ADU INFRA - OCIPL (JV),BIJAPUR vs. INCOME TAX OFFICER, VIJAYAPUR

In this appeal, the assessee has raised the following grounds: - 1. The impugned order of the Commissioner of Income Tax (Appeals), National Faceless Assessment Center, Delhi, [for short ‘CIT(A), NFAC’] passed under section 250 of the Income Tax Act, 1961 is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case. 2. The appellant denies itself liable to be assessed to Rs.2,11,75,201/- as against returned income of Rs. 18,23,960/- on the facts and circumstances of the case. 3. The learned CIT(A), NFAC is not justified in passing the order without affording adequate opportunity of personal hearing and thus passing the order in gross violation of principles of natural justice on the facts and circumstances of the case. 4. The learned CIT(A), NFAC erred in confirming the disallowance of Rs. 1,93,21,241/- of expenses arising out of compulsory deductions made by the contractee in the bills on the facts and circumstances of the case. 5. The learned CIT(A), NFAC erred in confirming the disallowance of Rs. 30,000/- u/s 40(a)(ia) of the Act without appreciating the fact that TDS on audit fees was deducted and duly paid subsequently. 6. The learned authorities below have misdirected themselves in presuming that the appellant has already accounted the income on net basis only after considering the deductions in the bill which is not correct on the facts and circumstances of the case. 7. The learned authorities below ought to have appreciated that the apparent difference in the amounts debited to the contractee account and that credited to income account is mainly on account of GST of Rs.26,04,20,522/- which is not routed through Profit & Loss account and is not on account of “the deductions from the bills” on the facts and circumstances of the case. 8. The learned CIT(A), NFAC is not justified in holding that the appellant has merely reiterated the same arguments made during the initial assessment without bringing forward the necessary proof to reconcile the final RA bills with their accounted receipts without considering the detailed written submissions along with all the necessary reconciliations placed on record by the appellant on the facts and circumstances of the case. 9. The appellant denies the liability to pay interest u/s. 234D of the Act. The interest levied being erroneous is liable to be deleted on the facts and circumstances of the case. 3. Ground No. 1 and 2, raised in assessee’s appeal are general in nature. Therefore, the same need no separate adjudication.

Ground No. 4, raised in assessee’s appeal, pertains to disallowance of Rs. 1,93,21,241/- claimed by the assessee as expenditure on account of compulsory deductions made by the contractee.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a joint venture of ADU Infra and Ocean Construction (India) Private Limited. The assessee was formed mainly to undertake irrigational work on a contract basis for Government Organisations. For the year under consideration, the assessee filed its return of income on 06.10.2022, declaring a total income of Rs. 18,23,916/- . The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed, inter alia, that the assessee has debited expenses of Rs. 1,93,21,241/- for deductions from bills. Accordingly, the assessee was asked to submit the documentary evidence in support of expenses claimed. In response, the assessee submitted that the expenses of Rs. 1,93,21,241/- were towards the compulsory deductions from the gross bills by the concerned Government Departments and the assessee did not make any payment in respect thereof. In support of its contention, the assessee submitted the Running Account bills to prove the compulsory deductions.

However, the Assessing Officer (“AO”) disagreed with the submissions of the assessee and, vide order dated 23.03.2024 passed under section 143(3) read with section 144B of the Act, held that the assessee has shown contract income of Rs. 1,67,33,23,912/- in its profit and loss account which does not include the amount of deduction of bill. The AO held that the assessee has shown contract income of Rs. 1,93,37,44,434/- in the ledger account of the Executive Engineer, HRBC Division, during the year under consideration. Thus, it was held that the expenditure of Rs. 1,93,21,241/- claimed by the assessee is not declared as a contract income in the profit and loss account. Accordingly, the AO held that the deduction claimed by the assessee amounting to Rs. 1,93,21,241/- is not allowable as the assessee has shown net contract income in the profit and loss account after deducting the amount of “deduction from bills” and allowing the assessee’s claim will result in double disallowance.

The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and upheld the findings of the AO. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the expenditure of Rs. 1,93,21,241/- was claimed by the assessee on account of deduction from Running Account bills issued by the assessee. The learned AR submitted that the impugned disallowance made by the AO and upheld by the learned CIT(A) is solely on the basis of the difference in the contract income as reported in the profit and loss account and the contractee ledger account. The learned AR submitted that the said difference, which amounts to Rs. 26,04,20,522/-, is entirely attributable to GST and the same has no relation with the deductions from bills made by the Government Departments. In support of his submission, the learned AR referred to the copy of Running Account bills issued by the assessee and the reconciliation of contract income as placed in the paper book.

On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

We have considered the submissions of both sides and perused the materials available on record. In the present case, it is evident that there is no dispute regarding the genuineness or quantification of deduction of Rs. 1,93,21,241/- claimed by the assessee. From the perusal of the record, we find that since there was a difference in the contract income as credited by the assessee to its profit and loss account and as reflected in the contractee ledger, the AO arrived at the conclusion that the amount of “deduction from bills” as claimed by the assessee has already been reduced by the assessee from its contract income and any further allowance of deduction will result in double disallowance. Accordingly, the AO disallowed the expenses of Rs. 1,93,21,241/- debited by the assessee and added the same to the total income of the assessee.

On the other hand, as per the assessee, the amount of Rs. 1,93,21,241/- is the “deduction from bills” by the Government Authorities and in support of its contention, the assessee has placed on record the copy of Running Account bills. From the perusal of the copy of Running Account bills, forming part of the paper book from Pages 130 – 153, we find that compulsory deduction in respect of Labour Welfare Fund, Contractor Benevolent Fund and Royalty was made by the Government Departments from the total value of the bill. We find that the copy of the Running Account bills was also placed on record of the lower authorities by the assessee along with its written submissions dated 15.03.2024. Further, in order to substantiate its claim that the difference in the contract income as credited in the profit and loss account at Rs. 167,33,23,992/- and as reflected in the contractee ledger account at Rs. 193,37,44,434/- is on account of GST, the assessee has placed on record the copies of GSTR 1 and GSTR 3B for the period from April 2021 to March 2022. As per the assessee, the difference of Rs. 26,04,20,522/- between the contract income as reflected in the ledger account and the profit and loss account is entirely attributable to GST, which was collected on behalf of the Government and was routed through the balance sheet. It is the consistent plea of the assessee that the said GST amount is carried through the balance sheet and not through the profit and loss account, as only the taxable value of supplies was credited as revenue in the profit and loss account. In this regard, during the hearing, our attention was drawn to the declaration in the Tax Audit Report in Form No. 3CD, wherein the assessee has specifically declared that the indirect tax has not passed through the profit and loss account. Further, to substantiate the submission that the difference between the ledger figure and the profit and loss account is entirely attributable to GST, the assessee has provided the following reconciliation: -

Therefore, having carefully considered the submissions and perused the material available on record, we find merit in the submissions of the assessee that the difference between the contract receipts reflected in the contractee ledger and contract income credited to the profit and loss account is entirely attributable to GST and the same has no correlation with the compulsory deduction made by the Government Departments towards the Labour Welfare Fund, Contractor Benevolent Fund and Royalty, which as evident from the perusal of the Running Account bills were separately deducted from the bill amount. Therefore, we do not find any basis in the findings of the Revenue in disallowing the deduction of Rs. 1,93,21,241 claimed by the assessee as expenditure towards the compulsory “deduction from bills”. Accordingly, the said disallowance and corresponding addition are deleted, and the AO is directed to allow the deduction of Rs. 1,93,21,241/- claimed by the assessee towards compulsory “deduction from bills”. As a result, Ground No. 4 raised in the assessee’s appeal is allowed.

Ground No. 5 raised in assessee’s appeal was not pressed during the hearing. Accordingly, this ground is dismissed as not pressed.

In view of our aforesaid findings, Ground No. 3 raised in the assessee’s appeal needs no separate adjudication.

In the result, the appeal by the assessee is partly allowed. Order pronounced in the open court on 03-Sept-2026. Sd/- Sd/- (PRASHANT MAHARISHI) (SANDEEP SINGH KARHAIL) VICE PRESIDENT JUDICIAL MEMBER Bangalore, Dated, the 03-Sept-2026 *VM* Copy to: ADU INFRA - OCIPL (JV), NO 22, SOLAPUR ROAD KHB 1 COLONY, BIJAPUR-586101, KARNATAKA INCOME TAX OFFICER, AYAKAR BHAVAN, NEAR ALL INDIA 2 RADIO, ATHARI ROAD, VIJAYAPUR, VIJAYAPURA-586104, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE BY ORDER