ACIT CIR 2, THANE vs. S.C THAKUR & BROTHERS, RAIGAD

PER R.S.SYAL, VP : These two cross appeals – one by the assessee and the other by the Revenue arise out of the order passed by the ld. CIT(A) on 15.03.2011 in relation to the assessment year 2006-07.

2 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

confirmation of addition of Rs.1,05,18,217/- on account of

disallowance u/s.40(a)(ia) of the Income-tax Act, 1961

(hereinafter called ‘the Act’).

the material time, was a registered firm engaged in the business of

Civil Construction, Infrastructure Development and undertakes

Government projects, which was later on succeeded by a private

limited company. A search and seizure action was taken u/s.132

of the Act at the premises of the assessee on 07-02-2008. In

response to notice u/s.153A, the assessee filed return on

17-07-2008 declaring total income of Rs.6,32,46,370/- for the

year under consideration. During the course of assessment

proceedings, the AO observed that there was failure on the part of

the assessee to deduct tax at source on payment to the tune of

Rs.1,05,18,217/- towards Transportation receipts. Invoking the

provisions of section 40(a)(ia) of the Act, he made disallowance

for the said sum, which came to be affirmed in the first appeal.

material on record. The assessee was subjected to search on

3 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

07-02-2008. Prior to that, the assessee furnished its return of

income u/s.139(1) of the Act on 31-10-2006 declaring total

income of Rs.6,32,46,374/-. No notice u/s.143(2) was issued

within the stipulated period which expired on six months from the

end of the relevant assessment year, i.e. on 30-09-2007. Thus,

when the search action was taken, the time limit for issuing notice

u/s.143(2) had already expired and further no assessment order

was passed u/s.143(3) in respect of the year under consideration.

conducted, there can be two types of assessment years, namely,

completed assessments and non-completed or pending

assessments. Assessment years having completed assessments

mean the years for which either the assessments stood completed

by the AO u/s 143(3) or section 144 before the date of search or

the years for which the regular assessments were not taken up

after the filing of the returns by the assessee and further that the

time limit for issuing notice u/s 143(2) stood expired on the date

of search.

assessee is first processed by the A.O. u/s 143(1)(a) of the Act in

4 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

which total income is computed after making the specified

adjustments. As per clause (b), tax and interest, if any, is

computed on the basis of the total income computed under clause

(a). Clauses (d) and (e) of section 143(1) provide that an

Intimation shall be sent to the assessee specifying the sum

determined to be payable by, or the amount of refund due to, the

assessee and the amount of refund due to the assessee in

pursuance of the determination under clause (c) shall be granted

to the assessee. Processing of the return u/s 143(1) and the

consequential issuing of Intimation is construed as passing of the

assessment order except where a notice u/s 143(2) is issued for a

scrutiny assessment u/s 143(3) of the Act. In a case, where notice

u/s 143(2) is issued, the processing of return u/s 143(1) and the

consequential issuance of Intimation does not amount to passing

of the assessment order because the assessment order, in such

circumstances, is passed after due scrutiny u/s 143(3) of the Act.

There can be only one assessment order for one year. The crux of

the matter is that where no notice u/s 143(2) is issued within the

permissible maximum time, the issuance of Intimation on

processing the return u/s 143(1) of the Act, is construed as

completion of assessment. However, where such notice is issued,

5 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

the intimation issued u/s 143(1)(a) loses the character of an

assessment order, which in that case, is passed u/s 143(3) after

thorough scrutiny. To sum up, an assessment is termed as

completed on the passing of an order u/s 143(3) of the Act, but, in

a case, where a return has been filed by the assessee, which is

processed u/s 143(1), but no further notice u/s 143(2) is issued

and the same cannot be issued because of the time limit setting in,

the Intimation sent to the assessee u/s 143(1) is also treated as a

completed assessment for this purpose.

pending assessments mean the years for which the assessments

were pending on the date of search which are abated in terms of

the express provisions of the second proviso to section 153A.

This will also embrace the years in respect of which the time limit

for issuing notice u/s 143(2) is still available with the AO as on

the date of search.

in both the above types of assessments. In case of non-completed

or pending assessments, the entire assessment is thrown open

before the AO and the pending assessment gets abated. The AO

6 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

can make addition in such an assessment whether or not there is

any incriminating material found during the course of search.

However, in case of completed assessments, the scope of addition

u/s.153A gets restricted only qua some incriminating material

found during the course of search. In such an assessment,

addition can be made only on the basis of incriminating material

found during the course of search as has been held by the Hon’ble

jurisdictional High Court in CIT & others Vs. Deepak Kumar

Agarwal and others (2017) 398 ITR 586 (Bom.) and CIT vs.

Gurinder Singh Bawa (2016) 386 ITR 483 (Bom.).

category, for which though the return was filed u/s.139(1) but the

assessment was not taken up and further the time limit for issuing

notice u/s.143(2) had already expired. The extant addition has

been made by invoking the provisions of section 40(a)(ia) of the

Act. The assessee debited its Profit and loss account with a sum

of Rs.3,46,64,154/- on account of Earth moving charges. The AO

found that the assessee did not deduct any tax at source on this

amount u/s.194C of the Act. Following his order for the A.Y.

2005-06, he considered 25% of the payments made on Earth

moving charges as towards transportation of sand etc. on which it

7 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

was opined that tax was liable to be deducted at source. Having

not deducted tax at source, the AO held that the amount was

disallowable u/s.40(a)(ia) of the Act. It is observed from the

above discussion that the disallowance in question is not based on

any incriminating material found during the course of search and

assessment year under consideration is that of completed

assessment, and not that of abated assessment. In our considered

opinion and respectfully following the above precedents of the

Hon’ble jurisdictional High Court, we hold that the disallowance

in question cannot be sustained because no incriminating material

was found on this score. We, therefore, order to delete the above

disallowance.

against the estimation of income at 10% of receipts. The Revenue

in its appeal is aggrieved by the decision of the ld. CIT(A) in

reducing the estimation of net profit to 10%.

incriminating documents were found during the course of search,

which were seized. Statement of the partner, namely, Sh. Paresh

Ram Thakur was recorded u/s.132(4) of the Act on 8.2.2008. The

8 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

seized documents indicated recording of inflated expenses.

Initially, the assessee made surrender of Rs.6.50 crore in its hands

for the A.Y. 2007-08 and its successor, namely, Thakur Infra

Projects Pvt. Ltd. for the A.Y. 2008-09. However, in the

subsequent statement, the assessee revised surrender of Rs.6.50

crore only in the hands of Thakur Infra Projects Pvt. Ltd. and that

too for the A.Y. 2008-09. The AO found that the assessee had

maintained two sets of books of account for the year under

consideration, namely, the one which was found recorded in

computers at the time of search drawn up to February, 2006 and

the other which was produced by the assessee during the course of

assessment proceedings. He found difference between several

items of profit and loss account and balance sheet recorded in two

sets of accounts. The AO has made out a comparative tabulation

on page 28 of his order indicating the amount of total receipts

including contract receipts along with the direct and indirect

expenses, as declared in the return of income and as found in the

seized CD. On such analysis, the AO found a percentage of

expenses to contract receipts as per the Profit and loss account

filed by the assessee with the return of income at Rs.89.77% as

against the similar percentage in the Profit and loss account as

9 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

found in seized CD at 75.04%. The difference between the two at

14.73% was added to the assessee’s declared percentage of profit

at 7.49%, which resulted into an addition of Rs.5,85,75,235/-.

When the matter came up before the ld. CIT(A), he observed that

the assessee succeeded in reconciling the figures in two sets of

accounts as discussed above. He has discussed such

reconciliations on page 39 onwards of the impugned order.

Thereafter, he held that the view point of the AO in making

addition @14.73%, being, the difference in expenses in two sets

of books of account, was not appropriate. Considering the order

passed by the Mumbai Benches of the Tribunal in ACIT Vs. Vijay

Mhatre, he estimated the income at 10% of the turnover at

Rs.9.41 crore. Both the sides are in appeal on their respective

stands. Whereas the claim of the assessee is that the entire

addition ought to have been deleted, the Revenue has made out a

case that the ld. CIT(A) was not justified in reducing the AO’s

estimation of net profit to 10% of the total receipts.

