M/S. MAHAVEER INFRA ENGINEERING PVT. LTD. ,MUMBAI. vs. DCIT, CIRCLE, BARMER

1 The revenue is under appeal for Assessment Years (AY) 2014-15 & 2015-16 against separate appellate orders. The assessee is also in appeal for AY 2015-16 whereas it has preferred cross-objections for AY 2014-15. 1.2 Facts as well as issues are stated to be identical in both the years and therefore, the appeals as well as cross-objection are being disposed-off by way of this common order for the sake of convenience & brevity. First, we take up revenue’s appeal as well as cross-objections for AY 2014-15 which is against the order dated 09/01/2018 passed by Ld. Commissioner of Income-Tax (Appeals)- 2, Jodhpur, [in short referred to as ‘CIT(A)’], Appeal No.212/2016- 17. 1.3 The grounds raised by the revenue read as under:-

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A)-2, Jodhpur was justified in deleting the addition of Rs.14,30,32,450/- made u/s 68 on account of unexplained creditors, ignoring the fact that during assessment proceedings the assessee failed to produce confirmation of unsecured loan and letters issued u/s 133(6) to the creditors at their addresses provided by the assessee were received back un-served.

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A)-2, Jodhpur was justified in deleting the addition of Rs.5,76,00,000/- made on account of unexplained unsecured loan creditors, ignoring the fact that during assessment proceedings the assessee failed to produce confirmation of unsecured loan and letters issued u/s 133(6) to the creditors at their addresses provided by the assessee were received back un-served.

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A)-2, Jodhpur was justified in deleting the addition of Rs.13,10,343/- made on account of unrecorded receipts discrepancies of 26AS, ignoring the fact that during

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT (A)-2, Jodhpur was justified in restricting the disallowance to 5% as against 25% disallowed by the AO on account of disproportionate rise in expenses, ignoring the fact that during the assessment proceedings the assessee failed to explain / produce complete bills / vouchers of these expenses and also not furnished site-wise details of material or other consumables.

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT (A)-2, Jodhpur was justified in restricting the disallowance to 5% as against 10% disallowed by the AO on account of un-vouched / unverifiable expenses, ignoring the fact that during the assessment proceedings the assessee failed to explain / produce the complete bills / vouchers of these expenses and these payments were made in cash.

Whether, on the facts and in the circumstances of the case and in law, the Ld, CIT (A)-2, Jodhpur was justified in deleting the addition of Rs.82,49,484/- made on account of not showing commission income on sub-let work, ignoring the fact that no commission income on sub-let work was shown by the assessee.

That on the facts & in the circumstances of the case the Id CIT (A) erred in sustaining disallowances of loss of Rs. 23,68,613/- on account of sale of machinery.

That on the facts & in the circumstances of the case the habit of the Department to making high pitched addition and created huge demand against the appellant company regularly since 2011 onward and due to such arbitrarily and illegal act of the Department the business of the appellant company was likely to be closure.

That on the facts & in the circumstances of the case, the various additions made by the Id AO in the assessment order are not only illegal but also without juri iction and violation of principle of natural justice.

We have carefully heard the rival submissions and perused relevant material on record including written submissions and documents placed in the paper book. The judicial precedents as relied upon during the course of hearing have duly been deliberated upon. The Tribunal order in assessee’s own case for AYs 2012-13 & 2013-14, ITA Nos.274 & 275/Jodh/2017 common order dated 08/02/2018 has also been considered. Our adjudication to the subject matter would be as given in succeeding paragraphs.

1 The assessee being resident corporate assessee stated to be engaged as civil contractor was assessed u/s 143(3) on 26/12/2016 wherein returned income of Rs.178.09 Lacs was assessed at Rs.2812.42 Lacs after certain additions / adjustments / disallowances.

2 It is evident that the assessee has reflected Gross profit of 16% during the year on Gross Contract receipts of Rs.5440 Lacs. This rate was higher than rate of 10.18% & 9.69% reflected for AYs 2013-14 & 2012-13 respectively. Our adjudication to the issues arising out of appeal would be as follows.

Addition on account of discrepancies in Form 26AS

1 Certain discrepancies were noted in gross contract receipts vis-à-vis receipts reflected in Form 26AS and accordingly, the assessee was required to reconcile the same. The assessee reconciled difference of 8 parties but failed to file any explanation with regard to 7 parties. After considering the assessee’s explanation as well as documentary evidences, Ld. AO opined that though TDS credit was claimed but receipts were not accounted for 5 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 as per Form 26AS. The difference was worked out to be Rs.434.58 Lacs with respect to 13 entities, the details of which have already been extracted on page-22 of the order. Therefore, the same were added to the income of the assessee.

