DCIT CENT. CIR-2(3) , MUMBAI vs. SOMA ENTERPRISES LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI

BEFORE SHRI KULDIP SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER

ITA.NO.1824/MUM/2021 (A.Y: 2015-16) DCIT – Central Circle – 2(3) v. Soma Enterprises Ltd., Room No. 803, 8th Floor 8-2-623/5/1/1, Avenue-4 Pratishtha Bhavan Banjara Hills, Hyderabad Maharishi Karve Road Telangana-500034 Mumbai - 400020 PAN: AACCS8242F (Appellant) (Respondent)

C.O.No. 46/MUM/2022 [ARISING OUT OF ITA.NO.1824/MUM/2021 (A.Y: 2015-16)] Soma Enterprises Ltd., v. DCIT – Central Circle – 2(3) 8-2-623/5/1/1, Avenue-4 Room No. 803, 8th Floor Banjara Hills, Hyderabad Pratishtha Bhavan Telangana-500034 Maharishi Karve Road Mumbai - 400020 PAN: AACCS8242F (Appellant) (Respondent) Assessee Represented by : Shri K. Gopal & Shri Om Kandalkar Department Represented by : Shri Sanjeev Kashyap

Date of Hearing : 14.12.2022 Date of Pronouncement : 17.02.2023

2 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., O R D E R PER S. RIFAUR RAHMAN (AM)

3 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., 3. With regard to Ground No. 1, relevant facts are assessee is a company carrying on the business of civil contracts and has expertise in the development of infrastructure projects in Highways, Irrigation, Hydel Power Sectors and Transportation sectors. The assessee has filed return of income on 28.11.2014, declaring total loss of ₹.1,61,59,059/-. The case was selected for scrutiny and assessment u/s. 143(3) of Income-tax Act, 1961 (in short “Act”) was completed on 07.11.2016. Subsequently, a search and seizure action u/s.132 of the Act was initiated on ABIL Group of cases on 21.07.2017, Assessee also was covered in the above search action and the residences of various group concerns and directors of the group were covered.

4 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., A.Y. 2014-15. It was explained that an amount of ₹.1,04,16,667/- was paid in A.Y.2015-16 and remaining in A.Y. 2017-18.

“10.1 We have heard the rival submissions and perused the materials available on record. The ld. A.O. has discussed this issue in the assessment order dated 19/06/2019 at pages 2 to 12 in paras 4.1 to 4.6. The issue in dispute is reflected in the chart at page 4. The item no 4 in the chart is Sadhana Corporation. The assessee,

5 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., before the ld. CIT(A), contended that the amount of Rs.4,28,32,332/- disallowed is not an expenditure claimed as deduction in the impugned assessment year. This is an expenditure pertaining A.Y. 2014-15 and the same has been disallowed in the A.Y. 2014-15. During the previous year relevant to impugned assessment year, the same has been internally assigned from one site of the assessee to another site. Thus, the disallowance is not justified. The ld. CIT(A) in this regard observed in his order in Para 7.6. as under:- “7.6. However, during the course of appellate proceedings, the assessee brought to my notice that expenditure in respect of Sadhana Corporation was not debited in the P & L account during the year but was actually debited in A.Y. 2014-15. The assessee in this regard has explained that an amount of Rs. 5.3 cr. in respect of Sadhana Corporation was debited in A.Y. 2014- 15. The assessee in this regard explained that out of the above Rs. 5.3 cr an amount of Rs. 1,04,16,667/- was transferred to the site account SH-01 in A.Y. 2015-16 and remaining amount of Rs.4,28,32,332/- is transferred to the SH-01 particular site account four-six landing of Gujarat-Maharashtra Border, as reversal from job code SH-02, in A.Y. 2017-18. It has been explained by the assessee that no expenditure as such has been booked in A.Y. 2017-18 in this regard. If that be the case, this issue can only be examined in A.Y. 2014-15 and not in the current year. Consequently, the addition made by the A.O. in respect of first part amounting to Rs.13,26,879/- is upheld. Further the expenditure of Rs.4,28,32,332/- in respect of Sadhana Corporation may be examined in A.Y. 2014-15.” 10.2 The ld.AR pleaded that no additional evidences were filed by the assessee before the ld. CIT(A). He also drew our attention to page no. 5 of the paper book filed before us containing the ledger account of M/s Sadhana Corporation as appearing in the books of the assessee company for the period 01/04/2016 to 31/03/2017 relevant to A.Y. 2017-18 wherein the transfer from one site to another site had happened is reflected. The same fact is also stated in the order of the ld.CIT(A) in para 7.6 reproduced supra. The main contention of the ld. AR is only that the disallowance made in A.Y. 2017-18 in the sum of Rs 4,28,32,332/- is already included in

