SOHAMS FOUNDATION ENGINEERING PRIVATE LIMITED,THANE vs. ASSTT. COMMISSIONER OF INCOME TAX-15(3)(2), MUMBAI

On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in levying interest under sections 2348 and 234C of the Act. 4. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in levying penalty under section 271(1)(c) of the Act. 5. Your Appellant reserves the right to add, to alter or amend any of the above grounds, if necessary.

Brief facts of the case are that the assessee is a company engaged in the business of providing geotechnical consultancy and civil foundation engineering services. The assessee filed its return of income for A.Y. 2009-10 on 30.09.2009, declaring income of Rs. 5.17 crore. The case was selected for scrutiny and assessment was completed under Section 143(3) on 29.12.2011, assessing the total income at Rs. 6.30 crore. Thereafter, the case was reopened under Section 147. The case was reopened on the basis of information received from the Investigation Wing that the assessee has obtained bogus purchase bills aggregating to Rs. 91,92,797/- from parties, namely, N.B. Traders, Revika Trade Impex Pvt. Ltd., Pooja Enterprises and Dhruv Sales Corporation. As per the information with AO, the said parties were providing accommodation entries. The AO, after serving notice under Section 148 and other statutory notice under Section 143(2), proceeded with the reassessment. The AO, in para 6 of his order, recorded that show-cause notice dated 06.09.2013 was issued to the assessee as to why the purchases from four parties should not be treated as bogus. The AO recorded that the assessee filed a reply and denied the allegations contained in the show-cause notice. The assessee furnished copies of purchase bills, delivery challans and proof of payment. The reply of the assessee was not accepted by the AO. The AO referred to the decision of Urmila & Co. Ltd. vs. DCIT, reported in (2013) 35 Taxmann.com 589, wherein it was held that procuring bogus bills does not represent a business transaction. The AO relied upon the investigation conducted by the Sales Tax Department and disallowed aggregate purchases of four parties amounting to Rs. 91,92,797/- in the assessment order dated 03.10.2013. 3. Aggrieved by the decision in the assessment order, the assessee filed an appeal before the learned CIT(A) on 11.12.2013. Before the learned CIT(A), the assessee filed detailed written submissions as well as a statement of facts. The submissions of the assessee are recorded from pages 6 to 18 of the order of the learned CIT(A). In the submissions, the assessee stated that the AO has not made the addition under any specific section, either under Section 69C or otherwise. While explaining the scope of Section 69C, the assessee submitted that all the expenditure has been recorded in the books of account and the source thereof had been explained. The assessee was having operational income of more than Rs. 44.00 crore. By filing complete documents to substantiate the purchases, the assessee has proved that the material was purchased and delivered, which was consumed in various infrastructure projects. The evidence filed by the assessee was not appreciated by the AO. The material was directly delivered at the site and was consumed in the projects. All the purchase transactions were duly recorded in the books of account, and the source of expenditure was part of normal business operations. Bank statements reflecting the payments were filed. The provision of Section 69 is not applicable. In the alternative, the assessee prayed for a reasonable percentage to be considered instead of the entire amount to substantiate such contention. The assessee relied upon various decisions, including the following decisions of the Hon'ble Mumbai High Court:  PCIT vs Vishwshakti Construction (2023) 454 ITR 448 (Bom),  PCIT vs Suraj Infrastructure Pvt. Ltd. (2023) 295 Taxman 798 (Bom),  PCIT vs Bharat Copy Centre (P) Ltd. (2023) 155 taxmann.com 211 (Bom),  Haware Construction (p) Ltd. (2019) 101 taxmann.com 168 (Mumbai),  PCIT vs. Mohit Pukhraj Kawdiya (2024) 167 taxmann.com 473 (Gujarat HC) 4. The assessee also filed an application for admission of additional evidence under Rule 46A of the Income-tax Rules. In the application for additional evidence, the assessee stated that they have purchased various materials like seamless tubes, TMT Bars, MS flats plates and G C sheets, which were used as locking material with PVD used in geo-grid reinforced soil wall and MS Flat plates were used in PVD and G C sheets were used in setting up temporary structure to house labour force.On the basis of such