material on record, it is seen that the search and seizure action

conducted on the assessee revealed the evidence of the assessee

having inflated expenses under the heads Transport charges,

10 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

Machinery hire charges, Labour charges and Sub-contract

expenses. It was further seen that the assessee had maintained

two sets of books of account for the A.Ys. 2006-07 and next

assessment year. Various blank signed letter heads were also

found and seized from the office of the assessee. When asked to

explain, Sh. Paresh Thakur in his statement recorded u/s 131 on

March, 2008 stated that : `These are blank letter heads of sub

contractors, some of which are signed. These sub-contractors left

the letter head in our office in the course of working.’ When the

same question was asked to Sh. Anil Bhagat, he stated the reason

of the same on behalf of his wife, proprietor of Rohit

Construction, whose blank signed letter heads were seized. He

explained that : `These signed letter heads have been provided by

us to them as per their instructions for preparation of our contract

bills to be prepared by M/s S.C. Thakur & Bros/SC Thakur

Infraproject, Panvel.’ It was further revealed during the course of

search that the vouchers of expenses under the above heads were

prepared in the office computer only but the original records

containing signature of supervisor and engineering person were

destroyed. This fact was also confirmed by the partner in his

statement u/s 132(4) of the Act. The above discussion indicates

11 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

that the Department came across several instances of inflation of

expenses and unsubstantiated expenses along with difference in

receipts and expenses in the sets of accounts as found in the

course of search in the computer of the assessee and the one that

was actually produced for the purposes of assessment. This

indicates that evidence of the assessee having inflated expenses

for the year under consideration was actually found during the

course of search. In that view of the matter, the manner in which

the disallowance made by the AO u/s 40(a)(ia) has been deleted

by us supra, cannot be applied in so far as the instant addition on

account of profit rate is concerned.

simply proceeded to find out the difference between the expenses

as recorded in the Profit and loss account filed along with the

return of income and the Profit and loss account found in the

seized CD at 14.73% and made addition for the same. The ld.

CIT(A) found reconciliation between the figures. He, however,

restricted the addition to 10%. We have noted above that the

discrepancies were actually observed in the recording of expenses

during the course of search but their magnitude is not precisely

ascertainable from the orders of the authorities below. The AO

12 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

made one estimate about a particular percentage of net profit and

the ld. CIT(A) went ahead with another estimate. In the given

circumstances, we need to find out the amount of addition liable

to be made. Ordinarily, we would have gone with the evidence

actually found at the time of search for making addition, but, the

position as instantly prevails is that albeit there is evidence of

inflation of expenses, but its precise quantification is not

available.

caption “Special provisions for computing profits and gains of

business of Civil Construction etc.” starts with a non-obstinate

clause and provides that in the case of an assessee engaged in the

business of Civil Construction etc. a sum equal to 8% of the gross

receipts or a sum higher than that declared in the return of income

shall be deemed to be profits and gains of such business

chargeable to tax under the head `Profit and gains from business

or profession’. Though the section strictly applied only where the

gross receipts did not exceed an amount of Rs.40.00 lakh, but at

any rate, it gave hint about the appropriate percentage of profit in

the business of Civil Construction. Even though this section

technically does not apply to the assessee because of the amount

13 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

of gross receipts exceeding Rs.40.00 lakh, still we can find out a

reasonable net profit percentage to be applied in the given

circumstances at 8%. We, therefore, hold that a net profit rate of

8% be applied to the Total receipts as against 7.49% declared by

the assessee and 10% estimated by the ld. CIT(A).

of interest received on income-tax amounting to Rs.6,994/- and

office rent received amounting to Rs.1,75,500/- which are items

of subject matter of Ground No.1 of the Revenue’s appeal, should

be excluded. Interest received on income-tax should be

separately included in the total income of the assessee under the

head ‘Income from other sources’. Office rent of Rs.1,75,500/-

should be considered for the purposes of computation of income

under the head ‘Income from house property’. These two

amounts of receipts, however, are directed to be excluded while

applying the percentage of net profit at 8% on the gross contract

receipts. The other two items in Ground No.1 of the Revenue’s

appeal, namely, Discount received amounting to Rs.2,59,815/-

and Miscellaneous receipts of Rs.1,05,043/- are related to the

contract receipts of the assessee which cannot be separately

excluded.

14 ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

and send the matter to the AO to decide this issue in accordance

with our above observations. Needless to say, the assessee will be

allowed a reasonable opportunity of hearing.

ld. AR, which hereby stand dismissed.

Order pronounced in the Open Court on 17th September, 2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 17th September, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. 2. ��यथ� / The Respondent; 3. The CIT(A)-1, Thane 4. The CIT Central, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “B” / DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA Nos.4170 & 5001/MUM/2011 M/s. S.C. Thakur & Brothers

Date 1. Draft dictated on 16-09-2019 Sr.PS 2. Draft placed before author 17-09-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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