6 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., the figure of disallowance of Rs 5,36,45,833/- made in A.Y. 2014-15. This only requires factual verification. Hence we do not find any infirmity in the order of the ld. CIT(A) directing the ld. AO to examine the same in A.Y. 2014-15. Accordingly, the Ground No. 1 raised by the revenue for the A.Y. 2017-18 is hereby dismissed.”

7 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., Accordingly, Assessing Officer noted that no work as such were carried out by ABIL and Splendor Developers and contract was back to back given to Maganti Constructions and there was no rationale for giving subcontract work to ABIL and Splendor Developers. Accordingly, he disallowed an amount of ₹.15,19,90,111/ being the payments made to various sub-contractors as non-genuine expenses.

8 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., Dhirajipal Giridhari Vs CIT 26 ITR 726 (SC), Lalchand Bhagath Ambica Ram Vs CTT 37 ITR 288 (SC). (iv) We submit that all purchases were genuine, payments were made through banking channel, works wer completed by utilizing these materials, No evidence was found that cash was returned by these parties to the appellant 5.1 Bogus sub contract work (i) M/s Soma Enterprise Limited (in short SEL) is the flagship company of the group. It was incorporated in the year 1977 as M/s. Dhananjaya Hotels (P) Ltd. Consequent to takeover by present management led by Mr. Rajendra Prasad Maganti, the name of the Company was changed to M/S SOMA Enterprise (P) Ltd in May 1996. It was converted as a public company in June 1997. Starting from a modest beginning in the field of execution of infrastructure works, its growth was appreciable over the years until the last financial year. In the last financial year, like many of its peers, SEL also had a reduction in revenues because of overall slowdown in the industry. The Corporate Office of SOMA is located at No. 2, Avenue 4, Banjara Hills, Hyderabad & Registered Office of the Company is located at "Soma Heights", 3, Siddhi Vinayak Society, Karve Road, Pune. The regional offices of the company are located at Delhi, Bengaluru & Gurgaon. There are various site offices where works are executed. The works are executed by the company i) on its own ii) by awarding parts of the same to subcontractors iii) through piece rate workers and in combination of (i), (ii) and (iii). (ii) The core activity of the company is in the field of development of Infrastructure projects in Highways, Irrigation, Hydel Power Sectors and Transportation sectors. The company has entered into contracts with various State Governments and Central Government undertakings for developing infrastructure projects. The company is alone responsible for pooling up funds for executing the development works. The scope of the work executed by the company includes site surveys and investigations, detailed design of all the works including building services, construction of civil structure and architectural work, engineering, procurement, installation, commissioning and testing of E&M,ECS and tunnel ventilation works (in case of road and railways work), interface management, misc and ancillary works. Thus, the works executed or being executed, are highly technical in nature, involving work from conception till completion with high degree of precision. In some of the projects, the government or other agencies provide the works in the nature of packages. The material required is bought by the company by adhering to the strictest quality specifications irrespective of cost of such material. It

9 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., has to maintain a highly technical work force to oversee the execution of work. It may be mentioned here that the company has in its roll more than 1000 engineers (Design, execution, quality control etc) and other technical personnel to oversee day to day operation. It has in its inventory sophisticated machineries and heavy equipments, deployed for execution of the work. The value of these equipments aggregates to more than eleven hundred crores deployed for execution of the works. For executing such projects, the assessee is required to plan the work conceptually from the beginning, recruit and deploy people, plant and machinery, technical expertise, know-how and the financial resources. The execution of work carries with itself inherent risks both financial as well as technical. This includes (a) completion of contract within stipulated period, (b) risk of maintenance, (c) risk of delayed payments or bad debts, (d) arbitration & litigation risk and (e) geological risks. (iii) The company is professionally managed with the help of a large number of personnel. Since the work of such magnitude and nature, cannot be carried out or supervised with the decision flowing from a single individual, there is and has to be substantial delegation of powers to various executives like Project Managers, General Managers, Senior General Managers, Vice Presidents, Senior Vice Presidents, Presidents, Retired Superintending Engineers, Chief Engineers (Retd) and well experienced professional directors etc. Effective delegation of responsibility is key to the functioning of the company. We would also like to submit that the activities of the company are spread over 47 work sites in various States- Andhra Pradesh, Karnataka, Delhi, Maharashtra, Madhya Pradesh, Uttar Pradesh, Bihar, Uttharakhand, Gujarat, Punjab, Haryana, Kerala, Tamil Nadu, and North Eastern Regions. This further necessitates delegation of decision making to ensure timely implementation of the projects. The company has a healthy track record over the period of years with various Government Agencies for timely and quality execution of projects. (iv). With this brief about the nature and operations and certain procedural aspects, we submit that it has been alleged that some evidences were found in course of search showing that the transactions with some parties were not genuine. In this regard, it is submitted as under: i) All the transactions mentioned by your goodselves pertains vendors/sub- contractors who supplied material in the ordinary course of business and were regular business transactions recorded in books of accounts and supported by proper evidences. ii) The authorities could not bring to the notice of the assessee any cogent, specific and clinching incriminating evidence discovered in

10 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., course of search from the premises of the company as well as of the directors so as to reach any full proof adverse inference about any undisclosed income arising out of transactions with subcontractors and vendors who were suspected to be non genuine. iii) It was explained that bills and vouchers duly support the transactions with the parties. These evidences were produced for verification. Payments were made to them through banking channel and bills were settled. The payments to subcontractors were subject matter of TDS and the TDS amounts were credited to Government account. iv) As a matter of fact, it is submitted have been made after due verification of quality and quantity of the material delivered and payments were made by account payee cheques. The very transfer of money through bank account would show that they were the beneficiary of the proceeds of withdrawal. Coupled with this, no evidence was seized to show that the amount has flown back to us, which is invariably associated with such payments. This makes the entire inference presumptive which cannot be a basis for fastening a liability. Further, law does not envisages presumption of illegality of transaction. v)One significant aspect, which needs to be appreciated, is that generally in cases where any suspected transaction/accommodation transaction takes place, there would be evidence regarding some compensatory payment in cash or other corroborative evidence. No such evidence indicating any money trail was found in course of search in respect of parties who were suspected by the department as non genuine, although the searches were wide spread covering the registered office in Pune and corporate office at Hyderabad. vi) The assessments up to assessment year 2015-16 were completed under scrutiny after due verification of books of account, bank accounts and vouchers and other evidence. No suspected transaction could be unearthed during regular scrutiny. Thus, the search was bereft of any cogent/corroborative/clinching evidence to suspect the genuineness of the transaction with the subcontractors/vendors. 5.2. In view of the above, On the facts and circumstances of the case, it cannot be said that there was any incriminating evidence in regard to transaction with the subcontractors/vendors discovered in course of search except suspicion. In this regard, we would like to submit your goodselves that it is a settled principle of law that suspicion, however

11 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., strong, cannot take the place of proof. In the case of Umacharan Shaw & Bros V CIT (37 ITR 271 SC) it was held by the Hon Supreme Court that "Suspicion can not take the place of proof". In the case of Dhakeswari Cotton Mills Ltd V CIT 26 ITR 775(SC), the Hon'ble supreme Court made an observation that the Assessing officer is not entitled to make a pure Guess and make an assessment without reference to any evidence or any material at all. 5.3. It is further submitted that books of account are in the realm of documentary evidence. Therefore, the oral evidence, if any, against us cannot displace the documentary evidence. Section 34 of Evidence Act, the books of account regularly kept in course of business are presumed to be prima facie correct. There is a presumption that the transactions recorded therein are truthfully done. This also includes memoranda books if regularly kept in course of business. It was held in the case of CIT Delhi v Woodwords Governors India P Ltd 179 Taxman 326 SC that aaccounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The entire approach of the department about the entries made in the regular books which were subject matter of scrutiny is based on suspicion. Therefore, the evidentiary value of our regular books cannot be suspected more so when the same books were scrutinized by the Assessing officer while passing assessment order under section 143(3) in the absence of any strong evidence. 5.4. Further, it has been alleged in the show cause notice that certain parties are bogus. We do not know how such an inference has been arrived. Without any evidence as to their non-existence. It has not been brought to our notice that any of the above parties have admitted before your goodselves that the transactions are non genuine. From our end, we have submit necessary evidence such as copies of bills raised by party, proof of payment being made and copy of form 16A issued to the said parties. We are not aware the circumstances which made these evidences could be incriminating. 5.5. It is a settled principle that information collected by the department cannot be made use of against the assessee unless witnesses are cross examined by the assessee. We place reliance on the Apex court decision in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC), Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3 (SC). In the case of Andaman Timber Industries v. CCE (2015) 62 taxmann.com 3 (SC), the Apex Court observed that not allowing the assessee to cross-examine the witness whose statement has been relied upon to frame the order is a serious flaw.

12 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., This makes the order a nullity. The information relating to these parties whose names appear in the show cause notice issued by AO ought to have confronted to us afforded us necessary opportunity to find out the truth. It is further submitted that as per the provisions of section 103 of the Evidence Act, burden of proof is on the person who wishes the court to believe in the existence of particular facts. 5.6 We bring to your kind notice the judgment of the Hon'ble Gujarat High Court in the case of CIT VS TEJUA ROHIT KUMAR KAPADIA, ITA No.691 of 2017 on identical issues of bogus purchases. Incidentally, the Hon'ble Supreme Court dismissed the SLP filed by the department vide SLP No.12670/2018. In the instant case, the Hon'ble High Court was dealing whether on the facts and circumstances of the case and in laws the Appellate Tribunal was justified in treating the bogus purchase of Rs.5,19,86,285/- legitimate only on the basis that purchases are duly supported by bills and all the payments were made by account payee cheques by overlooking findings of the investigation wing in the case of Shri Kulwant singh Yadav, who was running Shroff business and he in his statement on oath stated that he issue acknowledgement to the beneficiary on receipt of cheque and cash and the assessee was one of the beneficiaries? It was held that We have given a thoughtful consideration to the order of the authorities below. There is no dispute that the purchases made from M/s. Raj Impex were duly supported by bills and all the payments have been made by account payee cheques. There is also no dispute that M/s. Raj Impex have confirmed all the transactions. There is no evidence to draw the conclusion that the entire purchase consideration which the assessee had paid to M/s. Raj Impex had come back to assessee in cash. It is also true that no adverse inference has been drawn so far as the sales made by the assessee is concerned. We also find that the entire purchases made by the assessee from M/s. Raj Impex have been accounted by them and have paid taxes accordingly. Considering the facts in totality well appreciated by the first appellant authority. We do not find any error or infirmity in the findings of the First Appellate Authority. 6.18. Though the issue in the subject was bogus purchases, the same exactly fits in to the present context of dispute, as the issue dealt was alleged non-genuine transactions. The assesee's case exactly fits into the four corners of the above case law. The entire expenditure was recorded in the books, payments made through banking channels, the recipient admitted income and there is no evidence as to remitting back cash to the assesee. Therefore, in all probabilities, the transactions with ABIL

13 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., and Splendor cannot be viewed as non-genuine and therefore request your goodselves to drop the addition proposed by your goodselves. We also submit that the contentions made by us in para 5 to 13 above equally applies here in this case as well and did not repeat to avoid duplication. 5.7. To conclude, we submit that it is also a sound accepted principle that information collected from other departments based on their perception of things cannot constitute sound evidence against an assessee under income tax provisions. Income tax authorities are court of exclusive jurisdiction in the matters of completion of assessment. 5.8. In view of the above, we request your goodselves to not visualise the above vendors/sub-contractors as non-existent and do not make any addition without any basis and merely on suspicion and guess work. 6. SUB CONTRACT WORKS EXECUTED BY ABIL INFRA PROJECTS PVT LTD (ABIL) & SPLENDOR DEVELOPERS PVT LTD (SPLENDOR): 6.15. We submit that the above companies are promoted by Mr. Avinash N Bhosle, who is holding 6% of equity in the assessee company. Earlier he was holding 13% and was also the joint managing director of the company. He resigned from the board during the year 2010 and there after his son Mr. Amit Avinash Bhosle took over the charge as director and he also left the company in the year 2013. Mr Avinash Bhosle was the key and instrumental in the success and rapid growth of the company. He was associated with the company for almost 15 years. Because of his support & presence in the state of Maharastra, our company could lay a strong foundation in the state and bagged so many projects from the Government of Maharastra. Being a localite and experienced in the field, his presence lead to an immense help in the growth of the company. 6.1 Later, Mr Avinash Bhosle set up his own companies and left the assessee company. This is out of this courtesy, the assessee company has given a sub- contract from project "Mumbai Water Supply Tunnel Project" awarded by Municipal Corporation of Greater Mumbai ('MCGM') to M/s. Ramu Real Estate Developers Limited (later name changed to ABIL). The volume of the work subcontracted was around Rs. 396 crores approx, and was spread over the period Le., from asst. year 2012-13 to 2017-18. 6.2. Similarly, another sub-contract was given to M/s. Splendor Developer Private Limited and the contract value was Rs. 150 crores

14 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., approximately and the same is spread over 5 (Five) assessment years Le., from 2013-14 to 2017- 18. The transactions between both the parties us were properly documented and also filed before the DDIT (Iv) and as well before your goodselves. Both the above companies, in turn, have further subcontracted the above works to M/s. Maganti Constructions ("Maganti"), which was a separate transaction not related to the assessee company. All entire transactions were properly accounted in the books of accounts and the payments have been made after deducting tax at source. 6.3 The said project has been actually completed by the assessee company and the same has been certified by MCGM, a statutory corporation. The recipient of contracts ie., ABIL & SPLNDOR have also accounted for the receipts and admitted the same in the return of income and assessment have been completed in the hands of those parties by the same AO. Having accepted revenue in the hands of the recipient companies, it is very strange how can the said amount is alleged to be non-genuine in the hands of the assesee company who has claimed the same as an expenditure. The basic fundamental principle Le, income in one hand is the expenditure to the other, is conveniently ignored by your goodselves. 6.4 In respect of engagement of subcontractors, we relied on the following evidences which were appreciated at the time original assessment and also during the course of 153 A proceedings: a) Work orders some of which were seized in course of search b) Measurement Books c) Bills passed by the company d) Ledger of copies of the subcontractors as appearing in our books e) Copies of bank accounts f) Confirmation from MCGM regarding completion of the project The AO has not faulted any of the above evidences at the time of original assessment. The present AO is precluded from take a different view without any evidence in his possession. 6.5 Therefore, the appellant prays that the entire addition amounting to Rs. 18,11,00,716/-(Rs.2,91,10,605/- & 15,19,90,111/-) be deleted.”

15 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., 11. After considering the submissions of the assessee, Ld.CIT(A) held as under: - “7.14 It is gathered that Shri Avinash Bhosale used to have significant stake in the assessee company only recently his equity was 27% and he was also a director of that company. Thereafter, he gradually reduced his stake but still held 6% Equity in the company. The assessee has argued that not only he had stakes in the assessee company, he remained the main person who secured this contract because of his close connections with the Maharashtra State Government and Bombay Municipal Corporation (BMC). The assessee has also stated that he helped in getting loan also for the project. 7.15 The assessee has also contended that giving back to back contract in such big project is not unusual or uncommon and most of the big projects are executed in this way. The assessee in this regard, mentioned about NHAI projects and other Infra project where there are several layers of contractors and subcontractors. These layers of contractors help in early finishing of the work and if for any reason one party fails, other parties are able to finish of the project work. 7.16 I have also examined the tax implication for the sub contract given to ABIL Infraproject and Splendor. It appears that income received by ABIL and Splendor has been disclosed by them in the Income Tax return filed for respective years. While ABIL has disclosed income of Rs.87.51 crs. From A.Yrs. 2012-13 to 2017-18 from the above transactions, Splendor has shown income of over Rs.12 crs. They have also tax of Rs.32.48 crs. and 2.29 crs. respectively in respect of these transactions. Besides, both these companies were assessed by the same AO. So if the Ld. AO felt that this income was liable to be taxed in hands of the assessee company then he should not to tax the receipt in the hands of ABIL and Splendor for the respective years. Therefore, taxing the amounts both in the hands of the assessee company on one hand and ABIL and Splendor on the other hand, this income has been taxed twice, which is not permissible under the law. 7.17 It is further noticed and no losses as such is caused to the Revenue by sub contract given to ABIL. and Splendor. In fact had this sub contract not been given to these concerns, valuable Revenue would have been lost and no taxes as such would have come to the Exchequer which is clear from the fact that even after adding these receipts in the hands of the assessee, there was only loss of Rs.28.12

16 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., crs. for AY 2015-16, loss of Rs.37.37 crs. for AY 2016- 17 and Rs.37.75 crs. for AY 2017-18. Thus no tax liability has arisen on account of making these additions in the hands of the assessee company. On the contrary, the assessee ended up getting refunds even after assessment. Therefore, I am inclined to accept the contentions of the assessee that no losses are caused to Revenue by subcontracting work. 7.18 In view of the foregoing discussions, I hold that no addition is warranted in the hands of the assessee on account of sub contract given to ABIL and Splendor. Consequently, addition made by the AO is directed to be deleted. Therefore, addition of Rs. 1,86,93,938/-in respect of bogus purchase is confirmed and addition in respect of subcontract work is directed to be deleted. The issue of subcontracting work to Sadhana Corporation may be examined in A.Y. 2014-15. Consequently, ground nos. 5 to 8 of the assessee are partly allowed.”

“6.8.7 From the perusal of the aforesaid assessment orders framed u/s 153A r.w.s 143(3) of the Act in the hands of the recipient companies (i.e ABIL Infra Projects Pvt Ltd and SDPL) by the very same AO, we find that the receipts from M/s Soma Enterprises Ltd (i.e. assessee before us) has been duly offered by them as income from business and the same has been assessed by the ld. AO only under the head „income from business‟. This goes to categorically prove that the contractors i.e M/s ABIL Infra Projects Pvt Ltd and M/s SDPL have indeed rendered services to the assessee for which the payments were made by the assessee and wherever they (i.e the two contractors) in turn had sub-contracted the work to M/s Maganti Constructions, the payments made by them to M/s Maganti Constructions have been accepted as genuine business expenditure in the hands of M/s ABIL Infra Projects Pvt Ltd and M/s SDPL by the very same AO. Nothing prevented the ld. AO from assessing the

17 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., receipts from the assessee as income from other sources in the hands of the two recipient companies. Having assessed the receipts from the assessee as business income in the hands of M/s ABIL Infra Projects Pvt ltd and M/s SDPL, the ld. AO had actually accepted the fact that these two contractors had indeed rendered contract services to the assessee. Hence the very same AO taking a completely divergent stand by making totally baseless allegations against the assessee and deciding to disallow the contract payments made by the assessee herein is totally unsustainable in the eyes of law. 6.9. We find that the ld. CIT(A) had duly appreciated the contentions of the assessee and deleted the addition made by the ld. AO in this regard by observing as under:- “7.16 I have also examined the tax implication for the sub contract given to ABIL Infra project and Splendor. It appears that income received by ABIL and Splendor has been disclosed by them in the Income Tax return filed for respective years. While ABIL has disclosed income of Rs.87.51 crs. From A.Ys. 2012-13 to 2017-18 from the above transactions, Splendor has shown income of about Rs. 12 crs. They have also tax of Rs. 32.48 crs and 2.29 crs respectively in respect of these transactions. Besides, both these companies were assessed by the same A.O. So, if the Ld. A.O. felt that this income was liable to be taxed in hands of the assessee company then he should not tax the receipt in the hands of ABIL and Splendor for the respective years. Therefore, taxing the amount both in the hands of the assessee company on one hand and ABIL and Splendor on the other hand, this income has been taxed twice, which is not permissible under the law. 7.17 It is further noticed and no losses as such is caused to the Revenue by sub contract given to ABIL and Splendor. In fact, had this sub contract not been given to these concerns, valuable Revenue would have been lost and no taxes as such would have come to the Exchequer which is clear from the fact that even after adding these receipts in the hands of the assessee, there was only loss of Rs. 28.12 crs. For A.Y. 2015-16, loss of Rs. 37.37 crs. For A.Y. 2016-17 and Rs. 37.75 crs. For A.Y. 2017-18.

18 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., Thus, no tax liability has arisen on account of making these additions in the hands of the assessee company. On the contrary, the assessee ended up getting refunds even after assessment. Therefore, I am inclined to accept the contentions of the assessee that no losses are caused to Revenue by subcontracting work. 7.18 In view of the foregoing discussions, I hold that no addition is warranted in the hands of the assessee on account of sub contract given to ABIL and Splendor. Consequently, addition made by the A.O. is directed to be deleted. “ 6.10 Moreover, we find that the findings given by the ld. CIT(A) in para 7.17 of his order that even after disallowing the said contract payments in the hands of the assessee, the assessment had only resulted in loss in the hands of the assessee company and that the exchequer is benefitted out of these payments as the recipients had duly paid sufficient taxes to the Government. This finding has not been controverted by the revenue before us. Hence we hold that there is no need for the assessee to divert its profits by making payments to two contractors M/s ABIL Infra Projects Pvt Ltd and M/s SDPL with a malafide intention to reduce the profits. In any case, it is only loss even after the disallowance of the said payments in the hands of the assessee herein. This also goes to prove that the transactions of contract payments made by the assessee to M/s ABIL Infra Projects Pvt Ltd are genuine and cannot be treated as sham. 6.11 In view of the aforesaid observations, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee by deleting the disallowance made on account of contract payments in the sum of Rs 14,94,28,253/-. Accordingly, the Ground No.1 raised by the revenue for the A.Y. 2016-17 is hereby dismissed.”

19 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., A.Y.2016-17 and A.Y. 2017-18 in which the Coordinate Bench has considered the facts on record and decided the issue against the revenue in ITA.No. 1817/Mum/2021 dated 28.11.2022 and relevant finding are given below: -

“7.1 We have heard the rival submissions and perused the materials available on record. The assessee, during the previous year relevant to the impugned assessment year, has received Rs.3,30,36,759/- from an AOP as its share in the profits. The assessee, while computing the income under the regular provisions of the Act, reduced the same from the total income as per the provisions of section 86 of the Act. The provisions of section 86 of the Act are reproduced hereunder for the sake of convenience: - “Where the assessee is a member of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India), income tax shall not be payable by the assessee in respect of his share in the income of the association or body computed in the manner provided in section 67A: Provided that- a) Where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income; b) In any other case, the share of a member computed as aforesaid shall form part of his total income: Provided further that where no income tax is chargeable on the total income of the association or body, the share of a member computed as aforesaid shall be

20 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., chargeable to tax as part of his total income and nothing contained in this section shall apply to the case.” 7.2 The assessee, while computing the book profits for the purposes of section 115JB of the Act, did not include the same in the book profits on the ground that the same needs to be excluded while determining the book profits. The assessee contended that clause (fa) which provides that book profits, for the purposes of section 115JB, has to be increased by expenditure debited to the P&L Account which is relatable to income not chargeable to tax under section 86 of the Act and similarly clause (iic) provides for the exclusion of the profits. These clauses to Explanation 1 to section 115JB were inserted by Finance Act, 2015 with effect from 01/04/2016 and hence applicable to A.Y. 2016-17. In any case, the assessee also placed reliance on the decision of Mumbai Tribunal in the case of Goldberg Finance (P) Ltd vs ACIT reported in 78 taxmann.com 123 in support of its contentions that the said amendment in section 115JB of the Act should be construed as retrospective in operation. 7.3 The ld. AO observed that section 115JB of the Act defines the book profit in exhaustive manner. As per the section, the reduction of share of profit of AOP from book profit is only allowable from A.Y. 2017-18; that the said provision is not retrospective in nature, as submitted by assessee; that order of Mumbai Tribunal as mentioned by assessee was not accepted in principle by department. Accordingly, the ld. AO recomputed the book profit u/s 115JB of the Act by adding the share of profit of Rs.3.30.36.759/- from AOP. The ld. CIT(A) by following the decision of Mumbai Tribunal referred supra held that the amendment brought in Finance Act 2015 is clarificatory in nature and hence directed the ld.AO to reduce the share of profits from AOP while computing book profit u/s 115JB of the Act. 7.4 We find that the amendment in Section 115JB of the Act has been brought from Finance Act 2015 w.e.f. 01/04/2016. Hence this is applicable from A.Y. 2016-17 which is the year under dispute. Hence even as per the statute, the assessee is entitled for reducing the share of profits from AOP while computing book profit u/s 115JB of the Act. Hence even without placing reliance on the decision of Mumbai Tribunal referred supra, the assessee is entitled for relief. Hence the Ground No. 2 raised by the revenue for the A.Y. 2016-17 is hereby dismissed.”

21 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., 16. Respectfully following the above said decision, we are inclined to dismiss the grounds raised by the revenue.

C.O. NO.46/MUM/2022

Order pronounced in the open court on 17th February, 2023

Sd/- Sd/- (KULDIP SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 17/02/2023 Giridhar, Sr.PS

22 ITA.NO.1824/MUM/2021 (A.Y: 2015-16) C.O.No. 46/MUM/2022 Soma Enterprises Ltd., Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum