TaxTMI 
TaxTMI 
2025 (7) TMI 1486
X X X X Extracts X X X X
X X X X Extracts X X X X
....fructuous. 4. The issue raised by the assessee through ground No. 4 of its appeal is that the Ld. CIT-A erred in confirming the disallowance of labour expenses amounting to Rs. 16,57,35,000/- made by the AO relying on the statement recorded during the search. 5. The relevant facts are that the assessee is a private limited company and engaged in the construction business through engagement of direct labour and subcontractors. The assessee company was subject to search proceedings under section 132 of the Act dated 07-10-2021 to 11-10-2021 which covers the business premises as well as residential premises related to its Managing Director (MD), namely Shri Pichakal Venkateshwar Roa (in short Shri PV Rao). The search and survey in relation to impugned search was also extended to the other related person of the assessee such as sub-contractors, Internal Auditor etc. 6. During the course of search proceedings, certain documents were found and seized which were marked as annexure A/ACPL/01. The pages 37 and 38 of said annexure contain certain cash transactions. A question in this regard was asked to the treasure of the assessee company, namely Smt. Mamtha CK while recording her ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etty purchases and weekly wage payments at the sites, while the cash withdrawal at the head office was minimal and confined to petty expenses and office maintenance. It is important to note that the percentage of cash withdrawals to turnover was very minimal, ranging from only 0.37% to 1.11%, indicating that cash usage was exceptionally low relative to the size of operations, and well within reasonable limits for the construction industry. Furthermore, detailed records of cash payments were maintained, and the majority of labour expenditures were made through cheques while cash payments forming only 1.13% to 3.08% of total labour expenses during the relevant years. 10. It was further submitted that books of accounts were duly audited under section 44AB of the Act, and no discrepancy or adverse comment regarding cash withdrawals was noted by the statutory auditors. During the course of the search operation, due to severe stress, personal bereavement caused by the death of the assessee's elder brother just a week before the search i.e. as on 30th September 2021 and his 11th day death ceremony pooja on 10th October 2021 falling during the search (7th to 11th October 2021), and due ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h, one of the subcontractors and key persons of the assessee company, were also covered under the search where signed cheque books of the subcontractors of assessee company were found and the statement u/s 132(4) of sub-contractor was also recorded. Shri Subhash admitted that the cheque books were kept on the direction of MD of the assessee company Shri PV Rao and after encashing the cheque, the cash was handed over to the messenger of Shri PV Rao. The statement of sub-contractors Shri Subhas, when confronted to Shri PV Rao, he admitted that the cash was generated through these types of transactions in order to meet the cash requirement to obtain the government contracts and to clear the bills for early payments. Identical material of over invoicing and cash paid back was also found from one of the subcontractors namely Shri Umashankar and the same was accepted by MD Shri PV Rao. Similarly, during the course of search proceedings of the residential premises of Mr. CH Ravi (close associate of MD Mr. PV Rao), several loose sheets specifically pages 1 to 8 and 14 to 18 were found and seized from a folder marked with annexure A/CHR/01 which contains the transactions of the assessee com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt aggregating to Rs. 15,10,85,000/- only. However, the assessee also withdrawn cash of Rs. 1,46,50,000/- after 11th October 2019. Hence the AO quantified the cash amount paid for illegal purpose and personal expenditure at Rs. 16,57,35,000/- (15,10,85,000 + 1,46,50,000). Accordingly, the AO disallowed the said amount under section 37 of the Act and added to the total income of the assessee. 13. The aggrieved assessee preferred an appeal before the learned CIT(A) who confirmed the addition made by the AO by observing as under: 5.4 The facts of the case as enumerated above, the appellant's written submission, the assessment order and material available on record have been carefully perused. The appellant's major contention seems to be that statements were forcefully recorded and that the admission given by the MD PV Rao has been retracted and no inferences have been drawn from certain loose sheets which form part of the seized material. 5.5 Not only with respect to these grounds of appeal, but in general for all the grounds, the appellant insists that the statements were forcefully taken and therefore, they cannot be made a basis for additions. It would be of no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... labour expenses without specifying how such a conclusion was derived. Contrary to this assertion, the appellant provided a detailed tabular statement before the learned CIT(A) (refer to page no. 133 of PB-III), showing site-wise cash withdrawals and expenses, including for project sites in and around Bangalore. It is unjust to demand further proof of cash transfers to sites when the disbursement was made directly by the Managing Director (MD), Shri P.V. Rao. 15.1 Furthermore, the leaned AR emphasized that the non-availability of bills and vouchers during the search cannot be a basis for drawing adverse inference, as the relevant labour registers were already audited, examined, and no adverse remarks were made. The learned AR also claimed that these registers were not specifically requested during the search and at that they were available at the appellant's offices and project sites. 