BASWANT BUILDERS AND DEVELOPERS PRIVATE LIMITED,AURANGABAD vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 3(1)(1), MUMBAI, AAYAKAR BHAWAN, MUMBAI

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 06.08.2024, impugned herein, passed by the National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the Assessment Year (AY) 2018-19.

2. In this case, the Assessee during the AY under consideration declared its total income at Rs.3,44,05,550/- by filing its original return of income on dated 31.10.2018, which was selected for complete scrutiny under CASS. Consequently, during the assessment proceedings, statutory notices dated 22.09.2019 u/s 143(2) of the Act and 04.01.2021 u/s 142(1) of the Act along with questionnaire in annexure, were issued to the Assessee. The Assessee submitted its submissions. On considering the same, the Assessing Officer (AO) observed that the Assessee company during the AY under consideration, being engaged in the business of construction and maintenance of roads, bridges, tunnels, ports, harbor, runways etc. by filling its return of income, has also claimed expenditure of Rs.60,41,53,300/- towards payment made to Assessee’s sister concern M/s. M.B. Patil Construction Ltd. (in short “M/s MBPCL”) for executing sub-contract on behalf of the Assessee.

3. The AO therefore, in order to ascertain genuineness of such expenses claimed, issued various notices dated 25.03.2021, 01.04.2021 and 07.04.2021 and sought for the details of the contract agreement signed with M/s. MBPCL, details of nature of service availed from M/s. MBPCL and corresponding bank statement highlighting payments made to M/s. MBPCL.

4. The Assessee in response to the aforesaid queries/documents sought for, though filed its reply, however, as mentioned by the AO in para 4(i) of the assessment order, in response to notice dated 01.04.2021 u/s 142(1) of the Act, the Assessee has submitted only copy of the work-order issued to M/s. MBPCL for the period dated 01.02.2018 to 31.03.2018 for the project. The AO therefore asked the Assessee specifically, to provide contract agreement signed with M/s. MBPCL. The Assessee in response to the said query, vide reply dated 03.04.2021 replied that Assessee is not in a position to trace out the copy of the agreements entered into with M/s. MBPCL.

5. The AO thus vide notice dated 07.04.2021, further asked the Assessee to provide the details of the contract agreement signed with M/s. MBPCL and corresponding bank statements highlighting payments made to M/s. MBPCL, however, of no avail, as the Assessee vide reply dated 08.04.2021 submitted that it has not entered into contract with M/s. MBPCL.

6. Thus, the AO by considering the aforesaid replies of the Assessee construed, that replies of the Assessee with respect to contract agreements with M/s. MBPCL, are not consistent and noted the following peculiar facts and circumstances:

Further, the Assessee did not provide bank statements highlighting payments made to M/s. MBPCL.

4. As the Assessee has failed to provide substantial document, even in spite of asking specifically, therefore, the Assessee’s claim of Rs.60,41,53,300/- as business expenditure, is not tenable and liable to be disallowed u/s 37 of the Act and added back to the income of the Assessee.

7. The AO, consequently on the aforesaid facts and circumstances, issued the draft assessment order in the form of show cause notice dated 26.04.2021 and thereafter by issuing various notices provided various opportunities to the Assessee to establish its claim. However, the Assessee except filing the alleged work order issued to M/s. MBPCL for the period dated 01.02.2018 to 31.03.2018, and return of income filed by M/s. MBPCL and ledger account of M/s. MBPCL in the books of Assessee and its own balance sheet, filed no document pertaining to main contract and sub-contract and therefore the AO by considering the peculiar facts and circumstances in totality, specific to the effects:

(i) That in response to the queries sought the Assessee has replied on dated 01.04.2021 that it has not entered into contract with M/s. MBPCL.

(ii) Further, the Assessee did not submit required bank statements related to the payments made to the M/s. MBPCL.

(iii) The claim of the Assessee that the work order given by the Assessee, is a substitute for the return contract as claimed by the Assessee, is not tenable, because, first, contract agreement is a crucial document in such contracts involving huge risks, liabilities are narrated, second, Assessee relied on work order but aforesaid work order does not provide details regarding actual execution of work and expenditure incurred on such execution of work.

(iv) Assessee submitted that M/s. MBPCL after getting work order from the Assessee, subsequently gave sub-contract of the very same work to other party and consequently the payment due on account of execution of sub-contract was directly adjusted, however, the Assessee did not submit any detail of sub-contractors to carry out third party verification during the assessment proceedings, as well as, the Assessee did not provide any documentary evidence to substantiate its claim of adjustment of payments.

(v) The fact of the matter is that TDS and GST as claimed by the Assessee were duly deducted and deposited in a government account, are smaller tax liability as compared to tax impact of claim of business expenditure of Rs.60,41,53,300/- towards payment made to M/s. MBPCL during the relevant year.

(vi) The Assessee placed reliance on computation of income and return of income of M/s. MBPCL during the relevant year that contract payments made by the Assessee is duly reflected in the ITR of M/s. MBPCL, however, on perusal of ITR of M/s. MBPCL for the relevant year, it is found that it is not possible to ascertain the receiving of such contract receipt by the M/s. MBPCL from the Assessee, as M/s. MBPCL is involved in multiple projects and has received multiple receipts during the relevant year.

(vii) It is pertinent to mention here that M/s. MBPCL is a person specified u/s 40A(2)(b), as it is reflected as sister concern of the Assessee in Form 3CD.

(viii) The payment of Rs. 60,41,53,300/- made to M/s. MBPCL and claimed as expenditure is a significant amount and it is 86.60% of total revenue from operations of Assessee during 2018-19, which is also to a large extent responsible for a low profit.

Ultimately found that the Assessee’s contentions against the proposed disallowances of Rs.60,41,53,300/- u/s 37 of the Act, as not justifiable mainly on the reason that the Assessee has failed to substantiate its claim despite giving multiple opportunities during the assessment proceedings.

“Your honor has proposed to disallow the expenditure of Rs.60,41,53,300/- in respect of sub-contract payments made by us to our sister concern, namely, M/s M.B. Patil Construction Ltd.

We have given them work order in this respect. Further, we have already submitted copy of account of M. B. Patil Constructions Ltd. for the F.Y.2017-18 relevant to the A.Y. 2018-19 as appearing in books of account. This apart TDS in this respect was also deducted and deposited in the Govt. account. We also invite your attention to Form No. 3CD furnished by us. In Para 23(2) details of sub-contract payment of Rs.60,41,53,300/- have been duly disclosed. Further, it can be seen from column 21(B) of the Audit Report that the Tax has been duly deducted from the sub-contract payments. We are also enclosing herewith copy of challans showing TDS deposit of Rs. 1,20,83,066/- in this respect. A copy of TDS Return in Form No.26 Q is also enclosed and also enclosed copy of Acknowledgement of return of income of M/s M.B. Patil Constructions Ltd. along with computation of income for the AY 2018-19.

In the light of this evidence, it is crystal clear that M/s M.B. Patil Construction Ltd. has duly disclosed income on the said contract receipts. In fact, the said contract receipt is a part of revenue from operations disclosed by the said M/s M.B. Patil Construction Ltd. In the light of aforesaid clinching evidence furnished by us, it is not correct to hold that the payment of Rs.60,41,53,300/- is non- genuine. The said finding is unjust and against the law in as much as the concerned amount is already offered to tax in the hands of the M.B. Patil Construction Ltd. The same is now again proposed to be taxed by your honor in our hands.”

“6. Finding of the CIT(A):

6.1 I have gone through the Assessment Order and submissions of the appellant. The learned AO has carried out addition of Rs.60,41,53,300/- on account of disallowances of subcontracting charges paid to sister concern. Aggrieved by the order of learned AO the appellant has raised multiple grounds of appeal which are collectively disposed off as under.

6.2 The appellant is engaged into business of construction and maintenance of roads, bridges and other infrastructure facilities. During the year under consideration it had received contract from sister concern M/s Patil Construction, which he has sub contracted to another sister concern M/s M.B. Patil Construction Ltd. Pursuant to such subcontracting the appellant had paid sum of Rs.60.42 crores to M/s M.B. Patil Construction Ltd. In order to verify the genuineness of expenses the learned AO called for supporting documents such as contracts and bank statements. In response to the same the appellant submitted copy of work order, ledger extract of M/s M.B. Patil Construction Ltd and copy of income tax returns of M/s M.B. Patil Construction Ltd. 6.3 The learned AO did not accept the appellant's contention for non- submission of copy of contract and he also contented that he is not able to verify if M/s M.B. Patil Construction Ltd has received payment from its income tax returns because this entity had received payment from multiple vendors. The learned AO has also observed from tax audit report that M/s M.B. Patil Construction Ltd is a related party as per section 40(A)(2)(b) and the payment made to M/s M.B.Patil Construction Ltd is equivalent to 86.60% of revenue of appellant and the appellant is left with low profit. Therefore, the learned AO upheld these payments as non-genuine and added to total income of appellant.

6.4 During the appellate proceedings as well the appellant filed same supporting documents. The learned AO has treated such expenses as not genuine because the appellant did not file any agreement which is base for any work being allotted to someone. The work order submitted by the appellant is very brief moreover, the appellant has not submitted any confirmation from M/s M.B.Patil Construction Ltd which proves payment being made is reliable.

6.5 In view of the above I am of the considerate view that the appellant failed to discharge its primary onus by not submitting documents such as agreement, bank statement, payment confirmation, etc. In such situation correctness of claim of appellant cannot be established. Therefore, the addition made by learned AO for sum of Rs.60,41,53,300/- is upheld.

6.6 Accordingly, appeal of the appellant is dismissed”

“1. Absence of Contract Agreement The assessee did not submit the contract agreement neither between the M/s Patil Infrastructure and construction limited with Basant Builder nor the contract between Basant Builder to M/s MB Patil instead provided a "Work Order" and contending that no contract agreement was necessary. This work order, however, lacks essential legal specifications and does not substitute for a binding contract, important to note that the Work Order raised for the project "Digras- Dharwha-Karanja National Highway in state of maharashthra for upgradation two lanes" which shows that this is for road development which under Government work so in the given case assessee had not produced any details-about the tender if any, any approvals, or any details regarding the agreement made on this project purpose which shows that the assessee lacks in substantiate the legality

2. Deficiencies in Work Order Submitted The work order presented (PB pg. no. 14) is insufficient in several respects:

It merely lists the contractor's name, GST number, a brief note on the work, item details with quantity, rate, unit, and amount.

Key terms such as scope of work, payment schedule, work completion timelines, and liability clauses are omitted, undermining its legal enforce-ability as a contract.

The designation, position, and signatures of signatories are not provided, compromising the authenticity of the work order.

3. Absence of Subcontract Information The work order does not indicate that M/s M. B. Patil Construction Ltd. was acting as a subcontractor on behalf of M/s Patil Construction and Infrastructure Ltd., despite the latter being the main contractor and sister concern of the assessee.

Based on the points above, the assessee has not provided adequate documentation to substantiate the genuineness of the expenditure claimed towards M/s M. B. Patil Construction Ltd. Therefore, we respectfully submit that the disallowance under Section 37 be upheld, and the appeal be decided in favor of the Revenue.”

The Ld. D.R. thus on the aforesaid reasons, has claimed that on the aforesaid reasons, it is clear that the Assessee has not provided adequate and proper documents to substantiate the genuineness of the expenditure claimed and therefore the disallowance u/s 37 of the Act, is liable to be upheld, by dismissing appeal of the Assessee.

MBPCL and ledger account of M/s. MBPCL in the books of Assessee and its own audited balance sheet and work order on the sole basis of which the claim was lodged. For the sake of brevity and ready reference work order is reproduced herein below:

Baswant Builders & Developers Pvt. Ltd

2nd & 3rd Floor, PAPML commercial building, Opp. Income tax office, Shankar Seth road, Swargate, Pune.

WORK ORDER Contractor Name : - M.B. PATIL CONSTRUCTION UMITED Company GSTIN: - 27AABCM08048122 Project Name: Preparation of Detailed Project Report of Digras-Charwha-Karanja National Highway from with pevod shoulder/Four lane figurations 0/000 to 74/351 in the state of Maharashtra for upgradation two lanes with paved shoulder/Four lane configurations Date 01.02.2018 ΤΟ 31.03.2018 Sr.No. Item Description Qty. Rate Unit Amount 3 GSB:- Providing and laying close 79360 2230 Cum 97612800 graded granuler sub base conforming to grade 1 Table 400.1 in specified thickness each layer not exceeding 150 mm of compacted thickness with specified graded stone and sand mixed at plant and laid with mechanical means spreading with mortor grader and compacting with vibratory roller having minimum 80-100 KN static weight to achieve, desire density of 93% of MOD including all material, labours, machinery with all leads and lifts complete.

4 WMM: Providing and laying Wet Mix 30400 1250 Cum 38000000 Macadum with paver finisher in specified thickness each layer not exceeding 200 mm compacted thickness including promising in pug mil/plant well graded crushed stone aggregate with watering and spreading by mechanical means to required profile and compacting by vibratory roller of minimum 80-100 KN static weight to achieve desire density of 93% of MDD Including all materials, labours, machinery with all leads and lifts. Complete 5 DRM: Providing and laying dense 18200 8250 Cum 150150000 graded bituminous macadam of required thickness on prepared surface with specified graded crushed aggregates for base/binding course, premixed with bitumen of VG 30 Grade and 2% filler as cement of total weight of aggregate as per Job Mix Formula, transporting the hot mix to work site with VTS, laying with a hydrostatic paver finisher with sensor control to the required grade, level and alignment, compacting with vibratory roller having static weight 8 to 20 MT to achieve the desired compaction as per MORT&H specification complete in all respect. Using 80-120 IPH Batch type hot mix plant with SCADA, Sensor Paver, and intelligent Compactor with compaction analyser and VSAT attachment Excluding cost of tack coat)

4) For grading II material (26.5 mm nominal size) for 50 to 75 mm thickness. Bitumen 4.50% Spec. No.: M.O.R.T.& H. 2013. Section, No. 505 P. No. 174 With sensor paver finisher for grading II 6 BC-Providing and laving Bituminous Concrete of thickness 30 to 40 mm 9120 9500 Cum 86540000 prepared surface with specified graded crushed stone aggregates premixed with Bitumen of VG 3D Grade and 2% filler as cement by total weight of aggregate as perm Job Mix. Including diversion of traffic heating bitumen and chips, mixing bitumen, chips and filler in drum mi plant, transporting the mix to the work site with VTS. laying with a hydrostatic paver finisher with sensor control to the required grade, level and alignment, compacting with vibratory roller having static weight 8 to 10 MT to achieve the desired compaction as per MORTEN specification complete in all respect Using 80-120 TPH Batch mix type hot mix plant with SCADA. Sensor Paver, Intelligent Compactor with compaction analyzer and VSAT attachment. (excluding cost of sack coat) (The rate is far Bitumen content @

5.4% by weight of total mix) Spec. No.: M.OR.T.& H. 2013. Clause No. 507 P.No. 188 7 DLC Construction of dry lean cement concrete Sub-base over a prepared sub- 62000 3350 Cum 207700000 Brade with coarse and fine aggregate conforming to 15: 383, the size of coarse aggregate not exceeding 25 mm. aggregate cement ratio not to exceed 15:1, aggregate gradation aftar blending to be as per table 600-1. Cement content not to be less than 150 kg) cum, optimum moisture content to be determined during trial length construction, concrete strength not to be less than 10 Mpa at 7 days mixed in a batching plant, transported to site, laid with a paver with electronic sensor, compacting with 8-10 tones vibratory roller, finishing and curing Total Amount 580102800 12% GST Extra

{Original copy submitted by the Assessee is not clearly legible and therefore typed copy is reproduced by in this order by emphasizing relevant part}

13-Feb-2025

Assessee represented by : None Department represented by: Shri Laxmi Kant, Sr.AR.

Relevant chronological events of this case are as under:

This case was initially listed for hearing on 04.12.2023 and thereafter on 12.12.2023 and thereafter on 01.02.2024, however, the Assessee except seeking adjournments made no efforts to argue this appeal. Thereafter this case was listed for hearing on 15.02.2024. On the said date also, the Assessee again sought for adjournment and therefore, one more time the case was adjourned to 26.03.2024 as last and final opportunity to the Assessee. On dated 26.03.2024, the Assessee did not appear but by filing a letter dated 26.03.2024 through email, again sought for the adjournment and, therefore, the Bench by noting the previous history of adjournments, adjourned the hearing to 10.06.2024, however, subject to payment of cost of Rs.5000/-, by passing the order dated 26.03.2024 which reads as under: -

Assessee represented by : None Department represented by : Shri Ashok Kumar Ambastha- Sr.AR “When these appeals were taken up for hearing, copy of letter dated 26-03-2024 seeking adjournment sent over e-mail was placed before us. As per the aforesaid letter the Ld. Authorized Representative for the appellant was filed up with the time barring assessment proceedings and was, therefore, unable to appear before the Tribunal or attend the hearing. On perusal of the order sheet we find that vide order dated 15-02-2024 last opportunity was granted to the appellant to pursue the appeals. Despite the aforesaid order, the Ld. Authorized Representative has made another request for seeking adjournment of hearing. Keeping in view the aforesaid facts, the hearing is adjourned to 10-06-2024 subject to payment to cost of INR 5,000/- to be deposited in the Prime Minister Relief Fund before the next date of hearing.