SHAPOORJI PALLONJI AND COMPANY PRIVATE LIMITED,MUMBAI vs. DCIT, CENTRAL CIRCLE - 8(3), MUMBAI

failed to appreciate that learned AO has erred in reopening the assessment proceedings and passing order under section 147 of the Act solely on the basis sis of the statement of third party and information received from Jt. CIT Range-8, Ahmedabad and Addi CIT, Range-2, Hyderabad and not on the basis of any independent enquiry carried out by the Learned AO and therefore the assessment is reopened on borrowed satisfaction leading to entire reassessment proceedings being bad in law: No approval obtained from Joint Commissioner of Income Tax for reopening assessment: 3. erred in reopening the assessment proceedings without seeking sanction of Joint Commissioner Income Tax thereby violating the provisions of Section 151 of the Act and thus leading to entire reassessment proceedings bad in law;

erred in confirming the addition to the extent of 12.5% of the actual payment i.e. Rs. 24,87,239 (i.е. 12.5% of Rs. 1,98,97,915) out of the total addition made by the learned AO under section 69C of the Act without appreciating that section 69C is applicable only in a situation where source of expenditure is not explained and not in a case of alleged bogus expenditure, in the present case, the Giant PAYONE expenditure is incurred from regular business activity and thereby Section 69C is not applicable

erred in not following the earlier year's CIT(A), Hon'ble Tribunal, Hon'ble High Court and Hon'ble Supreme Court order, wherein the addition made on 2 account of similar subcontract payments have been allowed and disallowance made by the Assessing Officer has been deleted; 8. ought to have appreciated that the Appellant was not granted an opportunity to cross-examine the alleged parties by the learned AO and thus addition made merely on the basis of third-party information is against the principle of natural justice; 9 without prejudice to the above, ought to have restricted the addition if any, to the extent of 6.5% of the actual payment made to alleged parties during the year under consideration, being gross margin of the Appellant for the year under consideration.” 2. Brief facts of the case are that assessee is a company engaged in the business of civil construction, real estate, trading of construction material and construction-related services. The assessee filed its return of income for assessment year (AY) 28.11.2011 declaring income of Rs. 15.63 crore and book profit under section 115JB at Rs. 132.62 crore. The assessment was completed under section 143(3) on 17.02.2024, determining total income under normal provision at Rs. 38.52 crore and book profit under section 115JB at Rs.143.97 crore. Subsequently, the case of assessee was reopened under section 147. Notice under section 148 dated 23.03.2016 was served upon the assessee. In response to notice under section 148, the assessee filed its return of income on 18.04.2016. After filing return of income, the assessee sought reasons recorded. Reasons recorded were supplied to assessee vide reply dated 29.04.2016. Against the reasons recorded, the assessee filed objections, which was disposed of by speaking order on 28.10.2014. The Assessing Officer (AO) after rejecting the objection, proceeded for reassessment. The AO extracted the reasons recorded at page 3 No. 7 & 8 of his order. As per reasons recorded, the AO received information from JCIT Ahmedabad that in the course of assessment proceedings for AY 2011-12 in case of Sintex Infra Projects Private Limited (SIPPL), that Sintex Infra Projects Private Limited has not executed any work in reality and only provided accommodation entry for turnover. Such information was based on information received from Kolkata investigation wing that Silicon Real Estate Private Limited (SREPL) provided accommodation entry to Sintex Infra Projects Private Limited. Sintex Infra Projects Private Limited was also awarded contract worth Rs. 1.17 crore from assessee. 3. It was further information with AO that from Additional CIT Hyderabad that in case of Totem Infrastructure Private Limited, (TIPL) it was revealed that said company was engaged in issuing bogus bill on booking contract work with several companies. Totem Infrastructure Private Limited has shown to have executing work of sub-contract of worth Rs. 81.63 lakhs, without executing any contract work. On the basis of such information, the AO was of the view that assessee inflated expenses to the extent of Rs. 1.98 crore (Rs. 1.17 crore + Rs. 81.63 lakh). During the course of assessment proceedings, the AO was of the view that two sub-contracting agencies has not executed any contract but working as a tool to facilitate the accommodation entry. The assessee was asked to justify its claim in the light of specific information received by him. The AO recorded that assessee alongwith its submissions furnished work order, but ledger account has not furnished. No evidence that any actual work was executed by these two subcontractors, was filed. No work order or any documentation was produced. The AO recorded that the assessee has submitted they awarded contract at various locations, which is normal practice either to obtain day-to-day or periodic status of work. Even for such stand of assessee, the AO recorded that assessee has not furnished document, especially when allegation is made that particular expenditure incurred by assessee is bogus. It was the duty of assessee to submit and substantiate the transaction. The AO was of the view that assessee has paid Rs. 23.92 crore to Sintex Infra Projects Private Limited and Rs. 81.63 lakh to Totem Infrastructure Private Limited, which is bogus and was disallowed accordingly under section 69C while passing the assessment order. 4. Aggrieved by the additions in the assessment order, the assessee filed appeal before learned CIT(A). Before learned CIT(A), the assessee challenged the validity of reopening as well as additions on merit.Before learned CIT(A), the assessee filed detailed statement of fact as well as written submission. The statement of facts pleaded by assessee are recorded from page No. 3 to 5 of order of learned CIT(A). In the statement of fact, the assessee, apart from other facts, stated that reasons recorded was provided vide letter dated 29.04.2016, which is also made part of submission. As per reasons recorded, the AO received information from JCIT, Ahmedabad that during the course of assessment proceedings in case of Sintex Infra Projects Private Limited, he has received information from Central Circle, Kolkata that in case of assessment proceedings in case of Silicon Real Estate Private Limited (SREPL) for AY 2011-12, that said assessee had admitted that it has not executed any work in reality and only provided accommodation, only for turnover and / or expenses. And that notice under section 131 was issued and statement of Chief Financial Officer (CFO), Sintex Infra Projects Private Limited was recorded. Shri S. N. Maheshwari, CFO of Sintex Infra Projects Private Limited, stated that his company was received that entire work of Rs. 23.93 crore on back-to-back basis from his company and Shapoorji Pallonji Company, is one of such five companies awarded contract worth Rs. 1.17 crore, which is not executed. They have not executed or supervised any project and that a completion certificate was issued by Shapoorji Pallonji and company Private Limited and deducted TDS and the same was passed on to Silicon Real Estate Private Limited by Sintex Infra Projects Private Limited after deducting TDS. Shri S. N. Maheshwar accepted that they have earned 2.00% profit of total turnover as income and included the same in their books. Further, as per information from ACIT Hyderabad, that in case of Totem Infrastructure Private Limited, it was revealed that such company was also issuing bogus bills for bogus turnover on booking contract with several companies and have issued bogus entry of Rs. 81.63 lakh to assessee without actual work. In the reasons recorded the AOon the basis of such information concluded that income to the tune of Rs. 24.74 crore has escaped assessment within the meaning of section 147. The assessee further stated that they have filed objections on 18.09.2016 and the same was rejected by the AO vide his order dated 28.10.2016. The assessee stated that all the transactions were verified in the original assessment and were accepted. The transactions were made in the regular course of business and were supported by bills and vouchers. The assessee stated that there was no application of mind by the AO while reopening the assessment. The AO himself contradicted his own statement by adding the entire work of Rs. 24.00 crore to the assessee's income instead of Rs. 1.98 crore as recorded in the reasons for reopening. No independent inquiry was conducted to verify the details submitted qua the statement recorded regarding earning 2.00 % of turnover by Silicon Real Estate Private Limited, which does not prove that the remaining 98% was received back by the assessee.The assessee requested the AO to provide copies of the relevant records, documents, and statements of Sintex Infra Projects Private Limited, Totem Infrastructure Private Limited and Silicon Real Estate Private Limited along with an opportunity for cross-examination. The assessee also relied upon various case laws for the proposition that reopening based on suspicion is invalid. It was submitted that the reasons recorded must have a rational connection with the formation of belief and should not be based on extraneous or irrelevant facts. 5. On merits, the assessee submitted that they have provided complete details of the sub-contractors, which included copies of the ledger accounts of Sintex Infra Projects Private Limited and Totem Infrastructure Private Limited, along with copies of invoices and work orders, bank statements, and TDS certificates. The assessee contended that all sub-contract payments were genuine and were made against execution of work. The assessee also submitted that the AO be directed to rectify the mistake apparent from the record by considering the entire amount of Rs. 24.74 crore as having been brought to five contractors instead of Rs. 1.98 crore related to Sintex Infra Projects Private Limited and Totem Infrastructure Private Limited. In the alternative, and without prejudice, the assessee submitted that the addition, to the extent of the profit element in such tainted and disputed transactions, may be restricted and not the entire transaction. The profit element in the actual value of the transaction was 6.5%, and same may be adopted. 6. The learned CIT(A), after considering the submissions of the assessee, upheld the validity of reopening by taking a view that the AO has received new tangible material, being information after completion of the scrutiny assessment. There was a live nexus between the issue involved and the tangible material. The AO was not having borrowed satisfaction. The case was not reopened for roving and fishing inquiry. It was based on specific information from credible sources. The learned CIT(A) relied upon the decision of the Hon'ble High Court in NickunjEximp Enterprises (P) Ltd. 48 taxmann.com 20 (Bom) and upheld the validity of reopening. 