DY CIT CENT. CIR.-8(2), MUMBAI vs. M/S. RAJ WESPOWER P. LTD., MUMBAI

2. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law, the Ld.CI law, the Ld.CIT(A) erred in deleing the disallowance of T(A) erred in deleing the disallowance of Rs.39.26,00,000/ Rs.39.26,00,000/- on on account account of of capitalization capitalization of of expenses in the work in progress on account of the work expenses in the work in progress on account of the work expenses in the work in progress on account of the work done done done by by by MIs. MIs. MIs. sancia sancia sancia Infraprojects Infraprojects Infraprojects Ltd. Ltd. Ltd. Without Without Without appreciating the fact that M/s. sancia Infraprojects Ltd. appreciating the fact that M/s. sancia Infraprojects Ltd. appreciating the fact that M/s. sancia Infraprojects Ltd. had accepted during the course of its assessment accepted during the course of its assessment accepted during the course of its assessment proceedings that no work has been carried out by them proceedings that no work has been carried out by them proceedings that no work has been carried out by them at the Barmer site. at the Barmer site.

We find that on behalf of the assessee e find that on behalf of the assessee, an application was filed application was filed on 26/04/2018 filing ground in support of the order of the Ld. on 26/04/2018 filing ground in support of the order of the Ld. on 26/04/2018 filing ground in support of the order of the Ld. CIT(A) under rule 27 of the ) under rule 27 of the ITAT rules, 1963. The ground raised in . The ground raised in application under Rule 27 are reproduced application under Rule 27 are reproduced as under : as under : “1). On the facts and circumstances of the case as well as in 1). On the facts and circumstances of the case as well as in 1). On the facts and circumstances of the case as well as in law, the Learned Assessing Officer has erred in initiating the law, the Learned Assessing Officer has erred in initiating the law, the Learned Assessing Officer has erred in initiating the proceedings us.153C of the Income Tax Act, 1961, without proceedings us.153C of the Income Tax Act, 1961, without proceedings us.153C of the Income Tax Act, 1961, without appreciating the fact that no satisfaction recorded before appreciating the fact that no satisfaction recorded before appreciating the fact that no satisfaction recorded before issuing notice u issuing notice us. 153C of the Income Tax Act, 1961, in both s. 153C of the Income Tax Act, 1961, in both M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 4 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 the capacity as a Assessing Officer of "searched person" and the capacity as a Assessing Officer of "searched person" and the capacity as a Assessing Officer of "searched person" and the "other person". the "other person". 3.1 However during the course of the hearing before us, the Ld owever during the course of the hearing before us, the Ld owever during the course of the hearing before us, the Ld. Counsel of the assessee did not press above ground and therefore l of the assessee did not press above ground and therefore l of the assessee did not press above ground and therefore same is dismissed as infructuous. same is dismissed as infructuous.

The brief facts qua qua the issue in dispute are that the issue in dispute are that the assessee planned to meet water requirement of the thermal power plant at water requirement of the thermal power plant at water requirement of the thermal power plant at Barmer from the Rajasthan Canal ( Now known as Indira Gandhi Barmer from the Rajasthan Canal ( Now known as Indira Gandhi Barmer from the Rajasthan Canal ( Now known as Indira Gandhi M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 6 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 Canal ) through a 185 km through a 185 kms long dedicated pipeline. It is stated by long dedicated pipeline. It is stated by the assessee that due to closure of release of water from the canal the assessee that due to closure of release of water from the canal the assessee that due to closure of release of water from the canal at the time of periodical maintenance, it was imperative for the e of periodical maintenance, it was imperative for the e of periodical maintenance, it was imperative for the project to have a buffer project to have a buffer reservoir, which could restore water to meet which could restore water to meet planned requirement during any unforeseen circumstances. The planned requirement during any unforeseen circumstances. The planned requirement during any unforeseen circumstances. The assessee therefore planned to have a water reservoir having assessee therefore planned to have a water reservoir having assessee therefore planned to have a water reservoir having capacity of approximately 80 Lakhs cubic f approximately 80 Lakhs cubic meters(m) meters(m) having dimensions of (1300m x800m x8m ). The assessee claimed that the dimensions of (1300m x800m x8m ). The assessee claimed that the dimensions of (1300m x800m x8m ). The assessee claimed that the contract for excavation and disposal of Earth for the Raw water contract for excavation and disposal of Earth for contract for excavation and disposal of Earth for reservoir was awarded to M/s SEW construction Ltd, Hyderabad, reservoir was awarded to M/s SEW construction Ltd, Hyderabad reservoir was awarded to M/s SEW construction Ltd, Hyderabad which was subsequently assigned to M/s SHEL at contract value of which was subsequently assigned to M/s SHEL at contract value of which was subsequently assigned to M/s SHEL at contract value of ₹ 216 crore, against which expenditure of 216 crore, against which expenditure of ₹ 241, 81, 69, 768/ 241, 81, 69, 768/-was found to be incurred as in the date of search found to be incurred as in the date of search/survey /survey action i.e. 16/03/2011. During the course of assessment proceeding, from the 16/03/2011. During the course of assessment proceeding 16/03/2011. During the course of assessment proceeding ledger account of SHEL in the books of accounts of the assessee ledger account of SHEL in the books of accounts of the assessee ledger account of SHEL in the books of accounts of the assessee and the ledger account of the assessee and the ledger account of the assessee in the books of account of in the books of account of SHEL, it was observed that SHEL raised a , it was observed that SHEL raised an n invoice dated 24/01/2011 for ₹ 108 crores, out of which 108 crores, out of which ₹ 107 crore had been 107 crore had been written back by the assessee by the assessee. Besides this invoice the SHEL raise . Besides this invoice the SHEL raised running bills of work done for the Barmer thermal project running bills of work done for the Barmer thermal project running bills of work done for the Barmer thermal project aggregating to ₹ 127, 40, 89, 361/ 127, 40, 89, 361/-. Detailed running will along . Detailed running will along with invoice numbers for assessment years 2009 with invoice numbers for assessment years 2009-10 to assessment 10 to assessment year 2011-12 have been reproduced by the Assessing Officer in 12 have been reproduced by the Assessing Officer in 12 have been reproduced by the Assessing Officer in para 5.1 of the impugned assessment order. para 5.1 of the impugned assessment order. The Assessing Officer The Assessing Officer M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 7 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 has further noted that in the books of SHEL ledger of the assessee has further noted that in the books of SHEL ledger of the assessee has further noted that in the books of SHEL ledger of the assessee was having total debit at was having total debit at ₹ 128, 91, 84, 138/- (from (from assessment year 2009 -10 to AY 2011 10 to AY 2011-12) which was aggregate of running will 12) which was aggregate of running will amount of ₹127,40,89, 127,40,89,361/-plus other expenses of ₹ ₹1,50,94,777-. 6.1 After referring to the amount of expenditure claimed by the After referring to the amount of expenditure claimed by the After referring to the amount of expenditure claimed by the assessee in relation to work assigned to SHEL, the Ld Assessing in relation to work assigned to SHEL, the Ld Assessing in relation to work assigned to SHEL, the Ld Assessing Officer referred to fact of inflation of expenses by SHEL, without Officer referred to fact of inflation of expenses by SHEL, without Officer referred to fact of inflation of expenses by SHEL, without incurring any actual expenditure. The Ld Assessing Officer referred incurring any actual expenditure. The Ld Assessing Officer referred incurring any actual expenditure. The Ld Assessing Officer referred to the statement dated 22/12/2009 recorded during survey action to the statement dated 22/12/2009 recorded during survey action to the statement dated 22/12/2009 recorded during survey action by the investigation wing of y the investigation wing of Income-tax department Mumbai tax department Mumbai, on one of the subcontractor of SHEL namely of the subcontractor of SHEL namely, Sh Kailash Sharma, director Sh Kailash Sharma, director of M/s Four Pillars communication private limited , who stated that M/s Four Pillars communication private limited , who stated that M/s Four Pillars communication private limited , who stated that he had received payment from SHEL in respect of excavation work he had received payment from SHEL in respect of excavation he had received payment from SHEL in respect of excavation at Barmer, but neither his company or their subcontractor armer, but neither his company or their subcontractors had armer, but neither his company or their subcontractor done any such excavation work. He further deposed that payment done any such excavation work. He further deposed that payment done any such excavation work. He further deposed that payment was made by the SHEL to subcontractor was made by the SHEL to subcontractors without doing any work without doing any work with the intention to get cash in return of payment made after with the intention to get cash in return of payment made after with the intention to get cash in return of payment made after deducting certain charges. Shri Kailash Sharma, admitted that ₹ deducting certain charges. Shri Kailash Sharma, admitted that deducting certain charges. Shri Kailash Sharma, admitted that 10.21 Crores received by his company for financial year 2008 received by his company for financial year 2008-09 received by his company for financial year 2008 and 2009-10 from SHE 10 from SHEL for excavation work at Barmer L for excavation work at Barmer, was returned back in cash to them either directly or through back in cash to them either directly or through back in cash to them either directly or through subcontractors without carrying out any work. s without carrying out any work. She Kailash Sharma She Kailash Sharma also provided name of the person Sh Amit also provided name of the person Sh Amit Agrawal, Agrawal, service tax consultant, to whom, service charges at the rate of 0.1% of the total consultant, to whom, service charges at the rate of 0.1% of the total consultant, to whom, service charges at the rate of 0.1% of the total M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 8 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 bill was paid for financial liasioning for Barmer project for SHEL. bill was paid for financial liasioning for Barmer project for SHEL. bill was paid for financial liasioning for Barmer project for SHEL. Relevant part of the statement has been reproduced by the vant part of the statement has been reproduced by the vant part of the statement has been reproduced by the Assessing Officer on page 6 to 9 of the assessment order. In view of Assessing Officer on page 6 to 9 of the assessment order. Assessing Officer on page 6 to 9 of the assessment order. above observations, the Assessing Officer issued show cause to the , the Assessing Officer issued show cause to the , the Assessing Officer issued show cause to the assessee as why the amount of capital work in progress debited for s why the amount of capital work in progress debited for s why the amount of capital work in progress debited for the year under consideration in the year under consideration in relation to work given to SHEL should be reduced from the total capital work in progress on should be reduced from the total capital work in progress on should be reduced from the total capital work in progress on Barmer Project. 6.2 The assessee refuted the allegation The assessee refuted the allegations of the Assessing Officer of the Assessing Officer that no work was done by SHEL and submitted t that no work was done by SHEL and submitted tw wo Google Earth images of the site pertaining to images of the site pertaining to year 2006 and 2009 and stated that and 2009 and stated that those images showed excavation for water reservoir at the site. It those images showed excavation for water reservoir at the site. It those images showed excavation for water reservoir at the site. It was submitted that the plant was fully functional and the water was submitted that the plant was fully functional and the water was submitted that the plant was fully functional and the water reservoir at the site could also be physic at the site could also be physically verified. It was ally verified. It was submitted that no separate expenses have been claimed by the submitted that no separate expenses have been claimed by the submitted that no separate expenses have been claimed by the assessee in respect of the work done by SHEL on the Raw reservoir assessee in respect of the work done by SHEL on the Raw reservoir assessee in respect of the work done by SHEL on the Raw reservoir under any other head of account. The assessee sought details of the under any other head of account. The assessee sought details of the under any other head of account. The assessee sought details of the investigation by the investigation by the Income- tax department in relation to SHEL ment in relation to SHEL and its subcontractors and requested for cross examination of and its subcontractors and requested for cross examination of and its subcontractors and requested for cross examination of SHEL.

The Assessing Officer issued summon u/s 131 of the The Assessing Officer issued summon u/s 131 of the The Assessing Officer issued summon u/s 131 of the Act to SHEL asking to arrange arrange appearance of their responsible officer for responsible officer for cross-examination by the assessee. examination by the assessee. In response Sh Radheshyam S In response Sh Radheshyam S Tiwari, vice president of SHEL attended on 21/03/2013 and stated Tiwari, vice president of SHEL attended on 21/03/2013 and stated Tiwari, vice president of SHEL attended on 21/03/2013 and stated M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 9 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 that work had been carried out by SHEL in respect of Earthwork that work had been carried out by SHEL in respect of that work had been carried out by SHEL in respect of excavation and disposal of raw water reservoir for Barmer plant. He excavation and disposal of raw water reservoir for Barmer plant. He excavation and disposal of raw water reservoir for Barmer plant. He further admitted that further admitted that theSHEL was not able to substantiate the as not able to substantiate the expenditure expenditure expenditure in in in relation relation relation to to to some some some subcontractors subcontractors subcontractors therefore appropriate disclosure in this regard had been made in the hands of appropriate disclosure in this regard had been made in the hands of appropriate disclosure in this regard had been made in the hands of SHEL and taxes were also paid. SHEL and taxes were also paid. He further stated that SHEL He further stated that SHEL performed half of the excavation work fo performed half of the excavation work for water Reservoir and r water Reservoir and dumpingof approximately 38,00,000 approximately 38,00,000 Cubic meter( m³ m³) of soils and rocks. He submitted that due to certain disputes, the assessee M/s rocks. He submitted that due to certain disputes, the assessee M/s rocks. He submitted that due to certain disputes, the assessee M/s Rajwest power private limited serve Rajwest power private limited served termination notice against termination notice against which, SHEL raised performance claim of which, SHEL raised performance claim of ₹ 108 Crores Crores. This claim was initially settled in March 2011 for was initially settled in March 2011 for ₹ one crore and finally settled one crore and finally settled at₹ 3.72 corrodes in January 2012. He submitted that details 3.72 corrodes in January 2012. He submitted that details 3.72 corrodes in January 2012. He submitted that details regarding completion of the work had been submitted during the regarding completion of the work had been submitted during the regarding completion of the work had been submitted during the course of their assessment proceed course of their assessment proceeding before their Assessing ing before their Assessing Officer. He further submitted that he did not have knowledge about Officer. He further submitted that he did not have knowledge about Officer. He further submitted that he did not have knowledge about exact site location of the exact site location of the execution of the contract of the contract. On cross- examination by the authorised representative of the assessee examination by the authorised representative of the assessee examination by the authorised representative of the assessee company, he submitted that the assess company, he submitted that the assessee M/s Rajwest power ee M/s Rajwest power private limited had nothing to do with the subcontractor who had private limited had nothing to do with the subcontractor who had private limited had nothing to do with the subcontractor who had supposedly not rendered any service to SHEL. supposedly not rendered any service to SHEL. 7.1 The ld. Assessing Officer Assessing Officer arrived at following conclusions : arrived at following conclusions : (i) In view of cross n view of cross-examination of Sh. Tiwari, the AO . Tiwari, the AO opined that he was not having knowledge of the actual work he was not having knowledge of the actual work he was not having knowledge of the actual work M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 10 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 carried out a carried out at Barmer site, not aware of exact location of Barmer site, not aware of exact location of the excavation site the excavation site and not aware of distance between the not aware of distance between the Reservoir site and Reservoir site and Project site. (ii) The original contract which was awarded to SEW The original contract which was awarded to SEW The original contract which was awarded to SEW construction Ltd was for Earth work, excavation and ction Ltd was for Earth work, excavation and ction Ltd was for Earth work, excavation and disposal of Earthfor RAW water reservoir for the project disposal of Earthfor RAW water reservoir for the project disposal of Earthfor RAW water reservoir for the project whereas the assignment whereas the assignment to SHEL was only for excavation was only for excavation and disposal of earth for raw water reservoir and this and disposal of earth for raw water reservoir and this and disposal of earth for raw water reservoir and this variance did not find any mention in the deal of variance did not find any mention in the dea variance did not find any mention in the dea assignment. assignment. (iii) The SHEL, The SHEL, in assessments for assessment year 2009 in assessments for assessment year 2009-10 and 2010-11 has disclosed amount of Rs. 40,00,00,000/ 11 has disclosed amount of Rs. 40,00,00,000/ 11 has disclosed amount of Rs. 40,00,00,000/- with regard to bogus expenditure in connection with with regard to bogus expenditure in connection with with regard to bogus expenditure in connection with Barmer project of the assessee in Rajasthan Barmer project of the assessee in Rajasthan Barmer project of the assessee in Rajasthan (iv) From the Google Earth images, it w rom the Google Earth images, it was observed that as observed that Reservoir site was adjacent to the project site, whereas in Reservoir site was adjacent to the project site, whereas in Reservoir site was adjacent to the project site, whereas in the earlier part of the submission by the assessee it was the earlier part of the submission by the assessee it was the earlier part of the submission by the assessee it was claimed that reservoir was that reservoir was 185 km away from the site. 185 km away from the site. 7.2 In view of conclusions the Ld Assessing Officer held that In view of conclusions the Ld Assessing Officer held that In view of conclusions the Ld Assessing Officer held that aggregate expenditure of gate expenditure of ₹128, 91, 84, 138/-claimed ed to have been incurred by SHEL up to 31/03/2011 was fictitious because no incurred by SHEL up to 31/03/2011 was fictitious because no incurred by SHEL up to 31/03/2011 was fictitious because no work was executed against against the payments made by the assessee to ts made by the assessee to SHEL, therefore payments , therefore payments were not considered for the business and were not considered for the business and accordingly held as dis disallowable. The amount of sum sum capitalised of M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 11 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 ₹ 88, 44, 00, 000/-up to 31/03/2009 in connection with excavation up to 31/03/2009 in connection with excavation up to 31/03/2009 in connection with excavation and disposal of Earth for water reservoir was accordingly reduced and disposal of Earth for water reservoir was accordingly reduced and disposal of Earth for water reservoir was accordingly reduced from the capital work in progress and disallowed for capitalisation from the capital work in progress and disallowed for capitalisat from the capital work in progress and disallowed for capitalisat for the year under consideration. for the year under consideration. 7.3 On further appeal, the Ld. CIT(A) following the finding of his On further appeal, the Ld. CIT(A) following the finding of his On further appeal, the Ld. CIT(A) following the finding of his predecessor, while adjudicating appeals for assessment year 2010 while adjudicating appeals for assessment year 2010 while adjudicating appeals for assessment year 2010- 11 and 2011-12, rejected the finding of the Assessing Officer for 12, rejected the finding of the Assessing Officer for 12, rejected the finding of the Assessing Officer for disallowance of capitalisation of expenses of of capitalisation of expenses of ₹ 88, 44, 00, 000/ 88, 44, 00, 000/-in relation to SHEL.The Ld. CIT(A) The Ld. CIT(A) rejected the contention of the rejected the contention of the Assessing Officer of non Assessing Officer of non-genuineness of the expenses in absence of genuineness of the expenses in absence of any credible evidences any credible evidences, observing as under: “5.1.1 On perusal of appea 5.1.1 On perusal of appeal orders for A.Ys.2010 l orders for A.Ys.2010-11 and 2011-12, I find that the same issue came up for adjudication 12, I find that the same issue came up for adjudication 12, I find that the same issue came up for adjudication before my id. Predecessor and was duly allowed vide orders before my id. Predecessor and was duly allowed vide orders before my id. Predecessor and was duly allowed vide orders no.CIT(A)-36/AP.462/14 36/AP.462/14-15 and CIT(A)-37/AP. 463/14 37/AP. 463/14-15 dated 10.03.2015. dated 10.03.2015. The relevant portion of the order The relevant portion of the order for AY. 2010-11 is as 11 is as follows: 6.7 I have examined the facts of the case, statement of 6.7 I have examined the facts of the case, statement of 6.7 I have examined the facts of the case, statement of witness and other facts marshalled in the assessment order witness and other facts marshalled in the assessment order witness and other facts marshalled in the assessment order as wei as the submission of appellant before AO (as as wei as the submission of appellant before AO (as as wei as the submission of appellant before AO (as reproduced in assessment order) and aiso that mage during reproduced in assessment order) and aiso that mage during reproduced in assessment order) and aiso that mage during appellate proceedings. It is neticed from para 3 cf the appellate proceedings. It is neticed from para 3 cf the appellate proceedings. It is neticed from para 3 cf the assessment order that the AC b assessment order that the AC b-gan with allegation of gan with allegation of inflation of nveices by said contractor Sunit High inflation of nveices by said contractor Sunit High inflation of nveices by said contractor Sunit High Tech Engineers Ltd. (SHES) on the basis of statement of director of Engineers Ltd. (SHES) on the basis of statement of director of Engineers Ltd. (SHES) on the basis of statement of director of M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 12 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 one of the sub one of the sub-contractors of SHES during search action on the of SHES during search action on the contractor and then concluded that no work has been contractor and then concluded that no work has been contractor and then concluded that no work has been executed by the said contractor at Barmer executed by the said contractor at Barmer Power Plant Site of Power Plant Site of the appellant against invoices amounting to 128.91 Crores the appellant against invoices amounting to 128.91 Crores the appellant against invoices amounting to 128.91 Crores without adducing any further evidence. The relev without adducing any further evidence. The relevant extract of ant extract of statement of Shri Kailash Sharma, Managing Director of Four statement of Shri Kailash Sharma, Managing Director of Four statement of Shri Kailash Sharma, Managing Director of Four Pillars Communications Pt Limited, the sub Pillars Communications Pt Limited, the sub-contractor of SHEL contractor of SHEL recorded on 22.12.2009 during the course of search on SHEL recorded on 22.12.2009 during the course of search on SHEL recorded on 22.12.2009 during the course of search on SHEL has been reproduced in para 3.1 of the assessment order. In has been reproduced in para 3.1 of the assessment order. In has been reproduced in para 3.1 of the assessment order. In response to Q 18 and 19, the deponent had stated that though response to Q 18 and 19, the deponent had stated that though response to Q 18 and 19, the deponent had stated that though they had received payment from SHEL in respect of they had received payment from SHEL in respect of they had received payment from SHEL in respect of excavation work at Barmer, neither them nor their further sub excavation work at Barmer, neither them nor their further sub excavation work at Barmer, neither them nor their further sub- contractors had done any such excavation work. Further the contractors had done any such excavation work. Further the contractors had done any such excavation work. Further the deponent admitted that p deponent admitted that payment was made by SHEL to the ayment was made by SHEL to the sub-contractor without doing any work with intention to get contractor without doing any work with intention to get contractor without doing any work with intention to get cash in return of payment made. However, in the entire cash in return of payment made. However, in the entire cash in return of payment made. However, in the entire statement, no reference of appellant is found to indicate that statement, no reference of appellant is found to indicate that statement, no reference of appellant is found to indicate that the bogus payments to said sub the bogus payments to said sub-contractor was m contractor was made at instance of appellant or appeliant was dealing with the sub instance of appellant or appeliant was dealing with the sub instance of appellant or appeliant was dealing with the sub- contractor. 6.8 The statement dated 21.03.2013 of Shri Redheyshyam The statement dated 21.03.2013 of Shri Redheyshyam The statement dated 21.03.2013 of Shri Redheyshyam Tiwari, senior executive of SHEL, recorded by AC u/s 131 of Tiwari, senior executive of SHEL, recorded by AC u/s 131 of Tiwari, senior executive of SHEL, recorded by AC u/s 131 of the Act spells out that the work has been carried out by SHEL the Act spells out that the work has been carried out by SHEL the Act spells out that the work has been carried out by SHEL in respect of earth work excavation and disposai of Raw in respect of earth work excavation and disposai of Raw in respect of earth work excavation and disposai of Raw Water Reservoir for the thermal power plant at Bhadresh, Water Reservoir for the thermal power plant at Bhadresh, Water Reservoir for the thermal power plant at Bhadresh, Barmer He admitted that during the search action on SHEL Barmer He admitted that during the search action on SHEL Barmer He admitted that during the search action on SHEL some of their sup some of their sup-contractors were found to be non contractors were found to be non-genuine, therefore appropriate disc therefore appropriate disclosure in this regard has been made losure in this regard has been made M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 13 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 in the hands of SHEL and taxes have been paid. But he also in the hands of SHEL and taxes have been paid. But he also in the hands of SHEL and taxes have been paid. But he also submitted that excavation work at power plant site of submitted that excavation work at power plant site of submitted that excavation work at power plant site of appellant for raw water reservoir was indeed done by SHEl appellant for raw water reservoir was indeed done by SHEl appellant for raw water reservoir was indeed done by SHEl by deploying its own man and machinery and other by deploying its own man and machinery and other by deploying its own man and machinery and other subcontractors and the invoices had been raised as per work subcontractors and the invoices had been raised as per work subcontractors and the invoices had been raised as per work done under terms of contract. During cross examination by done under terms of contract. During cross examination by done under terms of contract. During cross examination by appellant, he admitted the contract was performed by SHEL appellant, he admitted the contract was performed by SHEL appellant, he admitted the contract was performed by SHEL and appellant had nothing to do with bogus sub and appellant had nothing to do with bogus sub-contractors of contractors of SHEL. The AQ has d SHEL. The AQ has disregarded the testimony of Mr Tiwari isregarded the testimony of Mr Tiwari solely on the ground that he did not nave knowledge about solely on the ground that he did not nave knowledge about solely on the ground that he did not nave knowledge about exact site location of the execution of contract, despite him exact site location of the execution of contract, despite him exact site location of the execution of contract, despite him stating that he never visited the site and the distance between stating that he never visited the site and the distance between stating that he never visited the site and the distance between plant and reservoir be known to th plant and reservoir be known to the technical/ execution e technical/ execution persons. i find that the testimony of Mr Tiwari is important persons. i find that the testimony of Mr Tiwari is important persons. i find that the testimony of Mr Tiwari is important and does not deserve such summary dismissal purely on the and does not deserve such summary dismissal purely on the and does not deserve such summary dismissal purely on the ground that he was examined on oath by AC as witness of ground that he was examined on oath by AC as witness of ground that he was examined on oath by AC as witness of revenue to cull cut the truth of transaction against deman revenue to cull cut the truth of transaction against deman revenue to cull cut the truth of transaction against demand made by appellant during assessment proceecings for cross made by appellant during assessment proceecings for cross made by appellant during assessment proceecings for cross examination of the person who had admitted bogus nature of examination of the person who had admitted bogus nature of examination of the person who had admitted bogus nature of transaction between appellant and SHEL as alleged. in the transaction between appellant and SHEL as alleged. in the transaction between appellant and SHEL as alleged. in the entire statement of Shr Tiwari, there is no admission in this entire statement of Shr Tiwari, there is no admission in this entire statement of Shr Tiwari, there is no admission in this regard On the con regard On the contrary, he categorically states that the trary, he categorically states that the contract work was executed by SHEL be emploving its own contract work was executed by SHEL be emploving its own contract work was executed by SHEL be emploving its own resources as well as other sub resources as well as other sub-contracions who were boous. contracions who were boous. He also states that SHEL had undertaken excavation of hal of He also states that SHEL had undertaken excavation of hal of He also states that SHEL had undertaken excavation of hal of he reservoir by excavation, transporting he reservoir by excavation, transporting and dumping approx. and dumping approx. quantity of 38 Lakh cubic meter for all kinds of soils and rocks quantity of 38 Lakh cubic meter for all kinds of soils and rocks quantity of 38 Lakh cubic meter for all kinds of soils and rocks for total RA bills of 128.91 Crores till 31.3.2011 before for total RA bills of 128.91 Crores till 31.3.2011 before for total RA bills of 128.91 Crores till 31.3.2011 before M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 14 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 termination of contract, which matches with claim of termination of contract, which matches with claim of termination of contract, which matches with claim of adoellant. 6.9 As seen as coming out from the statements of sub 6.9 As seen as coming out from the statements of sub 6.9 As seen as coming out from the statements of sub- contractor and Senior Executive of SHEL, the appellant was contractor and Senior Executive of SHEL, the appellant was contractor and Senior Executive of SHEL, the appellant was not a party to the boous transaction between SHEL and some not a party to the boous transaction between SHEL and some not a party to the boous transaction between SHEL and some of its sub-contractors for which SHEL had alreacy admitted a contractors for which SHEL had alreacy admitted a contractors for which SHEL had alreacy admitted a tax liability. There is tax liability. There is no substance in miner discrepancies no substance in miner discrepancies noticed by AO in the original contract document and noticed by AO in the original contract document and noticed by AO in the original contract document and assignment document regarding contract for Raw Water assignment document regarding contract for Raw Water assignment document regarding contract for Raw Water Reservoir and Project in so ter as both documents talk about Reservoir and Project in so ter as both documents talk about Reservoir and Project in so ter as both documents talk about scope of work as Earthwork, Excavation and Disposal of scope of work as Earthwork, Excavation and Disposal of scope of work as Earthwork, Excavation and Disposal of Carth to the extent or so Lakh cum for a total contract orice of Carth to the extent or so Lakh cum for a total contract orice of Carth to the extent or so Lakh cum for a total contract orice of 216 Crores. The core issue is whether any actual work was 216 Crores. The core issue is whether any actual work was 216 Crores. The core issue is whether any actual work was executee on huge raw water reservoir of dimension: 1300m X executee on huge raw water reservoir of dimension: 1300m X executee on huge raw water reservoir of dimension: 1300m X 800m. X Sm as claimed by appelant a its Barmer Power Plant. 800m. X Sm as claimed by appelant a its Barmer Power Plant. 800m. X Sm as claimed by appelant a its Barmer Power Plant. There is no d There is no dispute thet the concract was awarded to Ms SEW ispute thet the concract was awarded to Ms SEW for this reservoir under an International Compel tie Bidding for this reservoir under an International Compel tie Bidding for this reservoir under an International Compel tie Bidding Process supervised by independent agencies arc then the Process supervised by independent agencies arc then the Process supervised by independent agencies arc then the contract was assigned to SHEL on same terms. The contract was assigned to SHEL on same terms. The contract was assigned to SHEL on same terms. The genuineness of awerd of contract, rates and genuineness of awerd of contract, rates and the process has the process has not been disputed. The AD as also at re'erred to any docurent not been disputed. The AD as also at re'erred to any docurent not been disputed. The AD as also at re'erred to any docurent impounded during the survey action which is during the survey action which is proved to be proved to be fabricated or bogus or whose genuineness is in doubt. The fabricated or bogus or whose genuineness is in doubt. The fabricated or bogus or whose genuineness is in doubt. The sole ground on which AO has based his conclusion regarding sole ground on which AO has based his conclusion regarding sole ground on which AO has based his conclusion regarding no work being executed is his finding that the alleged contract work being executed is his finding that the alleged contract work being executed is his finding that the alleged contract work on reservoir has been claimed to be executed at a site work on reservoir has been claimed to be executed at a site work on reservoir has been claimed to be executed at a site 185 Kms away from power plant whereas all the evidences 185 Kms away from power plant whereas all the evidences 185 Kms away from power plant whereas all the evidences namely plant layout design, Google Earth Images etc indicate namely plant layout design, Google Earth Images etc indicate namely plant layout design, Google Earth Images etc indicate M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 15 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 that reservoir sit that reservoir site is adiacent to project site. The observations e is adiacent to project site. The observations of AO are found to be sort of distortion of facts and devoid of of AO are found to be sort of distortion of facts and devoid of of AO are found to be sort of distortion of facts and devoid of merit. I do not find any document, statement or submission merit. I do not find any document, statement or submission merit. I do not find any document, statement or submission which claims that the reservoir site was 185 Kms away from which claims that the reservoir site was 185 Kms away from which claims that the reservoir site was 185 Kms away from project site. The submissi project site. The submission of appellant made during on of appellant made during assessment proceedings and reproduced in assessment order assessment proceedings and reproduced in assessment order assessment proceedings and reproduced in assessment order vide para 3.3 states as follows: vide para 3.3 states as follows: "It is submitted that the thermal power project at Barmer is in "It is submitted that the thermal power project at Barmer is in "It is submitted that the thermal power project at Barmer is in desert area and one of the main inputs he water is drawn desert area and one of the main inputs he water is drawn desert area and one of the main inputs he water is drawn from Rajasthan C from Rajasthan Canal through a 185 kms long dedicated pipe anal through a 185 kms long dedicated pipe line. As there is no local water source and the Canal goes into line. As there is no local water source and the Canal goes into line. As there is no local water source and the Canal goes into periodical maintenance, it was imperative for the project to periodical maintenance, it was imperative for the project to periodical maintenance, it was imperative for the project to have a buffer reservoir which could store water to meet plant have a buffer reservoir which could store water to meet plant have a buffer reservoir which could store water to meet plant requirement during such un requirement during such unforeseen circumstances. Please foreseen circumstances. Please find attached a copy of plant layout and engineering drawing find attached a copy of plant layout and engineering drawing find attached a copy of plant layout and engineering drawing wherein the location and size of huge raw water reservoirs wherein the location and size of huge raw water reservoirs wherein the location and size of huge raw water reservoirs (1300 X 800 X 8 M) can be easily located. Therefore, contract (1300 X 800 X 8 M) can be easily located. Therefore, contract (1300 X 800 X 8 M) can be easily located. Therefore, contract was awarded to excavate approx 80 was awarded to excavate approx 80 Lakh Cubie Meters of all e Meters of all types of soil including grading, shorting, compaction of pits types of soil including grading, shorting, compaction of pits types of soil including grading, shorting, compaction of pits and approaches etc." and approaches etc." The aforesaid statement does not claim any reservoir at 185 The aforesaid statement does not claim any reservoir at 185 The aforesaid statement does not claim any reservoir at 185 kms distance from project but merely speaks of a 185 kms kms distance from project but merely speaks of a 185 kms kms distance from project but merely speaks of a 185 kms long dedicated pipeline through which wa long dedicated pipeline through which water is drawn to plant ter is drawn to plant site from Rajasthan Canal. In the statement appellant talks of site from Rajasthan Canal. In the statement appellant talks of site from Rajasthan Canal. In the statement appellant talks of requirement of a buffer reservoir and submits a detailed plant requirement of a buffer reservoir and submits a detailed plant requirement of a buffer reservoir and submits a detailed plant layout and engineering drawing wherein the location and size layout and engineering drawing wherein the location and size layout and engineering drawing wherein the location and size of huge water reservoir can be located. The Goo of huge water reservoir can be located. The Goo of huge water reservoir can be located. The Google Farth images of reservoir also indicate the location of reservoir at the images of reservoir also indicate the location of reservoir at the images of reservoir also indicate the location of reservoir at the M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 16 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 same place as per plant layout. Hence, the observation of AO same place as per plant layout. Hence, the observation of AO same place as per plant layout. Hence, the observation of AO regarding discrepancy in location of raw water reservoir and regarding discrepancy in location of raw water reservoir and regarding discrepancy in location of raw water reservoir and contract site is without any basis and cannot be consider contract site is without any basis and cannot be consider contract site is without any basis and cannot be considered as a ground for rejecting claim of appellant. Besides this a ground for rejecting claim of appellant. Besides this a ground for rejecting claim of appellant. Besides this observation, AO has not referred to any report or finding observation, AO has not referred to any report or finding observation, AO has not referred to any report or finding which concludes non crecution of work for earthwork at water which concludes non crecution of work for earthwork at water which concludes non crecution of work for earthwork at water reservoir site. reservoir site. 6.10 in view of the above, it is held that AOs action of ho 6.10 in view of the above, it is held that AOs action of ho 6.10 in view of the above, it is held that AOs action of hoiding the contract work executed by ShEL in respect of earthwork the contract work executed by ShEL in respect of earthwork the contract work executed by ShEL in respect of earthwork excavation and disposal for Raw Water Reservoir at excavation and disposal for Raw Water Reservoir at excavation and disposal for Raw Water Reservoir at Bhadresh, Barmer Thermal Power Plant site of appeliant being Bhadresh, Barmer Thermal Power Plant site of appeliant being Bhadresh, Barmer Thermal Power Plant site of appeliant being non-genuine in absente of any evidence is not proper. The genuine in absente of any evidence is not proper. The genuine in absente of any evidence is not proper. The Ground of appeal

Brief facts qua the issue in dispute are that the assessee Brief facts qua the issue in dispute are that the assessee Brief facts qua the issue in dispute are that the assessee ded a contract amounting to ₹39,67,25,187/ awarded a contract amounting to 39,67,25,187/- of ‘Structural work and cranable approach road’ at Barmer site of thermal plant work and cranable approach road’ at Barmer site of thermal plant work and cranable approach road’ at Barmer site of thermal plant to M/s Gremach Infrastructure Equipm to M/s Gremach Infrastructure Equipments & Projects Ltd. ( ents & Projects Ltd. (GIE &PL) , now known as SGIL. &PL) , now known as SGIL. During search/survey proceedings , the During search/survey proceedings , the Income-tax department observed incurring of tax department observed incurring of expenditure on said nditure on said contract at Rs.39,25,54,897/ 39,25,54,897/-. The search/survey team found The search/survey team found certain discrepancies in documentation of this in discrepancies in documentation of this contract, contract, interalia, firstly, contract drafting contract drafting was mere a paper work and clause of paper work and clause of completion of contracted completion of contracted were ante-dated on advice of official of on advice of official of assessee company, secondly, no entry of inward of material in assessee company, secondly, no entry of inward of material in assessee company, secondly, no entry of inward of material in inward Register, thirdly ,fabricated measurement sheets, fourthly, thirdly ,fabricated measurement sheets, fourthly, thirdly ,fabricated measurement sheets, fourthly, irregularities in award of contract. irregularities in award of contract. 10.1 During the course of assessment proceeding, the Assessing During the course of assessment proceeding, the Assessing During the course of assessment proceeding, the Assessing Officer made two observations. observations. Firstly, that the contractor company hat the contractor company was was was mainly mainly mainly engaged engaged engaged in in in the the the providing providing providing of of of rental rental rental of of of M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 21 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 construction/earthmoving construction/earthmoving machineries to companies engaged in the to companies engaged in the infrastructure infrastructure infrastructure activity activity activity mainly mainly mainly catering catering catering to to to public public public sector sector sector undertakings, whereas the nature of work contracted is for undertakings, whereas the nature of work contracted is for undertakings, whereas the nature of work contracted is for structural work and road construction which is not the business structural work and road construction which is not the business structural work and road construction which is not the business activity of said contractor. activity of said contractor. Secondly, the Assessing Officer of the ssing Officer of the contractor i.e. the DCIT Central Circle, Kolkatta e DCIT Central Circle, Kolkatta, intimated that , intimated that SGIL admitted the fact of providing accommodation entry to M/s SGIL admitted the fact of providing accommodation entry to M/s SGIL admitted the fact of providing accommodation entry to M/s Rajwest power private limited ( Rajwest power private limited (i.e. the assessee) in the financial year i.e. the assessee) in the financial year 2008-09 ( i.e. the assessment year 09 ( i.e. the assessment year under consideration) being under consideration) being sales/contract of ₹36,60,40, 36,60,40,395/-. The Assessing Officer provided . The Assessing Officer provided copy of submissions made by the SGIL by its letter dated copy of submissions made by the SGIL by its letter dated copy of submissions made by the SGIL by its letter dated 31/07/2012 before DCIT, Kolkata to the assessee. 31/07/2012 before DCIT, Kolkata to the assessee. 10.2 In view of above observations during the course of of above observations during the course of the search of above observations during the course of as well as during the course of the assessment proceedings, the as well as during the course of the assessment proceedings, the as well as during the course of the assessment proceedings, the Assessing Officer show cause Assessing Officer show caused to the assessee as why the expenses s why the expenses of ₹36,60,40,395/- claimed by the assessee claimed by the assessee on work in progress work in progress might not be disallowed. might not be disallowed. 10.3 The assessee denied t The assessee denied the allegation of the Assessing Officer he allegation of the Assessing Officer that that that the the the contractor contractor contractor was was was engaged engaged engaged only only only in in in rental rental rental of of of machinery/equipment machinery/equipment. The assessee referred to annual report of . The assessee referred to annual report of the said contractor for the year under consideration and stated that the said contractor for the year under consideration and stated that the said contractor for the year under consideration and stated that the contractor was not only engage was not only engaged in the business of construction in the business of construction and infrastructure but also in the trading of commodities. It was and infrastructure but also in the trading of commodities. It was and infrastructure but also in the trading of commodities. It was also submitted that all the documents related to project, Ledger also submitted that all the documents related to project, Ledger also submitted that all the documents related to project, Ledger M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 22 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 accounts, running account bills, measurement sheets etc in original accounts, running account bills, measurement sheets et accounts, running account bills, measurement sheets et were examined and impou were examined and impounded by the Income- -tax authorities during the course of survey/search proceeding. Regarding the letter during the course of survey/search proceeding. Regarding the during the course of survey/search proceeding. Regarding the of SGIL, the assessee submitted that according to the letter of SGIL, the assessee submitted that according to the letter of SGIL, the assessee submitted that according to the letter admission was without prejudice to their right admission was without prejudice to their right and and contention of buying piece of the mind piece of the mind , therefore it is not clear under what therefore it is not clear under what circumstances said letter was submitted by the contractor . The circumstances said letter was submitted by the contractor . The circumstances said letter was submitted by the contractor . The assessee sought of copy of copy of entire documents related to acceptance entire documents related to acceptance of accommodation entry by SGIL along with cross-examination of of accommodation entry by SGIL along with cross of accommodation entry by SGIL along with cross the contractor SGIL. the contractor SGIL.

The Assessing Officer issued The Assessing Officer issued summon to the said contractor, to the said contractor, however none attended on the stipulated date and written however none attended on the stipulated date and written however none attended on the stipulated date and written submission was filed subsequently wherein the SGIL submitted submission was filed subsequently wherein the SGIL submitted submission was filed subsequently wherein the SGIL submitted that books of accounts were destroyed in fire occurred while that books of accounts were destroyed in fire occurred while that books of accounts were destroyed in fire occurred while shifting of corporate office from Mumbai to Kolkata and due to orate office from Mumbai to Kolkata and due to orate office from Mumbai to Kolkata and due to financial difficulties and being operated through one staff at financial difficulties and being operated through one staff financial difficulties and being operated through one staff registered office, it was not possible to it was not possible to attend attend the summon proceedings. The relevant part of the proceedings. The relevant part of the letter of the SGIL letter of the SGIL admitting of providing accommodation entry to the providing accommodation entry to the assessee, reproduced by the reproduced by the Assessing officer on page 27 of the assessment order , is extracted Assessing officer on page 27 of the assessment order , is extracted Assessing officer on page 27 of the assessment order , is extracted as under:

On further appeal, the Ld. CIT(A) after considering submission On further appeal, the Ld. CIT(A) after considering submission On further appeal, the Ld. CIT(A) after considering submission of the assessee deleted the disallowance o of the assessee deleted the disallowance observing as under: bserving as under:

Before us the Ld. Ld. Departmental Representative mental Representative submitted that the fact of providing accommodation entry by SGIL has been the fact of providing accommodation entry by SGIL has been the fact of providing accommodation entry by SGIL has been confirmed by his own admission , which has not been retraced even by his own admission , which has not been retraced even by his own admission , which has not been retraced even at the appellate stage at the appellate stage, therefore there was no dispute as to the fact , therefore there was no dispute as to the fact M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 27 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 that SGIL had only provi that SGIL had only provided accommodation entry of sales of ded accommodation entry of sales of contract work and no actual work was done by contract work and no actual work was done by that that party, therefore the Ld. CIT(A) is not justified in deleting the disallowance. the Ld. CIT(A) is not justified in deleting the disallowance. the Ld. CIT(A) is not justified in deleting the disallowance.

The learned counsel counsel of the assessee on the other hand relied of the assessee on the other hand relied on the finding of the Ld. on the finding of the Ld. CIT(A) and submitted that IT authorities CIT(A) and submitted that IT authorities has not brought on record any evidence that such road or the has not brought on record any evidence that such road or the has not brought on record any evidence that such road or the infrastructure referred in the said contract was not found in infrastructure referred in the said contract was not found in infrastructure referred in the said contract was not found in existence during the course of search or survey action carried out at existence during the course of search or survey action carried out at existence during the course of search or survey action carried out at the premises of the a the premises of the assessee company. He submitted that when ssessee company. He submitted that when existence of road and infrastructure mention existence of road and infrastructure mentioned under the contract under the contract has not been disputed by the Assessing Officer, disallowing the has not been disputed by the Assessing Officer, disallowing the has not been disputed by the Assessing Officer, disallowing the corresponding expenses merely for the reason that the contractor corresponding expenses merely for the reason that the contractor corresponding expenses merely for the reason that the contractor admitted of being eng admitted of being engaged in providing accommodation entry, is not aged in providing accommodation entry, is not justified. He also supported the finding of the Ld. CIT(A) that no justified. He also supported the finding of the Ld. CIT(A) that no justified. He also supported the finding of the Ld. CIT(A) that no funds had been shown to have been ro funds had been shown to have been routed back to the assessee ted back to the assessee and merely on the basis of admission of third-party, the and merely on the basis of admission of third and merely on the basis of admission of third capitalisation of expend capitalisation of expenditure cannot be disallowed.

We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant dispute and perused the relevant material o on record. For disallowing, capitalisation of the expenses under dispute, the disallowing, capitalisation of the expenses under dispute, the disallowing, capitalisation of the expenses under dispute, the Assessing Officer has relied on the admission of the contractor in Assessing Officer has relied on the admission of the contractor in Assessing Officer has relied on the admission of the contractor in assessment proceeding. S proceeding. Simultaneously, we find that existence of imultaneously, we find that existence of crenable Road and other infrastructure which was crenable Road and other infrastructure which was mentioned in the mentioned in the contract has also not been denied by the Assessing Officer. In such contract has also not been denied by the Assessing Officer. In such contract has also not been denied by the Assessing Officer. In such M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 28 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 circumstances, only inference could be circumstances, only inference could be drawn is that the assessee is that the assessee might have carried out the contract work of construction of road might have carried out the contract work of construction of road might have carried out the contract work of construction of road and infrastructure through through somebody else that too that too in cash. The coordinate benches of the T coordinate benches of the Tribunal in various cases of bogus ribunal in various cases of bogus purchases has held that where bills are obtained from one party purchases has held that where bills are obtained from one party purchases has held that where bills are obtained from one party and actual purchases purchases are made from another party, and assessee are made from another party, and assessee gets benefit on account of cash dealings on account of cash dealings, therefore for e for compensating the factor of benefit in cash purchases or of benefit in cash purchases, gross profit or net profit rate , gross profit or net profit rate of those assessee’s deserved to be suitably enhanced. s deserved to be suitably enhanced. s deserved to be suitably enhanced. In this regard, it has been noted it has been noted that considering the peculiar facts and considering the peculiar facts and circumstances of the cases, circumstances of the cases, Hon’ble Courts and Tribunals have ourts and Tribunals have estimated certain percentage of the bogus expenses. In the case of estimated certain percentage of the bogus expenses. In the case of estimated certain percentage of the bogus expenses. In the case of PCIT v. Purnima Sunil Agrawal [2017 PCIT v. Purnima Sunil Agrawal [2017-TIOL-2160 2160-HC-AHDM.-IT], the Hon’ble Gujarat High Court has held as under: the Hon’ble Gujarat High Court has held as under: “3. Facts on record would show that certain pur 3. Facts on record would show that certain purchases of the chases of the assessee would found to be bogus upon which, the Assessing assessee would found to be bogus upon which, the Assessing assessee would found to be bogus upon which, the Assessing Officer made addition on the entire amount. Commissioner of Income Officer made addition on the entire amount. Commissioner of Income Officer made addition on the entire amount. Commissioner of Income Tax (Appeals) restricted the addition by adopting the net profit rate Tax (Appeals) restricted the addition by adopting the net profit rate Tax (Appeals) restricted the addition by adopting the net profit rate of 2% on the basis that in similar trade in th of 2% on the basis that in similar trade in the region, the profit rate e region, the profit rate worked out is 0.5% to 0.75%. The assessee has disclosed profit ratio worked out is 0.5% to 0.75%. The assessee has disclosed profit ratio worked out is 0.5% to 0.75%. The assessee has disclosed profit ratio of 1.10%. The Commissioner of Income Tax (Appeals) increased it to of 1.10%. The Commissioner of Income Tax (Appeals) increased it to of 1.10%. The Commissioner of Income Tax (Appeals) increased it to 2%. This view of the Commissioner of Income Tax (Appeals) was 2%. This view of the Commissioner of Income Tax (Appeals) was 2%. This view of the Commissioner of Income Tax (Appeals) was confirmed by the Tribunal. confirmed by the Tribunal.

It can thus be seen that this entire issue if appreciation of record can thus be seen that this entire issue if appreciation of record can thus be seen that this entire issue if appreciation of record and therefore factual. and therefore factual.

No question of law arises. Tax Appeals are therefore dismissed.” 5. No question of law arises. Tax Appeals are therefore dismissed.” 5. No question of law arises. Tax Appeals are therefore dismissed.” Even, the Hon’ble Mumbai ITAT in the case of Triveni Homes 15.1 Even, the Hon’ble Mumbai ITAT in the case of Even, the Hon’ble Mumbai ITAT in the case of (ITA No. 3780/Mum/2017) o. 3780/Mum/2017) in view of the fact that the architect’s in view of the fact that the architect’s certificate along with the quantitative details established the certificate along with the quantitative details established the certificate along with the quantitative details established the consumption of materials for the purpose of construction of consumption of materials for the purpose of construction of consumption of materials for the purpose of construction of building, have held uphold the addition to the extent of 2% of bogus building, have held uphold the addition to the extent of 2% of bogus building, have held uphold the addition to the extent of 2% of bogus purchases. 15.2 Respectfully, following the ratio of above cases, we feel that in Respectfully, following the ratio of above cases, we feel that in Respectfully, following the ratio of above cases, we feel that in view of the inference of expenses on contract incurred in cash, 2% view of the inference of expenses on contract incurred in cash, 2% view of the inference of expenses on contract incurred in cash, 2% of the value of the contract is treated as the benefit to the assessee of the value of the contract is treated as the benefit to the assessee of the value of the contract is treated as the benefit to the assessee in the expenses claimed accordingly two percent of the contract in the expenses claimed accordingly two percent of t in the expenses claimed accordingly two percent of t value of ₹36,29,00, 36,29,00,000/-is disallowed which works out to is disallowed which works out to ₹72,58,000/-. The ground . The ground No. 2 of the appeal of the revenue of the appeal of the revenue is accordingly partly allowed. accordingly partly allowed. 16. The ground of the appeal of the The ground of the appeal of the Revenue for assessment year for assessment year 2010-11 in 11 in ITA No.2983/Mum/2015 is reproduced as under: is reproduced as under:

Whether in the facts and in the circumstances of the case Whether in the facts and in the circumstances of the case Whether in the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in directing the and in law, the Ld.CIT(A) is justified in directing the and in law, the Ld.CIT(A) is justified in directing the Assessing Officer to recomputed the income from other Assessing Officer to recomputed the income from other Assessing Officer to recomputed the income from other sources after excluding the sum of sources after excluding the sum of Rs.1,48.76,941/ Rs.1,48.76,941/- on account of foreign exchange fluctuations gains?. account of foreign exchange fluctuations gains?. account of foreign exchange fluctuations gains?.

The ground of appeal

We have heard the rival contentions made before us and We have heard the rival contentions made before us and We have heard the rival contentions made before us and perused perused perused the the the material material material on on on record. record. record. The The The ld. ld. ld. Departmental Departmental Departmental Representative for the revenue relied on the assessment order. The Representative for the revenue relied on the assessment order. The Representative for the revenue relied on the assessment order. The ld. Counsel of the assessee ld. Counsel of the assessee explained that the Assessing Officer has explained that the Assessing Officer has treated the entire Other Income of Rs. the entire Other Income of Rs.1,65,48,062/ 1,65,48,062/- comprising of interest income amounting to Rs. nterest income amounting to Rs.16,71,121/- and foreign e and foreign exchange fluctuation gain of Rs. fluctuation gain of Rs.1,48,76,941/- as Income from Other Sources as Income from Other Sources without appreciating the fact that the foreign exchange fluctuation ing the fact that the foreign exchange fluctuation ing the fact that the foreign exchange fluctuation gain of Rs. 1,48,76,941/ gain of Rs. 1,48,76,941/- is already offered to tax under the head is already offered to tax under the head Income from Business and Profession. Thus, this has resulted into Income from Business and Profession. Thus, this has resulted into Income from Business and Profession. Thus, this has resulted into double taxation of the same amount of Rs. 1,48,76,941/- under double taxation of the same amount of Rs. 1,48,76,941/ double taxation of the same amount of Rs. 1,48,76,941/ both the heads of income i.e. Income from Business and Profession eads of income i.e. Income from Business and Profession eads of income i.e. Income from Business and Profession as well as Income from Other Sources. The ld. Counsel of the as well as Income from Other Sources. The ld. Counsel of the as well as Income from Other Sources. The ld. Counsel of the assessee explained that since the commercial operations of the assessee explained that since the commercial operations of the assessee explained that since the commercial operations of the assessee company had commenced and the foreign exchange assessee company had commenced and the foreign exchange assessee company had commenced and the foreign exchange fluctuation gain is fluctuation gain is directly associated with the business of the directly associated with the business of the assessee, it has to be considered as business income and not assessee, it has to be considered as business income and not assessee, it has to be considered as business income and not income from other sources. income from other sources. 20.1 We agree with the contention of the ld. Counsel of the assessee We agree with the contention of the ld. Counsel of the assessee We agree with the contention of the ld. Counsel of the assessee and find that the assessee has and find that the assessee has offered interest income offered interest income of Rs.16,71,121/- as Income from Other Sources while the foreign as Income from Other Sources while the foreign as Income from Other Sources while the foreign M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 32 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 exchange fluctuation gain of Rs. xchange fluctuation gain of Rs.1,48,76,941/- is offered as business income without excluding the same from the Profit as per business income without excluding the same from the Profit as per business income without excluding the same from the Profit as per P&L A/c. while computing Income from Business and Profession. P&L A/c. while computing Income from Business and Profession. P&L A/c. while computing Income from Business and Profession. On one hand, the Assessing Officer has accepted the business one hand, the Assessing Officer has accepted the business one hand, the Assessing Officer has accepted the business income as computed by the assessee in the return of income income as computed by the assessee in the return of income income as computed by the assessee in the return of income whereas on other hand, he has whereas on other hand, he has again made the addition of again made the addition of Rs.1,48,76,941/- under the head Income from Other Sources under the head Income from Other Sources under the head Income from Other Sources without without any any justification. justificati on. Since Since the the assessee assessee has has already already commenced its business operations and the foreign exchange commenced its business operations and the foreign exchange commenced its business operations and the foreign exchange fluctuation gain is arising in the ordinary course of its business, it fluctuation gain is arising in the ordinary course of its business, it fluctuation gain is arising in the ordinary course of its business, it would be proper to treat the same as business income only and not would be proper to treat the same as business income only and not would be proper to treat the same as business income only and not income from other sources income from other sources. The action of the Assessing Officer has . The action of the Assessing Officer has led to taxation of same income twice which is not permissible. Even led to taxation of same income twice which is not permissible. Even led to taxation of same income twice which is not permissible. Even the order of the Assessing Officer under which the said addition is the order of the Assessing Officer under which the said addition is the order of the Assessing Officer under which the said addition is made, is passed u/s. 143(3) r.w.s. 153C of the Act but there is no is passed u/s. 143(3) r.w.s. 153C of the Act but there is no is passed u/s. 143(3) r.w.s. 153C of the Act but there is no finding of any incriminating material in regard to the said issue of any incriminating material in regard to the said issue of any incriminating material in regard to the said issue of foreign exchange fluctuation gain. Accordingly, the Assessing foreign exchange fluctuation gain. Accordingly, the Assessing foreign exchange fluctuation gain. Accordingly, the Assessing Officer is directed to delete the addition of Rs. 1,48,76,941/- on Officer is directed to delete the addition of Rs. 1,48,76,941/ Officer is directed to delete the addition of Rs. 1,48,76,941/ account of foreign exchange fluctuation gain and hence, this ground account of foreign exchange fluctuation gain and hence, this ground account of foreign exchange fluctuation gain and hence, this ground of appeal

The ground no. 2 of the appeal relates to the disall The ground no. 2 of the appeal relates to the disall The ground no. 2 of the appeal relates to the disallowance of Rs.5,91,520/- made by the Assessing Officer u/s. 14A of the Act made by the Assessing Officer u/s. 14A of the Act made by the Assessing Officer u/s. 14A of the Act and deleted by the ld. CIT(A). and deleted by the ld. CIT(A).

Brief facts qua this issue are that the assessee company has Brief facts qua this issue are that the assessee company has Brief facts qua this issue are that the assessee company has suo moto disallowed a sum of Rs. 1,01,520/ disallowed a sum of Rs. 1,01,520/- u/s. 14A in the return u/s. 14A in the return of income for the year under consideration being in the nature of of income for the year under consideration being in the nature of of income for the year under consideration being in the nature of administrative expenditure being 1% of various common expenses administrative expenditure being 1% of various com administrative expenditure being 1% of various com aggregating to Rs.1,01,51,959/ 1,01,51,959/-. In the assessment completed, the . In the assessment completed, the Assessing Officer was dissatisfied with the amount of sessing Officer was dissatisfied with the amount of suo moto sessing Officer was dissatisfied with the amount of disallowance made u/s. 14A of the Act by the assessee and applied disallowance made u/s. 14A of the Act by the assessee and applied disallowance made u/s. 14A of the Act by the assessee and applied Rule 8D of the Income Tax Rules. Accordingly, in furtherance to the Rule 8D of the Income Tax Rules. Accordingly, in furtherance to the Rule 8D of the Income Tax Rules. Accordingly, in furtherance to the suo moto disallowance made u/s. 14A of the Act by the assesse disallowance made u/s. 14A of the Act by the assessee, he disallowance made u/s. 14A of the Act by the assesse made a disallowance of Rs. made a disallowance of Rs.4,90,000/- as per the method prescribed as per the method prescribed in Rule 8D(2)(iii) i.e. 0.5% of the average of opening and closing in Rule 8D(2)(iii) i.e. 0.5% of the average of opening and closing in Rule 8D(2)(iii) i.e. 0.5% of the average of opening and closing investments. Aggrieved by the said disallowance, the assessee investments. Aggrieved by the said disallowance, the assessee investments. Aggrieved by the said disallowance, the assessee preferred appeal before the ld. CIT(A) who deleted the said preferred appeal before the ld. CIT(A) who deleted the preferred appeal before the ld. CIT(A) who deleted the disallowance. Aggrieved by the order of the ld. CIT(A), the revenue is disallowance. Aggrieved by the order of the ld. CIT(A), the revenue is disallowance. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us. 27. We have heard the rival contentions and perused the material We have heard the rival contentions and perused the material We have heard the rival contentions and perused the material on record. The ld. Departmental Representative for the revenue on record. The ld. Departmental Representative for the revenue on record. The ld. Departmental Representative for the revenue argued that the Assessing Offic argued that the Assessing Officer relying on the decision of Hon’ble er relying on the decision of Hon’ble jurisdictional High Court in the case of Godej and Boyce Mfg. Co. Godej and Boyce Mfg. Co. jurisdictional High Court in the case of Ltd. v. DCIT (194 Taxman 213) Ltd. v. DCIT (194 Taxman 213) has rightly invoked the provisions has rightly invoked the provisions of Rule 8D while computing disallowance u/s. 14A of the Act and of Rule 8D while computing disallowance u/s. 14A of the Act and of Rule 8D while computing disallowance u/s. 14A of the Act and M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 36 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 hence, the same shall b hence, the same shall be sustained. The ld. Counsel of the assessee e sustained. The ld. Counsel of the assessee submitted that no exempt income has been earned by the assessee submitted that no exempt income has been earned by the assessee submitted that no exempt income has been earned by the assessee company in the year under consideration and hence, the suo moto company in the year under consideration and hence, the suo moto company in the year under consideration and hence, the suo moto disallowance made u/s. 14A of the Act is sufficient and no further disallowance made u/s. 14A of the Act is sufficient and no further disallowance made u/s. 14A of the Act is sufficient and no further disallowance over and above should have been made in light of the r and above should have been made in light of the r and above should have been made in light of the decision of Hon’ble Apex Court in the case of decision of Hon’ble Apex Court in the case of Maxopp Investment Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154 (SC) Ltd. v. CIT [2018] 91 taxmann.com 154 (SC), the relevant extract , the relevant extract of which is reproduced as under: of which is reproduced as under:- “40. We note from the facts in the State Ba “40. We note from the facts in the State Bank of Patiala cases nk of Patiala cases that the AO, while passing the assessment order, had already that the AO, while passing the assessment order, had already that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed restricted the disallowance to the amount which was claimed restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D as exempt income by applying the formula contained in Rule 8D as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act of the Rules and holding that section 14A of the Act of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of applicable. In spite of this exercise of apportionment of applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire expenditure carried out by the AO, CIT(A) disallowed the entire expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly deduction of expenditure. That view of the CIT(A) was clearly deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on fact untenable and rightly set aside by the ITAT. Therefore, on fact untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct the Punjab and Haryana High Court has arrived at a correct the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not conclusion by affirming the view of the ITAT, though we are not conclusion by affirming the view of the ITAT, though we are not subscribing the theory of dominant intention applied by the subscribing the theory of dominant intention applied by the subscribing the theory of dominant intention applied by the High Court…” High Court…”

The ld. Counsel of the assessee further relied on va The ld. Counsel of the assessee further relied on va The ld. Counsel of the assessee further relied on various jurisdictional High court decisions also viz. CIT v. Delite CIT v. Delite jurisdictional High court decisions also viz. Enterprise (ITA no. 110/2009), PCIT v. Ballarpur Industries Ltd. Enterprise (ITA no. 110/2009), PCIT v. Ballarpur Industries Ltd. Enterprise (ITA no. 110/2009), PCIT v. Ballarpur Industries Ltd. (ITA no. 51/2016), PCIT v. Zee News Ltd. [2018-TIOL- (ITA no. 51/2016), PCIT v. Zee News Ltd. [2018 (ITA no. 51/2016), PCIT v. Zee News Ltd. [2018 M/s JSW Energy (Barmer) Ltd. M/s JSW Energy (Barmer) Ltd. 37 2983 , 2984/M/2015 , ITA Nos. 580/M/2016, 2983 , 2984/M/2015 , 5299, 5300/M/2018 & 1884/M/2020 5299, 5300/M/2018 & 1884/M/2020 263](Bom.) apart from other non jurisdictional decisions referred in apart from other non jurisdictional decisions referred in apart from other non jurisdictional decisions referred in the order of the ld. CIT(A). the order of the ld. CIT(A).

We agree with the submission of the ld. Counsel of the We agree with the submission of the ld. Counsel of the We agree with the submission of the ld. Counsel of the assessee that in absence of any exempt income earned in the year assessee that in absence of any exempt income earned in the year assessee that in absence of any exempt income earned in the year under consideration, no disallowance u/s. 14 under consideration, no disallowance u/s. 14A could have been A could have been made by the Assessing Officer over and above the suo moto made by the Assessing Officer over and above the suo moto made by the Assessing Officer over and above the suo moto disallowance made by the assessee. Further, although an disallowance made by the assessee. Further, although an disallowance made by the assessee. Further, although an Explanation has been inserted in the Finance Act, 2022 u/s. 14A to Explanation has been inserted in the Finance Act, 2022 u/s. 14A to Explanation has been inserted in the Finance Act, 2022 u/s. 14A to clarify that the provisions of section 14A shall apply and be deemed clarify that the provisions of section 14A shall apply an clarify that the provisions of section 14A shall apply an to have always applied in a case where exempt income has not to have always applied in a case where exempt income has not to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year. accrued or arisen or has not been received during the previous year accrued or arisen or has not been received during the previous year The said amendment has taken place effective from 01.04.2022 and he said amendment has taken place effective from 01.04.2022 and he said amendment has taken place effective from 01.04.2022 and should therefore be applied prospectively and not should therefore be applied prospectively and not retrospectively. Gainful reference in this regard is made from the decision of Gainful reference in this regard is made from the decision of Gainful reference in this regard is made from the decision of Hon’ble Delhi High Court in the case of PCIT v. Era Infrastructure Hon’ble Delhi High Court in the case of PCIT v. Era Infrastructure Hon’ble Delhi High Court in the case of PCIT v. Era Infrastructure (India) Ltd. (ITA no. 204/2022). Respectfully (India) Ltd. (ITA no. 204/2022). Respectfully following following the above referred decision, we direct the Assessing referred decision, we direct the Assessing Officer to delete the Officer to delete the disallowance of Rs. 5,91,520/ disallowance of Rs. 5,91,520/- made u/s. 14A. Accordingly, this made u/s. 14A. Accordingly, this ground of appeal

The grounds raised by the revenue The grounds raised by the revenue in assessment year 2013 sessment year 2013- 14 and ITA No. 5300/Mum/2018 are reproduced as under: 14 and ITA No. 5300/Mum/2018 are reproduced as under: 14 and ITA No. 5300/Mum/2018 are reproduced as under:

Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case and in the law, the 14. and in the law, the 14. CIT(A) was justified in allowing the CIT(A) was justified in allowing the claim of depreciation of Rs.3,12,95,521/; with respect to the claim of depreciation of Rs.3,12,95,521/; with respect to the claim of depreciation of Rs.3,12,95,521/; with respect to the amount capitalized in earlier years through Capital Work In amount capitalized in earlier years through Capital Work In amount capitalized in earlier years through Capital Work In Progress(CWIP) on account of work done by M/s.Sunil Hi Progress(CWIP) on account of work done by M/s.Sunil Hi Progress(CWIP) on account of work done by M/s.Sunil Hi-Tech Engineers Ltd. Engineers Ltd. (SHEL) and M/s.Germach Infrastructure (SHEL) and M/s.Germach Infrastructure Equipments & Project Ltd. Equipments & Project Ltd. Tax effect - Rs.96.70.316/ Rs.96.70.316/-

The ground raised by The ground raised by Revenue in assessment in assessment year 2014-15 is reproduced as under: reproduced as under: