BALKRISHNA BHALOTIA CONSTRUCTION PRIVATE LIMITED,JAMUI vs. PCIT CENTRAL, PATNA

Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Principal Commissioner

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. The assessment proceeding remained dormant and thereafter the ld. Pr. CIT-1, Patna vide its order dated 13.01.2021 transferred the jurisdiction of the ld. Assessing Officer from ACIT, Circle-2, Begusarai to DCIT/ACIT, Central Circle-2, Patna. The ld. Assessing Officer thereafter issued two notices under section 142(1) on 12.02.2021 and 14.02.2021. According to the ld. Assessing Officer, photostat copy of all impounded documents were handed over to the assessee on 18.02.2021. The ld. Assessing Officer thereafter framed the assessment order on 24.03.2021. The ld. Assessing Officer has rejected the book result of the assessee and estimated the income at 8% of the gross receipts. The relevant finding of the ld. Assessing Officer reads as under:-

“No books of accounts, bills and vouchers were found by the survey team during the course of survey operation. During survey, assessee was given several opportunities to produce the books of accounts, bills & vouchers before the survey team. But, assessee failed to produce the same.

During the course of assessment proceedings, assessee was again provided the opportunity to produce/furnish the books of accounts and supporting bills and vouchers. But, assessee could produce only some part of books of accounts. No supporting bills and vouchers could be furnished/produced by the assessee.

Assessee’s contention that Jamui is a small town and they face difficulty to find good human resources to 3

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. manage the day to day accounts in proper manner as a reason for not maintaining proper books of accounts, is not tenable as because not finding a good human resources cannot be a reason for not maintaining proper books of accounts, bills and vouchers. Assessee is doing a business of contractors having a turnover of Rs. 152.12 crores but is unable to find a good accountant to maintain proper books of accounts, cannot be accepted.

Keeping bills and vouchers in support of entries in books of accounts is a normal work and it does not require a specialized person.

From the facts and information gathered during the course of survey proceedings/post survey proceedings, it was gathered that assessee maintains the account of gross receipt only. Then after it back calculates the expenditure to arrive at the desired income.

Based upon the aforesaid facts and discussion, the aforesaid submission of the assessee is rejected. It can be concluded that assessee was not having its books of accounts at the time of survey and it has been prepared after the survey operation. Assessee does not have supporting bills and vouchers etc. Hence, the said books of accounts cannot be relied upon. Accordingly, the said books of accounts of the assessee are being rejected. Assessee is Government contractor and its entire receipts are subject to the provisions of TDS. Hence, Assessee cannot suppress its receipts. Hence, total receipt of the assessee for the year can be taken as base for the purpose of calculation of profits and gains from business of the assessee. In the absence of proper books of accounts, for the purpose of calculation of true and correct profits and gains from business of the assessee for the year, I reasonably estimate the income of the assessee a sum equal to 8% of gross receipt (turnover) as true and correct income of the assessee chargeable to tax. 4

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. Accordingly the income of the assessee chargeable to tax is calculated as Rs. 12,17,02,032/- (8% of Rs. 152,12,75,394/-). It is clarified here that all deduction allowable under the provisions of sections 30 to 38 shall be deemed to have already been given full effect to and no further deduction under those sections shall be allowed.

Further, assessee has received interest income of Rs.1,89,99,741/- and discount income of Rs.1,55,763/- during the year. Hence, total from business of the assessee comes to Rs.14,08,57,536/-.

Considering the aforesaid facts and discussion, the total income of the assessee from business is calculated at Rs.14,08,57,536/- as stated above.

Penalty proceedings under section 270A has been initiated separately on this point for misreporting of income”.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd.

6. In response to the above show-cause notice, the assessee has filed written submission, whose cognizance was taken by the ld. Pr. CIT and the explanation of the assessee is being summarized in paragraph no. 2(i) to 2(v). The ld. Pr. CIT thereafter rejected the submission of the assessee by recording the following finding:- “3. I have considered the submissions of the assessee. It is undisputed fact that during the course of survey u/s 133A dated 14.09.2017 at the business premises of the assessee ai'Jamui, no books of accounts, bills and vouchers were found and the same was admitted in the course of statement of Sh. Rajiv Ranjan Bhalotia, director of the company. The books of accounts, bill and vouchers for purchases/expenses were also not produced during the course of assessment proceeding as mentioned on page-5-7 of the assessment order. It is also a matter of record that return u/s 139 was filed on 29.03.2019, beyond the permissible time u/s 139(1), in which total income disclosed was Rs.122868330/-, including interest income of Rs.18999741/-. This interest income pertained to the fixed deposit of the assessee company which was not related to the business activity and hence assessable under the head ‘income from other sources’. The Assessing Officer determined business profit @8% out of contractual receipts of Rs.1521275394/-, amounting to Rs.121702032/- which is only marginally higher than the net profit declared by the assessee. Books of accounts of the assessee has Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. been rejected by the AO within the meaning of Section 145(3), however, assessment has been framed u/s 143(3) instead of Section 144, which also makes the assessment erroneous. It may be noted that in case of Amhara Constructions Pvt. Ltd., Patna which is also engaged in the business of government contracts involving construction and maintenance of roads, culverts, footpaths etc. has declared profits of 10% or more on a turnover of about Rs. 100 crores in the relevant assessment year and is a comparable case. It may also be mentioned that subsequent to search and seizure operation carried out on 28.07.2021, the assessee company was found to be indulging in inflated expenses through bogus purchase bills of raw materials. 3.2. Further, the Assessing Officer has added unexplained sundry creditors (list provided by the assessee and kept on record) amounting to Rs.90249028/- in total. It is clear that the creditors related to expenditure involving purchase of goods/services by the assessee during the year or in earlier years. The Assessing Officer failed to call for the ledger accounts of the party and examine the nature of expenditure/credits in the books of assessee, genuineness of transactions of such purchases and allowability of the same under the provisions of the Income Tax Act. The chances of such purchases/expenses being bogus is high and the amount may be substantially higher than the credit balances admitted by the assessee to be nonexistent and offered for taxation. This lack of enquiry makes the assessment order erroneous and prejudicial to the interest of revenue.

4. In so far as non maintenance of books of account is concerned, the assessee’s plea that the books of account have been audited by the auditor and audit report required u/s 44AB was submitted as required u/s 44AB of the Income Tax Act is also not acceptable. The assessee has not produced the bills and vouchers relating to the expenses claimed and has offered credit balances appearing in the names of various persons aggregating to Rs.90249028/- shows that the AO failed to examine the expenditure booked in the accounts for the purposes of computing business profit. It is also noted that more than 30 bank accounts, passbooks and cheques pertaining to various persons were impounded during the course of survey u/s 133A, however, the AO failed to call for the bank statements and examine its use/misuse for inflating expenses and suppression profits/taxable real income. The assessee cannot hide behind the audit report, which has been submitted beyond the time limit permissible under the law, and has been prepared without verification of bills and vouchers relating to expenses claimed by the assessee. It is a settled law that failure to maintain books of account, bill and vouchers from which the receipts, expenses and profits could not be computed, and where the Assessing Officer failed to initiate 8 Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. penalty proceeding at the time of passing assessment order renders the order erroneous and prejudicial to the interest of revenue.

5. The assessee’s submission that it submitted audit report in Form No. 3CB and 3CD along with return filed on 29.03.2019, is also not acceptable. The said audit report has merely considered the books of account i.e. cashbook, ledger and journal, bank book besides the purchase/sale registers. It is undisputed that the bills and vouchers for the expenses incurred were not made available during the course of survey or during the assessment proceeding. The Assessing Officer failed to initiate penalty proceeding u/s 271B in the course of the assessment proceeding which renders the assessment erroneous and prejudicial to the interest of revenue. This had been held so in case of CIT vs. Ganeshilal Ramkrishna (2006) 154 Taxman 238 (Allahabad), and in case of CIT vs. Ashok Construction Co. (2006) 280 ITR 368. The claim that subsequent to the conclusion of the assessment on 24.03.2021, the penalty proceedings u/s 271B was initiated and penalty has been imposed vide order dated 31.01.2023, is also not acceptable. The proceeding having been not initiated during the course of assessment, initiation and imposition of such penalty u/s 271B is not sustainable in the eyes of the law.

[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. (b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.

(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.

(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.

(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.

(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.

(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.

(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd.

(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.

(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. Constructions Pvt. Limited, Patna, who has disclosed profit @ 10% and who was engaged in the similar line of construction. On due consideration of this fold of reasoning, we are of the view that the assessee has submitted before the revenue authorities that it derives income from the business of a Government Contractor, it is in this line of business from the last five years. The joint venture used to take large contracts from the Government of Bihar and which are executed by different partners of the joint venture. The contractual receipts credited to the assessee are subject to TDS and, therefore, cannot suppress them. The source of those receipts is Government of Bihar. Apart from the above, the assessee’s contracts fall under the ambit of GST. It has to file quarterly return for the first quarter and thereafter monthly return for the remaining nine months under the GST Act. It has to disclose complete contract receipt and purchases made by it. The GST audit report is also required to be submitted in Form No. 9C. The GST Authorities have conducted audit under section 65 of the CGST Act, 2017 for the year under consideration. According to the assessee, the entire input credit claimed on purchases were allowed by the GST Authorities. It was also submitted that the scope of GST audit is very wide and it includes verification of purchases, contract receipt etc. but no adverse action has been taken by the GST Authorities. In the light of above, it was submitted by the Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. assessee that it has submitted books of account, which were duly audited. What it could not submit is the bills and vouchers at the time of survey and during the assessment proceedings, the submissions were required to be made online. We have made a mention in the upper part of this order that after issuance of a notice under section 143(2), the assessment proceeding mainly remained dormant for a quite long time and thereafter the notice was issued under section 142(1) in the month of February and assessment has been completed in the month of March. The assessee has admitted before the ld. Assessing Officer with regard to non-availability of bills and vouchers. Such bills and vouchers could not be produced during the survey time also, but it was contended by the assessee that its construction work is spread over. It is not practically feasible to collect all those information and submit during the course of survey. Such submissions are reflected on page no. 6, last paragraph of the assessment order. Under these compelling circumstances, the ld. Assessing Officer has rejected the book result.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. Assessing Officer thought to exercise his wisdom available under Section 144 and he determined the income of the assessee at 8% of the contractual receipts.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. journal, Bank account and Bank Pass Book, purchase/sales register. It was also submitted that its total receipts came from the Government of Bihar, which were subject to TDS. Its purchases are subject to GST and it has been filing GST return regularly. It has got its accounts audited for GST return and it has availed the GST credit so basic books of account were maintained by it, which was duly audited. The emphasis of the ld. Assessing Officer in the assessment order was that assessee failed to submit bills and vouchers at the time of survey. It is also important to note that no specific instance has been mentioned by either of the authorities, i.e. Assessing Officer as well as ld. Pr. CIT, which specific details was called for and not available with the assessee. The observations are general in nature and on account of those general in nature, its book result has already been rejected. The ld. Pr. CIT failed to appreciate that what fruitful result would come out if it is re-examined by the ld. Assessing Officer, to our mind, it is just waste of resources because profit has already been estimated at 8% of the gross receipts, which have flown to it from the State of Bihar and in construction activities, there could not be more profit to the assessee. One of the reasons ld. Pr. CIT has observed that assessee has shown credit balances as on 31.03.2018. It is pertinent to note that assessee has been regularly filing the return. In the past, it has filed returns, which have been duly scrutinized by the Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. Department under sections 143(3) and 143(7), but such credit balances if coming out from other years, have never been doubted. In subsequent years which also assessed under scrutiny assessment. Therefore, all these circumstances were subject to verification in every year. By merely quantifying an amount under the credit balance would not become doubtful. The ld. Assessing Officer has adopted one of the courses and assessed the income. If the method adopted by the ld. Assessing Officer did not match to the view point of the ld. Commissioner, then the assessment order would not become erroneous. The ld. Pr. Commissioner failed to work out, which specific prejudice has been caused to the revenue by estimating the income of the assessee at 8% of the gross receipts. The income has been assessed at a higher rate in this year than the profit ratio adopted earlier in scrutiny assessment. For buttressing our conclusion, we fortify ourselves with the decision of the Hon’ble Jurisdictional High Court in the case of CIT -vs.- Shantilal Agarwalla (142 ITR 778 (Patna) and CIT -vs.- Mukul Kumar 2009 (4) PLJR 417. The copies of these decisions are placed on record by the ld. Counsel for the assessee and we have gone through the record.

Assessment Year: 2018-2019 Balkrishna Bhalotia Construction Pvt. Ltd. Therefore, we allow this appeal of the assessee and quash the order of the ld. Pr. CIT passed under section 263 of the Income Tax Act in A.Y. 2018-19.