TaxTMI 
TaxTMI 
2025 (3) TMI 282
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....,78,42,468/- made by AO estimating 8% of turnover. 2.1 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 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....
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...., the AO has done the following: "4. In completing the assessment, the Assessing Officer has: (a) Estimated the revenue 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 (sup....
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....ofit & Loss account for each project separately, especially for some projects / clients. 7. Submission of the Ld.DR on this issue : 7.1 The Ld.DR stated that the Ld.CIT(A) erred in holding that the AO failed 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 c....
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....tract revenue of Nam Estates Pvt. Ltd. is reflected under the client's name Embassy (NAM Estates). d) The contract revenue of NAPC Ltd. Anchor Consortium is included under the client's name CMWSSB Avadi. e) The contract revenue of Renault Nissan Automotive India Pvt. Ltd. is shown under the client'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....
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.... Annexure 4, 4a, 4b and 4c : Submissions regarding disallowance under section 36(1)(va) 29 4. Reply dated 10-5-2021 Annexure A1 along with ledger accounts and bills Page 33 of index of PB-2 Annexure A1 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project CMWSSB 67 Annexure A2 along with ledger accounts and bills 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 wit....
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....tails regarding expenditure incurred along with supporting bills in respect of project Embassy 1200 Annexure A16 along with ledger accounts and bills Annexure A16 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project TRMN 83 Annexure A17 along with ledger accounts and bills Annexure A17 along with ledger accounts and bills : Details regarding expenditure incurred along with supporting bills in respect of project Hubli 100 Annexure A18 along with ledger accounts and bills 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 wit....
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....oportion of work completed. This method provides useful information on the extent of contract activity and performance during a period. (Emphasis supplied)" 8.6 The Ld.AR from the above, summarizes that there is no difference in the approach as regards recognition of contract revenue as per AS-7 and ICDS III as both standards recommend the percentage of completion method for recognition of contract revenue and thus, contended that the assessee had in fact duly followed the requirements of ICDS III despite furnishing the working of contract revenue recognition as per AS-7 and had not in any manner deviated from the requirements of law. It may also be noted that the Assessing Officer nowhere had 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 a....
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.... Section 145, which are as under: 145. Method of accounting (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time 2 [income computation and disclosure standards] to be followed by any class of assessee's or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) 3 [has not 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 acco....
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....d 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. 9.5 Therefore, we are of the considered view that, the AO has grossly erred in rejecting the books of accounts of the assessee in the above factual matrix. We also gone through the reasons given for rejecting the books 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 consolidat....
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....ed: 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.: No submissions furnished by assessee. 11.2 In respect of the above, the assessee had submitted as follows: Public Works Department Kerala State Transport Project TC With regard to this party, the Ld.AR submitted that, it is not a separate line item and the income received from this client is reflected under the ledger by name "Kerala Road Transport". The difference in contract receipts as regards to this party was Rs. 11,26,11,702/-. The said difference constituted 3 parts and the same was explained as under: a) Difference of Rs. 8,47,78,852/- This difference is due to the fact that the assessee raised a bill having reference number RA 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 ....
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....nting treatment in respect of the said bills and the position of contract receipts declared for this party as against Form 26AS is enclosed at Page 52 of the Index of Paper Book-1. The Ld.AR stated that from the above table, it can be seen that after considering the above adjustments in value of contract receipts in the name of Minda Projects Limited, the assessee has shown higher value of contract receipts as compared to that reflected in the TDS Portal. The assessee in support of the above referred adjustments, had submitted the ledger account by name UNO Minda for assessment year 2018-19 to evidence that bills to the tune of Rs. 74,32,214/- were actually accounted as income under UNO Minda and the relevant entries are highlighted and marked as (A) - Refer Page 53 of the Index of Paper Book-1. NAM Estates Private Limited In this regard, the Ld.AR submitted that the assessee had raised a bill of Rs. 1,56,44,075/- in respect of development work done for NAM Estates 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. 1,6....
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....value reflected in Form 26AS as regards financial year 2020-21. Therefore, on considering the complete flow of transactions in the above table and after accounting for all the advances received for the contract work, it can be seen that the assessee has eventually declared higher amount of contract receipts as against the value shown in Form 26AS. However, the Assessing Officer had inadvertently stated in the remand report that the assessee did not furnish any submissions in respect of difference in contract receipts regarding Eicher Motors Ltd. On the contrary, the acknowledgement of filing the above submissions as additional evidence and as part of written submissions before the Commissioner of Income Tax (Appeals) and the same is enclosed at Pages 64 and 65 of the Index of Paper Book-1. 11.5 Therefore, in light of the above, the Ld.AR prayed before us that since the assessee has furnished detailed explanation along with supporting evidence to the extent of addition of Rs. 28,92,01,373/- in respect of difference 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 ....