2 It is apparent from para 6.2 of the impugned order that the assessee preferred rectification application u/s 154 before Ld.AO wherein this addition so made was ultimately reduced to Rs.13.10 Lacs and the balance additions were already deleted.

3 Before Ld. CIT(A), it was pointed out that the difference of Rs.13.10 Lacs arose due to double entry of TDS deduction by the respective parties while making the advances but nevertheless, the receipts were entirely disclosed by the assessee in the books of accounts. Alternatively, profits arising out of those differential receipts may be added. Accepting the alternative plea, Ld. CIT(A) estimated an addition of 5.26% on difference of Rs.13.10 Lacs. This rate was nothing but profit rate of immediately preceding year. Aggrieved, the revenue is in further appeal before us by way of Ground No.3. 4.4 Upon due consideration, we find that substantial additions were already deleted by Ld.AO u/s 154. Regarding balance unexplained receipts, income has been estimated at profit rate as reflected in immediately preceding year. In our considered opinion, the approach adopted by Ld. CIT(A) was perfect in all respect since the contract receipts would not constitute profit of the assessee rather it would be the profit element embedded on those receipts, which was to be brought to tax. Similar is the view of Tribunal in 6 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 para 8.3.1 of cited order for AY 2012-13. In the result, ground No.3 of revenue’s appeal stand dismissed.

Outstanding Trade Payables

1 The assessee reflected year-end trade payables at Rs.4106.23 Lacs. Accordingly, the assessee was required to establish the identity and creditworthiness of the entities. Though the assessee explained the same, however, Ld. AO opined that the assessee could not discharge the onus to establish identity, creditworthiness and genuineness of 10 entities, the details of which have been extracted on page-34 of the order. These creditors aggregating to Rs.1430.32 Lacs were added to assessee’s income u/s 68 of the Act.

2 Before Ld. CIT(A), a plea was raised that the provisions of Sec.68 were not applicable to trade creditors since no loans were received but the amounts were to be paid against goods / services received by the assessee. All the requisite details were already provided to Ld. AO during the course of assessment proceedings.

3 The Ld. CIT(A), while rejecting the plea of non-applicability of Sec.68, observed that the parties under consideration were trade creditors and the amounts due to them were in the nature of contract work executed by them on behalf of the assessee. The assessee received 2% commission on sub-letting which was accounted for in the books of account. The payments were through banking channels and due TDS was deducted against the same.

Unsecured Loan Creditors

1 The assessee reflected year-end loan creditors for Rs.739.29 Lacs. Accordingly, the assessee was required to establish the identity as well as creditworthiness of the entities in terms of requirements of Sec.

Though the assessee filed certain explanations / confirmations, however, the same could not convince ld. AO who added an amount of Rs.576 Lacs to the income of the 8 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 assessee u/s 68 with respect to 4 entities as tabulated on page-44 of the order.

2 The Ld.CIT(A), after considering assessee’s documentary evidences, came to a conclusion that all the 4 lenders were assessed to Income tax and they filed confirmation copies, copy of return of income along with audited financial statements not only for this year but also for earlier years. In their respective Balance Sheets, the loans so advanced to the assessee were duly reflected. The bank accounts were operative accounts. Therefore, since the assessee had successfully discharged the requisite onus, the additions were to be deleted. Aggrieved, the revenue is in further appeal before us by way of Ground No.2. 6.3 We have gone through assessee’s submissions as well as documentary evidences as filed by the assessee during the course of appellate proceedings. Upon perusal of the same, we concur with the findings of Ld. CIT(A) that the assessee had successfully discharged the requisite onus in terms of Sec.

All the 4 lenders filed confirmation of accounts as well as respective copies of Income Returns. The loans advanced to the assessee were reflected in their audited financial statements. Therefore, we do not find any infirmity in the impugned order, on this issue. This ground stand dismissed.

Disproportionate rise in expenses

1 The assessee claimed aggregate expenditure of Rs.803.59 Lacs on account of purchase of raw material, repair & maintenance and transportation expenses. The same in the opinion of Ld. AO

2 The Ld. CIT(A) observed that the onus was on assessee to substantiate with documentary evidences to the effect the expenditure claimed in Profit & Loss Account was laid out or expanded wholly and exclusively for the purposes of the business. Keeping in view the factual matrix of the case, Ld. CIT(A) found the estimation of 25% on the higher side particularly when the assessee was not awarded transportation work on sublet basis and the entire work was executed by the assessee himself which led to increase in the expenditure during the year. The GP rate was better in this year. Therefore, the disallowance was to be reduced to 5%. Aggrieved, the assessee as well as revenue is in further appeal before us.

3 We find that this issue is covered in assessee’s favor by the cited decision of this Tribunal for AY 2013-14, wherein the estimated disallowance of 5% has been deleted by the coordinate bench by observing that in the absence of any specific finding by Ld. AO regarding defects either in books of accounts or the vouchers, the adhoc disallowance was to be deleted. Respectfully following the same, we delete the entire disallowance of 25% as made by Ld. AO in the assessment order. Ground No. 4 of 10 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 revenue’s appeal stand dismissed whereas Ground No.1 of assessee’s cross-objections stand allowed.

Un-vouched / unverifiable expenses

1 The assessee had claim operating expenses aggregating to Rs.80 Lacs against which an adhoc addition of 10% was made by Ld.AO. The same resulted into another addition of Rs.8 Lacs in the hands of the assessee.

2 Upon further appeal, Ld. CIT(A), following the principle that complete onus to establish the fact that the expenditure was laid out or expanded wholly and exclusively for the purposes of the business was on the assessee, found the estimation of 10% to be on the higher side and therefore reduced the same to 5%. Aggrieved, the assessee as well as revenue is in further appeal before us.

3 Since the disallowance is an adhoc disallowance as in ground No.7, following the same analogy, the entire disallowance of 10% stands deleted. Ground No. 5 of revenue’s appeal stand dismissed whereas Ground No.2 of assessee’s cross-objections stand allowed.

4 Ground No.3 & 4 of assessee’s cross-objections are in support of Ground Nos.1 & 2. Since we have already allowed Ground Nos. 1 & 2 of the cross-objections, these grounds are deemed to have been allowed.

Loss on Sale of Machinery

1 The assessee claimed loss on sale of machinery for Rs.23.68 Lacs which remained unsubstantiated and accordingly, disallowed by Ld AO while framing the assessment. Similar was the position before Ld.CIT(A) who confirmed the addition by observing that the assessee failed to file any evidences of sale consideration. Aggrieved, the assessee has raised Ground No. 5 in the cross- objection.

2 In the absence of any new material forthcoming before us, we are inclined to confirm the stand of lower authorities on this issue and dismiss this ground as raised by the assessee.

Rest of the ground in assessee’s cross-objections is general in nature which would not require any specific adjudication on our part.

Commission Income on Sub-letting work

1 The assessee received contracts, part of which was sublet to other parties and remaining work was to be executed by the assessee. Though assessee reflected 2% commission in earlier years, but no such commission was stated to be shown in this year. Accordingly, Ld. AO estimated similar commission in this year and added an amount of Rs.82.49 Lacs to the income of the assessee.

2 The Ld.CIT(A), after due consideration of factual matrix as well as relevant agreements, rendered a finding that the assessee had disclosed net of Rs.113.87 Lacs which comprises-off of profit earned from work executed by it and commission received from third parties in respect of work allotted on sublet basis. Therefore, adding the same again would amount to double taxation. Therefore,

3 We find that the findings of Ld. CIT(A) remain undisturbed before us. Once the amount has already been offered to tax, adding the same again would amount to double taxation. Therefore, no fault could be found with the approach of appellate authority, on this issue. The ground stand dismissed.

The revenue’s appeal stand dismissed whereas the assessee’s cross-objections stands partly allowed

Cross-Appeals for AY 2015-16 Facts as well issues are substantially the same as in AY 2014-15. While framing assessment u/s 143(3) on 30/12/2017, the assessee was saddled with following additions: - No. Particulars Amt. (Rs.) Rs.208.62 Lacs

Mismatch in From 26AS

1 An addition of Rs.208.62 Lacs was made with respect to 6 entities on account of mismatch in Form 26AS which is on similar lines as in AY 2014-15. 13 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 During appellate proceedings, the assessee submitted that difference arose only because the deductor deducted TDS on service tax, TDS was deducted while making advance payment and the income were already shown in other years. Accordingly, a remand report was called from Ld. AO, in this regard. After considering remand report as well as assessee’s replies thereto, Ld. CIT(A) directed Ld.AO to restrict the addition to the extent of 5.26% of mismatch amount. This rate was nothing but highest profit rate reflected by the assessee during past three consecutive years. The aforesaid adjudication has given rise to cross-appeals before us.

2 The Ld. AR, in the written submissions has submitted that there is no mismatch in Form No.26AS as alleged by lower authorities. On identical facts, Ld. AO had rectified the mistakes in AY 2014-15 whereas application for this year has been rejected in an arbitrary manner. The Ld. CIT(A) did not apply mind to the remand report and merely endorsed the view of Ld. AO and blindly directed for application of profit rate to the mismatch without considering the factual matrix.

3 Upon careful consideration of assessee’s written submissions, we find substance in the arguments raised before us. If TDS has been deducted on services tax components or advance payment, there would naturally be a mismatch in the figures reflected in books of accounts vis-à-vis figures reflected in Form 26AS. Further, few receipts have already been offered to tax in other years. We find that this matter is factual matter nd require further verification

Disallowance u/s 40(a)(ia)

1 This addition stem from the fact that the assessee did not deduct TDS on sublet work with respect to 25 entities. The details thereof have been tabulated in para-16 of the assessment order. Invoking the provisions of Sec.40(a)(ia), Ld.AO made additions of Rs.30% against aggregate sum of Rs.110.87 Lacs which resulted into an addition of Rs.33.26 Lacs in the hands of the assessee.

2 During appellate proceedings, the assessee produced copies of Form 26Q. Upon perusal of the same, it was found that due TDS was deducted with respect to 17 parties but no TDS was deducted against 8 parties. The details of the same have been tabulated in para 7.2 of the impugned order. Since the assessee failed to deduct TDS against sum of Rs.10.84 Lacs, disallowance of 30% was confirmed against the same. The aforesaid adjudication has given rise to cross-appeals before us.

3 We find that disallowance has been made since there was either short-deduction of TDS or no TDS. The short-deduction of TDS, in our considered opinion, would not fall for disallowance u/s 40(a)(ia) as per the decision of Hon’ble Calcutta High Court in CIT Vs. S.K.Tekriwal [2014 46 Taxmann.com 444] as well as the 15 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 decision of Hon’ble Karnataka High Court in CIT Vs. Kishore Rao & Others [2017 79 Taxmann.com 357]. Therefore, the disallowance to that extent is not sustainable.

4 However, no TDS deduction case would certainly fall for disallowance u/s 40(a)(ia). The parties listed at serial nos. 15, 23 & 25 of the table as extracted in the impugned order, would fall under this category. The aggregate would amount to Rs.4,88,149/-. Accordingly, disallowance is sustained to the extent of 30% thereof which comes to Rs.1,46,445/-. We order so. Ground No. 2 of revenue’s appeal stand dismissed whereas Ground No.3 of assessee’s appeal stand partly allowed.

Expenditure claimed from bogus parties

1 It was found that the certain amounts were outstanding at year-end against trade creditors aggregating to Rs.227.25 Lacs. In the absence of confirmation of account, 20% of such creditors was disallowed which came to Rs.45.45 Lacs.

2 The Ld. CIT(A), substantially following the appellate order for AY 2014-15 held that the additions were to be deleted. Aggrieved, the revenue is in further appeal before us.

3 We find that factual matrix to be pari-materia the same as in similar issue in AY 2014-15. Therefore, taking the same view, we confirm the action of Ld. CIT(A). Consequently, Ground No. 3 of revenue’s appeal stand dismissed.

Addition u/s 68 (Unsecured Loans)

1 Upon verification of unsecured loans, the loans taken from M/s Aetos Distilleries Ltd. as well as from M/s Zenith Strips Pvt. Ltd.

2 Upon perusal of ledger extract of M/s Aetos Distilleries Pvt. Ltd., as placed on page-225 of the paper-book, we find that this entity has primarily paid VAT on behalf of the assessee which is evident from copies of VAT challans placed along-with the ledger extract. This is contrary to findings rendered by Ld. CIT(A). It has been explained that due to attachment of accounts, the assessee was unable to pay government taxes and therefore, requested the said party to make VAT payment on behalf of the assessee. The assessee’s submissions are backed by documentary evidences in the shape of VAT challans and therefore, accepting the said submissions, we direct Ld. AO to delete addition against this party.

3 So far as the receipt of Rs.3 Lacs from M/s Zenith Strips Private Limited is concerned, it is the submissions of the assessee that there was a bona-fide mistake committed by the assessee that the aforesaid amount was wrongly entered in the account of M/s Sohel Transport who regularly trade with the assessee. The mistake has since been rectified. We find that submissions would require factual verification and accordingly, we direct Ld. CIT(A) to ascertain the correct facts and re-adjudicate the same in the light of assessee’s submissions.

4 The ground raised in assessee’s appeal stands partly allowed.

Bogus Billing Entry & Addition u/s 69C

1 Pursuant to receipt of certain information from investigation wing, Kolkata, it was alleged that the assessee obtained accommodation job work bill for Rs.998.61 Lacs from an entity namely M/s Aravinda Infrastructure Pvt. Ltd. Accordingly, the same was disallowed as bogus expenditure. Further, 0.10% commission was estimated against these bills which led to another addition of Rs.0.99 Lacs u/s 69C.

2 It further transpired that the assessee made payment of Rs.49.39 Lacs to a similar entity namely M/s Bridge & Building Construction Co. Pvt. Ltd. which was also added u/s 69C as unexplained expenditure.

3 During appellate proceedings, Ld. CIT(A) observed that the assessee has regularly allotted the contract work on sublet basis to both the entities. Due TDS was deducted against the payment so made. While arriving at such a conclusion, the documentary evidences viz. confirmation of accounts, work order, bills raised by the sub-contractor were duly examined. Further, the provisions of Sce.69C could be invoked only where the assessee incur any expenditure and offer no explanation about the source of such expenditure. However, in assessee’s case, there was no such unexplained expenditure. Another fact to be noted was that similar transactions carried out with these entities in earlier year were found to be genuine by Ld. first appellate authority. Accordingly, the additions were deleted. Aggrieved, the revenue is in further appeal before us by way of ground nos. 4 to 6. 18 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16

4 After going through documentary evidences as placed in the paper-book with respect to these two entities, we find that M/s Aravinda Infrastructure Pvt. Ltd. has regular dealing with the assessee. The assessee has awarded work order to this party vide agreement dated 15/12/2014 to develop tentative area of 412727 cubic mtr. at Rs.216/- per cubic mtr. The confirmed copy of the account is on record. The assessee has deducted TDS against the job work expenses. The part payment has been settled in succeeding year. Similar facts and documentary evidences exist in the case of M/s Bridge & Building Construction Co. Pvt. Ltd.

5 Further, the whole basis of making impugned additions are third party statements without there being any concrete evidence on record to establish that the expenditure was bogus in nature. It is trite law that no additions could be made merely on the basis of suspicion, conjectures or surmises. Since the assessee has discharged the onus of proving the genuineness of impugned expenditure, the additions so made would not be justified. Accordingly, no interference is called for, on these issues, in the impugned order. Grounds thus raised by the revenue stand dismissed.

Disallowance of expenditure

1 It transpired that the assessee claimed site expenses & transport expenses for Rs.487.70 Lacs which were mostly paid in cash. Since the same were supported only by self made vouchers, Ld. AO estimated an addition of 5% against the same which translated into an addition of Rs.24.38 Lacs in the hands of the 19 M/s. Mahaveer Infra Engineering Private Limited Assessment Years: 2014-15 & 2015-16 assessee. The ld. CIT(A) confirmed the same to cover up possible leakages on account of personal element and in view of the fact that the same were un-vouched expenses. Aggrieved, the assessee is in further appeal before us by way of ground nos. 5 to 5.2. 19.2 The assessee, in the written submissions, have controverted the stand of lower authorities by asserting that substantial payments were though banking channels duly supported by the bills. The details have been tabulated in the written submissions. This is contrary to the findings rendered by Ld.AO. Therefore, we remit this issue back to the file of Ld. CIT(A) for aforesaid factual verification. The estimated disallowance of 5%, in our opinion, is quite fair & reasonable but it should be restricted only to cash expenditure incurred under these heads. We order so. This ground stand partly allowed for statistical purposes.

3 Rest of the arguments in cross-appeals are either general or consequential in nature and hence, do not require any specific adjudication on our part.

In the result, the revenue’s appeal stand partly allowed for statistical purposes whereas the assessee’s appeal stand partly allowed in terms of our above order.

The revenue’s appeal for AY 2014-15 stands dismissed. The revenue’s appeal for AY 2015-16 stands partly allowed for statistical purposes. The assessee’s cross-objections for AY 2014-15 as well as appeal for 2015-16 stands partly allowed to the extent indicated in the order.