15.2 Regarding the statement of Smt. Mamatha, the learned AR contended that her admission lacks evidentiary value as she was neither shown any books nor confronted with any evidence of bogus labour expenditure. Her limited role was confined to payment control, and she had no access to or kno....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... official by issuing notices. Yet the AO made blanket allegations. Likewise, the AO also did not find the quantum of personal expenditure except for Rs. 4.85 lakh against the gold purchases. Therefore, in the absence of any finding, the inference drawn by the AO that labour expenses incurred in cash are of personal nature or payment to government official is unjustified. 16. On the other hand, the learned DR filed the written submission supported by the report of the AO. The learned DR before us contended that there were found incriminating materials suggesting the cash received by the assessee against the expenses and accordingly such expenses cannot be relied upon. Similarly, the MD of the company and the other employees of the company in their respective statement have accepted the modus operandi for booking the bogus expenses so as to make the payment for illegal activities. Thus, such expenses cannot be allowed as business expenses. The learned DR vehemently supported the order of the authorities below. 17. We have heard the rival contentions of both the parties and perused the materials available on record. The main issue before us is whether the disallowance of Rs.16,5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....payments were unavoidable. 17.4 We also note that the AO and learned CIT(A) have relied mostly on loose sheets and oral statements. In our considered opinion these alone, without clear and direct evidence, are not conclusive proof that the entire cash withdrawal was used for personal or illegal purposes. It is also important to note that the seized papers were not always found from the assessee's premises. As such some were found from the premises of subcontractors or associates. These facts also reduce the evidentiary value of such materials. 17.5 Be that as may be, it is true that there are some gaps and suspicious patterns regarding the working of the assessee and genuineness of the expenses. But there is no conclusive proof that the full amount withdrawn was misused. It would therefore not be fair to treat the entire amount of Rs.16.57 crore as non-business in nature. Therefore, to balance the interests of justice, we are of considered view that disallowances of certain percentage of alleged bogus expenses will serve justice to both the assessee and the revenue. Accordingly, we hold that some portions of the cash withdrawals were not properly explained. At the same time, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e also found from the corporate office of the assessee (ACPL) marked as annexure A/ACPL/02 pages 302 to 306. The impugned sheet contains 4 columns being Date, Receipt, amount and Cumulative amount which shows that the amount on certain date was received from certain parties whose names were written therein in the receipt column. These pages were confronted to internal Chartered Accountant of the assessee company namely Shri Lakshmikanta R to which, he identified that parties whose name appeared therein, the assessee has been carrying on transactions with these parties. The impugned sheet also contains the name of M/s Avexa (interpreted as M/s Avexa) demonstrating an amount of Rs. 17.50 crore received on different dates between 25th March 2019 to 18th October 2019. In other words, receipts of Rs. 6 crores pertain to F.Y. 2018-19 and the remaining amount of Rs. 11.5 crores pertain to F.Y. 2019-20 i.e. year under consideration. 19.3 The impugned sheet, statement of Shri CH Ravi, Shri Lakshmikant R and finding of survey carried out at M/s Avexa along relevant statement of its MD Shri Jogeswar Rao was confronted to the MD of the assessee company namely Shri PV Rao as on 9th December ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterprises, and M/s Tanisha Infrazone Private Limited to clarify the transactions with the assessee company. However, no response was received. It also noted that the company M/s Tanisha Infrazone Private Limited has not filed its return for the year under consideration and it has reported the Nil revenue and Nil fixed assets in its income tax return filed for the A.Y. 2018-19. Thus, the AO in view of the above issued the show cause notice proposing to disallow the sum of Rs. 80,14,67,379/- being subcontract expenses paid during the year to M/s Avexa under section 37 of the Act. 19.5 In response to the show cause notice, it was submitted that the seized material was found from the possession of Shri CH Ravi who used to work in association with the appellant company but due to the difference, he was terminated and at the time of search he was working independently as a competitor. Later on, Shri CH Ravi