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Facts
The assessee filed its original return of income, which was processed. Subsequently, a revised return was filed with an enhanced depreciation claim. A search and seizure action was conducted, leading to a notice under Section 153A. The assessee filed a return in response to this notice. The Assessing Officer made additions and disallowances related to depreciation, inflated capital expenditure, disallowance of provision for doubtful debts, and interest on delayed TDS.
Held
The Tribunal held that fresh claims for depreciation on goodwill/intangibles and provision for doubtful debts cannot be entertained under Section 153A proceedings for unabated assessments, as they were not part of the original return and constitute fresh claims. The disallowance of interest on delayed TDS was also set aside due to lack of incriminating material for the assessment year under consideration. The addition for inflated capital expenditure under MAT provisions was also set aside, but the disallowance of depreciation on inflated capital expenditure for computing book profit was confirmed.
Key Issues
Whether fresh claims for depreciation and provision for doubtful debts are admissible under Section 153A for unabated assessments; whether additions for inflated capital expenditure and disallowance of interest on delayed TDS are justified without incriminating material; and whether adjustments to book profit under Section 115JB are permissible.
Sections Cited
153A, 132, 143(1), 143(3), 69A, 201(1A), 206C(7), 37, 115JB, 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the assessee is directed against order dated 31.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – 50, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2015-16 in relation to search assessment order passed u/s 153A of the Income- -tax Act,1961 (in short ‘the Act’). The grounds 1961 (in short ‘the Act’). The grounds raised in its appeal by the assessee are reproduced as under: by the assessee are reproduced as under: by the assessee are reproduced as under:
1(a) That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming CIT(Appeals) was not justified and grossly erred in confirming CIT(Appeals) was not justified and grossly erred in confirming the disallowances made in the order u/s 153A in utter disregard allowances made in the order u/s 153A in utter disregard allowances made in the order u/s 153A in utter disregard of the express provisions of the Act since no incriminating of the express provisions of the Act since no incriminating of the express provisions of the Act since no incriminating material has been found during the course of search and seizure material has been found during the course of search and seizure material has been found during the course of search and seizure carried out us 132 of the Act. carried out us 132 of the Act. 1(b) That on the facts and in the circumstan That on the facts and in the circumstances of the case, the ces of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not CIT(Appeals) was not justified and grossly erred in not CIT(Appeals) was not justified and grossly erred in not considering the cardinal principle of law that the scope of considering the cardinal principle of law that the scope of considering the cardinal principle of law that the scope of assessment u/s 153A in respect of completed/unabated assessment u/s 153A in respect of completed/unabated assessment u/s 153A in respect of completed/unabated assessment is limited only to undisclosed income unearthed assessment is limited only to undisclosed income unearthed assessment is limited only to undisclosed income unearthed during the course of search ing the course of search 1(c) That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld CIT(Appeals) was not justified and grossly erred in holding CIT(Appeals) was not justified and grossly erred in holding CIT(Appeals) was not justified and grossly erred in holding incriminating materials were unearthed during the course of incriminating materials were unearthed during the course of incriminating materials were unearthed during the course of search & seizure carried out u/s 132 of the search & seizure carried out u/s 132 of the Act in utter disregard Act in utter disregard of the facts of the case. of the facts of the case. 1(d). That on the facts and in the circumstances of the case and That on the facts and in the circumstances of the case and That on the facts and in the circumstances of the case and without prejudice to Ground No. 1(a), 1(b) & 1(c) taken herein without prejudice to Ground No. 1(a), 1(b) & 1(c) taken herein without prejudice to Ground No. 1(a), 1(b) & 1(c) taken herein above, the Ld CIT (Appeals) was not justified and grossly erred in above, the Ld CIT (Appeals) was not justified and grossly erred in above, the Ld CIT (Appeals) was not justified and grossly erred in confirming additions made u/s 69A of alleged inflated capital additions made u/s 69A of alleged inflated capital additions made u/s 69A of alleged inflated capital expenditure without appreciating the fact that no incriminating expenditure without appreciating the fact that no incriminating expenditure without appreciating the fact that no incriminating material had been found referable to the assessment year under material had been found referable to the assessment year under material had been found referable to the assessment year under consideration, during the course of search & seizure carried out consideration, during the course of search & seizure carried out consideration, during the course of search & seizure carried out u/s 132 of the Act. e Act. 1(e) That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in holding Ld. CIT (Appeals) was not justified and grossly erred in holding Ld. CIT (Appeals) was not justified and grossly erred in holding that the concept of incriminating material is not applicable for that the concept of incriminating material is not applicable for that the concept of incriminating material is not applicable for disallowance of interest on delayed payment of TDS and disallowance of interest on delayed payment of TDS and disallowance of interest on delayed payment of TDS and provision for doubtful debts on the contention that the provision for doubtful debts on the contention that the provision for doubtful debts on the contention that the abovementioned claims were lodged for the first time in the abovementioned claims were lodged for the first time in the abovementioned claims were lodged for the first time in the return of income filed u/s 153A. return of income filed u/s 153A.
That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld CIT(Appeals) was not justified and grossly erred in confirming the CIT(Appeals) was not justified and grossly erred in confirming the CIT(Appeals) was not justified and grossly erred in confirming the denial of the claim of depreciation on goodwill and / or other denial of the claim of depreciation on goodwill and / or other denial of the claim of depreciation on goodwill and / or other intangible assets while computing total income under the normal intangible assets while computing total income under the normal intangible assets while computing total income under the normal provisions of the Act. provisions of the Act.
3. That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld CIT(Appeals) was not justified and grossly erred in confirming the CIT(Appeals) was not justified and grossly erred in confirming the CIT(Appeals) was not justified and grossly erred in confirming the additions of undisclosed income us 69A on account of alleged additions of undisclosed income us 69A on account of alleged additions of undisclosed income us 69A on account of alleged inflated capital expenditure while co inflated capital expenditure while computing total income under mputing total income under the normal provisions of the Act. the normal provisions of the Act.
4. That on the facts and in the circumstances of the case, the Ld. That on the facts and in the circumstances of the case, the Ld. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the CIT(Appeals) was not justified and grossly erred in confirming the CIT(Appeals) was not justified and grossly erred in confirming the disallowance of provision for doubtful debts while computing disallowance of provision for doubtful debts while computing disallowance of provision for doubtful debts while computing total income under the normal provisions of the Act. total income under the normal provisions of the Act.
5. That on the facts and in the circumstances of the case, the Ld. That on the facts and in the circumstances of the case, the Ld. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) CIT (Appeals) was not justified and grossly erred in confirming was not justified and grossly erred in confirming disallowance of notional interest on investments made in the disallowance of notional interest on investments made in the disallowance of notional interest on investments made in the subsidiary company while computing total income under the company while computing total income under the company while computing total income under the normal provisions of the Act. normal provisions of the Act. 6. That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld That on the facts and in the circumstances of the case, the Ld CIT(Appeals) was not justified and grossly erred in confirming CIT(Appeals) was not justified and grossly erred in confirming CIT(Appeals) was not justified and grossly erred in confirming addition of depreciation on goodwill and/or other addition of depreciation on goodwill and/or other addition of depreciation on goodwill and/or other intangible assets while computing book profit u/s 115JB of the Act. assets while computing book profit u/s 115JB of the Act. assets while computing book profit u/s 115JB of the Act. 7. That on the facts and in the circumstances of the case, the Ld. That on the facts and in the circumstances of the case, the Ld. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming CIT (Appeals) was not justified and grossly erred in confirming CIT (Appeals) was not justified and grossly erred in confirming the addition of depreciation on the alleged inflated cap the addition of depreciation on the alleged inflated cap the addition of depreciation on the alleged inflated capital expenditure while computing book profit u/s 115JB of the Act. expenditure while computing book profit u/s 115JB of the Act. expenditure while computing book profit u/s 115JB of the Act. 2. The briefly sated facts of the case are that the assessee originally The briefly sated facts of the case are that the assessee originally The briefly sated facts of the case are that the assessee originally filed its return of income electronically on 30.11.2015 30.11.2015, declaring a filed its return of income electronically on gross total income of Rs. 4,25,66,100/-. Said return was duly gross total income of return was duly processed under Section 143(1) Act cessed under Section 143(1) Act. Subsequently, the case was . Subsequently, the case was selected for scrutiny assessment. During the course of scrutiny selected for scrutiny assessment. During the course of scrutiny selected for scrutiny assessment. During the course of scrutiny assessment, on 22.12.2017 22.12.2017, the assessee submitted a modified , the assessee submitted a modified computation of income along with a revised return, wherein an computation of income along with a revised return, w computation of income along with a revised return, w enhanced claim of depreciation, including on goodwill, was made. enhanced claim of depreciation, including on goodwill, was made. enhanced claim of depreciation, including on goodwill, was made. The assessee asserted that such revision was necessitated due to a The assessee asserted that such revision was necessitated due to a The assessee asserted that such revision was necessitated due to a scheme of amalgamation involving the ‘Technical Ammonium scheme of amalgamation involving the ‘Technical Ammonium scheme of amalgamation involving the ‘Technical Ammonium Nitrate and Fertilizers’ unit, which had been duly sanctioned by the Nitrate and Fertilizers’ unit, which had been duly sancti Nitrate and Fertilizers’ unit, which had been duly sancti Hon’ble National Company Law Tribunal (NCLT) on 30.03.2017. Hon’ble National Company Law Tribunal (NCLT) on 30.03.2017 Hon’ble National Company Law Tribunal (NCLT) on 30.03.2017 Notably, this sanction was granted subsequent to the filing of the Notably, this sanction was granted subsequent to the filing of the Notably, this sanction was granted subsequent to the filing of the original return of income. However, the said revised return was filed original return of income. However, the said revised return was filed original return of income. However, the said revised return was filed beyond the statutory period prescribed under th beyond the statutory period prescribed under the Act for revising e Act for revising returns. Consequently, the Assessing Officer (AO) Assessing Officer (AO) treated the returns. Consequently, the revised return as non revised return as non-est in law and did not take it into est in law and did not take it into consideration while passing the assessment order under Section consideration while passing the assessment order under consideration while passing the assessment order under 143(3) of the Act on 27.12.2017 143(3) of the Act on 27.12.2017. Aggrieved by the said . Aggrieved by the said order, the assessee preferred an appeal before the assessee preferred an appeal before the Ld. First Appellate Ld. First Appellate Authority challenging challenging the the non-consideration non consideration of of the the revised revised depreciation claim. It is stated that the said appeal is presently depreciation claim. It is stated that the said appeal is presently depreciation claim. It is stated that the said appeal is presently pending adjudication. pending adjudication.
2.1 Subsequently, a search and seizure action u/s 132 of the Act Subsequently, a search and seizure action u/s 132 of the Act Subsequently, a search and seizure action u/s 132 of the Act was carried out on 15.11.2018 on was carried out on 15.11.2018 on the assessee along with other the assessee along with other entities forming part of ‘Deepak Fertilizers Group’. Consequently, a ’. Consequently, a notice u/s 153A of the Act was issued on 01.01.2020. In respons 3A of the Act was issued on 01.01.2020. In respons 3A of the Act was issued on 01.01.2020. In response to the notice u/s 153A of the Act, the assessee filed return of to the notice u/s 153A of the Act, the assessee filed return of to the notice u/s 153A of the Act, the assessee filed return of income on 29.01.2020 declaring income on 29.01.2020 declaring the same income as computed in the same income as computed in the the the revised revised revised computation computation computation filed filed filed during during during original original original assessment assessment assessment proceedings vide letter dated 22/12/2017. In said return, the proceedings vide letter dated 22/12/2017. In said return, the proceedings vide letter dated 22/12/2017. In said return, the assessee claimed total l total losses at Rs.245,84,05,861/ osses at Rs.245,84,05,861/- including the losses due to claim of depreciation on intangibles i.e. goodwill losses due to claim of depreciation on intangibles i.e. goodwill losses due to claim of depreciation on intangibles i.e. goodwill acquired on account of purchase of ‘T account of purchase of ‘Technical Ammonium Nitrate echnical Ammonium Nitrate
Assessing Assessing Officer Officer (AO), (AO) and Fertilizers’ unit. unit The upon examination, questioned the legitimacy of the depreciation claimed estioned the legitimacy of the depreciation claimed estioned the legitimacy of the depreciation claimed on the intangibles, particularly the goodwill, which arose from the on the intangibles, particularly the goodwill, which arose from the on the intangibles, particularly the goodwill, which arose from the acquisition of a demerged entity from another related company. acquisition of a demerged entity from another related company. acquisition of a demerged entity from another related company. After considering extensive submissions, statements recorded After considering extensive submissions, statements recorded After considering extensive submissions, statements recorded during the search proceedings, and material seized, the AO earch proceedings, and material seized, the AO earch proceedings, and material seized, the AO concluded that the assessee was not eligible for depreciation on concluded that the assessee was not eligible for depreciation on concluded that the assessee was not eligible for depreciation on intangibles, including goodwill, amounting to Rs. 221,71,03,313/ Rs. 221,71,03,313/-. intangibles, including goodwill, amounting to The Assessing Officer also made addition for inflated capital The Assessing Officer also made addition for inflated capital The Assessing Officer also made addition for inflated capital expenditure claimed by the assessee incurred through two entities claimed by the assessee incurred through two entities claimed by the assessee incurred through two entities namely’ M/s Onshore Construction Company Pvt. Ltd Onshore Construction Company Pvt. Ltd Onshore Construction Company Pvt. Ltd’. and ‘M/s Ray Construction Ltd’ amounting to Rs.48,53,865/ Rs.48,53,865/-. Further, the Ray Construction Ltd Assessing Officer also disallowed interest on delayed payment of tax Assessing Officer also disallowed interest on delayed payment of Assessing Officer also disallowed interest on delayed payment of source (TDS) amounting to Rs.2,42,966/ Rs.2,42,966/- and deducted at source ( doubtful debts amounting to Rs.30,00,000/ 30,00,000/-. In this provision for doubtful manner, the Assessing Officer manner, the Assessing Officer assessed total income u/s assessed total income u/s 153A of the Act on 25.07.2022 at loss of Rs.22,69,46,622/ loss of Rs.22,69,46,622/- under normal the Act on 25.07.2022 a provisions of the Act and book profit at Rs.1131,615,332/ the Act and book profit at Rs.1131,615,332/ the Act and book profit at Rs.1131,615,332/- under MAT provisions. Aggrieved, the assessee filed appeal before the Ld. . Aggrieved, the assessee filed appeal before the Ld. . Aggrieved, the assessee filed appeal before the Ld. CIT(A) and assailed the assessment order on the validity of the CIT(A) and assailed the assessment order on the validity of the CIT(A) and assailed the assessment order on the validity of the reassessment as well as additions/disallowance on merit. However reassessment as well as additions/disallowance on merit. However reassessment as well as additions/disallowance on merit. However could not succeed before the Ld. CIT(A). t succeed before the Ld. CIT(A).
Before us, the Ld. counsel for the assessee filed a Paper Book Before us, the Ld. counsel for the assessee filed a Paper Book Before us, the Ld. counsel for the assessee filed a Paper Book in two volumes from page 1 to 194 and 195 to 312. in two volumes from page 1 to 194 and 195 to 312.
The ground No The ground Nos. 1(a) to 1(e) of the appeal of the assessee the appeal of the assessee relates to the validity of the reassessment assailed in relation to relates to the validity of the reassessment assailed in relation to relates to the validity of the reassessment assailed in relation to addition of depreciation of depreciation and provision for doubtful debts and provision for doubtful debts, inflated capital expenditure and interest capital expenditure and interest on delayed payment of the TDS. delayed payment of the TDS. The assessee is mainly is mainly agitated that no incriminating material had that no incriminating material had been found qua the additions/disallowance made during the year been found qua the additions/disallowance made during the year been found qua the additions/disallowance made during the year under consideration and being non abated assessment, no addition and being non abated assessment, no addition could have been made in the case of the assessee made in the case of the assessee for the year under for the year under consideration. This c . This claims of assessee, need to be examined qua need to be examined qua each addition/ disallowance each addition/ disallowance, which has been disputed before us. uted before us.
4.1 The assessee also made an alternative prayer The assessee also made an alternative prayer The assessee also made an alternative prayer that no fresh claim for deduction or allowance could be made in the return filed claim for deduction or allowance could be made in the return filed claim for deduction or allowance could be made in the return filed in response to notice under section 153 ice under section 153A of the Act and therefore ct and therefore the claim of depreciation on intangible assets and provision for the claim of depreciation on intangible assets and provision for the claim of depreciation on intangible assets and provision for doubtful debts are not tenable doubtful debts are not tenable 4.2 In ground No. 2, 2, the assessee has challenged disallowance of the assessee has challenged disallowance of depreciation on goodwill on goodwill on merit. In ground No. 3, the assessee o. 3, the assessee has challenged addition of undisclosed income on account of has challenged addition of undisclosed income on account of has challenged addition of undisclosed income on account of inflated capital expenditure on merit. In ground No. 3, the assessee inflated capital expenditure on merit. In ground No. 3, the assessee inflated capital expenditure on merit. In ground No. 3, the assessee has challenged disallowance of provision for doubtful debts on has challenged disallowance of provision for doubtful debts on has challenged disallowance of provision for doubtful debts on merit. In view of above, we are adjudicating In view of above, we are adjudicating the grounds grounds in respect of each addition/disallowance. of each addition/disallowance.
Firstly, we are taking issue of disallowance of depreciation disallowance of depreciation 4.1 Firstly, we are taking issue of on intangibles including goodwill including goodwill. The facts in brief qua the issue The facts in brief qua the issue in dispute are that in transactions in transactions of amalgamation amalgamation, three entities as under are involved: involved:
(a) First entity is M/s Deepak Fertilizers and M/s Deepak Fertilizers and Pertoc Pertochemicals Corporation Ltd. (in short ‘Deepak Fertilizers’) in short ‘Deepak Fertilizers’), which is a listed , which is a listed public company limited by shares, and was incorporated on public company limited by shares, and was incorporated on public company limited by shares, and was incorporated on 31/05/1979, having its registered office at 31/05/1979, having its registered office at Pune. 50.99% in shares Pune. 50.99% in shares of the ‘Deepak Fertilizers’ of the ‘Deepak Fertilizers’ are held by its promoters and group and are held by its promoters and group and rest 49.01% shares are held by others. The company was operating rest 49.01% shares are held by others. The company w rest 49.01% shares are held by others. The company w at three prominent verticals, namely (i) industrial chemicals (“IC”), at three prominent verticals, namely (i) industrial chemicals (“IC”), at three prominent verticals, namely (i) industrial chemicals (“IC”), (ii) Technical Ammonium Technical Ammonium Nitrate (“TAN”) and (iii) Fertilizers. and (iii) Fertilizers.
(b) The second entity namely The second entity namely M/s SCM Fertichem Ltd M/s SCM Fertichem Ltd ( in short ‘Fertichem’) is an unlisted public company ‘Fertichem’) is an unlisted public company limited by shares was limited by shares was incorporated on 10/10/2012 having its registered office at Pune i.e. incorporated on 10/10/2012 having its registered office at Pune i.e. incorporated on 10/10/2012 having its registered office at Pune i.e. (address same as ‘De ‘Deepak Fertilizers’). The Deepak Fertilizers’ along . The Deepak Fertilizers’ along with its nominees holds the entire equity share capital of with its nominees holds the entire equity share capital of with its nominees holds the entire equity share capital of ‘Fertichem’. The company was engaged in manufacturing and ‘Fertichem’. The company was engaged in manufacturing and ‘Fertichem’. The company was engaged in manufacturing and trading of fertilizers, petroleum and their byproducts. , petroleum and their byproducts. , petroleum and their byproducts. he third entity involved in the transaction is M/s Smartchem M/s Smartchem (c ) The third entity involved in Technologies Ltd. i.e. the assessee ( in short the ‘Smartchem’), i.e. the assessee ( in short the ‘Smartchem’), i.e. the assessee ( in short the ‘Smartchem’), which was incorporated on 21/01/1987 having registered office at which was incorporated on 21/01/1987 having registered office at which was incorporated on 21/01/1987 having registered office at Village Ponnada, Andhra Pradesh, which was changed to the state Village Ponnada, Andhra Pradesh, which was changed to the state Village Ponnada, Andhra Pradesh, which was changed to the state of Maharastra, for filing a of Maharastra, for filing a scheme of arrangement within the scheme of arrangement within the jurisdiction of the Hon’ble Bombay High Court. The Deepak jurisdiction of the Hon’ble Bombay High Court. The Deepak jurisdiction of the Hon’ble Bombay High Court. The Deepak fertilisers along with its nominees hold entire equity share capital of fertilisers along with its nominees hold entire equity share capital of fertilisers along with its nominees hold entire equity share capital of ‘Smartchem’.
4.2 M/s Deepak Fertilizers and Deepak Fertilizers and Smartchem i.e. the assessee Smartchem i.e. the assessee entered into a schem entered into a scheme of arrangement for transferring ring the ‘Fertilizer business and Technology Ammonium Nitrate (TAN) business and Technology Ammonium Nitrate (TAN)’ to the assessee in two stages. The scheme The scheme got sanction of Hon’ble National got sanction of Hon’ble National Company Law Tribunal ( NCLT), Mumbai Bench on 30/03/2017 Company Law Tribunal ( NCLT), Mumbai Bench on 30/03/2017 Company Law Tribunal ( NCLT), Mumbai Bench on 30/03/2017 with effective/appointed d with effective/appointed date of 1/1/2015.
4.3 In first stage, M/s In first stage, M/s Deepak Fertilizers transferred transferred ‘TAN’ and ‘fertilizer undertakings fertilizer undertakings’ to ‘M/s SCM Fertichem Pvt. Ltd. (in short Pvt. Ltd. (in short ‘Fertichem’)’ under a slump sale/exchange at book written down under a slump sale/exchange at book written down under a slump sale/exchange at book written down value (WDV) w.e.f. 01.01.2015, value (WDV) w.e.f. 01.01.2015, for a lump sum consideration of lump sum consideration of Rs.743 crores, against which against which ‘Fertichem’ issued certain number of certain number of equity shares of Rs.10 each to equity shares of Rs.10 each to ‘Deepak Fertilizer’.
4.4 In second stage ‘Fertichem In second stage ‘Fertichem’ demerged/transferred TAN an transferred TAN and fertilizer undertaking to fertilizer undertaking to Smartchem’ i.e. assessee w.e.f. 01.01.2015 w.e.f. 01.01.2015 at fair market valuation of Rs. 2517 Crores under demerger at fair market valuation of Rs. 2517 Crores under demerger at fair market valuation of Rs. 2517 Crores under demerger scheme. Against the said Against the said demerger/transfer ‘Smartchem Smartchem’ (i.e. the assessee) allotted equity shares to the shareholders of ‘Fertichem’ assessee) allotted equity shares to the shareholders of assessee) allotted equity shares to the shareholders of (i.e. Deepak Fertilizers Deepak Fertilizers) as per share entitlement ratio of 1:1. ) as per share entitlement ratio of 1:1. Out of above fair market value above fair market value of Rs.2517 crores determined determined, the ‘intangible asset’ in the form of goodwill was in the form of goodwill was valued at in the form of goodwill was Rs.1777,73,12,360/- - .
4.5 Pursuant to the NCLT order, the books of account of all the 4.5 Pursuant to the NCLT order, the books of account of all the 4.5 Pursuant to the NCLT order, the books of account of all the three entities were revised from appointed date i.e. 1/01/2015. entities were revised from appointed date i.e. 1/01/2015. entities were revised from appointed date i.e. 1/01/2015. Consequently, no transfer of intangibles Consequently, no transfer of intangibles under slump sale on unit under slump sale on unit from ‘Deepak Fertilizers Deepak Fertilizers’ to ‘Fertichem’ was recorded , but on corded , but on transfer of same unit via demeger from ‘Fertichem’ to ‘Smartchem’, transfer of same unit via demeger from ‘Fertichem’ to ‘Smartchem’, transfer of same unit via demeger from ‘Fertichem’ to ‘Smartchem’, intangibles at Rs.1777,73,12,360/ ntangibles at Rs.1777,73,12,360/- was recorded in the books of was recorded in the books of account of the assessee account of the assessee and depreciation on the intangible asset intangible asset was claimed.
4.6 In this arrangement, the In this arrangement, the ‘TAN’ and ‘fertilizer fertilizer’ unit were transferred by way of a slump transferred by way of a slump sale/ exchange to exchange to ‘Fertichem’ at Rs.743 crores and on the same day the same business was Rs.743 crores and on the same day the same business was Rs.743 crores and on the same day the same business was transferred by way of demerger to Samrtchem transferred by way of demerger to Samrtchem i.e. the assessee i.e. the assessee by determining fair market value fair market value at Rs.2517 crores. The assessee Rs.2517 crores. The assessee justified the two step transfer of TAN and Fertilizer division in view justified the two step transfer of TAN and Fertilizer divis justified the two step transfer of TAN and Fertilizer divis of complexity and Stock Exchange Regulations. The assessee complexity and Stock Exchange Regulations. The assessee complexity and Stock Exchange Regulations. The assessee claimed depreciation claimed depreciation on the intangibles created in the hands of the created in the hands of the assessee by way of the acqu assessee by way of the acquisition of the demerged entity. isition of the demerged entity.
4.7 But the Assessing Officer referred to he Assessing Officer referred to an e-mail commun mail communication found during the course of search action, which was between Shri found during the course of search action, which was found during the course of search action, which was Debashish Banergee, Vice President Debashish Banergee, Vice President(Finance) and Shri Sailesh C and Shri Sailesh C Mehta, Chairman of Mehta, Chairman of M/s Deepak Fertilizers, and observed that and observed that two stage transfer of the business was carried out stage transfer of the business was carried out for avoiding tax on the profits of the unit. the profits of the unit. The Assessing Officer referred to observation referred to observation of the search team that the goodwill created by the assessee in its search team that the goodwill created by the assessee in its search team that the goodwill created by the assessee in its books of accounts by way of scheme of slump sale and demerger books of accounts by way of scheme of slump sale and demerger books of accounts by way of scheme of slump sale and demerger was nothing but a a scheme devised to evade the taxes he taxes, hence, subsequently questions were subsequently questions were put up by the search team by the search team to the various management personal various management personals of the Group. According to the AO, According to the AO, during the course of the search uring the course of the search statement of Shri Sailesh C. Mehta Shri Sailesh C. Mehta promoter group CMD and Shri Supas Jain promoter group CMD and Shri Supas Jain, Associate Vice President(corporate finance) (corporate finance) was recorded , but they failed to was recorded , but they failed to explain the purpose of scheme of arrangement and real intent explain the purpose of scheme of arrangement and real intent explain the purpose of scheme of arrangement and real intent behind the alleged scheme of behind the alleged scheme of restructuring. In view of the restructuring. In view of the AO, the real motive/intent of the real motive/intent of the Deepak Fertilizers, the assessee and its e assessee and its group concern in carrying two step group concern in carrying two steps arrangement by way of arrangement by way of slump sale and demerger of fertilizer and TAN business was only to avoid demerger of fertilizer and TAN business was only to avoid demerger of fertilizer and TAN business was only to avoid taxes because the business was retained with the promoters and taxes because the business was retained with the promoters and taxes because the business was retained with the promoters and management also remained same e management also remained same even after transfer of the unit ansfer of the unit. The transfer was only on the papers and hence there was no was only on the papers and hence there was no was only on the papers and hence there was no question of restructuring business for effective management. question of restructuring business for effective management. question of restructuring business for effective management. According to the Assessing Officer, the valuation done by the valuer According to the Assessing Officer, the valuation done by the valuer According to the Assessing Officer, the valuation done by the valuer M/s Sharp and Tannon was also not based on real M/s Sharp and Tannon was also not based on real projections and it was based on the fabricated projections. T on the fabricated projections. The Assessing Officer he Assessing Officer noted that e-mail communication by Shri Debashish Banergee mail communication by Shri Debashish Banergee mail communication by Shri Debashish Banergee clearly demonstrated the intent of the scheme for reducing the tax clearly demonstrated the intent of the scheme for reducing the tax clearly demonstrated the intent of the scheme for reducing the tax liabilities of the group. The assessee on the o liabilities of the group. The assessee on the other hand ther hand contented that scheme of slump sale and demerger was that scheme of slump sale and demerger was approved approved by the NCLT, Mumbai and the Assessing Officer has not raised any NCLT, Mumbai and the Assessing Officer has not raised NCLT, Mumbai and the Assessing Officer has not raised objections before the NCLT before the NCLT. It was submitted that that documents of amalgamation or demerger are amalgamation or demerger are available in public domain public domain and nothing contrary has been unearthed d nothing contrary has been unearthed during the course of the uring the course of the search. However, the Assessing Officer he Assessing Officer was of the view that entire of the view that entire facts regarding the tax implications and the real intent of the facts regarding the tax implications and the real intent of the facts regarding the tax implications and the real intent of the scheme was not before the Hon’ble NCLT. scheme was not before the Hon’ble NCLT.
4.8 During the appellate proceedings before the Ld. CIT(A), the During the appellate proceedings before the Ld. CIT(A), the During the appellate proceedings before the Ld. CIT(A), the assessee contented that no incriminating material was found qua assessee contented that no incriminating material was found qua assessee contented that no incriminating material was found qua the depreciation on the goodwill as all the documents in respect of the depreciation on the goodwill as all the documents in respect of the depreciation on the goodwill as all the documents in respect of scheme of slump sale and demerger were already available in the scheme of slump sale and demerger were already available in the scheme of slump sale and demerger were already available in the public domain and only statement or questions and answer were public domain and only statement or questions and answer were public domain and only statement or questions and answer were made during the course of the search proceedings without any made during the course of the search proceedings without any made during the course of the search proceedings without any incriminating material found during the course of the search. The incriminating material found during the course of the search. The incriminating material found during the course of the search. The Ld. CIT(A) however is of the opinion that Ld. CIT(A) however is of the opinion that the assessment was made assessment was made on the basis of the documents which were not produced in the n the basis of the documents which were not produced in the n the basis of the documents which were not produced in the course of the original assessment course of the original assessment proceedings and found in the and found in the course of the search. According to him it was revealed during the course of the search. According to him it was revealed during the course of the search. According to him it was revealed during the course of the search that entire scheme of business arrangement course of the search that entire scheme of business arrangement course of the search that entire scheme of business arrangement was a sham transaction with the only intent to defraud the revenue sham transaction with the only intent to defraud the revenue sham transaction with the only intent to defraud the revenue by evading taxes and therefore the facts by evading taxes and therefore the facts of incriminating material of incriminating material found qua the addition in dispute during the course of the search found qua the addition in dispute during the course of the search found qua the addition in dispute during the course of the search was established. The Ld. CIT(A) accordingly, rejected the c . The Ld. CIT(A) accordingly, rejected the c . The Ld. CIT(A) accordingly, rejected the contention of the assessee that no incriminating material was found qua the of the assessee that no incriminating material was found qua the of the assessee that no incriminating material was found qua the issue in dispute. issue in dispute. Before us the ld Counsel reiterated the Before us the ld Counsel reiterated the submissions made before the submissions made before the AO and ld CIT(A) and submitted that ld CIT(A) and submitted that no incriminating material was found qua the issue of depreciation no incriminating material was found qua the issue of deprec no incriminating material was found qua the issue of deprec on intangibles including goodwill. The on intangibles including goodwill. The ld DR on the other hand DR on the other hand relied on the finding of ld CIT(A) on the issue in dispute and relied on the finding of ld CIT(A) on the issue in dispute and relied on the finding of ld CIT(A) on the issue in dispute and submitted that the email communication found during the search submitted that the email communication found during the search submitted that the email communication found during the search revealed the real intent of the scheme to defraud the Revenue, revealed the real intent of the scheme to defraud the Revenu revealed the real intent of the scheme to defraud the Revenu which is a material in the nature of incriminating. which is a material in the nature of incriminating. T The relevant part of the ‘e-mail communication mail communication’ which is basis of dispute before us which is basis of dispute before us has been reproduced reproduced by the AO on page 24 of the impugned y the AO on page 24 of the impugned assessment order.
4.9 The Ld. counsel for the assessee The Ld. counsel for the assessee however made an alternative made an alternative prayer and submitted that a fresh claim can’t be made in submitted that a fresh claim can’t be made in submitted that a fresh claim can’t be made in proceedings under section 153A of the Act, hence the claim of proceedings under section 153A of the Act, hence the claim of proceedings under section 153A of the Act, hence the claim of depreciation, is not eligible for consideration in proceedings u/s depreciation, is not eligible for consideration in proceedings u/s depreciation, is not eligible for consideration in proceedings u/s 153A of the Act. He referred referred to the decision of the Special Bench of Special Bench of the Tribunal in the case of M/s SEW Infrastructure Ltd. in ITA the Tribunal in the case of M/s SEW Infrastructure Ltd. in ITA the Tribunal in the case of M/s SEW Infrastructure Ltd. in ITA 1717 to 1720/Hyd/2017 and 1722/Hyd/2017 for assessment 1717 to 1720/Hyd/2017 and 1722/Hyd/2017 for assessment 1717 to 1720/Hyd/2017 and 1722/Hyd/2017 for assessment year 2009-10 to 2012 10 to 2012-13 and 2014-15 and submitted that and submitted that no fresh claim could have been made in the return of income filed in fresh claim could have been made in the return of income fresh claim could have been made in the return of income response to notice u/s 153A of the Act. He submitted that since the He submitted that since the response to notice u/s 153A of the Act. claim of depreciation on goodwill was not made in the original claim of depreciation on goodwill was not made in the original claim of depreciation on goodwill was not made in the original return of income and therefore following the decision of the Hon’ble return of income and therefore following the decision of the Hon’ble return of income and therefore following the decision of the Hon’ble Special Bench in the case of M/s SEW Infrastruc Special Bench in the case of M/s SEW Infrastructure Ltd (supra), ture Ltd (supra), the assessee is not entitled for making fresh claim. Hence, the issue the assessee is not entitled for making fresh claim. Hence, the issue the assessee is not entitled for making fresh claim. Hence, the issue of disallowance of depreciation on goodwill is rendered infructuous of disallowance of depreciation on goodwill is rendered infructuous of disallowance of depreciation on goodwill is rendered infructuous as far as the proceedings u/s 153A of the Act is concerned. The Ld. as far as the proceedings u/s 153A of the Act is concerned. The Ld. as far as the proceedings u/s 153A of the Act is concerned. The Ld. counsel submitted that the asses counsel submitted that the assessee made said claim during see made said claim during original assessment which was denied to the as original assessment which was denied to the assessee and further sessee and further appeal on that issue is pending before the Ld. First Appellate issue is pending before the Ld. First Appellate issue is pending before the Ld. First Appellate Authority in relation to appeal filed against the original assessment Authority in relation to appeal filed against the original assessment Authority in relation to appeal filed against the original assessment proceedings. Therefore, as far proceedings. Therefore, as far as the facts that claim facts that claim of the depreciation on goodwill made in the 153A proceedings, cannot be depreciation on goodwill made in the 153A proceedings depreciation on goodwill made in the 153A proceedings entertained following the finding of the Hon’ble Special Bench entertained following the finding of the Hon’ble Special Bench entertained following the finding of the Hon’ble Special Bench (supra). The ld DR did not object to the prayer of the assessee for The ld DR did not object to the prayer of the assessee for The ld DR did not object to the prayer of the assessee for not pressing the ground of de not pressing the ground of depreciation on goodwill being a fresh preciation on goodwill being a fresh claim.