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....item) and Page 50 [Highlighted as (B)] of the Index of Paper Book-1 b) Difference of Rs. 1,07,76,437/- Page 20 (Line items 5 to 16 from the bottom of the page) of the Index of Paper Book-1 c) Balance difference of Rs. 1,70,56,413/- (i) Credit Note to the tune of Rs. 51,56,179/- dated 31.03.2018- Page 20 (3rd line item from the bottom of the page) of the Index of Paper Book-1 and Page 36 of the Index of Paper Book- 2. (ii) Credit Note to the tune of Rs. 1,02,70,204/- dated 28.02.2018-Page 20 (2"° line item from the bottom of the page) of the Index of Paper Book-1 and Page 37 of the Index of Paper Book- 2. (iii) Credit Note to the tune of Rs. 17,57,069/- dated 30.03.2018- Page 20 (1= line item from the bottom of the page) of the Index of Paper Book-1 and Page 38 of the Index of Paper Book-2. 2. Minda Projects Limited - difference of Rs. 45,43,843/- Page 52 of the Index of Paper Book-1. Page 53 of the Index of Paper Book-1. 3. NAM Estates Private Limited-difference of Rs. 6,99,747/- Pages 61 and 62 of the Index of Paper Book-1. 4. Eicher Motors Ltd. Difference Rs. 1,12,89,428/- Page ....
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....d that the Appellant has paid a sum of Rs. 32,20,00,000/- towards the principal amount from April 2014 to July 2017 as per the repayment schedule specified in the loan agreement. The balance amount payable upon the principal is Rs. 47,80,00,000/-. As per the terms of settlement agreement in the event of payment of Rs. 23,90,00,000/- the balance amount payable amounting Rs. 23,90,00,000/- will be waived. Accordingly, the Appellant paid Rs. 23,90,00,000/- and the lender has waived the balance principal amount of Rs. 23,90,00,000/-. 8.6.7 Thus, it is very clear that what the amount waived by the lender is the principal amount only which is per se a financial liability and not a trading liability. The lender as per the settlement agreement has not offered any waiver of interest but only waived the repayment of loan. In the Profit &Loss Account, the Appellant has claimed the interest amount only. The Appellant relied upon the decision of the Apex Court in the case of CIT vs. Mahindra & Mahindra Ltd (2018) 93 taxmann.com 32 (SC), wherein it has been held that "Section 41(1) specifically talks of cessation of trading liability, whereas in the instant case, waiver of loan....
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....ted by the Appellant. From the records it is evident that the A.O. is not making any attempt to go through the details filed by the assessee during the course of Assessment Proceedings on 11.03.2021 and 03.07.2021. Further, the A.O. is also not cared to submit any detailed Remand Report upon the evidences fled by the Appellant. The action of the A.0. proves that the AO has made the addition in a mechanical way and reluctant to consider any of the evidences filed by the assessee, It is not fair on the part of the A.0, being a quas-judicial authority to make such addition mechanically without any application of mind, The undersigned has carefully examined all the evidences along with the submission made by the Appellant. The amount waived by the lender la only the loan amount and not the interest amount, obviously, it is not in the nature of trading liability but only a financial liability. In view of this, the undersigned is not inclined to accept the observation of the A.O, to treat such waiver of principal loan amount as Income of the Appellant, Accordingly, in the backdrop of discussion made supra the grounds raised by the Appellant upon this issue are treated as allowed, and the....
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....ubmitted and relied on the decision of the Hon'ble Supreme Court in the case of CIT v Mahindra and Mahindra Ltd. [2018] 404 /TR 1 (SC) - Refer Pages 12 to 17 of Index of Case Laws Paper book to contend that the waiver of loan in the instant case would not be taxable u/s. 28(iv) or u/s. 41(1) of the Income Tax Act, since what was being waived was purely the principal portion of the loan under a one-time settlement agreement with Societe Generale and thus prayed that said addition ought to be deleted. However, the Assessing Officer was of the view that the assessee had claimed interest deductions for last 3 years including impugned assessment year and stated that the reliance placed on the decision of the Hon'ble Supreme Court in CIT v Mahindra &Mahindra Ltd. (cited supra) will not be of any use since the Hon'ble Supreme Court in that case had granted relief to the assessee in respect of waiver of loan where there was no claim of interest deduction. Further, the Assessing Officer stated that the assessee did not furnish details regarding usage of amount of Rs. 23,91,28,611/- being waiver of 50% of outstanding loan, in which case according to him, the personal use of such ....