contention, the assessee submitted that the material purchased was consumed in their business. On the application for additional evidence, the ld CIT(A) directed AO to file his remand report. The AO, in his remand report, by referring to various evidences, contended that the said document does not prove that the assessee made actual purchases and that the material was consumed in business activities. The finding of the Investigation Wing clearly indicates that four parties from whom the assessee has shown purchases were hawala operators. Against the remand report, the assessee filed its rejoinder, reiterating that the AO has not made any adverse comment on the additional evidence. Therefore, it appears that he has accepted the authenticity of the transaction. 5. The ld CIT(A), on considering the submissions of the assessee and the remand report of the AO, upheld the addition made by the AO by referring to the decision Kanak Impex (India) Ltd. of Bombay High Court against which the Special Leave Petition (SLP) was dismissed by the Hon'ble Apex Court, reported viz; (2025) 180 taxmann.com 790 (SC). The learned CIT(A) held that merely because the AO has not expressly referred to Section 69C, when in his show cause notice, no purchase is caused to the assessee. The learned CIT(A) also held that without bringing confirmation and establishing the consumption of the purchased material, the reliance placed by the assessee cannot be accepted, while the sellers were alleged to have not supplied the material. Further aggrieved, the assessee has filed the present appeal before the Tribunal.

We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. DR) for the Revenue. The learned AR of the assessee, by referring to the names of all four parties and the quantum of purchases from such parties and explaining the business model and their activities, submits that despite providing complete evidence, including the consumption of material in the business activities, the AO as well as the learned CIT(A) made an addition of 100% of the purchases shown from such parties. The AO simply relied upon the report of the Investigation Wing. The report of the Investigation Wing is a general information. No adverse comment was made on the evidence furnished by the assessee during the assessment as well as in the remand proceedings. The alternative plea of the assessee was not considered. The observation of the learned CIT(A) about confirmation for not supplying the material is erroneous, as there is no such evidence on record. The learned AR submits that the entire addition is to be deleted. In the alternative submission, the learned AR of the assessee submits that, in order to avoid long-drawn litigation, a reasonable percentage of disallowance may be upheld only to avoid the possibility of revenue leakage. 7. On the other hand, the learned Senior DR for the Revenue supported the order of the learned CIT(A) and the AO. The learned Senior DR for the Revenue submits that the Investigation Wing and the Sales Tax Department made a full-fledged investigation about the modus operandi of the entry providers, who are issuing only bills without actual delivery of goods. The bills were obtained to inflate the expenses. 8. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We have deliberated on various evidences filed before us in the form of a paper book. We find that the AO made the addition solely on the basis of the report of the Investigation Wing. The AO has not specified as to what evidence was furnished by the assessee. The AO simply concluded that the assessee failed to furnish its stock register and evidence of consumption of goods in the business activities. No such specific notice was issued by the AO to call for evidence of consumption. We find that before the learned CIT(A), the assessee specifically, by way of additional evidence, furnished the details and the mode of consumption of the material allegedly purchased. No specific objection regarding the mode of consumption was raised by the AO.So far as the stock register is concerned. the assessee, before the learned CIT(A), contended that the material was directly delivered at the site and was consumed. We find that the mode of transportation and vehicle numbers are recorded on certain tax invoices. No investigation was carried out with regard to such transportation or from the lorry owners, nor was the assessee asked to furnish confirmation from the lorry owners. The assessee, before the learned CIT(A), also furnished certain photographs showing the consumption of material and drawings and designs of various projects, including notes on technical projects. No adverse remark was made by the lower authorities. The learned CIT(A) confirmed the action of the AO by referring to the decision of the Hon'ble Mumbai High Court in Kanak Impex(India) Ltd. In our considered view, the ratio of the decision in Kanak Impex (India) Ltd. is not applicable. The facts of Kanak Impex (India) Ltd., in our view, are quite different. In the case of Kanak Impex (India) Ltd., the AO, right from the beginning, raised suspicion about the source of purchases. However, in the case in hand, the assessee has explained that its business receipts were more than Rs. 45 crore during the year, whereas the purchases were less than Rs. 1 crore. Moreover, the assessment in the case of Kanak Impex (India) Ltd. was completed under Section 144. Thus, the ratio of the decision in Kanak Impex (India) Ltd. has no application. We find that before us, the learned AR of the assessee argued that the entire purchases are genuine; yet, in the alternative submission, in order to avoid long-drawn litigation, prayed for reasonable disallowance. Considering the overall facts of the case and in order to avoid the possibility of revenue leakage, where there is some allegation that the assessee is a beneficiary of purchases shown from tainted parties, in our view, a reasonable disallowance at the rate of 6% would be sufficient to avoid the possibility of revenue leakage. In the result, the grounds of appeal raised by the assessee are allowed. Ground Nos. 1 and 2 are partly allowed.

Ground No. 3 relates to levy of interest under Sections 234B and 234C. We find that this ground of appeal is consequential. The AO is directed to levy interest in accordance with law. 10. In the result, the appeal of the assessee is partly allowed. 11. In the appeal for A.Y. 2010-11, the assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming assessment of total income as Rs.5,57,76,240 as against the returned income of Rs.3,91,80,580. 2. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in in confirming disallowance of club expenses of Rs. 6,78,345 as personal expenses without appreciating that the club membership fees and expenses are incurred wholly and exclusively for the purpose of business. 3. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in in confirming disallowance of professional fees of Rs. 14,27,500 as capital expenditure. 4. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming addition of Rs. 59,99,706 under section 68 without appreciating the documentary evidences establishing identity, source and creditworthiness in respect of share capital issued to non-resident shareholders during the year. 5. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in in confirming Rs. 53,96,236 as cessation of trading liability without appreciating the fact that impugned amounts are payable at the year end.” 12. Brief facts of the case are that the assessee filed its return of income for A.Y. 2010-11 on 15-10-2010, declaring income of Rs. 3.91 crore. The case was selected for scrutiny. During the assessment, the AO noted that the assessee has debited certain expenses which is personal in nature. The AO noted that the assessee has claimed Club membership expenses of Rs. 6,78,345/-. The AO disallowed the same by taking the view that it was personal in nature. 13. The AO further noted that the assessee has debited professional fees of Rs. 10.00 lakhs to Banyan Tree Finance Private Limited towards due diligence charges and Rs. 4,275/- to Religare Capital Markets Limited in respect of drop-deed fees. The AO issued a show-cause notice as to why such fees should not be treated as capital in nature and capitalized. The assessee replied to the show-cause notice and submitted that the fees paid to Banyan Tree Finance Private Limited were in respect of private equity investors and the payment to Religare Capital Markets Limited was towards the same charges. The reply of the assessee was not accepted by the AO. The AO was of the view that an analysis of the balance sheet shows that the share capital during the year has increased and new investment has taken place. The expenditure is not incurred for generating revenue. The AO treated the expenditure as capital expenditure. 14. The AO further noted that during the year under consideration, the assessee has received share capital of Rs. 59,99,706/. The shares were issued to a non-resident. During the assessment, the AO asked the assessee to furnish address of investor / shareholder who has invested in share and copy of bank statement to substantiate the transaction of investment. The AO recorded that assessee has not furnished details of investors the assessee failed to discharge its onus. The AO treated the investment as unexplained credit under section 68. 15. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee challenged all three additions. The assessee filed its written submission. On the disallowance of club expenses, the assessee submitted that such expenses were incurred for membership of managing director who is looking after business promotion of the company. Membership of Gulf Club was taken for higher social circle. The expenditure is not personal in nature. To support the claim, the assessee relied upon the decision of Apex Court in CIT vs United Glass Manufacturing Co. (2012) 28 taxmann.com 429. In support of treating the expenditure of Rs. 14,27,500/- as capital expenditure, the assessee stated that during the year under considering assessee received proposal for private equity investment for which Baniyan Tree Finance Pvt. Ltd. and Religare Capital Market Ltd. performed due diligence. However, the proposal by the vendors for private equity investor was rejected by assessee and assignment was terminated. Although the proposed deal was not materialise, but assessee was require to pay fees for professional services rendered by this vendors as per agreed terms. The fees paid were revenue expenditure incurred for the purpose of business and was debated to the profit and loss account. The assessee also furnished the copy of invoices raised for due diligence services. The bank statement for the payment was also furnished. The assessee also relied upon decision in Pinebridge Investment Capital India (P) Ltd. vs ITO (2016) 71 taxmann.com 374 and CIT vs Onmobile Global Ltd. (2021) 129 taxmann.com 254 (Karnataka). On the addition of unexplained cash credit on account of share application and share premium received from Sunil Mehta and Vidhya Mehta, the assessee stated that both are non-resident they are founder and executive chairman of Orient System Integrators, which is global technology solution providers across India. The assessee provided copy of share application money form FCGPR of Sunil Mehta and certain emails from Sunil Mehta and Vidhya Mehta. 16. The ld. CIT(A) on considering the submission of assessee confirmed all three additions. On the disallowance of club expenses, the ld. CIT(A) held that club facilities are used by concerned employee being personal in nature. No details or break up of expenditure was furnished. No evidence to justify club expenses was filed. On the basis of such observation that the disallowance of club expenses were upheld. On the disallowance of professional fees of Rs. 14,27,500/- by treating it as capital expenditure, the ld. CIT(A) held that assessee made contradictory submissions, one side assessee is accepting due diligence for extracting good premium on the share of company, on the other side, the assessee is claiming expenditure as Revenue. The expenditure for selling share of company cannot be considered as Revenue expenditure as it is not the business of assessee. Thus, expenditure is capital in nature. The AO recorded that as per balance sheet, share capital during the year has been increased as new investment took place not only in Indian subsidiary but in foreign subsidiary as well. Substantial professional fees incurred have not gone in waste. The AO has established that new investment took place during the year. The purpose of expenditure was and only for increase in equity. The AO has recorded from the account of assessee that share premium of Rs. 56,48,846/- has been received in the year itself. The expenditure is not incurred for generation of revenue. 17. On the addition of unexplained credit on account of share application and share premium, the ld. CIT(A) held during the appellate proceeding the assessee filed additional evidence under Rule 46A. In the application for additional evidence to substantiate unexplained cash credit. The assessee stated that they are trying to establish contract with the investor to furnish required details. On the application of assessee remand report was sought from AO. The AO objected against the additional submission, the ld. CIT(A) held that assessee has not discharged its onus. For one of the investor, the assessee claimed that he is non-resident. The residential status is not proved. Transferred through NRE account also not established non-residential status. Merely, referring address outside India cannot be treated as non-resident. On the basis of such view, the addition of unexplained cash credit was also confirmed. Further, aggrieved the assessee has filed present appeal before Tribunal.

