TaxTMI 
TaxTMI 
2025 (4) TMI 129
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...., cinema theatres and manufacture of blue metals and ready-mix concrete. A search u/s 132 of the Act was conducted upon the assessee on 03.03.2021 pursuant to which, his books of accounts, documents and other materials were seized and sworn statements of the assessee and other key persons were recorded. Subsequent thereto, the AO issued notices u/s 153A of the Act to the assessee for AYs 2016-17 to 2019-20 on 05.08.2021. In response, the assessee filed returns of income declaring total income at amounts higher than the total income admitted in the return of income originally filed u/s 139 of the Act. The assessee also filed the returns of income for AYs 2020-21 and 2021-22 u/s 139 of the Act. The summary of the details of income returned by the assessee is as follows: (in Rs.) Asst Year Income as per return u/s 139 Income as per return u/s 153A Additional Income offered (Disallowance u/s 37 of Act) 2016-17 3,60,50,980 4,11,73,020 4,11,73,020 2017-18 3,69,68,290 4,16,78,090 4,16,78,090 2018-19 2,14,53,290 4,32,61,150 4,32,61,150 2019-20 4,22,89,140 7,16,52,270 7,16,52,270 2020-21 6,69,66,910 15,68,56,860 8,89....
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....gainst them. The AO accordingly summarized the bulk entries, assessment year-wise, which for the sake of convenience, is summarized in the table below: Asst Year Bulk Entries identified & disallowed by AO 2016-17 28,78,75,490 2017-18 23,85,83,513* 2018-19 26,41,09,036 2019-20 37,92,16,935 2020-21 80,06,28,317 2021-22 52,69,89,703 *Due to arithmetical error, the disallowance was calculated at Rs.25,85,83,513/- instead of correct sum of Rs.23,85,83,513/- 5. According to AO, the above bulk entries debited in the books of accounts were bogus expenses and thus disallowed the same. For arriving at this conclusion, the AO referred to the voluminous vouchers in respect of 'Coolies & Wages' found during the search pertaining to FY 2020-21, which was ID marked ANN/KKP/IV/LS/S-2 to 10, ANN/JS/IV/LS/S-2 to 117 and ANN/JS/IV/LS/S-1 to 232. The AO noted that, these vouchers were self-made and contained both signed and unsigned vouchers, which according to him, raised clear suspicion regarding their genuineness. The AO further noted that, the employees of the assessee in their statements recorded u/s 132(4) of the Act had admitted that the a....
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....assessment after making the addition as proposed in the show cause, by wrongly observing that the assessee had not offered any explanation. Having regard to the foregoing, the Ld. CIT(A) is noted to have sent the explanation offered by the assessee along with certain additional evidences filed for AYs 2020-21 & 2021-22 to the AO for his comments, who furnished his remand report on 01.09.2023. After considering the findings of the AO, comments in the remand report, submissions put forth by the assessee, and taking into account the seized material and facts available on record, the Ld. CIT(A) in his exhaustive order is noted to have analyzed all the aspects and thereafter held that the disallowance of entire bulk entries as made in the assessment orders was unjustified and excessive. The Ld. CIT(A) held that, the entire bulk entries did not represent bogus expenses but at the same time inflation of expenses could not be ruled out. The Ld. CIT(A) concluded that the books of accounts of the assessee were clearly not reliable and was therefore required to be rejected. The Ld. CIT(A) is noted to have estimated the assessee's income from the construction contract business at 12.5%. Af....
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....further submitted that the re-casted Profit & Loss Account drawn up by the assessee and the net profit which was reported in the range of 10%, was proper and reasonable and thus did not warrant any interference. In support thereof, the Ld. AR relied upon the certificate obtained by NHAI which had pegged the profit margin from such construction contracts at 10%. The Ld. AR also furnished the comparative details of his peers to show that the net profit of 10% was fair and justified. The Ld. AR also relied on the decisions rendered by the jurisdictional High Court and coordinate Benches at Chennai, wherein in the similar line of business, viz., execution of road contracts, profit margin in and around the range of 5% was held to be fair and reasonable. The Ld. AR thus urged that the estimation of income by the Ld. CIT(A) at 12.5% was excessive and ought to be reduced. 10. We have heard both the parties and perused the material available on record. It is noted that, the assessee is inter alia engaged in the business of constructing road projects for National Highway Authority of India (NHAI). The books of accounts in relation to this construction contract business is noted to have be....
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....oolie & Wages 31.03.2018 17,56,51,936 Laksha Blue Metal; IVLR - Concrete; VV Enterprises; Vetri Cinemas Power / Electricity 31.03.2018 6,95,57,100 Laksha Blue Metal; IVLR - Concrete; VV Enterprises; Vetri Cinemas Site Operating Expenses 31.03.2018 1,89,00,000 Laksha Blue Metal; IVLR - Concrete; VV Enterprises; Vetri Cinemas TOTAL 26,41,09,036 2019- 20 Coolie & Wages - ODC 31.03.2019 17,30,00,000 Cash (2,87,00,000); Cash Main office (10,87,87,758); Bills & Expenses payable (11,58,05,717); Oddanchathiram Site Expenses (11,99,338) Coolie & Wages - Natham 31.03.2019 8,15,32,250 Coolie & Wages - ODC 31.03.2019 2,04,81,919 Om Sakthi Constructions- I Vetrivel (JV) Site Operating Expenses - ODC 02.08.2018 2,64,67,334 Not mentioned in the assessment order 28.02.2019 2,05,85,080 Site Operating Expenses 01.03.2019 1,12,00,000 06.03.2019 1,12,00,000 20.03.2019 2,94,19,652 31.03.2019 53,30,700 TOTAL 37,92,16,935 2020- 21 Coolie....
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....table, for the following reasons: "8.3. In the written submission uploaded to the AO on 25.03.2022, the Appellant explained that the accounting entries were not passed by his accounting staff routinely on a day-to-day basis and they used to update the books of account and pass finalization entries only at the fag-end of the statutory time allowed for filing the returns of income. He explained that the primary reason for the same is the limited availability of skilled resources in his office, which are mostly deployed for various bank works and project related works during most part of the year. As a result, very little time was devoted by the accounting staff for the maintenance and updating of accounts. As regards preparation of self-made vouchers for Coolies & Wages expenditure centrally at the head office, he explained that the maintenance of such vouchers at the work sites is not practicable and reliable as the same may lead to defalcation. 8.4. The AO did not offer any comments with regard to the said explanation of the Appellant in the remand report, though the furnishing of the written submission by the Appellant through the e-proceedings on 25.03.2022 has ....
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....enditure, unless there are other strong reasons to aid such suspicion. The submissions of the Appellant with regard to this issue at paras 8.1.1 to 8.1.3 of the written submission dated 02.05.2023 are considered to be pertinent to dissipate such suspicion of the AO. The practice of making bulk entries of expenses periodically or at the end of the year instead of making each entry of expense separately on a day-to-day basis followed by the Appellant certainly constitutes an accounting anomaly. However, the existence of such an anomaly in the books of account cannot be construed as booking of bogus expenditure by the Appellant in respect of the entire amount debited in such a manner, as sought to be done by the AO. In order to draw any inference regarding the bogus nature of the whole or any part of the expenditure represented by the bulk expense entries, it is necessary to take into consideration all other facts and circumstances of the case which have a bearing on the issue and appreciate them in a cumulative manner so that the assessment is not rendered an unreasonably high-pitched assessment. Accordingly, the other facts and circumstances having a bearing on this issue are examin....
