AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (2) TMI 1957
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.... 2. On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 20,67,364/- on account of difference in additional income disclosed during survey proceedings and returned income declared by the assessee in his return of income for AY 2016-17. 3. Any other question of law and fact to be raised at the time of appeal." 3. The only issue before us is, whether or not the learned CIT(A) was correct in deleting the addition of Rs. 7.50 crore made by the Assessing Officer under section 69C of the Income Tax Act, 1961 ("the Act") on account of unexplained expenditure. 4. Facts in Brief:- The assessee is a company. On 26/12/2019, a survey under section 133A of the Act was conducted by the Investigation Wing, Income Tax Department, Nagpur. The assessee company is engaged in the business of construction, wholesale and retail trade and other services. On 17/10/2016, the assessee filed its return of income for the year under consideration declaring total income of Rs. 4,60,44,360. On 25/12/2016, the Assessing Officer completed assessment under section 143(3) of the Act determining total assessed income a Rs. 4,81,11,724. During the su....
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....ng. In the meantime, the Hon'ble PCIT 1, Nagpur vide order u/s 263 of IT Act dated 23/02/2021 held that the assessment order passed u/s 143(3) on 17/10/2016 is erroneous and prejudicial to the interest of revenue as the AO has not looked into genuineness of Consultancy Charges of Rs. 7.50 crores paid by the assessee. The PCIT, accordingly set aside the assessment order passed u/s 143(3) with a direction to reassess the income after conducting proper inquiry on. issue of consultancy charges of Rs. 7.50 crores. A notice u/s 148 of IT Act dated 31.03.2021 was served on assessee to file ITR for AY 2016-17. In response to said notice assessee filed return on 26.05.2021 declaring total income of Rs. 6,63,44,360/- which included additional income of Rs. 2,03,00,000/- surrendered during the course of survey u/s 133A on 26.12.2019. During re-assessment proceeding the la. Ao observed that during the relevant previous year assessee has claimed legal and professional expenses of Rs. 7,70,50,279/- whereas in the preceding year the same was only Rs. 13,85,322/-. Assessee was asked to justify increase in these expenses. Assessee, vide its submission dated 0....
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....ion, company has credited/ paid Rs. 2.50 Crore to Aarti Sponge and Power Ltd. and Rs. 5.00 Crore to Bhagwati Power and Steel Ltd. towards technical consultancy services provided to the company as detailed above and their invoices are placed on record." Assessee vide its submission dated 29/03/2022 further submitted that the increase in expenses is justified as there is substantial increase in turnover of the assessee to Rs. 34.15 crores as compared to Rs. 22.75 crores in earlier year. Assessee also placed on record the scope of work done by these two companies, the copies of invoices 7,50,00,000/-, copy of agreement, copy of Ledger accounts and details of payment made after due deduction of tax at source at applicable rates. It was also submitted that the expenses have been incurred exclusively for the business purpose of the assessee company. During assessment proceeding the A.O. called for information under section 133(6) of IT Act to from Arti Sponge and Bhagvati Power. Both the Companies responded to notice under section 133(6) and confirmed of providing services to the assessee company and receipt of payment from it. They also provided copy of agreement, thei....
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....e of Rs. 7.50 Crores on the following presumptions, surmises, conjectures and misreading of the facts. The Ld. AO has stated that both Aarti Sponge and Power Ltd. and Bhagwati Power and Steel Ltd. are in the business of manufacturing and they do not have any administrative/ technical set-up or infrastructure set-up to render the required services to the assessee. No new appointments are made by these companies. The Id. AO has simply ignored the statements of these companies that the existing employees were used for the assessee's projects. In view of these specific assertions of these companies it was incumbent upon the Id. AO to bring on record at least some positive evidence as to how the existing manpower employed by these companies was inadequate and incompetent, as to how it lacked administrative/technical set-up or infrastructure set-up to perform the work. The appellant most humbly and respectfully submits that there is simply no evidence in support with the Id.AO and that he has merely presumed that it was not possible for these companies to perform the work with the existing staff/ infrastructure. It is trite law that mere suspicion cannot be the basis of any ....