has also filed affidavit with DDIT(Inv) intimating the facts that the alleged documents do not belong to the assessee company. Further, the assessee contended that the payment made to M/s Avexa was for the subcontract work carried out by it and in accordance with the invoice raise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her contended that subcontract to M/s Avexa was awarded in relation to the Government work contract which would not have been completed without the subcontract being executed by the said party. The party M/s Avexa has declared turnover of Rs. 128 crores which included Rs. 80.14 crores received from the assessee company and on the turnover of Rs. 128 crore declared profit of Rs. 7.3 Crore which is 5.8% of the Turnover. Accordingly, the assessee claimed that if the party M/s Avexa only provided accommodation entry then such a profit ratio of 5.8% would not be possible. Further, the assessee again reiterated the submission made during the assessment proceeding. The assessee in support of its claim furnished the copy of affidavit of the MD of M/s Avexa, copy of assessment order of M/s Avexa for A.Y. 2020-21, Financial statement of M/s -Avexa for A.Y. 2020-21, Form 26AS of the M/s Tanisha Infrazone Pvt Ltd and m/s Haigreeva Projects ltd for A.Y, 2020-21 showing no entry from M/s Avexa and the copy of Government Form 27 being lumpsum contract running account for work -commenced on 07-09-2017 along-with the copy of work completed certificate up to 15-04-2022 for a value of Rs. 525.22 Cror....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... other than what is available on record. - The claim of the assessee that M/s Avexa carried subcontract work but no documents showing the nature and detail of expenditure incurred for carrying out such subcontract has been provided. - The MD of M/s Avexa has categorically accepted that the funds received from the assessee were immediately transferred to the three 3 entities who in turn give back the cash. Notices under section 133(6) of the Act issued to those entities but no reply received. Therefore, the AO has no option but to presume those entities as bogus. - The fact that Form 26 of Avexa does not reflect the entries in the name of the said parties which strengthens the view that those entities are entry providers only. - It is not the case that the assessee has not carried out the work contract for the Government. The addition has been made for the claim of bogus expenditure based on the material found showing the cash received back. 27. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 28. The learned AR before us respectfully submitted that the AO wrongly treated the sub-contracts awarded by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., and there was no evidence of any money trail connecting them to the assessee. Additionally, the Form 26AS of these parties showed no payments received from M/s Avexa, disproving the AO's theory that money was routed through them and returned to the assessee. 28.4 The learned AR emphasized that the learned CIT(A) also failed to apply independent reasoning. The learned CIT(A) merely echoed the AO's findings without examining the voluminous documentary evidence submitted by the assessee. The observation that the assessee failed to submit ledgers or bank proofs was incorrect, as those documents were already on record. The claim that absence of 26AS entries proves bogus transactions was also misguided, especially when M/s Avexa's own filings and departmental assessments support the genuineness of the work. 28.5 Finally, the learned AR submitted that the entire basis for the addition was a single retracted statement and unrelated loose papers. No direct evidence was found or presented to show that the subcontracts were not executed. The learned AR reiterated that all required documents were submitted, the payments were made through banking channels, the projects were completed, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... request of the assessee was denied by the AO and the learned CIT(A) which in our considered opinion constitutes violation of principle of natural justice. The right to cross-examination is a fundamental facet of natural justice. We note that the AO held that the assessee raised this issue belatedly, but the fact remains that the learned CIT(A) also proceeded without affording that opportunity. In our considered view, while the absence of cross-examination may not render the entire assessment void, it does weaken the case of the revenue to use the same against the assessee. 30.4 Thus, relying on a survey statement made in the absence of any incriminating document and without cross-examination is not legally sustainable. The statement cannot, on its own, be treated as conclusive evidence of bogus transactions. 30.5 Further, the Revenue has placed heavy reliance on certain loose sheets (pages 303 to 306 of Annexure A/ACPL/02), which allegedly record cash receipts from various parties, including M/s Avexa. However, we find that these loose sheets mention several parties, yet action has been selectively taken only against a few. For instance, name such as 'Venkatakrishna, 'Venkat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....identiary value and were used selectively. On the other hand, the assessee has provided documentary proof of the subcontract and its execution. 30.10 We, therefore, hold that the addition of Rs. 80.14 crore is not justified, and we accordingly set aside the finding of the learned CIT(A) and direct the AO the delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed. 31. The next issue raised by the assessee through ground Nos. 6.1 to 6.4 of the appeal pertains to the disallowance of purchases from M/s Triveni Enterprises to the extent of Rs. 17,84,58,955/- only. 32. The relevant facts are that during the course of search (dated 7 October 2021), certain loose sheets, found from the corporate office of the assessee company, marked as page 302 to 306 of annexure A/ACPL/02, were containing details, suggesting receipts from various parties on different dates. One of the parties appearing in the impugned sheet was M/s Triveni Enterprises (a partnership firm), which supplied steel to the assessee company. As per the impugned sheet, a total of Rs. 25,27,00,000/- was received from M/s Triveni Enterprises between 22nd March 2019 to 19th October 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o give to others for smooth functioning of the project. Therefore, the AO, in view of the above discussion disallowed the purchases of steel from M/s Triveni Enterprises for Rs. 20,84,00,000/- and added to the total income of the assessee. 33. The aggrieved assessee preferred an appeal before the learned CIT(A). 33.1 The assessee before the learned CIT(A) reiterated that the seized materials marked as 302 to 306 cannot be relied upon as the same does not constitute evidence. The assessee also contended that there was no one-to-one correlation between payment made to M/s Triveni Enterprise and the amount recorded in the seized materials. The assessee further submitted weigh slip is not a statutory obligation, therefore the absence of same cannot make the purchase as not genuine. The assessee claimed sales made by the M/s Triveni Enterprises have been accepted in the assessment order passed in its case. Accordingly, the assessee prayed that the addition made by the AO is not justified and required to be deleted. 33.2 The assessee further submitted that delivery of purchases for an amount of Rs. 6,58,29,759/- was not made from the M/s Triveni Enterprise godown but the same wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is in appeal against the deletion of part of the addition. The relevant ground of appeal of the revenue in ITA No. 1190/Bang/2024 reads as under: "3. Whether on the facts & circumstances of the case, the Id. CIT (A) was correct to restrict the addition to Rs. 17,84,58,955/- made on account of nongenuine purchase from M/s Triveni Enterprises" 35. The learned AR before us respectfully contended that the disallowance of purchases amounting to Rs. 17,84,58,955/- from Triveni Enterprises by the AO and upheld by the learned CIT(A) was unjustified. The primary ground for disallowance was the alleged non-availability of LR/Weighment slips, entry in/out register. However, the ld. AR pointed out that weighment slips are not mandatory documents to establish the genuineness of purchases, and they merely serve as a corroborative measure to confirm the quantity dispatched. The absence of such documents, particularly after a delay of 18 months from the relevant financial year, cannot be the sole basis for treating genuine transactions as bogus. 35.1 The learned AR emphasized that the supplier, M/s Triveni Enterprises, had provided detailed reasons for the non-availability of certai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....58,29,759/- for bill-to-bill sales without acknowledgment slips and Rs. 17,84,58,955/- for godown sales without any documents. However, the learned CIT(A) only disallowed Rs. 17,84,58,955 and gave relief for the rest. This was wrong because even the bill-to-bill sales had no supporting proof. 36.1 Further, the documents given by the assessee were not enough to prove that the purchases were real. A few affidavits and some weight slip only covered a very small part of the total amount. The assessee could not prove its case even after being given several chances during the assessment and post-search investigation. 36.2 The learned DR further said that the entire amount of Rs. 20,84,00,000 should have been disallowed. There was no valid reason to allow the sum of Rs. 6,58,29,759 separately. Since, the documents were missing for all types of sales, it was not right to treat one part differently. The search on M/s Triveni Enterprises clearly showed that all genuine sales had to have proper documents like weighment slips, lorry receipts, and acknowledgment slips. The assessee failed to prove that these were genuine transactions. Hence, the CIT(A)'s decision to give partial relie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o lack of documentary support for physical movement of goods. This shift in reasoning without giving the assessee a fair opportunity to respond to the new basis is procedurally unjust and reflects inconsistent application of law by the authorities below. 