We have heard the rival submissions of both the parties and have gone through the orders of lower authorities carefully. Ground no. 1 is general and needs no adjudication. Ground no. 2 relates to disallowance of club expenses. The ld. AR of the assessee submits that details of club expenses were furnished before the lower authorities. The details are filed as per page no. 24 & 25 of paper book. The club membership was obtained for use by managing director. This issue is no res integra after the decision of Hon’ble Apex Court in CIT vs United Glass Manufacturing Co. (supra). 19. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the Revenue supported the lower authorities. The ld. Sr. DR relied upon the decision of Mumbai Tribunal in Balrajsingh Jagjitshingh Kharbanda vs ADIT (2023) 202 ITD 433 (Mumbai – Trib.). 20. We have considered the submissions of both the parties and perused the order of lower authorities. We find that Hon’ble Apex Court in CIT vs United Glass Manufacturing Co. (supra) held that club membership fees for employees incurred by assessee is business expense under section 37. Thus, club expenses incurred by assessee are allowed. In the result, ground no. 2 is allowed. 21. Ground no. 3 relates to disallowance of professional fees of Rs. 14,27,500/-. We find that lower authorities treated such professional expenses paid for obtaining due diligence report as capital in nature as the same were incurred for increase of share capital. We find that Hon’ble Karnataka High Court Onmobile Global Ltd. (supra) held that legal and professional expenditure incurred for conducting due diligence in report of a company which was to be acquired by assessee would be eligible for deduction under section 37(1). Thus, in view of decision of Hon’ble Karnataka High Court, the action of AO is reversed in treating the expenses as capital. The AO is directed to allow due diligence expenses. In the result, ground no. 3 is allowed. 22. Ground no. 4 relates to addition of unexplained credit on account of share application and share premium received from Sunil Mehta and Vidhya Mehta. The ld. AR of the assessee submits that he has filed an application for admission of additional evidence dated 21.07.2026. Along with the application for additional evidence, the assessee has furnished bank statement of investor and certain other details. The ld. AR of the assessee submits that during assessment as well as first appellate stage, no such evidence could be furnished. The evidence sought to be produced are to substantiate identity, creditworthiness and genuineness of share capital and share premium received during the relevant financial year. The share capital and share premium is not taxable under section 68. The shareholders were non-resident Indian during the relevant year and as on date. Such evidence could not be produced as the investors were not in India. Now, the assessee has requested the investor to submit their bank statement. The details of bank statement were received during the first appellate stage. The evidence filed in the form of additional evidence are crucial for complete adjudication of the issue before this Tribunal and may be admitted for adjudication. No prejudice shall be cause to the Revenue is such evidence are verified by lower authorities. 23. On the other hand, the ld. Sr. DR for the Revenue submits that assessee was allowed full opportunity by AO as well as ld. CIT(A). The assessee failed to furnish the required evidence in the form of identity, creditworthiness of investor and genuineness of transaction. The additional may not be admitted and addition made by AO/CIT(A) may be confirmed. 24. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that AO as well as ld. CIT(A) held that assessee failed to substantiate triple condition to substantiate the genuineness of investment in shares. Now, before us, the assessee has filed application for addition evidence. The assessee has also filed with regard to addition under section 68 in respect of share capital and share premium by Sunil Mehta and Vidhya Mehta. Copy of share application money ledger account, bank statement of assessee, Form FCGPR of Sunil Mehta, email communication by Sunil Mehta and Vidhya Mehta confirming receipt of shares, copy of ITRs of investors and their bank details. On careful perusal of aforesaid evidence, we find that all such evidence are crucial and evidence for determination and controversy involved in the issue under adjudication. Therefore, considering the relevancy of document, in our view such documentary evidence required consideration. Considering the fact such evidences were not filed lower authorities, therefore, admitting the aforesaid evidences, this ground of appeal is restored back to the file of Jurisdictional Assessing Officer (JAO) to reconsider this issue and pass the order afresh in respect of addition of allied cash credit. Needless to direct that before passing the order afresh JAO shall allow fair and reasonable opportunity to the assessee. The assessee is also directed to be more vigilant in making timely compliance. In the result, ground no. 4 is allowed for statistical purpose. In the result, appeal for A.Y. 2010-11 is partly allowed. 25. In the final result, appeal for A.Y. 2009-10 as well as A.Y. 2010-11 are partly allowed. Order was pronounced in the open Court on 07/10/2026