4.10 We have carefully considered the rival submissions of the We have carefully considered the rival submissions of the We have carefully considered the rival submissions of the parties and have perused the relevant material on record parties and have perused the relevant material on record parties and have perused the relevant material on record concerning the validity of the additions made under the Section concerning the validity of the additions made under the concerning the validity of the additions made under the 153A proceedings. Since the proceedings. Since the assessee has made an alternative assessee has made an alternative prayer, prayer, prayer, contending contending contending that that that its its its claim claim claim for for for depreciation depreciation depreciation on on on goodwill/intangibles is legally untenable under goodwill/intangibles is legally untenable under Section 153A Section 153A, we deem it appropriate to refrain from adjudicating on the issue of the deem it appropriate to refrain from adjudicating on the issue of the deem it appropriate to refrain from adjudicating on the issue of the existence of incriminating material existence of incriminating material in relation to the matter in in relation to the matter in dispute and accordingly, leave this issue open. Furthermore, the dispute and accordingly, leave this issue open. Furthermore, the dispute and accordingly, leave this issue open. Furthermore, the assessee’s contention that a fresh claim cannot be entertained assessee’s contention that a fresh claim cannot be entertained assessee’s contention that a fresh claim cannot be entertained under Section 153A Section 153A finds support in the decision of the finds support in the decision of the Special Bench of the Tribunal (supra) Bench of the Tribunal (supra). The relevant part of said decision relevant part of said decision is reproduced as under: reproduced as under:
“33. In this view of the matter and considering the facts and 33. In this view of the matter and considering the facts and 33. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the circumstances of the case, we are of the considered view that the circumstances of the case, we are of the considered view that the assessee cannot make a fresh claim of deduction under Chapter assessee cannot make a fresh claim of deduction under Chapter assessee cannot make a fresh claim of deduction under Chapter VI-A of the Income Tax Act, 1961, for the first time, in the return of e Income Tax Act, 1961, for the first time, in the return of e Income Tax Act, 1961, for the first time, in the return of income filed in response to notice issued under Section 153A of the income filed in response to notice issued under Section 153A of the income filed in response to notice issued under Section 153A of the Act, pursuant to search conducted under Section 132 of the Act, in Act, pursuant to search conducted under Section 132 of the Act, in Act, pursuant to search conducted under Section 132 of the Act, in unabated/ completed assessment as on the date of search. In unabated/ completed assessment as on the date of search. In unabated/ completed assessment as on the date of search. In case of abated assessments, like the AO who can make case of abated assessments, like the AO who can make case of abated assessments, like the AO who can make assessment based on incriminating materials and any other assessment based on incriminating materials and any other assessment based on incriminating materials and any other information made available to him, including information furnished information made available to him, including information furnished information made available to him, including information furnished in return of income, the assessee may claim all deductions in return of income, the assessee may claim all deductions in return of income, the assessee may claim all deductions towards any income towards any income or expenditure, as if it is a first return of expenditure, as if it is a first return of income and fresh assessment. In view of the above, the questions income and fresh assessment. In view of the above, the questions income and fresh assessment. In view of the above, the questions referred are answered as under: re answered as under: i) Whether an assessee can i) Whether an assessee can Yes make a claim for deduction make a claim for deduction under under Chapter Chapter VIA VIA of of Income Tax Act, 1961, for Income Tax Act, 1961, for the first time, in the return time, in the return of income filed in response of income filed in response to the notice issued u/s to the notice issued u/s 153A of the Act, pursuant 153A of the Act, pursuant to to a a search search conducted conducted under section 132 of the under section 132 of the Act ? (ii) If yes, under which (ii) If yes, under which I. In In case case of of unabated/ unabated/ circumstances ? circumstances ? Completed Completed assessment/s, assessment/s, no fresh claim can be made im can be made under chapter VI under chapter VI-A of the Income Tax Act, 1961, for Income Tax Act, 1961, for the first time, in the return the first time, in the return of income filed in response of income filed in response to the notice issued u/s to the notice issued u/s 153A of the Act, pursuant 153A of the Act, pursuant to to a a search search conducted conducted under section 132 of the under section 132 of the Act. II. in in case case of of abated abated assessment/s, fresh claim t/s, fresh claim can be made under chapter can be made under chapter VI-A of the Income Tax Act, A of the Income Tax Act, 1961, for the first time, in 1961, for the first time, in the return of income filed the return of income filed in response to the notice in response to the notice issued u/s 153A of the Act, issued u/s 153A of the Act, pursuant to a pursuant to a Search conducted under section under section 132 of the Act. 4.11 The Special Bench has made it clear that in case of cial Bench has made it clear that in case of cial Bench has made it clear that in case of unabated/completed assessment unabated/completed assessment, no fresh claim can be entertained no fresh claim can be entertained in the return of income filed in response to notice u/s 153A of the in the return of income filed in response to notice u/s 153A of the in the return of income filed in response to notice u/s 153A of the Act for the first time. Since in the instant case also the search was Act for the first time. Since in the instant case also the search was Act for the first time. Since in the instant case also the search was conducted on 15.11.2018 and therefore, the assessment years d on 15.11.2018 and therefore, the assessment years d on 15.11.2018 and therefore, the assessment years 2018-19 to 2013-14 were six assessment years relevant to search 14 were six assessment years relevant to search 14 were six assessment years relevant to search period assessment u/s 143(3) of the Act period assessment u/s 143(3) of the Act. The assessment he assessment for assessment year 2015 year 2015-16 was already completed on 13.07.2017 16 was already completed on 13.07.2017 i.e. prior to the date of the search date of the search, therefore, no assessment was therefore, no assessment was pending as on the date of the search and the assessment year pending as on the date of the search and the assessment year pending as on the date of the search and the assessment year under consideration falls in the category of under consideration falls in the category of ‘unabated assessment unabated assessment’. In such circumstances, no fresh claim in respect of depreciation on In such circumstances, no fresh claim in respect of depreciation In such circumstances, no fresh claim in respect of depreciation goodwill/intangible could have been could have been entertained, accordingly entertained, accordingly the assessee is permitted to withdraw said claim and the relevant assessee is permitted to withdraw said claim and the assessee is permitted to withdraw said claim and the grounds are rendered are rendered infructuous.
The ground No. 4 of the appeal relates to disallowance of he ground No. 4 of the appeal relates to disallowance of he ground No. 4 of the appeal relates to disallowance of provision of the doubtful debt amounting to doubtful debt amounting to Rs.30 Rs.30 lakhs. The Ld. counsel for the assessee submitted that while counsel for the assessee submitted that while filing the original filing the original return of income for computing return of income for computing the total income u/s 115JB of the the total income u/s 115JB of the Act, provision for doubtful debt doubtful debt amounting to Rs.30 lakhs amounting to Rs.30 lakhs was added to the book profit added to the book profit but same was not added while compu added while computing income under the normal provisions of the Act. income under the normal provisions of the Act. It was submitted that assessee had not disallowed not disallowed the same while computing income computing income under the normal provisions under the normal provisions as same was highly probable to same was highly probable to become bad debt and thus assessee company had not disallowed become bad debt and thus assessee company had become bad debt and thus assessee company had the same. The assessee claimed in 153A assessment proceedings The assessee claimed in 153A assessment proceedings The assessee claimed in 153A assessment proceedings for allowing the said claim as bed debt written off. for allowing the said claim as bed debt written off. The Ld. counsel The Ld. counsel submitted that this claim was also not made submitted that this claim was also not made in the regular return of the regular return of income filed and therefore, assessee is and therefore, assessee is not eligible for making fresh not eligible for making fresh claim in the return filed in response to return filed in response to notice u/s 153A of the Act. /s 153A of the Act. The ld DR did not object to the arguments of the learned counsel for The ld DR did not object to the arguments of the learned counsel for The ld DR did not object to the arguments of the learned counsel for the assessee for not pressing this ground for the reason that claim the assessee for not pressing this ground for the reason that claim the assessee for not pressing this ground for the reason that claim of return of bad deb of return of bad debt being a fresh claim made in return under t being a fresh claim made in return under section 153A of the A A of the Act, was not permitted in law.
5.1 We have had rival submissions of the parties and perused the have had rival submissions of the parties and perused the have had rival submissions of the parties and perused the relevant material on record elevant material on record qua the issue of disallowance of qua the issue of disallowance of provision for doubtful debt amounting to provision for doubtful debt amounting to ₹ 30 lakhs lakhs. In view of the arguments of the learned counsel for assessee that this claim of the arguments of the learned counsel for assessee that this claim of the arguments of the learned counsel for assessee that this claim of the assessee being a fresh claim made in the return filed under section assessee being a fresh claim made in the return filed under section assessee being a fresh claim made in the return filed under section 153A of the Act is not permitted in law, we are not adjudicating on not permitted in law, we are not adjudicating on not permitted in law, we are not adjudicating on the ground of the assessee challenging existence of incriminating the ground of the assessee challenging existence of incriminating the ground of the assessee challenging existence of incriminating material qua the issue in dispute. We a material qua the issue in dispute. We agree with the contentions gree with the contentions of the ld counsel for assessee, that the claim for provision for bad and the ld counsel for assessee, that the claim for provision for bad and the ld counsel for assessee, that the claim for provision for bad and doubtful debt turned into debt written off is not tenable for claim in ubtful debt turned into debt written off is not tenable for claim in ubtful debt turned into debt written off is not tenable for claim in the return of income filed under section 153A of the Act, being a the return of income filed under section 153A of the the return of income filed under section 153A of the fresh claim. Therefore, Therefore, respectfully, following the finding of the following the finding of the Special Bench in the case of SEW Infrastructure Ltd. (supra), the Special Bench in the case of SEW Infrastructure Ltd. ( Special Bench in the case of SEW Infrastructure Ltd. ( claim of the assessee claim of the assessee for provision for doubtful debt for provision for doubtful debt also cannot be entertained and accordingly the assessee is permitted to withdraw entertained and accordingly the assessee is permitted to withdraw entertained and accordingly the assessee is permitted to withdraw the said claim. The ground No 4 of the appeal The ground No 4 of the appeal and relevant part of ground Nos. 1(a) to 1(c) of assessee are accordingly ccordingly dismissed as infructuous.
In relation to ground No. 1 (d In relation to ground No. 1 (d), the Ld. counsel submitted that ), the Ld. counsel submitted that there was no incriminating material qua the addition of inflated there was no incriminating material qua the addition of inflated there was no incriminating material qua the addition of inflated capital expenditure. However, the Ld. Departmental Representative capital expenditure. However, the Ld. Departmental Representative capital expenditure. However, the Ld. Departmental Representative (DR) referred to the finding of the Ld. CIT(A to the finding of the Ld. CIT(A) wherein he has referred ) wherein he has referred to various ‘whatsApp pp’ messages found from the mobile from the mobile instrument of Shri Pandurang Landge (President Projects). of Shri Pandurang Landge (President Projects).
6.1 The facts in brief qua issue in dispute are that during the The facts in brief qua issue in dispute are that during the The facts in brief qua issue in dispute are that during the course of the search a course of the search assessment various ‘whatsapp’ ’ messages were found from the mobile the mobile instruments of the employees of the assessee of the employees of the assessee including Shri Pandurang Landge (President Projects) and Shri including Shri Pandurang Landge (President Projects) and Shri including Shri Pandurang Landge (President Projects) and Shri Sailesh Mehta, wherein movement of wherein movement of unaccounted unaccounted cash between ‘Deepak Fertilizers’ gro group entities and suppliers were were found. The employees of the assessee employees of the assessee Shri Pandurang Landge in his statement Shri Pandurang Landge in his statement recorded on oath u/s 153A of the Act on 19.11.2018 admitted the recorded on oath u/s 153A of the Act on 19.11.2018 recorded on oath u/s 153A of the Act on 19.11.2018 cash transactions and therefore Shri Sailesh Mehta CMD of Deepak and therefore Shri Sailesh Mehta CMD of Deepak and therefore Shri Sailesh Mehta CMD of Deepak Fertilizer group had also confirmed the generation of cash also confirmed the generation of cash. This cash was generated by way of inflating capital expenditure with two cash was generated by way of inflating capital expenditure with two cash was generated by way of inflating capital expenditure with two entities namely M/s Onshore Construction Company and M/s Ray entities namely M/s Onshore Construction Company and M/s Ray entities namely M/s Onshore Construction Company and M/s Ray Construction Pvt. Ltd. The relevant finding of the Assessing Officer Construction Pvt. Ltd. The relevant finding of the Assessing Officer Construction Pvt. Ltd. The relevant finding of the Assessing Officer is reproduced as under: d as under:
“5.12 It is clear from the above facts and evidences found 5.12 It is clear from the above facts and evidences found 5.12 It is clear from the above facts and evidences found during the course of search proceedings that the company has during the course of search proceedings that the company has during the course of search proceedings that the company has booked inflated capital expenditure with Onshore Construction booked inflated capital expenditure with Onshore Construction booked inflated capital expenditure with Onshore Construction Co. Pvt. Ltd. and Ray Construction Ltd. Co. Pvt. Ltd. and Ray Construction Ltd. 5.13 Evidences in form 5.13 Evidences in form of documents, mobile data, computer of documents, mobile data, computer data etc. were seized/ impounded during the course of search data etc. were seized/ impounded during the course of search and survey operation on Deepak Group. They are analyzed in and survey operation on Deepak Group. They are analyzed in and survey operation on Deepak Group. They are analyzed in detail as under: detail as under: - 5.14 It is seen that during the course of Search Proceedings u/s 5.14 It is seen that during the course of Search Proceedings u/s 5.14 It is seen that during the course of Search Proceedings u/s 132 at Deepak 132 at Deepak Group. In the statement recorded u/s 132(4) of Group. In the statement recorded u/s 132(4) of the Act, Shri Pandurang Landge has admitted that he was the Act, Shri Pandurang Landge has admitted that he was the Act, Shri Pandurang Landge has admitted that he was involved in the transactions of booking of inflated capital involved in the transactions of booking of inflated capital involved in the transactions of booking of inflated capital expenditure for Deepak Group. expenditure for Deepak Group. The same is explained in the The same is explained in the messages communication which were messages communication which were found and Seized from found and Seized from the Mobile backup of Shri Pandurang Landge. On perusal to the the Mobile backup of Shri Pandurang Landge. On perusal to the the Mobile backup of Shri Pandurang Landge. On perusal to the communication, it is seen that Shri Pandurang Landge has communication, it is seen that Shri Pandurang Landge has communication, it is seen that Shri Pandurang Landge has arrange cash from above said 4 parties on behalf of CMD arrange cash from above said 4 parties on behalf of CMD arrange cash from above said 4 parties on behalf of CMD Sailesh Mehta and the assessee company. Sailesh Mehta and the assessee company. 5.15 The conversati 5.15 The conversation between Shri Pandurang Landge were on between Shri Pandurang Landge were found in phone of Shri Pandurang Landge and Shri Sailesh found in phone of Shri Pandurang Landge and Shri Sailesh found in phone of Shri Pandurang Landge and Shri Sailesh Mehta which reflected the transfers of cash to Shri Naresh Mehta which reflected the transfers of cash to Shri Naresh Mehta which reflected the transfers of cash to Shri Naresh Mehta and Shri Deepak Desai. Same messages have been Mehta and Shri Deepak Desai. Same messages have been Mehta and Shri Deepak Desai. Same messages have been explained in detail by Shri Pandurang Landge and explained in detail by Shri Pandurang Landge and same has same has been confirmed by Shri Sailesh Mehta. been confirmed by Shri Sailesh Mehta. 5.16 It is clear from the above facts and evidences found during 5.16 It is clear from the above facts and evidences found during 5.16 It is clear from the above facts and evidences found during the course of search proceedings that the assessee company the course of search proceedings that the assessee company the course of search proceedings that the assessee company has booked inflated capital expenditure which has returned has booked inflated capital expenditure which has returned has booked inflated capital expenditure which has returned back the money in cash. Th back the money in cash. The said cash has not been recorded in e said cash has not been recorded in the books of accounts to expend out of books cash transactions. the books of accounts to expend out of books cash transactions. the books of accounts to expend out of books cash transactions.
So it is held that capital expenditure booked with both the So it is held that capital expenditure booked with both the So it is held that capital expenditure booked with both the parties i.e. Ray Construction Limited and Onshore Construction parties i.e. Ray Construction Limited and Onshore Construction parties i.e. Ray Construction Limited and Onshore Construction Company Pvt. Ltd whose name has Company Pvt. Ltd whose name has been mentioned in Shri been mentioned in Shri Pandurang Landge statement is inflated.The whole façade Pandurang Landge statement is inflated.The whole façade Pandurang Landge statement is inflated.The whole façade created by assessee shows to evade taxes. Merely presenting of created by assessee shows to evade taxes. Merely presenting of created by assessee shows to evade taxes. Merely presenting of documents and making payment through bank is in itself not documents and making payment through bank is in itself not documents and making payment through bank is in itself not sufficient to justify the genuineness of the transactio sufficient to justify the genuineness of the transaction. 5.17 In this regard, it is found that assessee company has 5.17 In this regard, it is found that assessee company has 5.17 In this regard, it is found that assessee company has generated the cash by debiting inflated capital expenditure with generated the cash by debiting inflated capital expenditure with generated the cash by debiting inflated capital expenditure with parties namely Onshore Construction Co. Pvt. Ltd. and Ray parties namely Onshore Construction Co. Pvt. Ltd. and Ray parties namely Onshore Construction Co. Pvt. Ltd. and Ray Construction Ltd Construction Ltd 5.18 In the backdrop of the similar facts and circumst 5.18 In the backdrop of the similar facts and circumst 5.18 In the backdrop of the similar facts and circumstances, evidences and parties/vendors involved, in one of the group evidences and parties/vendors involved, in one of the group evidences and parties/vendors involved, in one of the group concerns, namely, Deepak Fertilizer Petrochemical Corporation concerns, namely, Deepak Fertilizer Petrochemical Corporation concerns, namely, Deepak Fertilizer Petrochemical Corporation Limited (DFPCL), the inflated capital expenditure has been Limited (DFPCL), the inflated capital expenditure has been Limited (DFPCL), the inflated capital expenditure has been determined @10% of total capital expenditure booked by the determined @10% of total capital expenditure booked by the determined @10% of total capital expenditure booked by the company from such parties. rom such parties. 5.19 Accordingly, following the precedent, the basis of inflated 5.19 Accordingly, following the precedent, the basis of inflated 5.19 Accordingly, following the precedent, the basis of inflated capital expenditure has been identified @10% of total capital capital expenditure has been identified @10% of total capital capital expenditure has been identified @10% of total capital expenditure booked by the company from such parties. The expenditure booked by the company from such parties. The expenditure booked by the company from such parties. The Working of calculation of Inflated capital expenditure Working of calculation of Inflated capital expenditure Working of calculation of Inflated capital expenditure for A. Y 2015-16 is as under: 16 is as under:- (1) Onshore Construction Company Pvt. Ltd. (1) Onshore Construction Company Pvt. Ltd. A.Y. STL Books (A) STL Books (A) % of Calculation @ Difference as per 90% (B) contractual Price (A- B) 2015-16 1,80,87,980 1,80,87,980 1,62,79,182 18,08,798 (2) Ray Construction Ltd. (2) Ray Construction Ltd. A.Y. STL Books (A) STL Books (A) % of Calculation @ Difference as per 90% (B) contractual Price (A- B) 2015-16 3,04,50,672 3,04,50,672 2,74,05,605 30,45,067 Total (1+2) A.Y. Onshore Onshore Ray Construction Total Construction Co. Construction Co. Ltd. Pvt. Ltd. Pvt. Ltd. 2015-16 18,08,798 18,08,798 30,45,067 48,53,865
5.20 The seized documents The seized documents and data backup of mobile and data backup of mobile messages as mentioned above in detailed speaks of booking of messages as mentioned above in detailed speaks of booking of messages as mentioned above in detailed speaks of booking of inflated capital expenditure by the assessee company and the inflated capital expenditure by the assessee company and the inflated capital expenditure by the assessee company and the same has been received back in cash. Also, the money received same has been received back in cash. Also, the money received same has been received back in cash. Also, the money received by the assessee in cash is outside the books o by the assessee in cash is outside the books of accounts. Thus, f accounts. Thus, cash received by the assessee company outside the books of cash received by the assessee company outside the books of cash received by the assessee company outside the books of accounts at the time of booking of capital expenditure becomes accounts at the time of booking of capital expenditure becomes accounts at the time of booking of capital expenditure becomes the income of the assessee. The cash received by the assessee the income of the assessee. The cash received by the assessee the income of the assessee. The cash received by the assessee partakes of the character of commercial receipts of th partakes of the character of commercial receipts of the assessee e assessee and is therefore, liable to be assessed as income according to and is therefore, liable to be assessed as income according to and is therefore, liable to be assessed as income according to the accepted principle of commercial accounting. The statement the accepted principle of commercial accounting. The statement the accepted principle of commercial accounting. The statement recorded u/s 132(4) is validly recorded statement by authorized recorded u/s 132(4) is validly recorded statement by authorized recorded u/s 132(4) is validly recorded statement by authorized officer and has evidentiary value. The statement record officer and has evidentiary value. The statement record officer and has evidentiary value. The statement recorded u/s 132(4) of Income Tax Act, 1961 of Shri Sailesh Mehta (CMD) and 132(4) of Income Tax Act, 1961 of Shri Sailesh Mehta (CMD) and 132(4) of Income Tax Act, 1961 of Shri Sailesh Mehta (CMD) and all the Key Personnel's of Deepak group are fully supported by all the Key Personnel's of Deepak group are fully supported by all the Key Personnel's of Deepak group are fully supported by the document sized and data back of mobile phones i.e. digital the document sized and data back of mobile phones i.e. digital the document sized and data back of mobile phones i.e. digital evidence.” 6.2. Before the ld CIT(A) , t Before the ld CIT(A) , the assessee challenged that there was challenged that there was no incriminating material qua the issue of capital expenditure, but no incriminating material qua the issue of capital expenditure, but no incriminating material qua the issue of capital expenditure, but ld CIT(A) rejected the contention of the assessee. The relevant ld CIT(A) rejected the contention of the assessee. The relevant ld CIT(A) rejected the contention of the assessee. The relevant finding of the Ld. CIT(A) is reproduced as under: finding of the Ld. CIT(A) is reproduced as under:
“8.4 During the search proceedings, from the wha 8.4 During the search proceedings, from the wha 8.4 During the search proceedings, from the whatsapp messages from the mobile of Shri Pandurang Landge( messages from the mobile of Shri Pandurang Landge( messages from the mobile of Shri Pandurang Landge( President Projects), it was found that he was indulged in President Projects), it was found that he was indulged in President Projects), it was found that he was indulged in handling cash transactions for the Deepak Group Companies. handling cash transactions for the Deepak Group Companies. handling cash transactions for the Deepak Group Companies. In the answer to question no 21 Shri Landge has accepted In the answer to question no 21 Shri Landge has accepted In the answer to question no 21 Shri Landge has accepted that Shri Naresh Mehta an that Shri Naresh Mehta and Shri Deepak Desai handle the d Shri Deepak Desai handle the cash on behalf of the company. In the answer to question no cash on behalf of the company. In the answer to question no cash on behalf of the company. In the answer to question no 22 he explained the meaning of "Drawing" means 1 lac and 22 he explained the meaning of "Drawing" means 1 lac and 22 he explained the meaning of "Drawing" means 1 lac and in answer to question no 23 he explained "Contribution" in answer to question no 23 he explained "Contribution" in answer to question no 23 he explained "Contribution" means Rs. ler in cash. He has admitted that after means Rs. ler in cash. He has admitted that after means Rs. ler in cash. He has admitted that after confirmation from Mahesh Agrahara, Commercial Head he nfirmation from Mahesh Agrahara, Commercial Head he nfirmation from Mahesh Agrahara, Commercial Head he has written "6.7 contribution done" means that cash of Rs. "6.7 contribution done" means that cash of Rs. "6.7 contribution done" means that cash of Rs. 6.7cr was handed over either to Deepak Desai or Naresh 6.7cr was handed over either to Deepak Desai or Naresh 6.7cr was handed over either to Deepak Desai or Naresh Mehta as per the instruction of the CMD. In the answer to Mehta as per the instruction of the CMD. In the answer to Mehta as per the instruction of the CMD. In the answer to question no 25 he has explained question no 25 he has explained the source of cash the source of cash generation which is from the extra work claims settlement generation which is from the extra work claims settlement generation which is from the extra work claims settlement with the contractors. The amount of extra work is returned in with the contractors. The amount of extra work is returned in with the contractors. The amount of extra work is returned in cash. In the answer to question no 28 he has specifically cash. In the answer to question no 28 he has specifically cash. In the answer to question no 28 he has specifically stated that amount of 200 against Onshore means an stated that amount of 200 against Onshore means an stated that amount of 200 against Onshore means an amount of Rs. 200 lacs or 2cr taken in cash from Onshore f Rs. 200 lacs or 2cr taken in cash from Onshore f Rs. 200 lacs or 2cr taken in cash from Onshore
Construction Pvt. Ltd. and given to Deepak Desai or Naresh Construction Pvt. Ltd. and given to Deepak Desai or Naresh Construction Pvt. Ltd. and given to Deepak Desai or Naresh Mehta. Similarly the figure 562.56 against Ray means 5.62cr Mehta. Similarly the figure 562.56 against Ray means 5.62cr Mehta. Similarly the figure 562.56 against Ray means 5.62cr cash taken from Ray Construction. In the answer to question cash taken from Ray Construction. In the answer to question cash taken from Ray Construction. In the answer to question no 30 he has also given the no 30 he has also given the details of the persons who are details of the persons who are handling the cash transactions on behalf of Onshore handling the cash transactions on behalf of Onshore handling the cash transactions on behalf of Onshore Construction Company Pvt. Ltd., Ray Construction and other. Construction Company Pvt. Ltd., Ray Construction and other. Construction Company Pvt. Ltd., Ray Construction and other. In the answer to question no 31, he has also stated that this In the answer to question no 31, he has also stated that this In the answer to question no 31, he has also stated that this practice has been followed since last 2 practice has been followed since last 2-3 years. 8.4.2 These whatsapp messages from the mobile of Shri 4.2 These whatsapp messages from the mobile of Shri 4.2 These whatsapp messages from the mobile of Shri Landge were also confronted to Shri Deepak Desai. He has Landge were also confronted to Shri Deepak Desai. He has Landge were also confronted to Shri Deepak Desai. He has also accepted the cash transactions carried out by Shri also accepted the cash transactions carried out by Shri also accepted the cash transactions carried out by Shri Landge. The facts regarding the cash transactions were also The facts regarding the cash transactions were also The facts regarding the cash transactions were also confronted to Shri Naresh Mehta confronted to Shri Naresh Mehta in his statement recorded in his statement recorded during the search. He has also stated that he was handling during the search. He has also stated that he was handling during the search. He has also stated that he was handling the cash as per the statement given by Shri Landge. the cash as per the statement given by Shri Landge. 8.4.3 Shri Shailash Mehta (CMD) in the answer to question 8.4.3 Shri Shailash Mehta (CMD) in the answer to question 8.4.3 Shri Shailash Mehta (CMD) in the answer to question no 18 has confirmed that no 18 has confirmed that "drawing" means payment made in "drawing" means payment made in cash. In the answer to question no,19 he has explained the h. In the answer to question no,19 he has explained the h. In the answer to question no,19 he has explained the details of methods of cash generation which is exactly similar details of methods of cash generation which is exactly similar details of methods of cash generation which is exactly similar as stated by Shri Pandurang Landge. In the answer to as stated by Shri Pandurang Landge. In the answer to as stated by Shri Pandurang Landge. In the answer to question no 20 he has also confirmed cash received of Rs. question no 20 he has also confirmed cash received of Rs. question no 20 he has also confirmed cash received of Rs. 5.60cr from M/s Ray Constr 5.60cr from M/s Ray Construction. In the answer to question uction. In the answer to question no 22 he confirms the statement given by Shri Landge that no 22 he confirms the statement given by Shri Landge that no 22 he confirms the statement given by Shri Landge that 6.7 contributions means total 6.7cr cash handed over either 6.7 contributions means total 6.7cr cash handed over either 6.7 contributions means total 6.7cr cash handed over either to Deepak Desai and Shri Naresh Mehta as per the standing to Deepak Desai and Shri Naresh Mehta as per the standing to Deepak Desai and Shri Naresh Mehta as per the standing instructions. He has also accepted that the ca instructions. He has also accepted that the cash of Rs 10 sh of Rs 10 crores was required for some work in Delhi. crores was required for some work in Delhi. 8.5 From the above it is evident that the appellant is indulged 8.5 From the above it is evident that the appellant is indulged 8.5 From the above it is evident that the appellant is indulged in generating cash regularly from the contractors namely M/s in generating cash regularly from the contractors namely M/s in generating cash regularly from the contractors namely M/s Ray Ray Ray Construction, Construction, Construction, M/s M/s M/s Onshore Onshore Onshore Construction, Construction, Construction, Jobby Jobby Jobby Engineering Pvt. Ltd, and Engineering Pvt. Ltd, and National Builders Infrastructure National Builders Infrastructure Pvt. Ltd. The cash is mainly handled by Shri Pandurang Pvt. Ltd. The cash is mainly handled by Shri Pandurang Pvt. Ltd. The cash is mainly handled by Shri Pandurang Landge on the instruction of Shri Shailash Mehta and the Landge on the instruction of Shri Shailash Mehta and the Landge on the instruction of Shri Shailash Mehta and the same is handed over either to Shri Naresh Mehta or Shri same is handed over either to Shri Naresh Mehta or Shri same is handed over either to Shri Naresh Mehta or Shri Deepak Desai. Thus, conclusive evidences regarding the Deepak Desai. Thus, conclusive evidences regarding the Deepak Desai. Thus, conclusive evidences regarding the cash receipts from the contractors namely M/s Ray Construction, receipts from the contractors namely M/s Ray Construction, receipts from the contractors namely M/s Ray Construction, M/s Onshore Construction and other parties are unearthed. M/s Onshore Construction and other parties are unearthed. M/s Onshore Construction and other parties are unearthed. It is fact that the cash received back is not recorded in the It is fact that the cash received back is not recorded in the It is fact that the cash received back is not recorded in the regular books of accounts. regular books of accounts. Thus, the incriminating material in the form Thus, the incriminating material in the form of whatsapp of whatsapp messages and specific admission of cash generation by Shri messages and specific admission of cash generation by Shri messages and specific admission of cash generation by Shri pandurang pandurang pandurang Landage Landage Landage and and and Shri Shri Shri Shailesh Shailesh Shailesh Mehata Mehata Mehata are are are unearthed during the search. Hence, the contention of the unearthed during the search. Hence, the contention of the unearthed during the search. Hence, the contention of the appellant that no incriminating material was unearthed is appellant that no incriminating material was unearthed is appellant that no incriminating material was unearthed is factually incorrect a factually incorrect and hence not acceptable.” 6.3 On merit of addition addition u/s 69A of the Act, before the ld CITA) , before the ld CITA) , the assessee contented that Shri Naresh Mehta and Shri Deepak the assessee contented that Shri Naresh Mehta and Shri Deepak the assessee contented that Shri Naresh Mehta and Shri Deepak Desai both were not the employees of the company and Shri Desai both were not the employees of the company and Desai both were not the employees of the company and Pandurang Landge, Sh Sailesh Mehta and Mahe , Sh Sailesh Mehta and Mahesg Agrahara were sg Agrahara were merely acting as conduit merely acting as conduit and hence no addition u/s 69A could be and hence no addition u/s 69A could be made in the hands of the assessee. The Ld. CIT(A) however rejected made in the hands of the assessee. The Ld. CIT(A) however rejected made in the hands of the assessee. The Ld. CIT(A) however rejected the contention of the assessee observing as under: the contention of the assessee observing as under:
“12.13.2 As already discussed above in detail, during the 12.13.2 As already discussed above in detail, during the 12.13.2 As already discussed above in detail, during the search from the Whats App search from the Whats App messages retrieved from the mobile messages retrieved from the mobile of Shri Pandurang Landge, it was seen that he was indulged in Pandurang Landge, it was seen that he was indulged in Pandurang Landge, it was seen that he was indulged in cash transaction alongwith other persons. In the statement cash transaction alongwith other persons. In the statement cash transaction alongwith other persons. In the statement recorded u/s 132(4), he has categorically admitted that he is recorded u/s 132(4), he has categorically admitted that he is recorded u/s 132(4), he has categorically admitted that he is handling the cash transactions on the instruction of Shri he cash transactions on the instruction of Shri he cash transactions on the instruction of Shri Shailesh Mehta, CMD of the group companies and the cash is Shailesh Mehta, CMD of the group companies and the cash is Shailesh Mehta, CMD of the group companies and the cash is handled by Shri Naresh Mehta and Shri Deepak Desai. Shri handled by Shri Naresh Mehta and Shri Deepak Desai. Shri handled by Shri Naresh Mehta and Shri Deepak Desai. Shri Shailesh Mehta, CMD, has also admitted that the WhatsApp Shailesh Mehta, CMD, has also admitted that the WhatsApp Shailesh Mehta, CMD, has also admitted that the WhatsApp messages pertains to the cash trans messages pertains to the cash transactions which has been actions which has been generated on account of inflation of expenditure related to the generated on account of inflation of expenditure related to the generated on account of inflation of expenditure related to the contractors namely Onshore construction and Ray construction contractors namely Onshore construction and Ray construction contractors namely Onshore construction and Ray construction Private Limited. Both Shri Sailesh Mehta and Shri Pandurang Private Limited. Both Shri Sailesh Mehta and Shri Pandurang Private Limited. Both Shri Sailesh Mehta and Shri Pandurang Landge has explained the method of generation of Landge has explained the method of generation of cash and the cash and the source is explained from the inflation of capital expenditure. It is source is explained from the inflation of capital expenditure. It is source is explained from the inflation of capital expenditure. It is a fact that the Onshore construction and Ray construction a fact that the Onshore construction and Ray construction a fact that the Onshore construction and Ray construction Private Limited are the contractors related to the construction of Private Limited are the contractors related to the construction of Private Limited are the contractors related to the construction of NPK plant at Taloja and the expenditure of the s NPK plant at Taloja and the expenditure of the same is debited ame is debited in the books of account of appellant. From this fact, it is evident in the books of account of appellant. From this fact, it is evident in the books of account of appellant. From this fact, it is evident that the cash generated is related to the appellant company. that the cash generated is related to the appellant company. that the cash generated is related to the appellant company. The appellant company is the owner of entire cash transactions The appellant company is the owner of entire cash transactions The appellant company is the owner of entire cash transactions and the same is specifically admitted by these pe and the same is specifically admitted by these persons in the rsons in the statements recorded u/s 132(4) of the IT Act. Further, Shri statements recorded u/s 132(4) of the IT Act. Further, Shri statements recorded u/s 132(4) of the IT Act. Further, Shri Naresh Mehta, Shri Déepak Desai and others, they were Naresh Mehta, Shri Déepak Desai and others, they were Naresh Mehta, Shri Déepak Desai and others, they were handling the cash on behalf of the a handling the cash on behalf of the appellant. It is also a fact ppellant. It is also a fact that addition is not made in the hands of these persons who addition is not made in the hands of these persons who addition is not made in the hands of these persons who were handling the alleged cash transactions. Hence the handling the alleged cash transactions. Hence the handling the alleged cash transactions. Hence the contention of the appellant that addition is made w/s 69A in contention of the appellant that addition is made w/s 69A in contention of the appellant that addition is made w/s 69A in the hands of the conduit is misleading. The fact established the hands of the conduit is misleading. The fact established the hands of the conduit is misleading. The fact established from the findings of the search and admission in the statement from the findings of the search and admission in the statement from the findings of the search and admission in the statement recorded is that the recorded is that the cash pertains to the appellant. Hence, the cash pertains to the appellant. Hence, the appellant is found to be the owner of such cash. Therefore, the appellant is found to be the owner of such cash. Therefore, the appellant is found to be the owner of such cash. Therefore, the same needs to be assessed in the hands of the appellant. same needs to be assessed in the hands of the appellant. same needs to be assessed in the hands of the appellant. Accordingly the contention of the appellant is rejected. Accordingly the contention of the appellant is rejected. 12.14 The further contention of the 12.14 The further contention of the appellant is that the AO is appellant is that the AO is not correct in adding the uncounted cash @ of 10% of the not correct in adding the uncounted cash @ of 10% of the not correct in adding the uncounted cash @ of 10% of the expenditure debited in the books of account. The dates of expenditure debited in the books of account. The dates of expenditure debited in the books of account. The dates of transactions as per WhatsApp messages are 8th and 9th June transactions as per WhatsApp messages are 8th and 9th June transactions as per WhatsApp messages are 8th and 9th June 2018 and hence it is outside the period covered u/s 1 2018 and hence it is outside the period covered u/s 153A of the 53A of the IT act. 12.14.2 Shri Pandurang Landge in the answer to question Shri Pandurang Landge in the answer to question Shri Pandurang Landge in the answer to question number 31 of number 31 of statement recorded u/s 132(4) of the IT act has statement recorded u/s 132(4) of the IT act has specifically mentioned that the practice of generation of cash is specifically mentioned that the practice of generation of cash is specifically mentioned that the practice of generation of cash is followed since last 2 to 3 years. This shows the appel followed since last 2 to 3 years. This shows the appel followed since last 2 to 3 years. This shows the appellant is generating the cash regularly from the expenses debited to the generating the cash regularly from the expenses debited to the generating the cash regularly from the expenses debited to the contractors. This fact is also corroborated by the WhatsApp contractors. This fact is also corroborated by the WhatsApp contractors. This fact is also corroborated by the WhatsApp messages and specific admission of the same by Shri Sailesh messages and specific admission of the same by Shri Sailesh messages and specific admission of the same by Shri Sailesh Mehta and Shri Pandurang Landge. Hence, the AO has correctly Mehta and Shri Pandurang Landge. Hence, the AO has correctly Mehta and Shri Pandurang Landge. Hence, the AO has correctly disallowed 10% on the expenditure debited against M/s Ray llowed 10% on the expenditure debited against M/s Ray llowed 10% on the expenditure debited against M/s Ray construction Ltd and Onshore Company Private Ltd. construction Ltd and Onshore Company Private Ltd.” 6.4 We have heard the rival submissions of the parties and We have heard the rival submissions of the parties and We have heard the rival submissions of the parties and perused the relevant material on record. The Counsel for the perused the relevant material on record. The Counsel for the perused the relevant material on record. The Counsel for the assessee submitted that the assessee submitted that the ‘WhatsApp’ chat referred by the chat referred by the Assessing Officer is dated 8 Assessing Officer is dated 8th and 9th June , 2019 and not pertain to June , 2019 and not pertain to the assessment year the assessment year under consideration. He submitted that no consideration. He submitted that no evidence was also found on application of the alleged cash evidence was also found on application of the alleged cash evidence was also found on application of the alleged cash generation. According to him extra generation. According to him extrapolation of the alleged cash of the alleged cash generation does not have any basis generation does not have any basis and no seized and no seized material or statement on oath supports the extrapolation. statement on oath supports the extrapolation. The ld DR also could The ld DR also could not controvert that the ‘whatsapp’ chat found during the search are not controvert that the ‘whatsapp’ chat found during the search are not controvert that the ‘whatsapp’ chat found during the search are not qua the year under considerat not qua the year under consideration and only on the basis of ion and only on the basis of quantum of cash inflated assessed in the year of search, inflation of quantum of cash inflated assessed in the year of search, inflation of quantum of cash inflated assessed in the year of search, inflation of cash has been estimated in the year under consideration. In view of cash has been estimated in the year under consideration. In view of cash has been estimated in the year under consideration. In view of these facts, we are of are of considered opinion that no incriminating considered opinion that no incriminating material exits qua the i material exits qua the issue in dispute for year under consideration, ssue in dispute for year under consideration, hence, no addition could have been qua the issue of inflated no addition could have been qua the issue of inflated capital no addition could have been qua the issue of inflated expenditure. Accordingly, we set aside the finding of the ld CIT(A) expenditure. Accordingly, we set aside the finding of the ld CIT(A) expenditure. Accordingly, we set aside the finding of the ld CIT(A) on the issue in dispute and allow the ground no. 1(d) of the appeal. on the issue in dispute and allow the ground no. 1(d) of the appeal. on the issue in dispute and allow the ground no. 1(d) of the appeal. Since , we have already held that no addition could have been made e , we have already held that no addition could have been made e , we have already held that no addition could have been made for inflation of capital expenditure without the aid of capital expenditure without the aid of incriminating capital expenditure without the aid of material found qua the assessment material found qua the assessment year under consideration, we under consideration, we are not required to adjudicate the ground No. 3 raised challenging are not required to adjudicate the ground No. 3 raised challenging are not required to adjudicate the ground No. 3 raised challenging the addition on merit. the addition on merit.
In relation to ground No. 1(e In relation to ground No. 1(e) i.e. the disallowance of interest the disallowance of interest on delayed payment of the TDS, the Assessing Officer made on delayed payment of the TDS, the Assessing Officer made on delayed payment of the TDS, the Assessing Officer made addition observing as under: ving as under:
“6.1 During the assessment proceeding, it is seen from During the assessment proceeding, it is seen from During the assessment proceeding, it is seen from Schedule no.34(c) of Tax Audit Report that being interest on Schedule no.34(c) of Tax Audit Report that being interest on Schedule no.34(c) of Tax Audit Report that being interest on delayed payment of TDS u/s.201(1A) or u/s.206C(7) of the delayed payment of TDS u/s.201(1A) or u/s.206C(7) of the delayed payment of TDS u/s.201(1A) or u/s.206C(7) of the Act has been shown of Rs. 2,42,966/ Act has been shown of Rs. 2,42,966/-. In this regard, the . In this regard, the assessee was required to show cause as to why the claim of as required to show cause as to why the claim of as required to show cause as to why the claim of interest on delayed payment of TDS of Rs.2,42,966/ interest on delayed payment of TDS of Rs.2,42,966/- should not be disallowed u/s. 37 of the Act. not be disallowed u/s. 37 of the Act. 6.2 In response, the assessee has filed its submission and 6.2 In response, the assessee has filed its submission and 6.2 In response, the assessee has filed its submission and the same is reproduced hereunder; the same is reproduced hereunder; "It is submitted "It is submitted that the interest on delayed payment that the interest on delayed payment is compensatory and not penal in nature. The is compensatory and not penal in nature. The is compensatory and not penal in nature. The assessee would like to lay emphasis on the fact that assessee would like to lay emphasis on the fact that assessee would like to lay emphasis on the fact that the expenses that are penal in nature shall be the expenses that are penal in nature shall be the expenses that are penal in nature shall be disallowed 37 and thus, the assessee has correctly disallowed 37 and thus, the assessee has correctly disallowed 37 and thus, the assessee has correctly claimed the said intere claimed the said interest while computing its income st while computing its income for the year under for the year under consideration."
6.3 The submission of the assessee has duly been The submission of the assessee has duly been The submission of the assessee has duly been considered. However, the same is not found to be acceptable. considered. However, the same is not found to be acceptable. considered. However, the same is not found to be acceptable. The interest is paid for default in respect to statutory The interest is paid for default in respect to statutory The interest is paid for default in respect to statutory liabilities and this int liabilities and this interest cannot be treated as business erest cannot be treated as business expenditure. Further, interest on TDS has not incurred wholly expenditure. Further, interest on TDS has not incurred wholly expenditure. Further, interest on TDS has not incurred wholly and exclusively for the purpose of the business and and exclusively for the purpose of the business and and exclusively for the purpose of the business and therefore, the same is not allowable as deduction u/s 37(1) of therefore, the same is not allowable as deduction u/s 37(1) of therefore, the same is not allowable as deduction u/s 37(1) of the Act. Thus, interest paid on delay payme the Act. Thus, interest paid on delay payment of TDS of Rs. nt of TDS of Rs. 2,42,966/- is hereby disallowed u/s.37(1) of the Act. is hereby disallowed u/s.37(1) of the Act. Penalty proceedings u/s 271(1)(C) of the Income Tax Income Penalty proceedings u/s 271(1)(C) of the Income Tax Income Penalty proceedings u/s 271(1)(C) of the Income Tax Income Tax Act, 1961 are initiated separately for furnishing Tax Act, 1961 are initiated separately for furnishing Tax Act, 1961 are initiated separately for furnishing inaccurate particular of income. inaccurate particular of income.” 7.1 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. Before us the ld Counsel for the relevant material on record. Before us the ld Counsel for the relevant material on record. Before us the ld Counsel for the assessee submitted assessee submitted no incriminating material qua the no incriminating material qua the qua the disallowance of interest on delayed payment of TDS was found disallowance of interest on delayed payment of TDS was disallowance of interest on delayed payment of TDS was during the course of search action and course of search action and the Assessing Officer h the Assessing Officer has referred to Schedule of the Tax Auditor R referred to Schedule of the Tax Auditor Report(TAR). (TAR). There is no reference of any incriminating material qua the issue in dispute. reference of any incriminating material qua the issue in dispute. reference of any incriminating material qua the issue in dispute. This assessment year being unabated, no addition could have made This assessment year being unabated, no addition could have made This assessment year being unabated, no addition could have made without the aid of incrimination material as held by the hon’ble out the aid of incrimination material as held by the hon’ble out the aid of incrimination material as held by the hon’ble Supreme Court in Abhisar Buildwell P ltd (supra). The ground Nos. Supreme Court in Abhisar Buildwell P ltd (supra). The ground Nos. Supreme Court in Abhisar Buildwell P ltd (supra). The ground Nos. 1(e) of the appeal is accordingly allowed. accordingly allowed. related to disallowance of 8. The ground No. 5( 5(five) of the appeal is related to disallowance of notional interest expenditure on investment made in subsidiary notional interest expenditure on investment made in subsidiary notional interest expenditure on investment made in subsidiary company amounting to company amounting to ₹ 62. 59 lakhs.
8.1 We have heard rival submissions of the parties and We have heard rival submissions of the parties and We have heard rival submissions of the parties and perused the relevant material qua the relevant material qua the issue in dispute. We find that this the issue in dispute. We find that this disallowance has been made in the original assessment order disallowance has been made in the original assessment order disallowance has been made in the original assessment order passed under section 143(3) of the A ed under section 143(3) of the Act and appeal against ct and appeal against said addition is still pending before the addition is still pending before the Ld First Appellate Ld First Appellate Authority. This addition has been merely repeated in the instant assessment order addition has been merely repeated in the instant assessment addition has been merely repeated in the instant assessment passed under section 153 passed under section 153A of the Act. Therefore it has to be of the Act. Therefore it has to be adjudicated in the appeal adjudicated in the appeal filed against the original assessment against the original assessment order and consequential effect would only be given while order and consequential effect would only be given while order and consequential effect would only be given while computation of the income under section 153 computation of the income under section 153A of the A A of the Act. Since the issue pertains to original assessment proceeding, we are not ssue pertains to original assessment proceeding, we are not ssue pertains to original assessment proceeding, we are not required to adjudicate the issue in dispute in appeal arising from required to adjudicate the issue in dispute in appeal arising from required to adjudicate the issue in dispute in appeal arising from proceeding under section 153A of the Act. The ground No. five of the proceeding under section 153A of the Act. The ground No. five of the proceeding under section 153A of the Act. The ground No. five of the appeal of the assessee is accordingly dismissed as infructuous. appeal of the assessee is accordingly dismissed as infructuo appeal of the assessee is accordingly dismissed as infructuo
The ground No ground Nos. 6 and 7 of the appeal related to addition of the appeal related to addition under MAT provisions for under MAT provisions for addition of depreciation on the depreciation on the intangible asset and depreciation of inflated capital expenditure and depreciation of inflated capital expenditure while and depreciation of inflated capital expenditure computing book profit u/s 115JB of the Act. computing book profit u/s 115JB of the Act. The Ld. CIT(A) The Ld. CIT(A) rejected the claim of depreciation on intangible assets under the book profit the claim of depreciation on intangible assets under the book profit the claim of depreciation on intangible assets under the book profit observing as under:
“16.3 I have considered the assessment order and 16.3 I have considered the assessment order and 16.3 I have considered the assessment order and submission of the appellant. The appellant has contended submission of the appellant. The appellant has contended submission of the appellant. The appellant has contended that, the addition made while computing book profit that, the addition made while computing book profit that, the addition made while computing book profit u/s 11SJB is in gross violation of principle of natural justice as 11SJB is in gross violation of principle of natural justice as 11SJB is in gross violation of principle of natural justice as the AO has not given any opportunity to the appellant during the AO has not given any opportunity to the appellant during the AO has not given any opportunity to the appellant during assessment proceedings regarding this adjustment. assessment proceedings regarding this adjustment. 16.3.2 16.3.2 16.3.2 During During During the the the appeal appeal appeal proceedings, proceedings, proceedings, adequate adequate adequate opportunities have been given t opportunities have been given to the appellant to furnish o the appellant to furnish written submissions. Thus, natural justice has been provided written submissions. Thus, natural justice has been provided written submissions. Thus, natural justice has been provided to the appellant during the appeal proceedings and the to the appellant during the appeal proceedings and the to the appellant during the appeal proceedings and the grievance has been redressed grievance has been redressed 16.3.3 In this regard, the appellant mainly relying on the 16.3.3 In this regard, the appellant mainly relying on the 16.3.3 In this regard, the appellant mainly relying on the decision of hon'ble Supre decision of hon'ble Supreme Court in case of Apollo Tyres me Court in case of Apollo Tyres Limited vs CIT has contended that the AD cannot disturb the Limited vs CIT has contended that the AD cannot disturb the Limited vs CIT has contended that the AD cannot disturb the book profit and has no jurisdiction to go behind the net profit book profit and has no jurisdiction to go behind the net profit book profit and has no jurisdiction to go behind the net profit shown in the profit and loss account, except to the extent shown in the profit and loss account, except to the extent shown in the profit and loss account, except to the extent provided in the explanation to section 1 provided in the explanation to section 115JB. 16.3.4 I have considered the contention of the appellant. As 16.3.4 I have considered the contention of the appellant. As 16.3.4 I have considered the contention of the appellant. As already discussed above, the appellant has debited the already discussed above, the appellant has debited the already discussed above, the appellant has debited the depreciation on artificially created intangible assets on depreciation on artificially created intangible assets on depreciation on artificially created intangible assets on account of slump sale and demerger. It is already held that account of slump sale and demerger. It is already held that account of slump sale and demerger. It is already held that the scheme of ar the scheme of arrangement of transfer of asset is a asset is a colorable device with the only intent to evade the tax and colorable device with the only intent to evade the tax and colorable device with the only intent to evade the tax and accordingly the depreciation claimed on goodwill and accordingly the depreciation claimed on goodwill and accordingly the depreciation claimed on goodwill and intangible asset is disallowed. intangible asset is disallowed. As per the clause (lia) of explanation 1 to section 115 JB, the As per the clause (lia) of explanation 1 to section 115 JB, the As per the clause (lia) of explanation 1 to section 115 JB, the book profit book profit needs to be reduced by the amount of needs to be reduced by the amount of depreciation debited to the statement of profit and loss depreciation debited to the statement of profit and loss depreciation debited to the statement of profit and loss account excluding the depreciation on account of revaluation account excluding the depreciation on account of revaluation account excluding the depreciation on account of revaluation of assets. Hence, as per the clause (iia) only allowable of assets. Hence, as per the clause (iia) only allowable of assets. Hence, as per the clause (iia) only allowable depreciation needs to be adjusted for comput depreciation needs to be adjusted for computing book profit. ing book profit. The depreciation on intangible assets is due to revaluation of The depreciation on intangible assets is due to revaluation of The depreciation on intangible assets is due to revaluation of the same. As the depreciation claimed on the intangible the same. As the depreciation claimed on the intangible the same. As the depreciation claimed on the intangible assets is disallowed, the same needs to be adjusted to assets is disallowed, the same needs to be adjusted to assets is disallowed, the same needs to be adjusted to determine the book profit. determine the book profit. Hence, the action of AO in Hence, the action of AO in enhancing the book profit by the depreciation disaalowed on he book profit by the depreciation disaalowed on he book profit by the depreciation disaalowed on account of intangible asset is confirmed. Accordingly, appeal account of intangible asset is confirmed. Accordingly, appeal account of intangible asset is confirmed. Accordingly, appeal on this ground on this ground is DISMISSED.” 9.1 Further, the depreciation pertaining to inflated capital Further, the depreciation pertaining to inflated capital Further, the depreciation pertaining to inflated capital expenditure while computing book profit disallowed by the expenditure while computing book profit disallowed by expenditure while computing book profit disallowed by Assessing Officer has been sustained by the Ld. CIT(A) observing as Assessing Officer has been sustained by the Ld. CIT(A) observing as Assessing Officer has been sustained by the Ld. CIT(A) observing as under:
“17.4 As aready discussed in details while deciding ground 17.4 As aready discussed in details while deciding ground 17.4 As aready discussed in details while deciding ground no 2, the appellant company was found to be indulged in no 2, the appellant company was found to be indulged in no 2, the appellant company was found to be indulged in inflating the capital expenses related to the two parties. I inflating the capital expenses related to the two parties. I inflating the capital expenses related to the two parties. I have already confirmed the additions made by the A.O on ave already confirmed the additions made by the A.O on ave already confirmed the additions made by the A.O on this ground. Thus to the extent of cash component, the capital this ground. Thus to the extent of cash component, the capital this ground. Thus to the extent of cash component, the capital expenditure has been inflated. Accordingly the depreciation expenditure has been inflated. Accordingly the depreciation expenditure has been inflated. Accordingly the depreciation pertaining to seuch expenditure needs to be disallowed while pertaining to seuch expenditure needs to be disallowed while pertaining to seuch expenditure needs to be disallowed while computing the boo computing the book profit. While computing the book profit, k profit. While computing the book profit, the bogus expenditure has to be adjusted to reflect the correct the bogus expenditure has to be adjusted to reflect the correct the bogus expenditure has to be adjusted to reflect the correct position. Hence, the A.O is correct to add back the position. Hence, the A.O is correct to add back the position. Hence, the A.O is correct to add back the depreciation pertaining to bogus capital expenditure for the depreciation pertaining to bogus capital expenditure for the depreciation pertaining to bogus capital expenditure for the purpose of computing book profit us purpose of computing book profit us 115JB of the I.T.Act. 115JB of the I.T.Act. Accordingly the appeal on this ground Accordingly the appeal on this ground is DISMISSED. DISMISSED.” 9.2 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record. the relevant materials on record. The issue in dispute in the The issue in dispute in the grounds raised is whether any adjustment to the book profit grounds raised is whether any adjustment to the book profit grounds raised is whether any adjustment to the book profit otherwise than adjustment adjustment prescribed under section 115 ed under section 115JB of the Act is permissible. As far as claim of depreciation on goodwill is ct is permissible. As far as claim of depreciation on goodwill is ct is permissible. As far as claim of depreciation on goodwill is concerned, same was not available in concerned, same was not available in the books of accounts on the the books of accounts on the basis of which book profit was declared while filing original return basis of which book profit was declared while filing original return basis of which book profit was declared while filing original return of income. The book profit which has been declared while filing the of income. The book profit which has been declared while filing the of income. The book profit which has been declared while filing the return in response to notice under section 153A of the A se to notice under section 153A of the A se to notice under section 153A of the Act is not same as was declared whi same as was declared while filing original return of income and le filing original return of income and therefore this also being in the nature of a fresh claim, it cannot be therefore this also being in the nature of a fresh claim, therefore this also being in the nature of a fresh claim, entertained following the decision of the special bench of the entertained following the decision of the special bench of the entertained following the decision of the special bench of the Tribunal in the case of M/s SEW infrastructure Ltd (supra). Tribunal in the case of M/s SEW infrastructure Ltd (supra). Tribunal in the case of M/s SEW infrastructure Ltd (supra).
9.3 As far as deprec depreciation on inflated capital expenditure is iation on inflated capital expenditure is concerned, the provisions of section 115 the provisions of section 115JB provides for adding the JB provides for adding the depreciation claimed as per companies A ation claimed as per companies Act to the book profit and ct to the book profit and thereafter reducing the depreciation thereafter reducing the depreciation debited in profit and loss debited in profit and loss account excluding the depreciation on account of revaluation of the depreciation on account of revaluation of the depreciation on account of revaluation of assets. There is no provision under the section 115JB of the Act to assets. There is no provision under the section 115JB of the Act to assets. There is no provision under the section 115JB of the Act to give effect to depreciation disallowed by the AO in normal give effect to depreciation disallowed by the AO in normal give effect to depreciation disallowed by the AO in normal proceedings. Therefore herefore, the finding of the Ld. CIT(A) on the issue in Ld. CIT(A) on the issue in dispute in relation to depreciation on inflated capital expenditure elation to depreciation on inflated capital expenditure elation to depreciation on inflated capital expenditure are set aside. Accordingly, the ground Accordingly, the ground No. 6 of the appeal is of the appeal is dismissed whereas ground No. dismissed whereas ground No. 7 of the appeal is allowed. is allowed.
In the result, the appeal of the assessee is partly allowed. 10. In the result, the appeal of the assessee is partly allowed. 10. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on ced in the open Court on 24/02 /02/2025.