7. On merits, the learned CIT(A) held that the assessee was in the business of complex civil engineering projects across India as well as abroad. It is not possible for the assessee to carry out contract work without engaging sub- contractors for various projects. The assessee was awarded projects by companies like TCS, Delhi International Airport, and Sterling SEZ. For execution of such work, the assessee engaged various sub-contractors. Similar sub-contract payments made to these two subcontractors were also disallowed on an identical set of facts in the case of UltratechTransmission(P) Limited, wherein disallowance of similar payments towards expenses was restricted to 10.00%. The assessee is not allowed cross-examination of the parties. The learned CIT(A) strongly relied upon the case of Ultratech Transmission (P) Limited, decided by the Ahmadabad Tribunal, reported viz;(2023) 151 taxmann.com 20 (Ahd-Trib).The learned CIT(A), after recording such facts, restricted the disallowance to 12.00% of the total amount paid to the two subcontractors. On the plea of rectification of the correct amount, the learned CIT(A) directed the AO to verify the record and to restrict the disallowance to 12.00% of the actual payment and thereby allowed partial relief. Further aggrieved, the assessee has filed the present appeal before the Tribunal. 8. We have heard the submissions of the learned Authorised Representative (learned AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue. Ground No. 1 is general. At the time of hearing, the learned AR of the assessee submitted that he is not pressing Ground No. 3. Thus, Grounds Nos. 1 and 3 are dismissed. Grounds Nos. 2 and 4 relate to the validity of reopening, allegedly based on borrowed satisfaction and change of opinion. The learned AR of the assessee submits that the power to reopen a completed assessment under Section 147 is available with the AO, if he has reason to believe that income chargeable to tax has escaped assessment for any assessment year. This belief that income has escaped assessment has to be based on a reasonable belief. The AO cannot act or believe on some other authority. On receipt of information from other sources, the AO is required to consider the material on record by applying his own mind and, on his independent opinion, record that income has escaped assessment. In the absence of such independent opinion, he cannot make any reassessment order. The AO merely acted on the information from JCIT, Ahmadabad and Additional CIT(A), Hyderabad. The AO has not made any independent investigation to arrive at his satisfaction that income has escaped assessment. He simply acted on the report from two different agencies in the case of third parties. Such action of the AO is nothing but based on borrowed satisfaction. To support his submission, the learned AO relied upon the decision of the Mumbai Tribunal in assessee's own case for AY 2010-11 in ITA Nos. 5768 and 5304/Mum/2013, the decision of the Mumbai High Court in Shodiman Investments (P) Ltd. (2020) 422 ITR 337 (Bom HC), and the decision of the Supreme Court in Kelvinator of India Limited, 320 ITR 561 (SC).

On merits, which is the subject matter of Ground Nos. 5 to 7, the learned AR of the assessee submits that during the year under consideration, the assessee made sub-contract payments to two contractors, namely, Sintex Infra Projects Pvt. Ltd. and Totem Infrastructure Pvt. Ltd., for execution of various projects awarded by some well-known companies like TCS, Delhi International Airport, Sterling SEZ and Accenture, etc. During assessment, the assessee filed its objections to the reopening and furnished a copy of the ledger account of Sintex Infra Projects Pvt. Ltd. and a copy of the ledger account of Totem Infrastructure Pvt. Ltd., copies of invoices along with purchase orders, bank statements, and TDS certificates in Form 16A in respect of both the subcontractors. As per the information with the AO, during the course of assessment, in the case of Sintex Infra Projects Pvt. Ltd., information was received from JCIT, Kolkata that, in the scrutiny assessment of Silicon Real Estate Private Limited, the said assessee had admitted that it had not executed any work in reality and had only provided accommodation entries for turnover and/or expenses. Summons issued under Section 131 were issued by JCIT, Ahmadabad, wherein the CFO of Sintex Infra Projects Private Limited, namely, S. N. Maheshwari, stated that his company has received the entire work of Rs. 23.92 crore on a back-to-back basis from five companies, which included work from the assessee of Rs. 1.17 crore, for which it had not executed or supervised the project but received payment from the assessee. On a careful reading of the present record for reopening, it can be noted that the CFO of Sintex Infra Projects Private Limited himself stated that Sintex Infra Projects Private Limited has received work from the assessee, against which payments were made post-completion of work, for which a compliance certificate was issued and TDS was deducted on the said payment, and that the same was transferred by Sintex Infra Projects Private Limited to Silicon Real Estate Private Limited after deducting TDS. This clearly shows that the subcontract payments by the assessee are genuine for work contracts which were actually executed. As regards the information from Additional CIT, Hyderabad, in the case of Totem Infrastructure Private Limited, it was revealed that the said company was engaged in issuing bogus bills for bogus turnover on booking of contract work with several companies. The learned AR of the assessee submits that during assessment the assessee asked to supply material and information received by AO from investigation wing and details in respect of various transactions with Sintex Infra Projects Private Limited and Totem Infrastructure Private Limited. No such information was provided to the assessee. Though, to substantiate the genuineness of the transactions, the assessee furnished complete details of both the entities. The AO, without considering the documentary evidence and the submissions of the assessee, made an addition under Section 69C of Rs. 24.74 crore. No opportunity was allowed to cross-examine the person on whose statement the assessee relied before the learned CIT(A). The assessee also raised a plea that the transactions with the two entities aggregated only Rs. 1.98 crore.