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....standing between company and Bhagwati Power and Steel Ltd. (Agreement dated 01/01/2015). In fact, in its letter dated 24/03/2022 Bhagwati Power and Steel Ltd. have specifically stated that Mr. Kashyap Kejriwal, Executive Director of the company, by profession a Chartered Accountant and well versed in IT is engaged in the technical services. He along with his team viz. existing employees of the company was engaged in providing the technical advisory and consultancy services to undertake the assignment of Infrastructure Projects. This very specific and very crucial assertion of Bhagwati Power and Steel Ltd. has been completely ignored and blocked out by the Id. AO. It is thus clear that the Id. AO has misguided himself on the issue of bifurcation of the work. The appellant most humbly and respectfully submits that the Id. AO has completely overlooked the financials of the assessee. From the Statement of Profit and Loss for year ended 31st March, 2016 it is evident that while the revenue has increased from 22.75 Cr to 34.15 Cr. the assessee's Operating Cost related to IT Park Project has actually come down from Rs. 14.50 Cr to Rs. 13.38 Cr. The employee ....
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....accounted for the purchases made by the assessee and paid taxes thereon. Hon SC has dismissed the SLP filed by the department in this case. [2018] 94 taxmann.com 325 (Supreme Court) "Where purchases made by assessee-trader were duly supported by bills and payments were made by account payee cheque and there was no evidence to show that amount was recycled back to assessee, Assessing Officer was not justified in treating said purchases as bogus under section 69C." In the case of CIT v. Bhagwati Developers Pvt. Ltd. [2003] 261 ITR 658 (Cal.) it is held that if the source of the expenditure is explained section 69C has no applicability. It is also respectfully submitted that the addition u/s. 69C has been made merely on suspicion and conjectures without refuting any facts, by disregarding the crucial evidences and without any evidence in support. This addition, it is most respectfully submitted, is totally illegal, invalid and unjust. Suspicion alone without there being evidence specific to a transaction cannot become the basis for creating charge for levying tax as each transaction has to be independently inquired into. Suspicion howsoever strong cannot tak....
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....d. The scope of work performed by above two companies was as under: Technical advisory services for successful construction, installation as well as commissioning of the IT infrastructure, IT automation and software development activity at various check posts including knowledge sharing in related field. Timely selection of contractors who have trained manpower, procurement of hardware/ software and related infrastructure. Overseeing the implementation of the project. Technical assistance for preparation and submission of any bid proposal relating to the project during the duration of the agreement. Backup support with the relevant expertise in the field of overall construction development of infrastructure project. Liasioning work. The durations of the agreements were up to completion of the work. In terms of agreements and understanding, during the year under consideration company has credited/ paid Rs. 2.50 Crore to Aarti Sponge and Power Ltd. and Rs. 5.00 Crore to Bhagwati Power and Steel Ltd. towards technical consultancy services provided to the company as above During assessment proceed....
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....bove, the Id. AO has disallowed the expenditure of Rs. 7.50 Crores on presumptions, surmises, conjectures and misreading of the facts. I find substantial force in the appellant's arguments. The AO has stated that both Aarti Sponge and Power Ltd. and Bhagwati Power and Steel Ltd. are in the business of manufacturing and they do not have any administrative/ technical set-up or infrastructure set-up to render the required services to the appellant. No new appointments are made by these companies. The AO has simply ignored the statements of these companies that the existing employees were used for the appellant's projects. In view of these specific assertions of these companies it was incumbent upon the AO to bring on record at least some positive evidence to show that the existing manpower employed by these companies was inadequate and incompetent and not well suited for the job. AO has also not brought out how the contracted companies lacked administrative/ technical set-up or infrastructure set-up to perform the work. I find that there is simply no evidence in support for the inferences drawn by the AO and that the has merely presumed that it was not possible for th....
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.... Para 1.5 - That, the purpose of this agreement is to fix certain remunerative benefits in the form of consultancy charges to the second party by the first party and in order to establish the principles governing the relationships of the parties with each other That the amount of consultancy charges was fixed at a lumpsum of Rs. 3,00,00,000 (Rupees Three Crore Only), and applicable taxes extra for both works. The above citations make it clear that on 12/01/2015 itself the project had already attained the desired and agreed results and that the payment was not to be made item-wise but was to be made on a lump sum basis, Thus it was simply not subject to any bifurcation as sought by the Id. AO. Similarly is worded the Agreement of Understanding between company and Bhagwati Power and Steel Ltd. (Agreement dated 01/01/2015). In this view of the matter I am unable to agree with the AO that in the absence of the said bifurcation this becomes a case of addition u/s, 69C. The appellant has also invited my attention to the financials of the appellant. From the Statement of Profit and Loss for year ended 31st March, 2016 it is evident that while the revenue has increased f....
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.... of accounts. The basic precondition for invoking s. 69C is that the expenditure incurred by the appellant should be out of books of accounts. In the case of PCIT v. Tejua Rohitkumar Kapadia (2018) 94 Taxmann.com 324 ( Guj)(HC), it is held that purchases (here services) cannot be treated as bogus if (a) they are duly supported by bills, (b) all payments are made by account payee cheques, (c) the supplier has confirmed the transactions, (d) there is no evidence to show that the purchase consideration has come back to the appellant in cash, (e) the sales out of purchases have been accepted & (f) the supplier has accounted for the purchases made by the appellant and paid taxes thereon. Hon SC has dismissed the SLP filed by the department in this case [2018] 94 taxmann.com 325 (Supreme Court) In the case of CIT v. Bhagwati Developers Pvt. Ltd. [2003] 261 ITR 658 (Cal.) it is held that if the source of the expenditure is explained section 69C has no applicability. I respectfully agr (Supreme and follow the decision of the Hon, ISC in [2018] 256 Taxman 213 Court) to the effect that where purchases made by appellant -trader were duly supported by bills and payments were made by a....
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....e assessee with the parties in relation to the contract for payment of Rs. 7.50 core are exhibited in support of the payments made by the assessee. 11. The learned Counsel for the assessee further very importantly invited attention to the fact that both the companies to whom payments totalling to Rs. 7.50 crore were made duly responded to the notices issued by the Assessing Officer under section 133(6) of the Act. 12. The learned counsel for the assessee then further, without prejudice to the arguments on merits, objected to the legality of the addition so made inviting attention to the assessment order wherein the addition of Rs. 7.50 crore which is the subject matter of the appeal has been made under section 69C of the Act by the Assessing Officer, which has been objected by the learned counsel for the assessee on the ground that the payments having been duly recorded in the books of accounts by the assessee and which are duly audited, the said payments cannot be regarded as unexplained expenditure under section 69C of the Act as has been assessed by the Assessing Officer and further holding that the provisions of section 69C are applicable only to transactions wherein it i....
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....round that the details, as provided under section 133(6) of the Act are not in the opinion of the Assessing Officer "satisfactory" without elaborating as to what other details were required and which have not satisfactory been provided to by the said companies. The Assessing Officer has further proceeded to make the addition disregarding the submissions filed by the assessee, but without any valid reason holding it to be not tenable. The Assessing Officer failed to bring on record any credible and concrete evidence or explanation to prove that the expenditure incurred by the assessee was not genuine or was not in connection with the business of the assessee and has simply on the basis of assumptions, presumptions, surmises and conjectures proceeded to hold that the expenditures so incurred were not genuine and consequently disallowed the same in the hands of the assessee. It is a trite law that presumption, however, strong cannot substitute evidence. This is a classic case where the Assessing Officer has disregarded all the evidence filed during the course of assessment proceedings and has simply on the presumption that the expenditure incurred are not genuine proceeded to disallow....
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....Officer grossly erred in making the addition under section 69C of the Act ignoring the fact that the said section has absolutely no applicability to the facts and circumstance of the case especially considering that the impugned expenditure of Rs. 7.50 crore has been duly debited in the books of accounts of the assessee and considering the same provisions of section 69C has no applicability and consequently hold that the addition made of Rs. 7.50 crore by the Assessing Officer under section 69C is illegal on this ground as well. We accordingly find absolutely no fault in the findings of the learned CIT(A) and we thus uphold the impugned order passed by the learned CIT(A) and confirm the deletion of the addition of Rs. 7.50 crore as made by the Assessing Officer. 15. The Revenue has further challenged the deletion of addition of Rs. 20,67,364 by the learned CIT(A). 16. The Assessing Officer has made the addition amounting to Rs. 20,67,364 primarily holding that the assessee filed return of income for the assessment year 2016-17 under section 139(1) of the Act on 17/10/2016, declaring total income at Rs. 4,60,44,360, and the assessment under section 143(3) was completed on 25/1....