AFCONS INFRASTRUCTURE LTD.,MUMBAI vs. PR. CIT -(1), MUMBAI

Per : Kuldip Singh, Judicial Member: The appellant, M/s. Afcons Infrastructure Ltd. (hereinafter

referred to as ‘the assessee’) by filing the present appeal, sought to

set aside the impugned order dated 24.03.2021 passed by

Ld. Principal Commissioner of Income Tax, Mumbai (hereinafter

referred to as the PCIT) invoking revisionary jurisdiction by virtue

of the provisions contained under section 263 of the Income Tax

Act, 1961 (hereinafter referred to as ‘the Act’) on the grounds inter

alia that :-

2 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. “A: Addition on account of bogus sub-contract expenses.

B: Addition in respect of interest on arbitration awards

controversy at hand are : the assessee company filed a return of

income on 25.09.2010 declaring the total income of

Rs.54,61,68,230/- under normal provisions and book profit of

Rs.76,40,58,837/- under section 115JB of the Act. Thereafter, the

3 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. assessee filed revised return of income on 16.05.2011 revising its

total income at Rs.55,33,94,596/- and again filed revised return of

income on 29.03.2012 at the total income of Rs.23,92,94,596/-.

Assessment was framed under section 143(3) of the Act at

Rs.2,96,66,390/- under the normal provisions and book profit of

Rs.76,40,58,837/- under section 115JB of the Act.

DDIT(Inv.) assessment was reopened by way of initiating the

proceedings under section 147/148 of the Act qua the alleged bogus

sub-contract expenses claimed by the assessee of Rs.3,83,95,000/-

and Rs.4,09,73,000/- (total Rs.7,93,68,000) from M/s. Kumar

Enterprises and M/s. Shivam Enterprises respectively.

Consequently, the Assessing Officer (for short the AO) framed the

assessment at the total income of Rs.26,07,45,648/- under normal

provisions of the Act and book profit at Rs.76,40,58,837/- under

section 115JB of the Act.

jurisdiction issued a notice under section 263 of the Act by flagging

the issue that during the year under consideration assessee company

has made payment of Rs.4,05,25,000/- to M/s. Shivam Enterprises

and Rs.3,29,00,000/- to M/s. Kumar Enterprises, and both the

4 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. above entities have been found to be shell entities and they have not

filed return despite having received substantial sum of money from

the assessee company M/s. Afcons Infrastructure Ltd. It was also

noticed by the Ld. PCIT that during the reassessment proceedings

the AO established that the alleged transaction on account of sub-

contract services availed by the assessee from the above two

entities are non genuine and are in the nature of alleged bogus sub-

contract expenses, but AO instead of disallowing the entire alleged

sub-contract expenses made addition of Rs.99,21,000/- being

12.5% of the alleged bogus sub-contract expenses of

Rs.7,93,68,000/- under section 69 of the Act. The Ld. PCIT also

noticed that the assessee has credited an amount of Rs.6,57,89,000/-

on account of arbitration award to P&L account, however reduced

the same from the total income in the computation of income. The

AO was required to add back the entire amount of Rs.6,57,89,000/-

to the total income instead of Rs.37,75,625/- as the assessee has

been following mercantile system of accounting.

Ld. PCIT proceeded to conclude that the assessment order passed

by the AO under section 143(3) read with section 147 of the Act is

erroneous and prejudicial to the interest of the revenue and directed

5 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. the AO to reframe the assessment afresh after giving due

opportunity to the assessee.

passed by the AO erroneous and prejudicial to the interest of the

revenue and invoked the jurisdiction under section 263 of the Act

by way of issuance of notice and thereby passed the impugned

order under section 263 of the Act. Feeling aggrieved from the

impugned order passed by the Ld. PCIT under section 263 of the

Act, the assessee has come up before the Tribunal by way of filing

the present appeal.

parties to the appeal, perused the orders passed by the Ld. Lower

Revenue Authorities and documents available on record in the light

of the facts and circumstances of the case and law applicable

thereto.

addressed in the court, also filed written submissions which are

made part of the judicial record.

6 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 9. Before proceeding further we would like to extract the notice

issued by the Ld. PCIT under section 263 of the Act and reply filed

thereto by the assessee, which are as under:

“Notice issued by the Ld. PCIT:

(i) On perusal of the records, the assessment was reopened u/s.147 as it was found that the alleged payments totaling to Rs. 7,93,68,0007-; to two entities viz. M/s. Kumar Enterprises - Rs. 83,95,0007- and to M/s. Shubham Enterprises -Rs. 4,09,73,0007-, respectively , for non- existent persons as pointed out by the DDIT. The matter was referred to the AO, after due process the AO initiated the reassessment proceedings and during the course of those proceedings, letters and notices issued to the above two parties were returned unserved by the postal authorities and you were a/so not able to produce those parties for verification despite making such huge payments. Therefore, the AO held the same to be non genuine and accommodation entries and an amount equal to 12.5% of the sales was added back to the income of the assessee.

(ii) This decision of the AO to only add back 12.5% of the sales is an error and is also prejudicial to the interests of the revenue. As when the transaction was held to be non genuine, parties are not found at the address given and no return of income have been filed, the entire transaction should have been added back to the income and not 12.5% of sales.

(iii) Reliance is placed on the decision of the Hoh'ble Supreme Court in the case of N.K. Proteins Pvt. Ltd. vs. Dy. CIT(2016) 292 CTR 354.."Whereby it was held that addition on basis of undisclosed income could not be restricted to certain percentage when the entire transaction was found to be bogus."

Similarly, on perusal of the computation of income furnished by you, during the course of reassessment proceedings, the sum of Rs.6,57,89,000/- on account of 'Arbitration Credits' taken to P&L A/c. was reduced from you profit for the year while computing income in the

7 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. second revised return. As you are following mercantile system of accounting and further in view of the various provisions of the I.T. Act the same should not have reduced in your computation and erroneously allowed by the AO without any discussion or verification. This clearly shows that the said order passed by the AO is erroneous and prejudicial to the interests of revenue.”

“Reply filed by the assessee: "Issue No. 1: In respect of two vendors who had allegedly given 'accommodation invoices' additions @ 12.5% of invoice values, (considering gross profit) was made in assessment order passed u/s. 147. Citing the case of N.K. Proteins Pvt. Ltd. vs. DCIT, notice u/s.263 propose to make addition @100% of invoice values. Our submissions • Principles laid down in N.K. Proteins cannot be applied in our case. • In N.K. Proteins incrimination documents were found in the premises of assessee and the assessee confessed that invoices were fake. • In our case reopening was done based on information from DDIT(lnv.) New Delhi. • No independent enquiries were made by AO (other than writing a letter to bankers of vendors). • We had submitted the 'measurement books' of the vendors which are maintained by the project teams for certifying work done by vendors. • For work done by these vendors, we in turn raised bills on our clients. • Our above facts have hot been disputed by the AO in his order. AO unfortunately did not incorporate our above submission in order u/s.147. Nevertheless, he applied his mind and added GP @ 12.5%. In view of the above, the notice u/s. 263 on this issue may kindly be dropped.

8 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd.

Issue No. 2: It is proposed to add an amount of Rs.6.57 crores relating to Arbiration awards received during the year which was claimed as deduction by the assessee and allowed in assessment.

On merits: • AO has applied his mind before allowing the deduction and based on submissions made by us. • After applying his mind and considering our submissions, the deduction allowed by the AO was ofRs.6.57 crores minus Rs.0.37 crores = Rs.6.20 crores. • AO explained the reasons for reducing the deduction claimed for arbitration awards in the return of income and restricted the deduction to Rs.6.20 crores (instead ofRs.6.57 crores claimed in the return) and recorded the reasons in para 4.1 of the assessment order on page no.4 of assessment order dated 05.03.2014. • The deduction allowed was being consistently allowed to the assessee since AY 2004-05 and is based on the decision on the Hon'ble Supreme Court in the case of Hindustan Land Development Corporation. AO therefore applied his mind and recorded the reasons for allowing the deduction.

On Technical Grounds: • Although order u/s.147 was passed in December 2017 and notice u/s.263 has been issued within 2 years, the issue regarding allowing deduction of Rs.6.57 cr. relating to arbitration awards does not arise from the order u/s. 147. • The issue arises out of the original order passed u/s. 143(3). Since original order was dated 05.03.2014 notice u/s.263 on this issue is time barred.

9 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. In view of the above facts and circumstances of-our case, both on merits and technical grounds, the proceedings u/s.263 on this issue maybe dropped." 10. Undisputedly, Ld. PCIT has invoked the revisionary

jurisdiction under section 263 of the Act on two issues dealt with

by the AO in the assessment framed under section 143(3) read with

section 147 of the Act which are as under:

(i) Bogus contract expenses claimed by the assessee (ii) Interest on arbitration award not offered for taxation under normal provisions of the Act.

Act was initiated on the basis of information received from the

investigation wing of Income Tax, Delhi that M/s. Kumar

Enterprises and M/s. Shivam Enterprises with whom the assessee

had business transactions were shell entities and they have not filed

their returns of income despite having allegedly received

substantial sum of money from the assessee.

laid down the criteria for invoking revisionary jurisdiction under

section 263 of the Act only when the order sought to be revised is

prejudicial to the interest of the revenue and the AO has framed the

assessment inter alia that without making enquiries or verification

which should have been made; that the order is passed allowing any

relief without enquiring into the claim; that order has not been

10 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. made in accordance with any order, directions or instructions issued

by the Board under section 119 or; that the order has not been

passed in accordance with any decision which is prejudicial to the

assessee, rendered by the jurisdictional High Court or Hon’ble

Supreme Court in case of the assessee of any other person.

section 263(1), Explanation 2 qua both the issues flagged by the

Ld. PCIT.

bogus sub-contract expenses claimed by the assessee from

M/s. Kumar Enterprises and M/s. Shivam Enterprises for an amount

of Rs.7,93,68,000/- are concerned, we have perused the assessment

order in question particularly para 6 of the assessment order

wherein detailed discussion has been made. During the assessment

proceedings the assessee was called upon to submit summary of

payments, ledger accounts, specimen copies of bills, work order &

accounting entries and copy of TDS certificate to prove the

genuineness of the transactions in question, to which the assessee

company has filed reply as under:

“6.3 Further, vide its letter dated 14.9.2017, the assessee has stated that it is a part of Shapoorji Palonji group and is involved in the execution of large and complex civil engineering projects in India as well as abroad. Further, it

11 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. has contended that it sub-contracts a part of the main contract work to other sub-contractors, in order to ensure timely completion of the contract. It stated that the above two entities M/s. Kumar Enterprises and M/s. Shivam Enterprises are two such sub-contractors, whose services were availed by the assessee company by sub-contracting a part of its ongoing projects for the assessment year consideration. The assessee has submitted that all the payments to these parties were made through account payee cheques after deducting TDS. Accordingly, the assessee has submitted that the payments made to both these parties are not merely accommodation entries and are genuine payments for the services availed.”

under section 133(6) of the Act to both the parties on 29.09.2017

but the same remained unserved. The assessee was also asked to

produce both the parties which the assessee company has failed to

do.

rendered by Hon’ble High Courts and Tribunal, reached the

conclusion that “bogus entry transactions in question are non

genuine and allowed the same to be accommodation entries”. The

AO by following the decisions rendered by Hon’ble Gujarat High

Court in cases of Simit P. Sheth 356 ITR 451 (Guj.) and CIT vs.