38.4 The assessee has produced substantial evidence in support of the purchases, including tax invoices, e-way bills, ledger accounts, and confirmations. The supplier, M/s Triveni Enterprises, has admitted to the sales and explained the missing documents. The missing weighment slips and delivery records are operational documents, and not statutory requirements. Given the passage of time, the absence of such documents cannot be used to discredit the entire transaction. The ld. CIT(A) himself has accepted that supplies amounting to Rs. 6.58 crore were directly sent from the manufacturer, and hence those documents were understandably not available at the godown. The same logic should apply to the balance amount as well, particularly in the absence of any finding that goods were never received or that payment was returned in cash. 38.5 We also note that there is no concrete evidence on record to show that the purchases were bogus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g documents such as LR, Freight voucher, weigh slip etc. were provided for sale value of Rs. 16,25,03,876/- only. This fact was confronted to Shri Lakshmipath Surana to which he stated there is some discrepancies regarding the supporting document, but the sales made to the ACPL (assessee company) were genuine and agreed to provide the necessary supporting document later on. 39.3 Thereafter, summons issued to the MD of the assessee company Shri PV Rao and findings from survey at M/s Ratan Trading Co was confronted to him to which he stated to provide details to substantiate the genuineness of the transaction in due course of time. 40. However, the AO during the assessment proceeding found that neither the assessee nor M/s Ratan Trading Co. has provided the supporting documents to substantiate the genuineness of the sale/purchases. The AO further found that the assessee in response to show cause notice has submitted few invoices along with LR & weigh slip but the same are not sufficient enough to establish the genuineness of purchases of Rs. 16,25,03,876/- only. Hence, the AO disallowed the purchases to the said extent and added to the total income of the assessee. 41. The a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... premises to suggest bogus purchases, and none of the recorded statements indicated any such purchases from the said party. The disallowance was made merely in the absence of LRs, which does not hold any evidentiary value, especially when corroborative documents such as invoices, e-way bills, and ledger confirmations were provided. Further, the ld. AR pointed out that the materials purchased were utilized in Government infrastructure projects like the BDA, NPKL Project and VJNL Canal work, supporting the genuineness of the transactions. It was also submitted that for the subsequent assessment year 2021-22, no disallowance was made by the same AO under similar circumstances, indicating an inconsistent approach. Further the learned AR asserted that despite all relevant documents being submitted, the learned CIT(A) confirmed the disallowance without properly verifying the evidence, which is unjust and legally unsustainable. 44. On the other hand, the learned DR before us contended that M/s Sri Ratan Trading Co., one of the suppliers of the assessee (ACPL) made total sales of Rs.17,10,76,549/- only. However, no supporting documentation was furnished by either ACPL or M/s Sri Ratan T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvey and later through a sworn affidavit during the assessment proceedings. 45.3 We further note that the assessee has submitted certain invoices along with LR copies and weigh slips in support of the purchases, even though all the documents may not have been available. In our considered opinion, the lack of complete paperwork is a procedural deficiency, but it cannot alone be construed as evidence of bogus purchases, specially in the absence of any incriminating material found or brought on record suggesting false purchases. It is also significant to note that in the subsequent assessment year, purchases from the same supplier have been accepted as genuine by the Department, which supports the continuity and authenticity of the business relationship. Therefore, considering all the above, we hold there is no concrete material establishing that the impugned purchases were not genuine or that any unaccounted transactions took place. The consistent stand of both the assessee and the supplier, absence of contrary evidence, and the acceptance of similar transactions in later years collectively support the assessee's position. Accordingly, we find that the disallowance sustained b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wed the purchases to the extent of receipt entry in annexure-A recorded against the name of A A Golewala and Pari Technobuild. i.e. Rs. 95 lakh and Rs. 20 lakhs respectively and added to the total income of the assessee. 48. The aggrieved assessee preferred an appeal before the learned CIT(A) and submitted the comparative details of dates mentioned in the ledger account for payments and entries recorded in the loose sheet and contended that there is no correlation between the date of payments and date of receipt mentioned in the loose sheets. The assessee also submits that the Shri PV Rao in his statement has never stated that the purchases from AA Golewala and Pari technobuild are not genuine. The assessee further submitted that the AO has not made enquiries from AA Golewala and Pari Technobuild despite having power to issue notice u/s 133(6)/131 to make enquiries. 49. The learned CIT(A) founds that the dates of payments made to the impugned parties through banking channel and date of receipt entries recorded in seized material against AA Golewala are matching. However, the date of payment of commission in loose sheet being expenditure sheet though much before the dates of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....interpretation of dates and transactions, and the submission of adequate supporting documentation by the appellant, to delete the disallowances made for both the parties. 