PRANEETH RESOURCES PRIVATE LIMITED,HYDERABAD vs. DCIT., CENTRAL CIRCLE-3(3), HYDERABAD

Search and seizure operation under Section 132 of the Act was conducted in the case of M/s Venkata Praneeth Developers Group on 20.11.2019, wherein the assessee company was also covered. Consequent to the search proceedings, notice under Section 153A of the Act, dated 19.10.2020, was issued to the assessee company. In response thereto, the assessee company filed its return of income on 24.11.2020 declaring an income of Rs. 37,10,730/-. Thereafter, the assessment was framed by the AO under Section 153A of the Act, dated 28.09.2021, wherein the assessee company's returned income was accepted.

Subsequently, the Ld. Principal Commissioner of Income-tax (Central), Hyderabad (for short, "Pr. CIT") noticed a discrepancy in the contract receipts declared by the assessee company. It was observed by him, that as per the statement of revenue receipts furnished by the assessee company, the total contract receipts received from its four associated enterprises, viz, (i). M/s Venkata Praneeth Developers Pvt. Ltd.; (ii). M/s Praneeth Projects; (iii). M/s Praneeth Ventures; and (iv). M/S Praneeth Properties amounted to Rs. 4,33,99,828/-, but on cross-verification with the payments reported by the said associated enterprises in their respective “Form 3CD” reports, the payments made to the assessee company aggregated to Rs. 4,74,83,380/-. Thus, the Ld. Pr. CIT observed that the assessee company had reported short contract receipts of Rs. 40,83,552/-.

The Ld. Pr. CIT observed that as the aforesaid discrepancy had not been examined by the AO while framing the assessment under Section 153A of the Act, the assessment order dated 28.09.2021 passed by him was erroneous and prejudicial to the interest of the Revenue. Accordingly, the Pr. CIT, vide his order passed under Section 263 of the Act, dated 29.03.2024, set aside the assessment to the file of the AO for the purpose of verifying the mismatch in the contract receipts received by the assessee company from its associated enterprises and determining its correct taxable income.

The AO, giving effect to the order passed by the Ld. Pr. CIT under Section 263 of the Act, issued notices under Section 142(1) dated 30.03.2024 and 27.09.2024 calling upon the assessee company to furnish details of the contract receipts admitted by it and reconcile the same with the contract payments made by the associated enterprises as reflected in their respective “Form 3CD” reports. However, the assessee company failed to furnish the requisite information or explanation. Accordingly, the AO vide his order passed under Section 144 r.w.s 153A r.w.s 263 of the Act, dated 19.12.2024, after making an addition of the impugned discrepancy of Rs. 40,83,552/-, determined the income of the assessee company at Rs. 77,94,282/-.

As is discernible from the record, the payments reported by the four associated enterprises (AES) in their respective “Form 3CD” reports were as follows:

Aggrieved by the assessment order, the assessee company carried the matter in appeal before the CIT(A). Before the CIT(A), the assessee company, inter alia, submitted that it was engaged in manpower supply services and that salaries payable in respect of seconded employees were merely pass-through costs. It was submitted that only the service charges constituted its real taxable income. The assessee company further submitted that the addition was contrary to the principle of real income and that proper opportunity had not been granted by the AO.

As is discernible from the record, the CIT(A) issued notices on 17.04.2025, 29.04.2025 and 19.05.2025 calling upon the assessee company to furnish written submissions and supporting evidence. However, as there was no response from the assessee company or its authorized representative, the CIT(A), was constrained to proceed with and decide the appeal on the basis of the material available on record. The CIT(A) observed that the assessee company had not furnished any supporting evidence before the AO or during the appellate proceedings to substantiate its contention that the disputed amount represented pass-through costs. Further, taking into account that the AO had provided adequate opportunities to the assessee company, the CIT(A) rejected the grounds relating to a violation of the principles of natural justice. Accordingly, the CIT(A) dismissed the appeal.

The assessee company, aggrieved with the CIT(A) order, has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and considered the material available on record.

Shri GBS Maitreya, CA, Ld. Authorized Representative (for short, “AR”) for the assessee company has filed before us a reconciliation statement seeking to reconcile a difference of Rs. 40,83,552/- (supra). The Ld. AR based on the reconciliation chart has sought to explain the impugned difference on multiple counts, viz., (i) incentive reimbursements which, according to the assessee, should not be considered as turnover; (ii) TDS credit not considered by its associated enterprise, M/s Praneeth Projects; (iii) unpaid salaries pertaining to the month of March, 2014; (iv) service tax relating to the relevant year; and (v) other income relating to architect fees. For the sake of clarity, we deem it appropriate to cull out the reconciliation statement filed by the assessee company before us, as under:

We have considered the material available on record and the submissions made before us. Admittedly, the associated enterprises reported aggregate payments of Rs. 4,74,83,380/- to the assessee company, whereas the latter had disclosed contract receipts of Rs. 4,33,99,828/-, resulting in a difference of Rs. 40,83,552/-.

Apart from that, it is also an admitted position that, in the proceedings pursuant to the order passed under Section 263 of the Act, the AO had called upon the assessee company to reconcile the aforesaid difference. However, the assessee company did not furnish the requisite reconciliation before the AO, despite sufficient opportunities being granted to it. Also, we find that during the appellate 7 proceedings, the assessee company did not respond to the three notices issued by the CIT(A).

We, thus, are of the view that the assessee company had not effectively participated either in the consequential assessment proceedings or in the appellate proceedings before the CIT(A). In these circumstances, the assessee's grievance that no opportunity whatsoever was afforded to it cannot be accepted.

Coming to the facts involved in the case, we find that the assessee company has now furnished before us a reconciliation statement explaining the difference on various specific grounds. We are of the view that the said explanations are essentially factual and require verification against the books of account and other supporting records. We say so, for the reason that the reconciliation furnished before us seeks to explain the difference, inter alia, on account of incentive reimbursements, TDS credit, unpaid salaries for March, 2014, service tax and architect fees. These claims cannot be accepted or rejected merely on the basis of the reconciliation statement filed before us, as it requires examination with reference to the underlying documentary evidence. Apart from that, we find that the aforesaid reconciliation was not furnished before the AO or the CIT(A). Consequently, the authorities below did not have an occasion to examine or verify the specific claims now made by the assessee company before us. Also, as observed hereinabove, the assessee company did not effectively participate in the proceedings before the lower authorities.

We are, therefore, of the considered view that the issue cannot appropriately be adjudicated on merits for the first time by the Tribunal on the basis of a reconciliation which has not been examined by the lower authorities. At the same time, considering that the assessee company has now come forward with a specific reconciliation and that the various claims forming part thereof require factual verification, we are of the view that, in the interest of substantial justice, the assessee company deserves an opportunity to substantiate its claims before the AO.

We thus, in terms of our aforesaid observations, without expressing any view on the merits of the individual items forming part of the reconciliation, deem it fit and proper to set aside the issue relating to the addition of Rs. 40,83,552/- to the file of the AO for fresh adjudication. The AO is directed to consider the reconciliation statement furnished by the assessee company before us and carry out such verification as he may deem necessary in accordance with law. The AO shall specifically examine the assessee's claims relating to incentive reimbursements, TDS credit, unpaid salaries for March, 2014, service tax and architect fees/other income and determine the correct taxable income in accordance with law. Also, the AO is directed to examine the relevant books of account, ledger accounts, invoices, agreements with the associated enterprises, salary records, TDS details and other supporting material and, wherever considered necessary, verify the corresponding records of the associated enterprises.

Needless to say, the AO shall afford to the assessee company a reasonable and effective opportunity of being heard. Also, the assessee company shall remain at liberty to substantiate its claim by furnishing fresh material and supporting evidence, if any, as per the extant law.

Before parting, we may herein observe that we have not expressed any opinion on the merits of any of the claims made in the reconciliation statement, and the same is left open for consideration by the AO in accordance with law.

Accordingly, in view of our aforesaid observations, the addition of Rs. 40,83,552/- is set aside to the file of the AO for fresh adjudication.

As regards the grounds raised by the assessee company alleging denial of opportunity, we find that the AO had issued several notices under Section 142(1) of the Act and the CIT(A) had also issued three notices during the appellate proceedings. Therefore, the allegation leveled by the assessee company that no opportunity was afforded to it by the authorities below cannot be accepted. However, since the matter is being restored to the file of the AO for fresh adjudication, the AO shall afford a reasonable opportunity of hearing to the assessee before passing the consequential order.

In the result, the appeal of the assessee company is allowed for statistical purposes.