Bholanath Poly Fab P. Ltd. proceeded to make addition of

Rs.99,21,000/- (612.5% of Rs.7,93,68,000/-) along with

commission @ 1% amounting to Rs.7,93,680/- to the total income

12 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. of the assessee. Addition made by the AO has been accepted by the

assessee company by not filing any further appeal.

that there is nothing on record, if services were actually procured

by the assessee from the contractor. However, answer to this

question has been given by the AO himself by treating the

transactions as non genuine/accommodation entries. The Ld. D.R.’s

contention that 100% amount of bogus transactions should have

been added and relied upon the decision rendered by co-ordinate

Bench of the Tribunal in case of ITO vs. Ashok V. Viradia in ITA

No.646/M/2016 dated 25.09.2017 and decision rendered by

Hon’ble Bombay High Court in case of Shoreline Hotel (P.) Ltd.

vs. CIT (2018) 98 taxmann.com 234 (Bombay).

divergent judgments have been passed by the Hon’ble High Courts

as in case of CIT vs. Bholanath Polyfab Pvt. Ltd. (2013) 355 ITR

290 and CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj.).

Hon’ble High Court permitted addition of partial amount of

accommodation entries due to the fact that there were subsequent

sale of goods which were undisputed.

13 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 19. When we examine aforesaid findings returned by the AO in

the light of the mandate given by section 263(1), Explanation 2

there is nothing on record to make out if the assessment order was

passed without making any enquiry or verification or given any

relief without enquiring into the claim. In response to the

explanation called by the AO assessee company brought on record

the summary of payment; ledger account; specimen copies of bills,

work orders, accounting entries; TDS certificate, bank statement

showing payments made to the aforesaid two parties which are

available at page 80 of the paper book.

the parties which remained unserved and assessee company has

shown its helpless to produce the parties. Thereafter the AO, by

relying upon the law laid down by the Hon’ble Rajasthan High

Court reported in (2002) 178 CTR (Rajasthan) 420 and Tribunal’s

orders in case of CIT vs. M/s. Golcha Properties Pvt. Ltd. (in

liquidation) (1996) 136 CTR 222 (Raj.), M/s. Kachwala Gems vs.

JCIT (ITA No.134/JP/2002 dated 10.12.2003, CIT vs. Saravana

Constructions Pvt. Ltd. (2012) 72 DTR (Kar), CIT vs. La Medica

(2001) 250 ITR 575 (Del.), Ganesh Rice Mills vs. CIT (1989) 180

ITR 288 (All), Khandelwal Trading Co. vs. ACIT 55 TTJ (Jp) 261

and Vijay Proteins Ltd. vs. ACIT (1996) 55 TTJ (Ahd) 76 : 58 ITD

14 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 428, reached the conclusion that the transactions entered into by the

assessee company with aforesaid companies are “non genuine” and

held to be “accommodation entries”. So the AO made the addition

@ 12.5% of the total amount of Rs.7,93,68,000/- and 1% on

account of commission on these accommodation entries. So in

these circumstances, we are of the considered view that Ld. PCIT

has invoked the jurisdiction under section 263 without satisfying

the conditions laid down under section 263(1) Explanation 2 which

is not sustainable in the eyes of law. Because when after discreet

inquiry AO has taken plausible view, the same cannot be allowed to

be revised under section 263 of the Act. Moreover, there is nothing

on file to show that there is non application of mind on the part of

the AO.

AO as well as Ld. PCIT is as to whether total transaction amount of

bogus entries should be added or 12.5% thereof should be added to

the income of the assessee. In such circumstances, it is again

settled principle of law that “where two views are possible, as the

AO has taken one view and Ld. PCIT did not agree with him” on

this ground only the order cannot be treated as erroneous in so far

as prejudicial to the interest of the revenue as has been held by

15 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. Hon’ble Bombay High Court in case of Grasim Industries Ltd.

vs. CIT (2010) 321 ITR 92 (Bom).

when the assessment order which was subject matter of section 263

of the Act was passed after discreet enquiry and applying its mind

the same cannot be revised under section 263 of the Act. Since

order passed by the Ld. PCIT does not fulfill the condition laid

down under section 263 of the Act the same is not sustainable in the

eyes of law, so far as issue as to the bogus sub-contract expenses

claimed by the assessee are concerned.

jurisdiction under section 263 of the Act was invoked by

Ld. CIT(A) i.e. AO without any discussion or verification allowed

the claim of the assessee to reduce a sum of Rs.6,57,89,000/- on

account of arbitration credit taken to P&L account was reduced

from profit for the year under consideration while computing the

income in the second revised return. The assessee has challenged

the impugned order passed under section 263 of the Act qua income

from arbitration award on two grounds: one that exercise of

revisionary jurisdiction by Ld. PCIT under section 263 of the Act is

hopelessly time barred; two that ingredients laid down to invoke the

16 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. revisionary jurisdiction under section 263 of the Act are not

satisfied.

Ld. PCIT under section 263 of the Act being time barred are

concerned, undisputedly impugned order passed under section 263

of the Act is dated 24.03.2021 seeking to review the order passed

by the AO on 05.03.2014. It is also not in dispute that limitation

period for reason of assessment order under section 263 of the Act

is within two years from the end of the financial years in which the

order sought to be revised was passed. By applying the aforesaid

principle the limitation to review the order dated 05.03.2014 under

section 263 of the Act expired on 31.03.2016 as per the provisions

contained under section 263(2) of the Act.

when the jurisdiction is invoked under section 147 of the Act the

whole assessment proceedings stand reopened.

PCIT as well as by Ld. D.R. for the Revenue because power to

reopen the assessment under section 147 of the Act is vested with

the AO and not with the Ld. PCIT. For that matters limitation

cannot be stretched beyond two years as laid down under section

17 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 263(2) of the Act. So assuming jurisdiction qua income from

arbitration award under section 263 of the Act is hopelessly time

barred and as such the impugned order in this regard is not

sustainable.

that even the conditions laid down under section 263 of the Act as

discussed in the preceding paras are not satisfied because the AO

during assessment has made extensive enquiry by perusing entire

details of arbitration awards and the appeals filed by the assessee’s

opponent before various High Courts. After due application of

mind the AO concluded that only the award amounting to

Rs.37,75,265/- was final and rest is still under dispute.

arbitration award in the assessment order dated 05.03.2014 passed

under section 143(3) read with section 144C(3) of the Act shows

that due enquiry was carried out by the AO and decided the issue

by applying his mind by returning following findings:

“Arbitration Awards :

4.1 Vide its written submissions dated 15.01.2014, the assessee has stated that in its return of income for A.Yr. 2010-11, it had reduced the sum of Rs.6,57,89,281/- on account of 'arbitration credits taken to Profit & Loss Account' on the basis that the awards are being challenged by the clients before higher forums i.e. before the High

18 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. Court.. However, now it is learnt by the assessee that some of the arbitration awards and interest thereon was not challenged by the client viz. Chennai Port Trust. Such amount comes to Rs.37,75,265/-. Hence, Rs.37,75,265/- is added to the total income of the assessee. Penalty proceedings u/s.271(1){c) of the Act are hereby initiated for furnishing inaccurate particulars of income / concealment of particulars of income.”

identical issue order passed by the Ld. PCIT for A.Y. 2014-15 in

assessee’s own case has been quashed by the Tribunal vide order

dated 17.03.2020 in ITA No.3159/M/2019 for A.Y. 2014-15 by

taking the view that once a possible view is taken in the matter by

the AO provisions contained under section 263 of the Act cannot be

invoked.

was passed on the basis of settled principle of law but we are to

decide this issue on the basis of particular facts of this case. In the

instant case, we are of the considered view that when after due

enquiry, the AO has taken plausible view on the issue in question

by calling necessary information from the assessee, such

assessment order cannot be held to be prejudicial to the interest of

the revenue. So we are of the considered view that very initiation

of proceedings by invoking the provisions contained under section

19 ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 263 of the Act by the Ld. PCIT lacks jurisdictional error and as

such not sustainable in the eyes of law.

considered view that very initiation of the proceedings under

section 263 of the Act are not sustainable in the eyes of law for lack

of jurisdiction as required under section 263(2) to Explanation 1 of

the Act, hence ordered to be quashed. Since the assessee has got

the relief on legal issue, we find no need to go into the merits of

this case. Resultantly, appeal filed by the assessee is allowed.

Order pronounced in the open court on 29.03.2022.

Sd/- Sd/- (M. BALAGANESH) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 29.03.2022. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.