ANAND PROJECTS LIMITED ,MUMBAI vs. ACIT, CIRCLE 2(1)1, MUMBAI

The registry informed that the cross appeal and cross objection of the assessee are filed with a delay of 29 days. The assessee flied the application for seeking condonation of delay duly explained the delay in filing the petition. The Ld. DR had not made any strong objection against the submission of the assessee. Accordingly, we condone the delay for 29 days and cross appeal & cross objection of the assessee are taken for adjudication.

The brief facts of the case are that the assessee, a company engaged in the business of engineering and construction management and allied activities, filed its return of income for the AY 2012-13 on 27.09.2012 declaring a total income of Rs.23,91,65,680/-. The case was selected for scrutiny, and the assessment was completed under section 143(3) of the Income-tax Act, 1961, vide order dated 30.03.2015. During the relevant previous year, the assessee executed a project awarded by M/s Lalitpur Power Generation Company Ltd. (LPGCL), from which it earned contract receipts of approximately Rs.286 crore and claimed project-related expenditure of about Rs.283 crore. In the course of execution of the project, the assessee subcontracted certain works, including area grading work (BOP Island), to various contractors, inter alia, M/s NaftoGaz India Pvt. Ltd. (NGIPL), M/s PNC Infratech Ltd., and M/s VNR Infrastructure Ltd. The Ld. AO noted that a search and seizure action under section 132 of the Act had been conducted in the case of M/s NaftoGaz India Pvt. Ltd. on 01.01.2012. Relying upon the statement allegedly made by its Managing Director, Shri Bava Mahdoom, that NGIPL had provided accommodation entries through financial consultants and that similar arrangements also involved M/s PNC Infratech Ltd. and M/s VNR Infrastructure Ltd., the Ld. AO concluded that the subcontract expenses claimed by the assessee in respect of these three parties were not genuine. Accordingly, the Ld. AO treated the following subcontract expenses as bogus and made an aggregate addition of Rs.45,77,69,952/-: Particulars Amount M/s NaftoGaz India Pvt. Ltd. Rs.18,50,00,003/- M/s PNC Infratech Ltd. Rs.12,50,00,000/- M/s VNR Infrastructure Ltd. Rs.14,77,69,949/- Total Rs.45,77,69,952/- The Ld. AO also made a further disallowance of Rs.18,37,000/- towards share issue expenses. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the additions made in respect of M/s PNC Infratech Ltd.[PNC], M/s VNR Infrastructure Ltd.[VNR] and disallowance Rs. 18,37,000/-. However, in respect of M/s NaftoGaz India Pvt. Ltd., the Ld. CIT(A) sustained the addition only to the extent of 12.5% of the contract expenditure and deleted the balance. Aggrieved by the relief granted by the Ld. CIT(A), the revenue has filed the present appeal before us. The assessee has also filed a cross appeal challenging the sustenance of the addition at the rate of 12.5% of the contract expenditure, along with a cross- objection supporting and strengthening the findings of the Ld. CIT(A) to the extent they are in its favour.

The Ld. DR argued that the Ld. CIT(A), without properly appreciating the facts and circumstances of the case, erred in deleting the additions made by the Ld. AO. It was further contended that, in respect of M/s NGIPL, the Ld. CIT(A) was not justified in restricting the addition to 12.5% of the impugned subcontract expenditure while deleting the balance of the addition. The Ld. DR accordingly supported the assessment order and prayed that the additions made by the Ld. AO be restored in full.

The Ld. AR argued filed a paper book comprising pages 1 to 545 which has been placed on record. The Ld. AR contended that related to M/s. PNC Infra Ltd. and M/s. VNR Infrastructure, the Ld. CIT(A) called for remand report under rule 46A of the Income Tax Rule 1963. The relevant observations in the remand proceeding of the Ld. AO contended in APB page 461 to 477. The relevant observations of the Ld. AO in the remand report dated 28.06.2023 is reproduced as below: “7. The assessee also furnished copy of block Assessment orders of PNC Infratech Ltd and VNR Infrastructure Ltd for the AY 2012-13. From the assessment order of AY 2012-13 filed, it is seen that in both the cases of PNC Infratech Ltd and VNR Infrastructure Ltd. during block assessment, no addition has been made on the transaction with Naftogaz. The AR of assessee has challenged additions made on third party transactions with M/s.PNC Infratech Ltd of Rs. 12,50,00,000/- and VNR Infrastructures Limited of Rs. 14,77,69,949/- as it was not added in block assessment in its own case. Enquiries reveal that VNR Infrastructure Ltd is under Liquidation with Hon'ble NCLT, Hyderabad, and key persons of Naftogaz are not traceable. Hence no further details are available, other than the copy of assessment orders furnished by the assessee company. 8. In light of all the above, after a lapse of time of more than 12 years, it is seen that it is not readily identifiable as to the nature of work completed, and the parties in question are nottraceable. However, as the Contract Awardee M/s Lalitpur Power Generation company, itself has certified to the completion of the assigned work and the Coal Power Plant is completed and power distribution started in Phase 1&1l to the Government of Uttar Pradesh for public distribution, it can be circumstantially inferred that the work assigned has been completed. Mis. PNC Infratech Ltd has filed its reply to Notice u/s.133(6) confirming the transaction of the assessee with documentary evidences. Further, assessee has submitted that as apparent from the Assessment orders brought on record, as no adverse view has been taken by the respective Assessing officers while passing the block assessment order in PNC Infratech Ltd and VNR Infrastructure Ltd. for the relevant AY 2012-13, the indirect and third party additions made in the assessment order of assessee company with regard to PNC Infratech Ltd and VNR Infrastructure Ltd would not survive. VNR Infrastructure Ltd is under liquidation before Hon'ble NCLT and no response is received in response to the Notice issued by this office. From the material available on record, the contention of the assessee company that in the block assessment proceedings of PNC Infratech Ltd and VNR Infrastructure Ltd, for the A.Y. 2012-13, no additions have been made towards transactions with Naftogaz is seen to be reflected in the respective orders, which may kindly be decided on merits.

The contention of the assessee company to provide cross examination opportunity of Director of Naftogaz, is not tenable. At the outset, Naftogaz is the sub-contractee of the assessee company and has had business link and financial transactions between the two. What is under cloud is the transaction of assessee company with Naftogaz which was selected as its sub-contractee after its due diligence processes and therefore the onus is on the assessee to prove that its transaction with Naftogaz are genuine. It is true that all actions against a party which Involve penal or adverse consequences must be in accordance with the principles of natural justice but whether any particular principle of natural justice would be applicable to a particular situation or the question whether there has been any infraction of the application of that principle, has to be judged, in the light of facts and circumstances of each particular case. The basic requirement is that there must be fair play in action and the decision must be arrived at in a just and objective manner with regard to the relevance of the materials and reasons. We must reiterate again that the rules of natural justice are flexible and cannot be put on any rigid formula. In order to sustain a complaint of violation of principles of natural Justice on the ground of absence of opportunity of cross-examination, it has to be established that prejudice has been caused to the appellant by the procedure followed. In the case of Jankinath Sarangi v. State of Orissa. Hidayatullah, C.J., observed there at page 394 of the report "there is no doubt that if the principles of natural justice are violated and there is a gross case this Court would interfere by striking down the order of dismissal; but there are cases and cases. We have to look to what actual prejudice has been caused to a person by the supposed denial to him of a particular right." Judged by this principle, in the background of the facts and circumstances mentioned before, it is seen that there has been no real prejudice caused by infraction of any particular rule of natural justice of which appellant complained in this case. In the case of UOI & Anr. v. P.K. Roy & Ors. it was held that that "the doctrine of natural justice cannot be imprisoned within the strait-jacket of a rigid formula and its application depends upon the nature of the jurisdiction conferred on the administrative authority, upon the character of the rights of the persons affected, the scheme and policy of the statute and other relevant circumstances disclosed in a particular case". In the premises, for the reasons aforesaid, there has been in the facts and circumstances of the case, no infraction of any principle of natural justice by the absence of a formal opportunity of oral cross-examination. Neither cross-examination nor the opportunity to lead evidence is an integral part of all quasi judicial adjudications 10. Notwithstanding of all the above, after considering the facts and circumstances of the case and the non-operation/liquidation of business of Naftogaz due to war like condition between Ukraine & Russia, the allegations made by Shri MahodoomBawa in his statement recorded, cannot be summarily overlooked, as there has to be some substance embedded therein. Also, it is not in dispute that the Contract work is not done, as the Assignor Lalitpur Power Generation company Limited, has certified to its completion. It would be not be possible for the assessee to complete the contract work if the entire amount is bogus, which is not the case as the Contract Awardee Lalitpur Power Generation company has certified to the completion. The assessee has relied on various judicial pronouncements including that of Hon'ble Tribunals and jurisdictional Hon'ble Bombay High Court PCIT v. S V Jiwanidt. 03-10- 2022 [449 ITR 583 (Bom)) dt. 03-10-2022, pointing out that what is taxable under the Income Tax Act, was only the real income and even when the transaction was not verifiable, only the income component could be taxed and not the entire transaction. The AR of assessee has submitted a comparative chart of gross profits from six year from AY 2012-2013 to 2017-18 to indicate that the Average gross profit ratio of the company is @ 5.41%. The contention of the assessee company to tax only the income embedded in the transaction @5.41% is not found tenable as it is the assessee's transaction and burden of proof vests on the assessee to prove the veracity of the transaction of Rs. 18,50,00,003/-. Also, the contention of assessee of GPRatio 5.41% is not tenable as the jurisdictional Bombay High Court in CIT v. Simit P. Shath ([2013) 38 taxmann.com 385) and in 8 V Jiwani case (supra) and various other judgment of Hon'ble Tribunal which has upheld the sufficiency of adopting 12.5% of such bogus transaction as the profit element embedded therein. Hence, relying on the ratio of jurisdictional High court the addition on this account may be upheld 12.5% of such transaction, as against 5.41% as stated by the assessee. The judicial precedence referred is only academic and case maybe decided on merits, as deemed fit.”

The Ld. AR further contended that, in support of the impugned transactions, the assessee had furnished all relevant documentary evidence before the Ld. AO as well as the Ld. CIT(A), which is placed in the APB at pages 28 to 460. With regard to the addition sustained by the Ld. CIT(A) to the extent of 12.5% in respect of M/s NaftoGaz India Pvt. Ltd. (NGIPL), the Ld. AR submitted that the revenue had denied the assessee an opportunity to cross- examine the person whose statement formed the sole basis of the addition. It was argued that the entire addition rested on the statement recorded on oath of Shri Bava Mahdoom, Managing Director of NGIPL, during the course of the search proceedings, yet no opportunity for cross-examination was afforded to the assessee despite specific requests. It was therefore submitted that the addition sustained by the Ld. CIT(A) is in violation of the principles of natural justice and is liable to be deleted. In respect of the remaining additions deleted by the Ld. CIT(A), the Ld. AR prayed that the order of the Ld. CIT(A) be upheld.

We have heard the rival submissions and perused the material available on record. The assessee is engaged in the business of engineering and construction management and allied activities. During the assessment proceedings, the Ld. AO, relying primarily upon the statement recorded during the search conducted under section 132 in the case of NGIPL, treated the assessee as a beneficiary of accommodation entries in respect of subcontract payments made to M/s NaftoGaz India Pvt. Ltd., M/s PNC Infratech Ltd., and M/s VNR Infrastructure Ltd., and accordingly made the impugned additions. During the appellate proceedings, the Ld. CIT(A) called for a remand report. In the remand proceedings, the Ld. AO himself acknowledged that, in the block assessment proceedings of M/s PNC and M/s VNR for the relevant assessment year, no adverse findings or additions had been made in respect of their transactions with NGIPL. The remand report further records that the project awarded by M/s Lalitpur Power Generation Company Ltd. had been duly completed and certified by the contract awardee, thereby establishing that the work had in fact been executed. On the basis of these findings, the Ld. CIT(A) deleted the additions relating to M/s PNC and M/s VNR. We find no infirmity in the well-reasoned findings of the Ld. CIT(A), particularly when the revenue has not brought any material before us to controvert the factual findings recorded in the remand report. Accordingly, the order of the Ld. CIT(A) deleting these additions is upheld.

With regard to the addition relating to M/s NGIPL, it is an admitted position that the project work was actually executed and completed. The only dispute concerns the genuineness of the subcontract transaction with NGIPL. The assessee has placed substantial documentary evidence on record and has consistently contended that the addition is founded solely upon the statement of Shri Bava Mahdoom, Managing Director of NGIPL, without affording an opportunity of cross-examination. At the same time, we note that the assessee, without prejudice to its legal contentions, has voluntarily offered the profit element embedded in the impugned transaction at 5.41%, being its average gross profit rate for the relevant period. The remand report itself accepts that, if the transaction is not accepted in its entirety, only the profit element embedded therein can be brought to tax. Considering the totality of the facts and circumstances, including the actual execution of the contract, the findings recorded in the remand proceedings, and the assessee's voluntary offer of profit at 5.41%, we are of the considered view that the ends of justice would be met by restricting the addition in respect of M/s NGIPL to 5.41% of the impugned subcontract expenditure, instead of 12.5% sustained by the Ld. CIT(A). Accordingly, the order of the Ld. CIT(A) is modified to this extent.

Accordingly, the revenue's appeal is dismissed, while the assessee's appeal is partly allowed. The cross-objection filed by the assessee, being merely supportive of the order of the Ld. CIT(A), does not call for any separate adjudication.

In the result, the appeal of the revenue bearing ITA No.6210/Mum/2025 is dismissed, ITA No.6884/Mum/2025 is partly allowed and the assessee’s CO 316/Mum/2025 is dismissed. Order pronounced in the open court on 28th day of July 2026. Sd/- Sd/- (BIJAYANANDA PRUSETH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 28/07/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI