the interest portion of the loan obtained from 'Societe Generale' is not waived since the interest portion on such loan has been fully paid and that only the principal portion of the loan was waived off during the impugned assessment year. 14.3 The Ld.AR furthermore argued that as per the loan agreement dated 11.04.2014, the assessee had availed a loan of Rs. 50.00 crores from Societe Generale. As on 25.07.2017 (date of settlement agreement for waiver), the outstanding loan position was as under: * Principal loan amount outstanding - Rs. 47,80,00,000/-. * Interest amount outstanding - Rs. 1,32,90,141/-. 14.4 In this regard, the Ld.AR pointed out that the assessee paid Rs. 3,20,00,000/- towards principal from April, 2014 to July, 2017 as per repayment schedule in loan agreement, leaving balance of Rs. 47,80,00,000/- as outstanding loan amount being only the principal portion. As per the terms of the settlement agreement, on payment of Rs. 23,90,00,000/- (50% of Rs. 47,80,00,000/-), it was agreed that the balance outstanding of Rs. 23,9....
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....ns of business or profession and hence cannot be subject to tax as per the provisions of section 28(iv) by treating the same as income of the assessee. 14.8 The ld.AR further relied upon the decision of the Hon'ble Supreme Court in the case of CIT v Mahindra and Mahindra Ltd. (cited supra) - Refer Pages 12 to 17 of Index of Case Laws paper book wherein in respect of application of section 28(iv), which refers to 'non-monetary' benefit or perquisite, whether convertible into money or not, it was held that in the context of waiver of loan, the provisions of section 28(iv) would not be applicable since the benefit derived is in the form of money. It was held as follows: "13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. ....
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....waiver of loan, be it either for the usage on the working capital front or fixed asset purchase. In this connection, he placed reliance on the decision of the Hon'ble Karnataka High Court in the case of I.G.Petrochemicals Ltd. Vs ITAT [2023] 295 Taxman 569 (Kar) - Refer Pages 18 to 28 oflndex of Case Laws paper book which was decision rendered following the ratio laid down in the case of Mahindra and Mahindra Ltd. cited supra wherein it was observed as follows: "30. The clinching factor as per the Apex Court in Mahindra and Mahindra (supra) to bring the benefit/perquisite within the term 'income' under section 28(iv) of the IT Act was that the 'benefit/perquisite' should be 'other than in the shape of money', while holding that the benefit upon loan waiver was in the form of a cash receipt and did not satisfy the test to make it taxable within the terms of section 28(iv). Clearly, the purpose of loan was neither dealt with nor would be a relevant determinative factor. The only test is that the 'benefit' or 'perquisite' should be other than 'in the shape of money'. 31. Thus, in the present case, the nature of loan would be of n....
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....r by saying that the details of usage / application of loan amount of Rs. 23.91 Crore which has been waived with full supporting documentary evidence but the assessee did not submit any such evidence. Thus, personal use of loan amount cannot be ruled out. 15.2 According to the Ld.AR the waiver of loan in the instant case pertains only to the waiver of the principal portion of loan, the interest portion of the loan obtained from 'Societe Generale' is not waived since the interest portion on such loan has been fully paid. 15.3 According to ld.AR the assessee paid Rs. 3,20,00,000/- towards principal from April, 2014 to July, 2017 as per repayment schedule in loan agreement, leaving balance of Rs. 47,80,00,000/- as outstanding loan amount being only the principal portion. As per the terms of the settlement agreement, on payment of Rs. 23,90,00,000/- (50% of Rs. 47,80,00,000/-), it was agreed that the balance outstanding of Rs. 23,90,00,000/- would be waived by 'Societe Generale'. As noted by us, as per the loan agreement dated 11.04.2014, the assessee had availed a loan of Rs. 50.00 crores from Societe Generale. As on 25.07.2017 (date of settlement agreement for waiver), the outstand....