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....ng as on 31.03.2018 is a sum of Rs. 47,80,00,000/- which clearly represents the principal portion of loan outstanding obtained by the assessee from 'SocieteGenerale' in respect of which the assessee had entered into a one-time settlement agreement to waive 50% of the principal portion of the loan. This only reiterates the fact that the waiver of loan was only with respect to the principal portion of the loan and not the interest portion of such loan. 14.6 The ld.AR further drew our attention to Note 25.1 One Time Settlement (OTS) with 'Societe Generale' (Refer Page 18 of the financials enclosed separately) where it can be ascertained that the waiver of loan obtained from SocieteGenerale is only with respect to the principal portion of the loan and not the interest portion. The said waiver pertained to the principal portion of the loan as one-time settlement of the loan borrowed by the assessee. The Ld.AR further argued that the interest charged on such loan borrowed has been fully paid by the assessee and thus the waiver cannot be in respect of waiver of interest at all. 14.7 In view of the above, the ld.AR submitted that the addition of Rs. 23,90,00,000/- being only the prin....
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....e case of LogitronicsPvt Ltd VsCIT(2011) 333 /TR 386. The assessee in the instant case failed to furnish the details whether the loan borrowed was in the nature of loan acquired for capital assets or for working capital purposes." At the outset, the Ld.AR humbly submitted that the reliance placed by the Departmental Representative on the decision of the Hon'ble Delhi High Court in the case of Logitronics Pvt. Ltd. v CIT (cited supra) is misplaced since the said decision was overruled by the decision of the Hon'ble Supreme Court in the case of Mahindra and Mahindra cited supra to the effect that waiver of principal portion of loan would not be taxable u/s. 28(iv) of the Income Tax Act and therefore the ratio laid down in the decision of Logitronics Pvt. Ltd. v CIT (cited supra) is no longer good law. The fact that the decision of Logitronics Pvt. Ltd. v CIT (cited supra) is no longer good law and that the same has been overruled by the decision of the Hon'ble Supreme Court in CIT v Mahindra and Mahindra Ltd. (cited supra) is reaffirmed in clear terms in the decision of the Hon'ble Karnataka High Court in the case of I.G.Petrochemicals Ltd. The Ld.AR....
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....ing, no purpose would be served by referring to the judgments relied upon by the Revenue. Even otherwise, as referred to in para-6 of the written submissions filed by the petitioner dated 4-8-2023, the judgments of High Courts Logitronics (P.)Ltd. v. CIT [2011] 9 taxmann.com 302/197 Taxman 394/333 ITR 386 (Delhi); C/Tv. Ramaniyam Homes (P.) Ltd. [2016] 68 taxmann.com 289/239 Taxman 486/384 /TR 530 95 CCH 0147 Chen HC relied upon by the Revenue have been dismissed by the Apex Court in Mahindra and Mahindra (supra)." 15. Our findings on this issue: 15.1 The next ground raised by the revenue is waiver of loan of Rs. 23,91,28,611/- deleted by the ld.CIT(A). It is noted that, during the A.Y. 2018-19 the assessee has written off the 50% of loan from M/s. 'Societe Generale' and has not added in the computation of Income. The same has been added as Income by the AO while framing the assessment order holding as under: The claim of the assessee is not as per law. Even the judgement of the Hon'ble Apex court in the case of Mahindra & Mahindra relied upon by the assessee does not come to rescue of the assessee. The ground on which the Hon'ble court allowed relief to the petition....
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.... 15.6 We further observed that the Note 25.1 of the audited financials, One Time Settlement (OTS)with 'Societe Generale' where it can be ascertained that the waiver of loan obtained from Societe Generale is only with respect to the principal portion of the loan and not the interest portion. The said waiver pertained to the principal portion of the loan as one-time settlement of the loan borrowed by the assessee. The Ld.AR further argued that the interest charged on such loan borrowed has been fully paid by the assessee and thus the waiver cannot be in respect of waiver of interest at all. 15.7 In view of the above, we are of the view that the addition of Rs. 23,90,00,000/- being only the principal portion of the loan being waived cannot be taxed as income under the head profits and gains 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. The reliance made by the ld.AR upon the decision of the Hon'ble Supreme Court in the case of CIT v Mahindra and Mahindra Ltd. (supra) - wherein in respect of application of section 28(iv), which refers to 'nonmonetary' benefit or perquisite, w....