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....erprises; Vetri Cinemas Site Operating Expenses 31.03.2018 1,89,00,000 Laksha Blue Metal; IVLR - Concrete; VV Enterprises; Vetri Cinemas TOTAL 26,41,09,036 2019- 20 Coolie & Wages - ODC 31.03.2019 11,99,338 Oddanchathiram Site Expenses Coolie & Wages - Natham 31.03.2019 Coolie & Wages - ODC 31.03.2019 2,04,81,919 Om Sakthi Constructions- I Vetrivel (JV) TOTAL 2,16,81,257 2021-22 Coolies and wages Various dates 14,78,900 Coolie and wages advance account TOTAL 14,78,900 14. The assessee is noted to have explained before the lower authorities that, such journal entries are passed at the end of the year for the purpose of transferring the amounts incurred during the year, which may have been erroneously debited to wrong ledger accounts, to the correct/appropriate ledger account, which is relevant to the concerned expenditure or for the purpose of consolidating the entries under primary ledger account....
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....prises, M/s. Vetri Cinemas and M/s. Om Sakthi Constructions - I Vetrivel (JV) in AY 2018-19 and 2019-20. 9.7 Further, the expenditure debited to "Fuel expenses - site" account and "Staff welfare expenses - others" account was transferred at the end of the year to the corresponding primary ledger accounts viz "Fuel expenses" account and "Staff welfare expenses" account respectively in AY 2017-18 by crediting the former accounts and debiting latter accounts. Such transfer was made for the purpose of merging the cost center-wise accounts into the main accounts relating to an expenditure. As can be gauged from the discussion made above, the entries of these nature cannot be regarded as bogus or non-genuine expenses by any stretch of imagination. The view adopted to the contrary by the AO is not tenable." 15. At the time of hearing, the Ld. CIT, DR was unable to rebut the above specific findings of the Ld. CIT(A). Accordingly, the disallowance of the above bulk journal entries aggregating to Rs.36,25,56,616/- added across AYs 2016-17, 2017-18, 2018-19, 2019-20 & 2021-22 is held to be unsustainable on facts. 16. Apart from the above, the AO, in AY 2019-20, is found to have....
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.... 20.11.2018 Through Bank 06.03.2019 1,12,00,000 07.03.2019 Through Bank 20.03.2019 Water Pipeline Utility shifting Future Fibres Engineering and Projects 2,94,19,652 30.03.2019 Through Bank 31.03.2019 Transportation charges RR lorry Service 53,30,700 Various date during FY 2019-20 Please see the note below* TOTAL 10,42,02,766 *Part payment through bank and part payment settled against diesel bills of the party in the other proprietary concerns of the Appellant 9.16 As can be seen from the details furnished in the table, the above mentioned entries in the 'site operating expenses' account do not represent bulk entries, as wrongly assumed by the AO. The said entries are individual entries of sub-contract expenses, where corresponding credit entries were made in the respective party accounts. The inclusion of the said entries in the bulk expense entries considered by the AO for disallowance u/s 37 is found to be based on an incorrect factual premise. Therefore, it is held that the disallowance of relevant amount of expenditure of Rs.10,42,02,766/- u/s 37 by the ....
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....versal has not been effected in the year immediately succeeding the year in which the corresponding provision was credited in the books. This anomaly in the accounts, according to us, affected the correctness and completeness of the accounts of the assessee for those years. We accordingly agree with the Ld. CIT(A) that, the books of accounts for AYs 2016-17, 2017-18 & 2019-20 did not reflect the true and correct state of affairs. 19. It is further noted that, the assessee had also passed a bulk entry for year-end provision of Rs.62,37,29,380/- in AY 2020-21 by crediting it to the "bills and expenses payable-sundries" account, which was disallowed & added back by the AO. The Ld. CIT(A) however noted that, the aforesaid sum had already been reversed/removed by the assessee in the re-casted P&L A/c for AY 2020-21, which formed the basis for the return of income filed u/s 153A of the Act for that year. Having taken note of this fact, we in principle are in agreement with the Ld. CIT(A) that, the disallowance of aforesaid bulk entry in the assessment order for AY 2020- 21 was not in order, as the same was not claimed as expenditure in the return filed u/s 153A of the Act. 20. Alth....