52. On the other hand, the learned DR vehemently supported the findings of the lower authorities. 53. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note the key issue before us is whether the AO and the learned CIT(A) were right in disallowing the assessee's purchases from M/s A.A. Golewala and M/s Pari Technobuild on the basis of entries found in loose sheets marked as Annexure A and B during a search. 53.1 We first note that although the assessee claimed that these loose sheets were not recovered from its own premises but from the residence of a third party (Shri CH Ravi), this claim loses strength because copies of the same loose sheets were also recovered from the corporate office of the assessee and marked as pages 302 to 306 of annexure A/ACPL/2. Therefore, the argument that the documents have no connection with the assessee is not fully reliable or substantiated. 53.2 It is also important to note that AO r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee. Besides, the assessee gets substantial relief on merit of the case. For this reason, too, we hold that the technical ground raised by the assessee do not require any independent adjudication. Accordingly, we dismiss the same as infructuous. 54.1 In the result, the appeal of the assessee is hereby partly allowed. Coming to ITA No. 1190/Bang/2024, an appeal by the revenue 55. The Revenue has raised the following grounds of appeal: "1. Based on the facts and circumstances of the case. whether ld. CIT(A) was correct in deleting the additions made by the AO. 2. Whether on facts & circumstances of the case the ld. CIT(A) was correct in deleting the addition made an account of bogus sub-contractors amounting to Rs. 1,34,13,000/-? 3. Whether on the facts & circumstances of the case, the Id. CIT (A) was correct to restrict the addition to Rs. 17,84,58,955/- made on account of nongenuine purchase from M/s Triveni Enterprises' 4. Whether on face circumstances of the case, the ld. CIT(A) was correct to restrict the addition to Rs. 9,17,41,460 - made on account of purchases of Rs. 16,25.03.876.1 from Ratan Trading?" 56. The iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... why their bank accounts were opened in Sindhanur despite residing and conducting their activities in Manvi, they stated that the accounts were opened on the advice of Shri Subhas B. Regarding their professional background, some individuals identified themselves as farmers, while others stated they were teachers, lecturers, involved in wedding-related work, or employed as salesmen or accountants. 58.4 Further, during the search at the residence of Shri Subhas B, several signed blank cheque books belonging to the assessee's subcontractors were found. When questioned, Shri Subhas B stated that these cheque books were kept at his residence on the instructions of the Managing Director of the assessee company, Shri P.V. Rao. 58.5 The statements of Shri Saleem, Shri Subhas B, and the sub-contractors were confronted to Shri P.V. Rao during the recording of his statement on 09-12-2021. He was asked to provide supporting documents such as work orders, copies of contracts signed with the sub-contractors, or any other evidence to substantiate the genuineness of these sub-contractors. In response, he stated that he did not have any such documents or details of the work allegedly done by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue to the nature and location of the work. The assessee submitted that the allegation that the payments made to subcontractors were bogus based solely on the statements of Shri Saleem and a few subcontractors. However, the assessee pointed out contradictions in the statements made by Shri Mohammed Saleem, the tax practitioner who filed returns for many subcontractors. His inconsistent statements regarding his knowledge and role in filing the returns, and his acknowledgment that some returns were filed without the physical presence of clients or without knowing their actual business activities, undermine the credibility of his statement. Furthermore, the assessee highlighted that the list of subcontractors was only shared by Shri Mohammed Saleem on 09.10.2021, yet statements from them were allegedly obtained from 07.10.2021, indicating manipulation. Accordingly, the assessee argued that the statements of illiterate subcontractors were obtained under pressure, recorded in advance with pre-filled templates, and signatures taken without full understanding. The assessee in support of its contention also furnished the affidavits from 28 subcontractors confirming the execution of work and....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Rao, due to stress, illness, and the pressure exerted during the search proceedings, admitted the aforementioned amount as income on account of bogus labor contracts. The assessee contended that no payment for labor sub-contract was made to Shri Rama Chandra Murthy. Rather, said individual was an unsecured loan creditor from whom the assessee had received a loan. However, based on mere surmise and conjecture, the search team included his name in the list of labour contractors. Under pressure and not being in a proper state of mind, Shri P.V. Rao accepted the same as income on account of bogus expenses without verification. In support of this claim, the assessee submitted a copy of the ledger account and a confirmation letter from Shri Rama Chandra Murthy. 