TaxTMI 
TaxTMI 
2025 (2) TMI 1305
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....ts and in the circumstances of the case & in the law, the CIT(A) has erred in deleting the addition made by the AO to the tune of Rs. 24,23,92,146/- on account of disallowance of bogus expenditure debited by the assessee in the Profit & Loss account during the relevant previous year? (c) Whether on the facts and in the circumstances of the case & in the law, the CIT(A) has erred in ignoring the fact that addition to the extent of Rs. 2,31,13,761/- was indeed made on account of disallowance of provisions for pending expenses, for which no justification or evidence could be furnished by the assessee to link these expenses to the revenue recognized during the relevant previous year and hence ought to have been upheld? (d) Whether on the facts and in the circumstances of the case & in the law, the CIT(A) is correct in admitting the revised stand of assessee with regard to bogus expenditure claim during the course of appellate proceedings even when there was sufficient material on record (including categorical admission of Sh. Nitin Deshpande, MD of assessee company) to prove otherwise? (e) Whether on the facts and in the circumstances of the case & in the law....
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....rk "Left without Address" and also there was no confirmation regarding the commission payment. During the pendency of the scrutiny proceedings, Sales Tax Department at Mumbai detected that certain parties of Mumbai had been issuing bogus bills for material and works in lieu of commission. Assessee company was also found to be a beneficiary of such bogus bills. Based on this information, the Investigation Wing of Income-tax Department carried out a survey u/s.133A of the Act at the business premises of the assessee on 21.11.2012. The Managing Director Mr. Nitin Deshpande in the statements recorded on 21.11.2012 and 20.02.2013 admitted that the assessee had debited bogus expenditure totalling to Rs. 24.24 crore. This information was passed on to the AO who was carrying out the assessment proceedings. Thereafter, details of alleged bogus expenditure totalling to Rs. 24,23,92,146/- in short Rs. 24.24 crore approximately was provided which contained 13 concerns including QST Limited. The DDIT (Investigation) also provided the information that Mr. Nitin Deshpande had admitted that for the turnkey project of TIL, the contract value has been artificially increased by Rs. 26.25 crore and ag....
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....mounting to Rs. 24,23,92,146/- (as detailed in the chart in Para 7.3 above) on account of bogus purchases, bogus expenditure shown on civil works and bogus payment of commission. Hence the claim of this bogus expenditure is disallowed and accordingly an addition of Rs. 24,23,92,146/- is made to the total income declared by the assessee. Penalty proceedings u/s.271(1)(c) for furnishing inaccurate particulars of income have also been initiated separately." 5. Ld. AO also noticed that assessee had claimed an expense of Rs. 2,31,13,761/- on account of provision for pending expenses relating to the contracts but since there was no plausible explanation by the assessee ld. AO came to conclusion that provisioning not only includes the provision for the so-called pending expenses in respect of TIL but also in respect of other parties and since there was some works pending to be completed in respect of this plant and that some bills for purchases and expenses were pending to be received even till 31.03.2010, the provisioning made was not accepted and added back to the income, After making the above two additions, the income of the assessee was assessed at Rs. 30,94,50,800/-. 6. Aggrie....
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....part and parcel of the inflated sale value of Rs. 26.55 crore and sustained the addition only to the extent of 2% of the accommodation entry of Rs. 26.55 amounting to Rs. 53.10 lakh. 7. Before us, Revenue is in appeal against the relief given by the ld.CIT(A) by raising the above grounds extracted above in Para No.2. 8. The ld. Departmental Representative submitted that the finding of ld.CIT(A) should not be confirmed because during the course of assessment proceedings assessee has accepted to have arranged bogus expenses through some entry providers and the Managing Director of the assessee company has even stated in the statement during the course of survey u/s.133A of the Act. The story of Mr. Ajit Satam having earned undisclosed income of Rs. 26.55 crore from the transaction of Turnkey project given by TIL to the assessee is merely an afterthought colourable story which cannot be accepted. The books of accounts of the assessee are audited and in the audited financial statements have been claimed as expenditure. Gross Receipts are not in dispute because the assessee has issued the invoices to its customers duly supported by Agreements in lieu of contract work. Assessee has....