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....ceived from NHAI. Having regard to the percentage of work completed in the AY 2020-21, the revenues to the extent of Rs.67,96,27,285/- had only accrued and that the balance sum of Rs.71,87,23,319/- [Rs.139,83,50,604 - Rs.67,96,27,285] represented advance received during the year which was to be adjusted/ credited by way of revenues in succeeding years, as and when the work would be completed. The assessee accordingly recognized revenues corresponding to the extent of work completed i.e. Rs.67,96,27,285/- in the re-casted P&L A/c for AY 2020-21. Likewise, only those expenses which was actually incurred in relation to the work completed during the year had been debited in the re-casted P&L A/c and accordingly the provision for expenses, earlier provided, was removed therefrom. The assessee is also noted to have furnished the statement giving the year-wise break-up of the percentage of work completed, revenues recognized vis-à-vis payments received and expenditure incurred for this particular project, which was further corroborated by an engineer's certificate. The assessee accordingly demonstrated that the balance sum of Rs.71,87,23,319/- had been offered as revenues in th....
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....centage completion method. Accordingly, the Appellant has recast the P & L account for AY 2020-21 and prepared the P & L for AY 2021-22 after updating the books as per the said method. 18.13 On perusal of the remand report, it is noticed that the AO did not make any adverse observations therein with regard to the applicability of percentage of completion method of revenue recognition as per ICDS III in respect of Chettikulam- Natham project executed by the Appellant, which is a long duration project. Since it is mandatory as per the provisions of section 145(2) of the Act to follow the ICDS, it is considered that the Appellant who did not follow the percentage completion method for recognition of revenue in accordance with ICDS III in the books of accounts prior to the search, has correctly adopted the said method of revenue recognition after the search with regard to Chettikulam Natham project and arrived at the recast P & L account for AY 2020-21 and updated books of account and P & L account for AY 2021-22 in accordance with the said method. Hence, it is held that the adoption of percentage completion method for recognition of revenue by the Appellant, which is in accor....
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....tion of the work as on the earlier dates i.e. 31.03.2020 and 31.03.2021 was assessed by them. However, since such assessment has been made by the engineers not merely based on physical examination of the project at a later date but also based on the discussion with the project engineers vis-à-vis the specification of the works and examination of adherence to designs, plans etc, it needs to be considered that the said assessment has been made on the basis of scientific principles of valuation. In view of the methodology adopted for estimating the extent of completion of work in the engineer's certificates as stated therein, it is incorrect to assume that the engineers have solely relied on the cost/expenditure incurred on the project as recorded in the books of account as on 31.03.2020 and 31.03.2021 for the said purpose. 18.16 In the remand report, the AO pointed out that it has been stated in the engineer's certificates that the amount of estimated actual cost incurred is calculated on the basis of the amount of total estimated cost. In the said context, the AO referred to the following qualifications given in the notes to the engineer's certificates to....
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.... claimed either as per the return of income filed u/s 139(1) of the Act or as per the recast P & L account. The AO made similar remarks on comparing the revenue and various expenses as per the seized tally data as on the date of search with that of the P & L account filed with the return of income u/s 139 of the Act based on updated books of account in respect of AY 2021-22. 18.19 The explanation furnished by the Appellant in the Rejoinder in respect of the said observations of the AO have been carefully examined and the same have been found to be acceptable. As correctly explained by the Appellant, the increase/decrease in the amounts of various expenses in the recast P & L account is due to the re-alignment of expenses in respect of the heads of expenses such as "coolies and wages", "site operating expenses" and "purchases" (of gravel and aggregates). The circumstances which necessitated the re-alignment of expenses effected by the Appellant has already been discussed in detail earlier in this order and the same has been held to be justified. Apart from the re-alignment, the Appellant also has effected reclassification/re-grouping of certain expenses from direct expenses....