60.2 With respect to the payment of Rs.38,38,000/- to Shri Ramakrishna V. Poline, the assessee clarified that he was an employee of Shri P.V. Rao in his personal capacity. Owing to his knowledge and experience in the assessee's line of business, he was offered a sub-contract in addition to his employment. The payments made to him were in accordance with the sub-contract work executed, through proper banking channels, and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wance of sub-contractors expenses of Rs. 1,34,13,000/-, is the amount paid towards contract work done by Sri. Ramakrishna V Poline at sindhanur site for which his Affidavit confirming the service rendered, bank statement & Invoice copies along with details of TDS have been submitted before these authorities." 62. The Learned DR before us vehemently opposed the deletion of the disallowance of Rs. 1,34,13,000/- made by the AO. The learned DR submitted that a detailed investigation into the financial records of the assessee revealed a clear pattern of inflating expenses through bogus subcontractors. A significant number of these subcontractors had not filed income tax returns despite receiving substantial contract payments from ACPL. These payments were routed through banking channels, and the funds were withdrawn in cash within a day or two, primarily from accounts held in Sindhanur and Manvi. It was further brought to light that 68 income tax returns were filed by a single individual, Mr. Mohammed Saleem of Manvi, who admitted under oath that the details were based on 26AS information provided by one Shri Subhash B. He also confessed that many of the supposed subcontractors were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d one of them is loan creditor. The learned DR argued that as per Rule 46A of IT Rule, the assessee was not entitled to submit new evidence at the appellate stage that was not produced during the original proceedings. Accordingly, the learned DR contended that the ld. CIT(A) erred in deleting the disallowance without proper justification, especially when the assessee had failed to furnish any credible evidence or rebuttal before the AO. In light of the above, the learned DR prayed that the Hon'ble Tribunal restore the disallowance of Rs. 1,34,13,000/- and set aside the CIT(A)'s order in the interest of justice and revenue protection. 63. On the other hand, the learned AR submitted that the addition made by the AO on the basis of a third-party statement, particularly that of an unknown person, is erroneous in law and facts. It was argued that the expenditure in question, paid to sub-contractors, cannot be disallowed on the grounds of non-genuineness merely due to the third-party claim. The AR contended that such disallowance results in double taxation, as the said income has already been disclosed by the subcontractors under Section 44AD of the Act and offered to tax at the presu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n how the specific amount of Rs.1,34,13,000/- was arrived at, nor did he identify the sub-contractors to whom this sum was paid. Further, during the search proceedings, the Managing Director, Shri P.V. Rao, admitted that he could not provide work orders, contracts, or supporting documents for these expenses. Under pressure, he voluntarily agreed to offer Rs.1,34,13,000/- as additional income. However, this amount was never specifically linked to any particular group of sub-contractors in the AO's order. The AO merely accepted the figure without detailing/ pointing out its basis. This undermines the reliability of the addition. 64.1 Be that as maybe, we note that in the appellate proceedings, the assessee offered a new explanation that the disallowed amount pertained to two parties only and one of them is unsecured loan creditor namely Shri Rama Chandra Murthy. This explanation was not given at the time of assessment, and no such claim was made during the search or in response to the show-cause notice. The ld CIT(A) accepted this claim without proper verification and without calling for remand or explanation from the AO. 64.2 We are also conscious to the fact that the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de paragraph No. 38 of this order wherein we have decided the issue in the favor of the assessee and against the revenue. For detailed discussion, please refer to the aforesaid paragraph. Hence the ground of appeal of the revenue is hereby dismissed. 67. The next issue raised by the revenue is that the learned CIT(A) erred in deleting the addition to the extent of Rs. 9,17,41,460/- against the non-genuine purchases from M/s Ratan Trading Co. 68. At the outset, we note that the issue raised by the revenue in captioned ground of appeal has been adjudicated along with the assessee's ground of appeal in ITA No. 978/Bang/2024. The assessee ground of appeal has been decided by vide paragraph No. 45 of this order wherein we have decided the issue in the favor of the assessee and against the revenue. For detailed discussion, please refer to the aforesaid paragraph. Hence, the ground of appeal of the revenue is hereby dismissed. 69. In the result appeal of the Revenue is partly allowed. Coming to CO. No/26/Bang/2024 by the assessee in ITA No. 1190/Bang/2024. 70. The issue raised by the assessee in ground (a), (b) & (g) of its CO is general in nature and therefore the same doe....