ACIT,CENTRAL CIRCLE-2(1),PUNE, PUNE vs. PATIL CONSTRUCTION AND INFRASTRUCTURE LIMITED, PUNE

Accordingly statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee. Thereafter, the Assessing Officer issued notice u/s 142(1) along with a questionnaire in response to which the assessee filed the requisite details from time to time.

During the course of assessment proceedings the Assessing Officer noted that the assessee has shown other current financial liabilities totaling to Rs.1,51,47,76,837/- which includes ‘Deposit from Contractor’ totaling to Rs.42,54,79,035/-, however, no such expenses to the contractors have been found debited to the profit and loss account as well as no details of TDS made by the assessee on the contract payments and in Form 3CD. He, therefore, was of the opinion that the liability shown under the head ‘Deposit from Contractor’ of Rs.42,54,79,035/- seems to be non-genuine. He, therefore, confronted the same to the assessee. The assessee in response to the same submitted that there is an addition of Rs.44,57,248/- [42,54,79,035/- (-) 42,10,21,787/-] only during the year. It was argued that the deposits from the contractors of Rs.42,54,79,035/- do not represent the deposits collected during the year. The assessee filed the following reply:

However, the Assessing Officer was not satisfied with the explanation given by the assessee and made addition of Rs.22,61,51,802/- by observing as under:

In appeal the Ld. CIT(A) deleted the addition by observing as under:

Aggrieved with such order of the Ld. CIT(A) the Revenue is in appeal before the Tribunal by raising the following grounds: 1) Whether on the facts and circumstances of the case and in law, the CIT(A) was right in holding that the credits of Rs.22,61,51,802/- were genuine trade-related liabilities and not unexplained cash credits without appreciating the fact that the assessee neither before the AO nor before the CIT(A) gave complete details of the creditors. 2) Without prejudice to the above, whether on the facts and circumstances of the case, the CIT(A) was right in holding that the credits were genuine trade-related liabilities and not unexplained cash credits on basis of additional evidence without giving opportunity to the Assessing Officer as mandated by Rule 46A of Income-tax Rules, 1962. 3) The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal at the time of hearing

The Ld. DR strongly challenged the order of the Ld. CIT(A) in deleting the addition of Rs.22,61,51,802/- made by the Assessing Officer. He submitted that when the assessee had not filed the complete details either before the Ld. CIT(A) or the Assessing Officer of such credits, the Ld. CIT(A) should not have held that the credits were genuine trade related liabilities and not unexplained cash credits. He further submitted that the Ld. CIT(A) has accepted certain additional evidences in violation of Rule 46A of IT Rules, 1962 and therefore, the order of the Ld. CIT(A) is not in accordance with law. He accordingly submitted that the order of the Ld. CIT(A) be reversed and that of the Assessing Officer be restored.

The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A). He submitted that the assessee is engaged in the business of civil construction for government and semi-government agencies. Referring to page 185 of the paper book, he drew the attention of the Bench to the Schedule No.18 – Other current financial liabilities according to which the assessee has shown deposits from the contractors at Rs.23,48,56,535/- as on 31.03.2019 and Rs.41,94,66,939/- as on 31.03.2020. Referring to page 234 of the paper book he submitted that such deposits from the contractors are shown at Rs.42,10,21,787/- as on 31.03.2021. Referring to page 74 of the paper book, he drew the attention of the Bench to the reply given by the assessee in response to the show cause notice dated 11.03.2024 issued by the Assessing Officer according to which an amount of Rs.42,54,79,035/- is shown as deposit from the contractor which has been kept by the assessee against the work. He drew the attention of the Bench to the relevant

Referring to page 110 of the paper book, the Ld. Counsel for the assessee again drew the attention of the Bench to the reply given by the assessee before the Assessing Officer which reads as under:

Referring to pages 133 to 135 of the paper book, he drew the attention of the Bench to the list of security deposits from the contractors which were given before the Assessing Officer. Referring to the reply submitted before the Ld. CIT(A), copy of which is placed at pages 136 to 147 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to para 8 which reads as under:

Referring to page 149 of the paper book, he drew the attention of the Bench to the detailed submission made before the Ld. CIT(A). He submitted that no new evidences or details were filed before the Ld. CIT(A) and all the details were already filed before the Assessing Officer.

The Ld. Counsel for the assessee submitted that the security deposit / retention money deducted from running bills of sub-contractors in the ordinary course of business cannot be treated as unexplained cash credits u/s 68 of the Act. He submitted that all these deposits were appropriations from contractual payments and are not fresh credits. The parties were identified sub-contractors and vendors, the transactions were routed through regular books of account. There was continuous debit / credit movement including the release of deposits and no interest was paid or payable. He submitted that the Assessing Officer has brought nothing to rebut all these materials produced before him to disprove the claim of the assessee.

Referring to the provisions of section 68 of the Act, he submitted that the said section has no application to trade liabilities. Referring to the decision of the Hon’ble Allahabad High Court in the case of CIT vs. Pancham Dass Jain reported in 205 CTR 444 (All), he submitted that the Hon’ble High Court in the said decision has held that trade liabilities arising during business cannot be assessed as cash credits. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kailash Jewellery House vide ITA No.613/2010, he submitted that the 11 Hon’ble High Court in the said decision has held that once purchases are accepted, corresponding liabilities cannot be treated as unexplained. Referring to the decision of Hon’ble Gujarat High Court in the case of Rohini Builders reported in 256 ITR 360 (Guj), he submitted that the Hon’ble High Court in the said decision has held that where identity and genuineness are proved, addition is unsustainable. Referring to the decision of the Hon’ble Delhi High Court in the case of Usha Stud Agricultural Farms Ltd. reported in 301 ITR 384 (Del), he submitted that the Hon’ble High Court in the said decision has held that section 68 cannot be invoked when the transaction is explained.

The Ld. Counsel for the assessee in his next plank of argument submitted that the Assessing Officer has presumed that the deposits were unsecured loans and interest was payable. However, the fact is that no interest is recorded in audited accounts, there is no lender and borrower relationship exists and there is no material evidence before the Assessing Officer to support the allegation. Relying on various decisions, he submitted that presumptions and surmises however strong may be, cannot substitute evidence. The Ld. Counsel for the assessee submitted that the books of the assessee are audited and they have not been rejected. Further, there is no receipt during the year and it is only contractual payments out of which money has been deducted. He submitted that once the addition u/s 68 of the Act is unsustainable, taxation u/s 115BBE of the Act cannot survive. He submitted that retention of money is a standard industry practice in infrastructure contracts to ensure the quality of work, defect liability compliance, GST payment confirmation

So far as the ground raised by the Revenue that there was violation of Rule 46A of IT Rules, 1962 is concerned, he submitted that no additional evidence within meaning of Rule 46A has been filed before the Ld. CIT(A). Whatever documents filed before the Ld. CIT(A) were in the nature of ledger extracts, summaries and explanations which were already part of assessment proceedings or were only compilations / explanations of existing records and there is no new third party evidence, confirmations or documents produced for the first time. He submitted that the Assessing Officer himself has relied on the same ledgers since the assessment order itself reproduces the opening balance, credits during the year, debits during the year, closing balance etc. Therefore, once the Assessing Officer relied on the same material, Rule 46A does not get triggered. He submitted that it is the settled proposition of law that the powers of the Ld. CIT(A) are co-terminus with the powers of the Assessing Officer. The Ld. CIT(A) is empowered to examine records, draw correct legal inferences and grant relief where addition is unsustainable. Therefore, mere appreciation of existing material cannot be equated with admission of additional evidence. He accordingly submitted that since the order of the Ld. CIT(A) is a reasoned one, the same should be upheld and the grounds raised by the Revenue be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.22,61,51,802/- u/s 68 r.w.s. 115BBE of the Act on the ground that the assessee failed to explain the identity and creditworthiness of the contractors and the genuineness of the advances amounting to Rs.22,61,51,802/- received by it during the year. We find the Ld. CIT(A) deleted the addition, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. DR that the Ld. CIT(A) without appreciating the facts properly and by admitting certain additional evidences in violation of Rule 46A of the IT Rules, 1962 has deleted the addition which is not in accordance with law. It is the submission of the Ld. Counsel for the assessee that the security deposits / retention money deducted from the running bills of sub-contractors in the ordinary course of business cannot be treated as unexplained cash credit u/s 68 of the Act. It is his submission that since no additional evidences are produced before the Ld. CIT(A) and the submissions and the details produced before him were already filed before the Assessing Officer, therefore, there is no violation of Rule 46A.

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the audited balance sheets of the assessee filed in the paper book for different assessment years shows that the assessee was showing deposits from the contractors continuously, the details of which are as under:

Similarly, the assessee has given bifurcation of various details as to how the assessee was deducting the security deposits from the payments made to the contractors, GST to the vendors etc, the details of which are as under:

We find the assessee while explaining the security deposits @ 6% deducted from various persons has filed the following details:

Similarly, the security deposit of Rs.3,30,42,127/- was deducted from certain contractors, the details of which are as under:

These details were also produced before the Assessing Officer which he did not appreciate properly and the Ld. CIT(A) has considered the same in the right perspective and deleted the addition, which in our opinion does not call for interference.

We find merit in the arguments of the Ld. Counsel for the assessee that the perusal of the order of the Ld. CIT(A) shows that he has given a categorical factual finding that the deposits were appropriations from contractual payments and parties were identified sub-contractors and vendors, transactions were routed through regular books of account, there was continuous debit / credit movement including the release of deposits and no interest was paid or payable by the 16 assessee. The Ld. DR could not controvert any of the above factual finding given by the Ld. CIT(A). It has been held in various decisions that the trade liabilities arising during business cannot be assessed as cash credits. We further find that in the preceding year also similar amounts were appearing in the balance sheet of the assessee. However, no addition has been made nor any reopening u/s 147 or 263 proceedings have taken place after passing of the present assessment order. Therefore, following the rule of consistency also, no disallowance could have been made by the Assessing Officer on account of such security deposits / earnest money deducted from the running bills of the sub-contractors. Since the Ld. CIT(A)’s order is a detailed one and the Ld. DR could not controvert the factual findings given by the Ld. CIT(A), therefore, in absence of any contrary material, we do not find any infirmity in his order. We, accordingly, uphold the order of the Ld. CIT(A) and dismiss the grounds raised by the Revenue.

In the result, the appeal filed by the Revenue is dismissed.

The concerned Pr.CIT, Pune

DR, ITAT, ‘B’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, ////