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....ion 5,13,339 Shree Traders 48,15,757 Ganesh Metals 1,38,03,045 Manusha Enterprises 88,00,722 QST Ltd. 6,50,00,000 Provision for expenses 2,31,13,761 Total 26,55,05,907 2.4. In the course of assessment proceedings, the assessee accepted that the expenditure (although genuine) was routed through bogus entries. 2.5. The Assessing Officer completed the assessment under section 143(3) of the Act disallowing the above expenditure of Rs. 26.55,05,907/- as bogus which included provision for such expenditure of Rs. 2,31,13,761/-. 2.6. In the meantime, there were various development which brought to light the involvement of one Mr. Ajit Satam. Before the CIT(A), the assessee made submissions as regards to the true nature of transaction along with supporting gathered in light of the subsequent developments. 2.7. Before the CIT(A), the assessee submitted that in the year 2008. Tilaknagar proposed to enter into premium Indian Made Foreign Liquor brands which require grain based alcohol as its principal raw material, as against molasses based alcohol. Since Tilaknagar was not having any grain distillery plant of its own, ....
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....he case of Mr. Ajit Satam was reopened for AY 2010-11. In the course of reassessment proceedings. Mr. Ajit Satam confessed that he had earned income of Rs 26.55 crores earned from the assessee with respect to the Tilaknagar project. A copy of said letter dated 28.03.2016 is enclosed at Pg 96- 100 of the Paper Book. The said disclosure was made on 29th March 2016. He has voluntarily offered the above sum of Rs. 26.55 crores to tax. 2.13. The Income Tax Officer. Ward 21(1)(1) Mumbai (hereinafter referred to as "the ITO") accepted the disclosure made by Mr Ajit Satam and assessed income at Rs 27.34,41,807/- after making various addition /disallowance including an amount of Rs 26.55 crores. However, the ITO commented that the nature and source of such income of Rs. 26.55 crores remained to be verified. A copy of assessment order dated 31 March 2016 under section 143(3) rvs 147 of the Act in the case of Mr Ajit Satam for AY 2010-11 is placed on Pg 101-107 of the Paper Book. 2.14. Mr. Satam challenged in appeal other additions made in the assessment order. He also challenged the AO's observations that the source of the said income of Rs. 26.55 crores could not be ve....
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....re * It should have been laid out or expended wholly and exclusively for the purpose of such business * It should not be in the nature of capital expenditure 2.21. In the present case, the assessee explained that the assessee had undertaken a project to set up a grain based distillery plant with the assistance of Mr. Ajit Satam. These facts have been confirmed even by Tilaknagar Industries Limited (Refer Pg 95 of the Paper Book and Pg121-122 of the Paper Book). In connection, thereto, the assessee has undisputedly incurred certain expenditure for the securing the contract, procurement & mobilization of materials. For the said services, the assessee has paid a sum of Rs. 26.55 crores to Mr. Ajit Satam. The payment is made through banking channels to parties directed by Mr. Ajit Satam. Mr. Ajit Satam has accepted the same as his income and paid the taxes on the same. In the remand proceedings concerning an appeal filed by Mr. Ajit Satam, the ITO observed that the source of income of Mr. Ajit Satam from the assessee stood proved and the aforesaid explanation was found to be in order. The above facts have been accepted by the Department in the assessment of M....
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..... Ajit Satam's case was reopened. Mr. Ajit Satam confessed letter to ITO dated 28th March 2016 (Pg 96-100 of the Paper Book) & vide declaration dated 16th May 2016 (Pg 94 of the Paper Book) that he had received Rs. 26.55 crores from the assessee for assistance with respect to the Tilaknagar project. Assessment of Ajit Satam was completed making an addition of Rs. 26.55 crores. Mr. Ajit Satam has paid the taxes along with interest on such addition and that the matter has attained finality. It is only after such disclosure that the assessee was able to submit the true of nature of the transaction of Rs. 26.55 crores with supportings. Therefore, the assessee disclosed the role Mr. Ajit Satam for the first time before the ongoing appellate proceedings. The assessee submitted the following: * Confirmation of Mr. Ajit Satam dated 16.05.2016 (Pg 94 of the Paper Book): * Confirmation of M/s Tilaknagar Industries Ltd dated 11.04.2016 (Pg 95 of the Paper Book); * Disclosure letter of Mr. Ajit Satam to the Income Tax Department Mumbai dated 29.03.2016 (Pg 96-100 of the Paper Book): * Assessment Order for AY 2010-11 of Mr. Ajit Satam dated 31.03.2016 alo....
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....ly refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. On a conjoint reading of section 250 and rule 46/1, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the AAC under sub-section (4) of section 250. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the ITO. In the instant case, the ITO treated the amount of two loans as income of the assessee from undisclosed sources because the summons issued by him could not be served on the creditors. At the time of hearing of the appeal against the above order before the AAC, the assessee wanted to prove the genuineness of the loan from one of the borrowers by relying upon the fact that the amount had been received by the assessee by cheque and repaid by cheque. In support of this contention. the assessee wanted to produce photostat copies of the cheques and a certificate from the bank to show that the sum was received by the assessee from the creditor by cheque and a copy of the account of the assessee with the said bank. Prima facie, this inf....
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....it & loss account under the head 'Finance charges amounting to Rs. 34,85,328/- which are allowable u/s 24 of the Income-tax Act from the income under the head Income from house property We would also like to mention that assessee had completely changed his stand in respect of finance charges in this additional ground. One of the assessee's stands definitely have no legs to stand. Assessee's claim that the money was borrowed for acquiring property which is fetching rent needs proper verification and investigation. CIT(A) had all the powers as of Assessing Officer while considering the appeal of assessee. He had power to reduce enhance the income. In such circumstances, in the interest of justice and equity, we hold that the CIT(A) should have admitted the additional evidence and then dispose of the appeal of the assessee." Therefore, the CIT(A) has rightly entertained the additional evidences/submission not made before the AO and adjudicated the issue thereafter. (b) The Department submitted that Mr. Ajit Satam was smuggler and that the impugned transaction of Rs. 26.55 crores with the assessee was tainted: Rebuttal We understand that ....
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....ent has infact accepted in the assessment of Mr. Ajit Satam that the nature and source of Rs. 26.55 crores is from the assessee for the Tilaknagar project. Therefore. the payment by the assessee to various parties and receipt by Ajit Satam are one and the same transaction routed via the intermediate parties. The transactions have to been looked together as a whole. 2.33. In view of the above, we request Your Honors to uphold the order of the CIT(A) and dismiss the department's appeal." 10. We have heard the rival contentions and perused the record placed before us. Revenue is aggrieved with the substantial relief given by the ld.CIT(A) deleting the addition made by the AO towards the disallowance of bogus expenses amounting to Rs. 24,23,92,146/- and also deleting the addition made for disallowance of provision for pending expenses of Rs. 2,31,13,761/-. 11. We observe that the assessee who is engaged in manufacturing and selling of Homogenized machines, Commissioning of distillery of sugar plants etc. was awarded contract by M/s. TIL for setting up a distillery plant. Even though the facts of the case have been discussed in detail while dealing with the brief fact....
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....CIT(A) that Mr. Ajit Satam has offered the undisclosed income of Rs. 26.55 crore in his income-tax return for A.Y. 2010-11 for the very same assessment year and paid due taxes and for supporting this contention reference was made to the assessment order dated 31.03.2016 in the case of Mr. Ajit Satam which is placed in the paper book along with other documents from page 101 to 112. The ld.CIT(A) called for the remand report from the AO for these additional evidences and after considering the comments of the assessee and after being satisfied that the inflated contract value of Rs. 26.55 crore made by assessee for the contract awarded by TIL has been offered to tax by Mr. Ajit Satam in his income-tax return and due taxes have been paid and therefore ld.CIT(A) was of the view that subjecting the assessee with taxes on the very same income would tantamount to double taxation. Relevant finding of the ld.CIT(A) deleting the major portion of the impugned disallowance reads as under : "FINDING OF CIT(A) : 6.0. ANALYSIS OF THE FACTS AND ADJUDICATION OF THE GROUNDS: 5.1. After considering the Order under dispute, Grounds of the appeal, the facts of case and as well....
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....under section 133A of the Income Tax Act was conducted in the business premises of the appellant company on 21.11.2012 by Investigation Wing of Income Tax Department. During that survey, statement of Managing Director of the Appellant Company was recorded wherein it was categorically admitted that bogus expenditure was debited in the books and cash so generated was given to TIL. 5.3.3 The AO held that bogus expenditure is debited in the books, therefore, the same has to be disallowed. Whether it is given to TIL or not, that really does not matter. The AO is of the opinion that no cash was given to TIL. The AO held that the statement of it Managing Director and various hawala parties cannot relied upon. I note that in the survey, no entries related to share capital, unsecured loan, bogus capital gain were found in the books of the appellant company or its directors. Thus, the possibility of cash generated through bogus bills and retained by the appellant is less as no corresponding deployment could be found. 5.4 During the course of survey conducted on the appellant, the Managing Director of the Appellant Company admitted the bogus bills of Rs. 26.55 Crore were deb....
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....accepted. * The theory of payment to Mr. Ajit Satam has surfaced for the first time in appellate proceedings. This is contrary to the stand of the appellant itself in the assessment that entire cash generated from bogus billing were paid to TIL. * Thus, the entire story of payment to Mr. Ajit Satam is an after-though and there is no direct evidence to this effect. * As per internet search, Mr. Ajit Satam has indulged in smuggling of red Sandalwood and arrested as well; therefore, this exercise is done with a view of establish the source of income as commission income. Further the Income Tax Department has also not verified the source of Income in the hands of Mr. Ajit Satam as stated in the assessment order. 5.5.3 The appellant claimed that the reason for the delayed disclosure is not an afterthought rather a business compulsion being understanding with Mr. Ajit Satam from whom the biggest business of its life was secured that such cash payment cannot be disclosed. 5.5.4 The appellant claimed that the source of cash was examined by Income Tax Department in the remand report proceedings of Mr. Ajit Satam for Assessment year 2010-11; the s....
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.... of time. The assessee has furnished the following additional evidence. * Declaration of Mr.Ajit Satam dated 16.05.2016- In this declaration, the assessee gives a detailed description of the services rendered to M/s Triochem Sucrotech Engineering & projects Pvt Ltd. The assessee has made a confession that he disclosed income of Rs 26.55 Crores with a view to coming clean. * Declaration of M/s Tilaknagar Industries Ltd dated 11.04.2016 In this letter M/s Tilaknagar Industries Ltd explains the role played by Mr Ajit Satam in awarding the contract to M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. 4.2 In order to verify the genuineness of the additional evidences a notice u/s 133(6) of the Act dated 19.03.2018 was issued to M/s Tilaknagar Industries Ltd to explain the role of Mr Ajit Satam in awarding the contract to M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. M/s Tilaknagar Industries Lt vide letter dated 21.03.2018 submitted that Mr Ajit Satam has played active role in awarding contract to Triochem. However, payment to Ajit Satam if any, is made directly by Triochem Sucrotech Engineering & Projects Pvt Ltd only. Tilaknagar Industries Ltd ....
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....see that money generated from bogus billing was given to TIL, therefore, the entry of Mr. Ajit Satam at the appellate stage is an afterthought. This objection of AO is as to the name of Ajit Satam is an after-thought is also not maintainable. The Appellant has clearly proved that the disclosure of name of Mr. Ajit Satam at a later date was a business compulsion. Further when the Income Tax Department has clearly examined the role of Mr. Ajit Satam in the business secured by Triochem from TIL and also such income has been taxed in the hands of Mr. Ajit Satam and such taxation has already taken the finality, this objection has no leg to stand. 5.6.4 The objection of the AO that during the course of Google search it was found that Mr. Ajit Satam is engaged in the business of smuggling of rend sander and the only objective to disclose his name is to legalize the income of Mr. Ajit Satam. I find that this objection of AO is also not maintainable. The observation of AO was on ad-hoc basis of internet search. Such ad-hoc search on internet cannot be a basis for any conclusion and it can never replace the evidences and conclusion reached after a specific investigation! in the case....
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..... 26.55 crore was debited in the books of the assessee and this amount of Rs. 26.55 crores were offered to tax in the hands of Mr. Ajit Satam and such taxation of Rs. 26.55 crores in the hands of Mr. Ajit Satam has taken finality. Since the entire income has already been taxed in the hands of Mr. Ajit Satam; if the same remained also taxed in the hands of the appellant company, this will amount to double taxation. The Hon'ble Supreme Court in the case of Laxmipat Singhania vs. CIT [72 ITR 291, 294] held as under "It is the fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice." Similarly in the case of Joti Prasad Agarwal vs. ITO [37 ITR 107, 111] [All] it was held that the charge is to be levy tax on an income only once; the same income cannot be charged separately in the hands of different persons or in the hands of the same person for two different years. Therefore, the same income cannot be taxed twice; once in the hands of one person and again in the hands of another person. In other words, same income cannot be doubly taxed. The Hon'ble Bombay High Court in the case of CIT v Noshira D....
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.... 13. From perusal of the above finding of ld.CIT(A) and also considering the documents filed before us as well as before the ld.CIT(A) about the confirmation of TIL dated 11.04.2016, disclosure letter of Mr. Ajit Satam to income-tax department dated 29.03.2012, confirmation of Mr.Ajit Satam dated 16.05.2016 and also the assessment order of Mr. Ajit Satam for A.Y. 2010-11 dated 30.03.2016, we find that the assessment proceedings in the case of assessee was concluded on 18.03.2013 and the appeal was pending before ld.CIT(A) and during the pendency of the appeal before ld.CIT(A) Mr. Ajit Satam gave a letter to the ITO, Ward-21(1), Mumbai on 28.03.2016 stating that he has earned share of profit from contract with TIL at Rs. 26.55 crore. Here, we would like to extract the copy of certificate issued by TIL stating about its connection with Mr. Ajit Satam and the alleged transaction, the scanned copy of which is given below : 14. We would also like to extract the copy of certificate issued by Mr. Ajit Satam, Mumbai referring to the very same transaction and that having earned the income of Rs. 26.55 crore from the assessee company, the scanned copy of the same is as follows : 15.....
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.... one hand has offered the income of difference between the inflated contract value of Rs. 26.55 crore and booked expenses of Rs. 24.24 crore and has paid due taxes thereon. Thus along with Rs. 26.55 crore offered to tax by Mr. Ajit Satam, the assessee has also offered to tax Rs. 2.01 crore (being difference in the inflated contract value and booked expenses). 17. Now considering these facts that although the assessee had arranged bogus expenses but the fact remains that the purpose for which such bogus expenses has been arranged, i.e., the inflated sales of Rs. 26.55 crore has been offered to tax and the department has got the due taxes paid thereon. It has been consistently held by the Hon'ble Courts that income cannot be taxed twice. The Hon'ble Bombay High Court in the case of CIT Vs. Noshira Dara Mody (supra) has held that where recipient of commission payment accepted the same in his return and disclosed amount received from assessee, no disallowance could be made u/s.37. The Hon'ble Supreme Court in the case of Laxmipat Singhania Vs. CIT (supra) has held that it is the fundamental rule of the law of taxation that unless otherwise expressly provided, income cannot be taxed ....
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....n 2008. There were three companies for this project like M/s Mojj Engineering Systems Ltd, M/s Praj Industries and M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. After considering the overall merits of the parties, M/s Triochem Sucrotech Engineering & Projects Pvt Ltd was selected for the project. One of the reason for engaging M/s Triochem Sucrotech Engineering & Projects Pvt Ltd was Mr Ajit Satam whom we had a good relation. He had followed up and convinced us to award contracts to M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. 3. Mr Satam convinced us to award the contract to M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. On 12.05.2009, two agreements were entered into on account of supply and erection of the distillery plant for around Rs.57 crores plus applicable taxes. Due to the expanding work, a supplementary contract was signed on 06.08.2009 for an amount of Rs 36.69 Crores. 4. We made payment to Mis Triochem Sucrotech Engineering & Projects Pvt Ltd the amount stipulated in the agreement by cheque. Later on there arose certain disputes between our company and M/s Triochem Sucrotech Engineering & Projects Pvt Ltd due to which plant was handed o....