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....n of percentage completion method of revenue recognition. The balance amount of disallowance proposed by the AO for AY 2020-21 after the removal of the provision for expenses amounted to Rs.17,65,97,837/- and the said amount pertains to the "coolies and wages" expenditure. The entire amount of disallowance proposed by the AO for AY 2021-22 of Rs.52,69,89,703/- also pertains to "coolies and wages" expenditure. 18.22 As mentioned by the AO himself in the assessment order, the Appellant maintains self-made vouchers in support of the "coolies and wages" expenditure debited in the books and such self-made vouchers pertaining to the FY 2020-21 were found and seized during the course of the search. The "Coolies and wages" expenditure in respect of which the self-made vouchers were prepared by the Appellant are of such a nature that it is not practically possible to have third party vouchers from the concerned workers at all times. In view of such practical difficulties in obtaining third party vouchers, there is no alternative to the Appellant other than supporting the expenses under the head "Coolies and wages" with self-made vouchers. As explained by the Appellant, the said vou....
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.... method for recognition of revenue by the Appellant for the Chettikulam Natham project from AY 2020-21 onwards by effecting a change in the method followed so far is justified in law and the facts of the case. It is held that the percentage completion of work determined for the AYs. 2020-21 and 2021-22 based on the engineer's certificates is reliable and acceptable. Consequently, it is held that the revised turnover as per the recast P & L account for AY 2020-21 and the P & L account for AY 2021-22 prepared based on the updated books of account on adoption of the percentage completion method is required to be taken in to consideration." 24. We also agree with the Ld. AR that the AO had not disputed the revenues credited and the re-alignment of expenses in the re-casted P&L A/c, and therefore the dispute now being raised by the Ld. CIT, DR does not emanate from the assessment order of AY 2020-21. Instead, the scope of adjudication in the appeal for AY 2020-21 before us, is limited to the extent whether the bulk provision of Rs.62,37,29,380/- disallowed by the AO is tenable or not. As held above, since there was no such debit of year-end bulk provision in the re-casted P&L A/c....
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....A) that no further disallowance in this regard was warranted. 27. Now we come to the remaining bulk entries of Rs.105,46,85,268/- [21,50,88,870 + 13,74,87,758 + 17,65,97,837 + 52,55,10,803] passed in respect of cash payments debited under the head 'Coolie & Wages'. Before the Ld. CIT(A), the assessee had explained that, though the relevant cash expenses were incurred on a day-to-day basis, the entry with regard to the same was passed by the accounting staff in a bulk / aggregate manner at the end of the year or periodically, and the reasons for doing so has already been taken note of at Paras 11 & 12 above. The Ld. CIT(A) is noted to have found this explanation to be plausible by observing as under: - " ... By its very nature, the Coolies and Wages expenditure is incurred on a day-to-day basis and the payment towards the same are made in cash either on a daily basis or a weekly basis in contracts business. Hence, the mere fact that the corresponding credit for the bulk expense entries debited to "Coolies and Wages" account is given to cash ledger account does not give any adverse indication regarding the genuineness of such expenditure. Moreover, the AO did not ....
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.... being transferred by way of journal entry at the year-end to the respective heads. The Ld. AR however showed us that, the expenses incurred for purchasing gravel & aggregates was not initially bifurcated but was only done later at the time of drawing up re-casted P&L A/c for the purposes of filing return of income u/s 153A of the Act. In this regard, the Ld. AR invited our attention to the statement recorded u/s 131 of the Act on 11.06.2021, wherein the assessee had stated that the projects being executed by him for NHAI required the laying of roads at a much higher level than the original ground level viz., the finished road level fixed under NHAI projects ranges from 5 ft to 35 ft from the original ground level. Due to this, the assessee had to incur substantial expenditure towards procurement of gravel and aggregates, which are required for raising the ground level. The assessee had accordingly stated before the Investigating authority that, he had incurred more expenses towards gravel and blue metal (collectively called as aggregates) than the amount recorded under the relevant head of expenditure in the books of account, which was debited under the head 'coolies and wages....
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....tralize the preparation of self- made vouchers in order to have stringent internal financial control. Further, the "Coolies and wages" expenditure in respect of which the self-made vouchers were prepared at the head office are of such a nature that it is not practically possible to have third party vouchers from the concerned workers at all times. In view of such practical difficulties in obtaining third party vouchers, there is no alternative to the Appellant other than supporting the expenses under the head "Coolies and wages" with self-made vouchers. As explained by the Appellant, the said vouchers were prepared on the basis of the disbursement sheets received from the site offices and this fact has not been disputed by the AO. Moreover, the AO did not independently assess and quantify the extent of expenditure under "coolies and wages" involved for the magnitude of work carried out by the Appellant. In view of these reasons, the mere act of preparation of self-made vouchers at the head office in respect of "Coolies and wages" cannot be regarded as an adverse conduct designed with the sole purpose of booking bogus expenses under the said head of expenditure. 10.2 Conseq....
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.... of spending towards "coolies and wages" in comparison with the percentage of spending towards "purchases" and "site operating expenses". 15.4 The explanation furnished by the Appellant, as outlined in the preceding paragraphs, is considered to be acceptable having regard to the facts and circumstances explained by him including the statement of the Union Minister which appeared in the press. In view of improper recording of the expenditure incurred towards purchases of gravel and aggregates under the "coolies and wages" account in the absence of proper bills and payment of consideration for the said items in cash, it is apparent that the expenditure recorded under the head "coolies and wages" in the books of account is excessive and the expenditure recorded under the heads "purchases" and "site operating expenses" is understated. As a result, the excessive expenditure recorded under the head "coolies and wages" has wrongly conveyed the impression of being bogus in nature, though such excessive expenditure is actually represented by the expenditure incurred towards purchase of gravel and aggregates. Further, the under- statement of the expenditure shown under the heads "pu....
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....f expenses does not affect the net profit as per the P&L account, which continues to remain the same. The re-alignment has resulted in inter-se modification of the expenditure debited under certain heads of expenditure and there is no change in the total expenditure debited to the P&L account. The total of the relevant expenditure before and after the realignment are the same as tabulated above. 15.8 For the purpose of carrying out the re-alignment of expenses in respect of the heads of expenditure as shown above, the Appellant has taken the aid of the proportion of various heads of direct expenditure within the total direct cost in a project as stipulated by NHAI in the price adjustment clause of EPC contracts awarded by it to the Appellant. The copies of the documents containing such price adjustment clauses have been furnished by the Appellant to the AO along with the written submission electronically uploaded on 25.03.2022. 15.9 On perusal of the price adjustment clause in the EPC Agreement of Chettikulam - Natham Project awarded to the Appellant by NHAI, it is noticed that the percentages of various direct expenses in the total direct expenditure have been sp....
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.... 10% 10% 10% 10.00% 100.00% 15.11 As can be seen from the above, the average percentage of cost of Purchases / site operating expenses, Cost of other materials, Coolies & wages and Fuel & lubricants works out to 36%, 36%, 18% and 10% respectively in the total direct cost as per the specifications of NHAI in the price adjustment clause. The "other materials" shown in the table above represent the cost of purchase of other materials such as gravel and aggregates. The Appellant has adopted the above- mentioned average proportion of various heads of direct expenses as the basis for effecting re-alignment of expenses. The details of percentage of various heads of expenditure in the total direct expenditure before and after the re-alignment have been furnished in the tables below: Percentage (%) Major Expenses Average Indicative Cost embedded in NHAI's EPC Projects as per agreement Indicative Cost Converted to 90% leaving a margin of 10% AY 2016-17 AY 2017-18 After Realignme nt Before Realignme nt After Realignme nt Before Realignme nt....
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....ounding facts and circumstances are found to further support the assessee's plea that, the entire bulk expenses debited under the head 'Coolie & Wages' cannot be said to be bogus. 33. It is also not in dispute that the assessee had actually executed and delivered the road projects and therefore understandably he would have indeed incurred the above expenses on 'coolie & wages'. Moreover, the addition on account of bogus expenses in cash aggregated in excess of Rs.105 crores and if that be so, then some unaccounted assets or unaccounted investments relatable to the disallowance would have been found or unearthed by the Investigating authorities. It was brought to our notice that, search did not result in unearthing of any excess cash, jewellery, bullion or any other valuable article or undisclosed investment. Also, no evidence of any unexplained cash expenditure, parallel books of accounts etc. was found. We thus find merit in the Ld. CIT(A)'s observations that, in the absence of unearthing of any evidence during the search regarding the deployment of huge quantum of undisclosed income alleged to have been generated by the assessee by booking of bogus expe....
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.... that he was not allowed to seek technical assistance of any professional and to check the facts with his accounts team and the investigation team required him to sign the statements prepared by them without any deviation. He pointed out that the investigation team made allegations on various counts including misappropriation of funds by booking bogus expenditure to the tune of hundreds of crores during the course of recording of the statement by using technical and accounting jargon which could not be understood by him at all. He stated that he was thoroughly confused and fell into a perturbed state of mind due to prolonged ordeal since the search proceedings continued non-stop from 03.03.2021 till the wee hours on 06.03.2021. He stated that since he was suffering from hypertension and was subjected to continuous grilling for more than 3 days, he was totally exhausted, mentally disturbed, emotionally down and he could not think of anything else except to bring an immediate end to the on-going search by signing the sworn statements which were recorded as per the interpretation of the investigation team with regard to the seized tally accounts and the impugned entries therein. He cl....
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....11.06.2021 under the said circumstances. 11.4 The Appellant stated that subsequent to the final closure of the search proceedings in June 2021, he was under tremendous pressure to cope up with the project schedules that were behind the milestones for completion on account of covid situation and any further delay in delivery and completion of work would have jeopardized his entire business, including payment of damages to the Government. He stated that since many of his site engineers, who are from North India, left for their home town and could not return due to the covid pandemic, he had to single handedly manage the affairs of his business during the said period. He stated that his internal auditor was also affected by covid in the meantime and could not attend to the office for nearly 3 months. He explained that though he knew that the contents of the sworn statements were not true at the time of deposition itself, he wished to obtain necessary inputs from his accounting team and project engineers in respect of the expenditure incurred in the projects in comparison to the Bill Of Quantity (BOQ) and the Government estimates of the expenditure for the said projects. He ex....
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....itself cannot lead to any adverse inference against the Appellant, as already discussed in detail earlier in this order. In the assessment orders, the AO sought to rely on the sworn statements recorded during the search in order to assist his inference that such bulk expense entries were made with a view to book bogus expenses. Hence, the contention of the AO that the facts and findings with regard to the transactions of bulk expense entries are evident on mere perusal of the seized tally accounts without any aid from the sworn statements cannot be regarded as acceptable. 11.7 In view of the aforesaid discussion, it is held that the retraction statements have to be given due consideration in conjunction with other evidences and material available on record for the purpose of drawing appropriate inferences with regard to the entries in the seized accounts. It is a settled law as per the decision of the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 that "though an admission is an extremely important piece of evidence, the same cannot be said to be conclusive and that the maker of the statement can show that it....
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....find that this particular aspect has been dealt with by the Ld. CIT(A) who noted that, these cash withdrawals had no relevance to the facts of case. The Ld. CIT(A) found that, no part of the bulk entries of Rs.26,41,09,036/- disallowed by the AO in AY 2018-19 comprised of any corresponding entry to 'Cash' Account. Rather these bulk entries only pertained to corresponding credit entries to other ledger accounts, which we have already dealt with at Paras 13 to 15 above, and held these bulk entries to have no co-relation with 'Cash' Account for A.Y 2018-19. Likewise, in AY 2019-20, out of the total addition of Rs.37,92,16,935/-, the bulk entries where there was a corresponding credit to 'Cash Account' was only Rs.13,74,87,758/ -. We thus countenance the Ld. CIT(A)'s finding that, the cash withdrawals from the bank account in AY 2019-20 i.e. Rs.36,29,35,000/- was sufficient to cover these bulk entries of cash expenses of Rs.13,74,87,758/ -. The relevant findings of the Ld. CIT(A) in this regard are noted to be as under :- "12.1 Based on the said data, the AO held that it is evident that the cash withdrawals from the bank account are in agreement wit....
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....annot be said to constitute debit of bogus expenses in its entirety. To that extent, we are in agreement with the appellate order of Ld. CIT(A). 40. The next argument of the Ld. CIT, DR was that, in case these bulk entries are not held to be bogus, then these bulk entries ought to be disallowed either under Section 40A(3) since these expenses were incurred in cash or because the assessee had violated the provisions of Section 40(a)(ia) of the Act by not deducting tax at source on such expenses. As rightly noted by the Ld. CIT(A), the expenditure incurred in cash amounted only to Rs.37,61,67,612/- (in AYs 2016-17 to 2019-20) and Rs.70,21,08,640/- (in AY 2020-21), out of the aggregate disallowance of Rs.118,97,84,974/- & 132,76,18,020/- for A.Ys 2016-17 to 2019-20 and AYs 2020-21 & 2021-22 respectively. Accordingly, the provisions of Section 40A(3) of the Act had no relevance and applicability to the extent of bulk entries of Rs.143,91,26,742/- [81,36,17,362 + 62,55,09,380]. 41. Out of the remaining sum, the Ld. CIT(A) rightly noted that, the expenditure to the extent of Rs.2,35,90,984/- debited under the heads "Fuel Expenses-Diesel" account and "Repairs and maintenance-vehicle....
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.... / power / electricity" and expenditure of Rs.0.41 crores incurred towards "Staff welfare expenses", as the nature of the said expenditure does not invite any legal obligation to make TDS. Similarly, since the "site operating expenses" which include expenses in the nature of consumables, spares, water spraying expenses, loading & unloading expenses etc., are not liable for TDS, the provisions of section 40(a)(ia) of the Act are not applicable in respect of the relevant expenditure of Rs. 12.31 crores. In view of these reasons, it is held that the provisions of sec 40(a)(ia) of the Act are not attracted to the expenditure represented by the bulk expense entries debited in the books of account and the finding given by the AO in this regard without citing any supporting reasons is not tenable on facts and in Law." 44. For the above reasons therefore, the contention of the Revenue that the bulk entries ought to be otherwise disallowed u/s 40A(3) and 40(a)(ia) of the Act is rejected. 45. We now take up the issue of rejection of the books of accounts of the assessee and the estimation of profits. From the facts as discussed above, it is not in dispute that, the assessee was passing....
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....e been satisfactorily explained by the Appellant. 19.1 One of the accounting anomalies in the case of the Appellant is the debiting of aggregate / bulk expense entries in the books of account in respect of heads of expenditure such as 'Coolies & Wages', 'Site Operating Expenses', 'Fuel Expenses', 'Staff welfare expenses' and 'Repairs & Maintenance Expenses'. The incidence of such bulk entries result in distortion of the accounts, in as much as the bulk entries take the place of individual entries of separate transactions and consequently, the accounts do not reflect the correct picture of the financial transactions as they occurred in reality. The recording of expense entries in an aggregate manner prevents proper verification of the correctness of the entries of such nature made in the accounts, as the identity of the individual transactions which were aggregated to make the bulk expense entries is not ascertainable. As several individual transactions which have occurred over a period of time are substituted by an aggregate entry, the accounts having such bulk entries of expenses cannot be construed as correct and complete accounts,....
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....tablishes that the purchase of gravel and aggregates have been claimed as "coolies and wages" in the absence of proper bills for their purchases. Further, it is noticed that the proportion of various cost components after realignment of expenses by the Appellant is not in strict consonance with the proportion stipulated by NHAI, though the same is in close proximity to the same. 19.5 In view of the aforesaid reasons, it is evident that the books of accounts of the Appellant in relation to his contracts business are not correct and complete and income cannot be correctly deduced from the said accounts. The said books of account do not facilitate arriving at the true and correct profits of the Appellant and consequently, it is held that the books of account are required to be rejected and the income of the Appellant from the business of contracts requires to be estimated by invoking the provisions of section 145(3) of the Act. The said rejection of books and estimation of income is also justified in the facts of the case having regard to the abnormally high and unrealizable rate of Net profit assessed by the AO in the assessment orders for the assessment years under consider....