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Income Tax Appellate Tribunal, PUNE BENCH, ‘B’ PUNE
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER R.S. SYAL, VP :
This appeal by the Revenue is directed against the order dt. 31-03-2022 passed by the CIT(A)-12, Pune in relation to the assessment year 2012-13.
Briefly stated, the facts of the case are that the assessee is engaged in the business of Construction and Maintenance of Dams and Power projects. The return was filed declaring total income at Rs.7.27 crore. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee awarded sub- contract works to various parties including M/s. Starmark Infra
Shreehari Associates Private Limited Developers Pvt. Ltd; Silicon Real Estate Pvt. Ltd.; and Dcom Systems Ltd. Payments to these three parties totalled upto Rs.63,30,54,708/-. He carried out investigation about the genuineness of these three parties and eventually it turned out that they were not genuine. He thus treated the total amount paid to them as bogus expenditure and made addition for the same. The ld. CIT(A) countenanced the action of the AO in treating these three parties as bogus. He, however, held that the addition could be made only in respect of profit element embedded in the contract receipts, against which such sub-letting of contracts was done to these three parties. This is how, he estimated profit at 12% and sustained addition to the extent of Rs.7,59,66,565/-, thereby allowing relief of Rs.55,70,88,143/-. Aggrieved thereby, the Revenue has come up in appeal before the Tribunal.
We have heard both the sides and gone through the relevant material on record. The ld. CIT(A) has affirmed the findings of the AO anent to the bogus sub-contract expenses. The assessee is not in appeal. To that extent, the impugned order is affirmed by holding that the assessee recorded accommodation bills totaling to Rs.63.30 crore. Now, the question is about the addition qua the bogus bills.
In this regard, it is noted that total revenue of the assessee stood at Rs.143.18 crore and total expenses at Rs.136.87 crore. Sub-contract
Shreehari Associates Private Limited bogus expenses added by the AO amount to of Rs.63.30 crore, against the corresponding contract receipts of Rs.64.49 crore. If both these figures of bogus sub-contract expenses and the corresponding contract receipts are excluded from the total revenue and expenses, the normal business profit rate of the assessee comes at 6.51%. Considering that there must have been some further economy because of bogus contract bills, the ld. CIT(A) estimated the profit at 12%. It goes without saying that income-tax is charged on income component in the revenue receipts and not the revenue itself. The contract receipts, corresponding to bogus sub-contract expenses, stand at Rs.64.49 crore. The AO has not disputed the genuineness of the contract receipts to this extent. This shows that the assessee actually carried out the contract work of this magnitude but recorded bogus bills towards sub-contract expenses amounting to Rs.63.30 crore for reducing the amount of profit, instead of actual lower expenses. On disallowing the bogus expenses, the actual estimated expenses need to be reduced from the amount of revenue receipts for computing the income. In our considered opinion, the ld. CIT(A) was more than considerate in estimating the profit at 12% on such contract receipts as against the assessee’s normal profit rate from genuine business at 6.51%. The contention of the Department that the full amount, as added by the AO ought to Shreehari Associates Private Limited have been upheld, is without merit because it is only the profit element in the contract receipts which can be subjected to tax. The Hon’ble Bombay High Court in Pr. CIT Vs. S.V. Jiwani (2022) 449 ITR 583 (Bom.) has also held to this extent. We, therefore, countenance the view canvassed by the ld. CIT(A).
In the result, the appeal is dismissed.
Order pronounced in the Open Court on 20th July, 2023.