MADHUCON PROJECTS LIMITED,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-2(1), HYDERABAD

5. The Ld. CIT(A) erred in treating the amount of Rs. 4,40,00,000/- withdrawn from the bank accounts of the assessee's sub-contractors as inflated expenditure of the assessee and adding the same to the total income.

7. The Ld. CIT(A) erred in relying on the withdrawals from bank accounts of third parties i.e., the assessee's subcontractors and making the addition under the head "Inflated Expenditure" in the hands of the assessee.

8. The Ld. CIT(A) ought to have appreciated the fact that the amount withdrawn from the bank accounts of the sub- contractors is used to meet the expenditure of the sub-contractors.

9. The Ld. CIT(A) erred in sustaining the addition of Rs. 1,18,07,320/- to the income of the assessee being unexplained cash payments. l0. The Learned CIT (A) erred in sustaining the addition of Rs, 60,22,916/- to the income of the assessee being unexplained cash payments.

11. The learned CIT(A) erred in enhancing the income of the assessee without providing any opportunity of being heard which is against the principles of natural justice.

12. Without prejudice to the above grounds, the Ld. CIT(A) ought to have appreciated the fact that both the addition of Rs. 5,00,00,000/- made in original assessment as well as the addition of Rs. 440,00,000/- made in search assessment are towards excess cash payment. 13 Without prejudice to the above grounds, the Ld CIT(A) ought to have appreciated the fact that the addition of Rs.

Page 3 of 48 4.40.00,000/- was not made by the assessee as already an addition of Rs. 5,00,00,000/- was made in original assessment which was of similar nature and once again making an addition of Rs.4,40,00,000/- would result in double taxation. 14 The Ld. CIT(A) ought to have appreciated the fact that addition of Rs.4,40,00,000/-was not made by the AO while computing the total income to avoid double taxation of income and not based on principle of telescoping.

15. The Learned CTA) ought to have appreciated the fact that entire amount of Rs.4,00,00,000/- was available before AO to telescope against unexplained income/ investment.

16. The Ld. CIT(A) ought to have appreciated the fact that any addition made to the income of the assessee would enhance the claim of deduction made u/s S01A of the Act 17.The assessee may add, alter or modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal.

3. Ground Nos 1 to 3 are regarding validity of the addition made by the Assessing Officer in the absence any incriminating material found during the course of search & seizure action. The learned AR of the assessee has submitted that the search & seizure operation u/s 132 of the I.T. Act, 1961 was carried out in case of the assessee on 4/3/2011 and therefore, as on the date of search, the assessment for the year under consideration was not pending rather the assessment was already completed u/s 143(3) which was also subjected to the appeal before this Tribunal and vide order dated 28/12/2012, this Tribunal finally disposed of the appeal of the assessee for the A.Y under consideration. In the order passed u/s 153A, the Assessing Officer has not made any addition but has disallowed the claim of Page 4 of 48 deduction u/s 80IA of the I.T. Act, 1961 which is already covered by the decision of this Tribunal in assessee’s own case for the A.Ys 2007-08 and 2008-09 as well as for the A.Ys 2012-13 & 2013-14. Thus, the learned AR has submitted that the disallowance made by the Assessing Officer u/s 80IA is not based on any incriminating material found during the course of search & seizure action but since the Department has not accepted the order of this Tribunal and filed an appeal before the Hon'ble jurisdictional High Court in case of GVPR Engineers, the Assessing Officer has made this disallowance to keep this issue above. In this regard he has relied upon the decision of the Hon'ble Supreme Court in the case of Pr. CIT vs. Abhisar Buildwell (P) Ltd reported in (2023) 454 ITR 212, dated APRIL 24, 2023. The learned AR has referred to the order of this Tribunal in assessee’s own case in the appeal filed against the order passed u/s 143(3) of the Act for the A.Y under consideration as well as for the A.Y s 2012-13 & 2013-14 and submitted that this Tribunal has already decided the issue that the disallowance of expenditure will enhance the eligible business income of the assessee for deduction u/s 80IA of the I.T. Act, 1961.

Page 5 of 48 section of the assessee company which was distributed to various persons as per the directions of the management of the assessee company. The Assessing Officer also reexamined Shri Raju Mangulkar on 9/1/2013 to reaffirm the earlier statement. Thus, the learned DR has submitted that the statement of Shri Raju Mangulkar disclosing the fact of withdrawal of money from the Bank Account of the sub-contractor and then handed over the same to the assessee company is an incriminating material. He has further contended that the learned CIT (A) has also corrected the arithmetic mistake in the order of the Assessing Officer and therefore, the decision of the Hon'ble Supreme Court in the case of PCIT vs. Abhisar Buildwell (P) Ltd (Supra) is not applicable to the facts of the present case. He has further contended that the CBDT vide circular No.37/2016 clarified the position in respect of the disallowance made u/s 32, 40(a)(ia), 40A(3), 43B etc., of the I.T. Act, 1961 and therefore, the provisions of “ejusdem genris” will be applicable in respect of other disallowances which would result in enhancement of the business income eligible for deduction u/s 80IA of the Act. He further contended that when the assessee was found indulged in the activity of inflating the expenditure and siphoning of the fund through the sub- contractor/sister concern, then the benefit of section 80IA of the Act cannot be allowed to the assessee in respect of disallowances made by the Assessing Officer. He has relied upon the orders of the Assessing Officer as well as the learned CIT (A).

Page 7 of 48 Page 8 of 48 Page 9 of 48

6. Though as it is evident from the assessment order that no separate addition was made but the Assessing Officer has proceeded to disallow the claim of deduction u/s 80IA of the I.T. Act, 1961. The Assessing Officer has also recorded the fact that this Tribunal in assessee’s own case has allowed the claim of deduction u/s 80IA in respect of the income got enhanced as a result of disallowance of expenses. Therefore, the issue of disallowance of claim of deduction u/s 80IA was already a matter of dispute in the original assessment u/s 143(3) and travelled up to the stage of 2nd appeal before this Tribunal and hence, the impugned disallowance is not based on any incriminating material found during the course of search & seizure action. Thus, the said addition made by the Assessing Officer by disallowing deduction u/s 80IA of the I.T. Act, 1961 in the absence of any incriminating material is not sustainable in law. The Hon'ble Supreme Court in case of PCIT vs. Abhisar Buildwell (P) Ltd (Supra) has held in Para 10 to 14 as under: “10. On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: "153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under Page 10 of 48

section 132-A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132-A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside Explanation.—For the removal of doubts, it is hereby declared that,—

Page 11 of 48 (i) save as otherwise provided in this section, section 153-B and section 153-C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."

12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A of the Act is linked with the search and requisition under sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law.

Page 13 of 48 of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

Page 14 of 48 (Supra), the disallowance made by the Assessing Officer u/.s 80IA is accordingly deleted. Even on merits of the issue, we find that this Tribunal in assessee’s own case for the A.Y 2007-08 to 2009- 10 and 2011-12 vide order dated 6/1/2022 has considered an identical issue in para 9 to 9.3 as under: “9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We observe that search was conducted on the assessee and its group cases on 04/03/2011 and further search was conducted on 07/03/2011 as per para No. 6 of the assessment order and the statements recorded by the search team, which have been recorded by the AO in his order. For deciding the issue before us, first we have to see the assessment order on the basis of which the additions made by the AO as per para 11, which is reproduced below for the sake of clarity: "11. During the previous year relevant to the AY 2007- 08, it is observed that an amount of Rs. 50 lakhs was withdrawn from the bank account of M/s Maa Highways maintained at Axis Bank, Begumpet, Greenlands by Sri Raju Magrulkar vide Instrument No. 914303. In light of the detailed narrations in the preceding paragraphs, this amount of Rs. 50 lakhs is treated as inflated expenditure by way of subcontract payments. Accordingly, the same is added." 9.1 The basis for making the addition as noted above, the AO has made the addition only on the basis of inflated expenditure by way of subcontract payments, which is in the nature of disallowance u/s 37(1) of the Act. On the above order of the AO, we find that nowhere mentioned that it is other than the business expenditure of the assessee. We observe from the arguments and paper book submitted by the assessee quoted supra, the amounts received by the sub-contractors have been offered as their turnover and the turnovers had been accepted by the revenue authorities. Therefore, it clearly shows that the payments made by the assessee to sub-contractors is a business expenditure of the assessee. “9.2 We accept the arguments advanced by the ld. AR of the assessee that the Board's Circular No. 37/2016 dated

02/11/2016 is applicable to the case of the assessee. For the sake of clarity, we reproduce the contents in the Circular as under:

9.3 On perusal of the said Circular, it is clear that at times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. The assessee is also eligible to claim for deduction u/s 80IA on the profit earned from its business. The issue before us is also regarding the enhancement of the profit of the assessee which is covered by the said Circular quoted supra and, therefore, the assessee is eligible to claim deduction u/s 80IA of the Act. Considering the totality of the facts and circumstances of the case, we set aside the order of the CIT(A) and direct the AO to allow the assessee's claim of deduction u/s 80IA of the Act on the enhanced expenditure towards the payment to sub- contractors, which was disallowed by the AO and confirmed by the CIT(A) in all the appeals under consideration. All other grounds raised by the assessee in all the appeals, were not pressed before us, therefore, the same are dismissed as not pressed. 9.3 In view of our above observations, we allow the grounds raised by the assessee with regard to inflated expenditure by way of sub-contract payments in all the appeals under consideration.”

as well as the comments of the Assessing Officer thereon. As far as the claim of deduction u/s. 80lA is concerned, it is an undisputed fact that the claim has been allowed for the AYs 2007 - 08 and 2008-09, and also, subsequently, for AY 2013-14. The then CIT(A)-12, my predecessor, while adjudicating the appeal for Asst. Year 2009-10, 2010-11 and 2011-12 held that the appellant company is eligible to claim the deduction u/s. 80lA of the Act. The facts of the case for the appeal under consideration are identical to the preceding years and the claim of deduction u/s. 8 0lA of the Act is made on the same infrastructural projects which were claimed and allowed in the preceding and succeeding years. Nothing has been brought on record to establish that the projects undertaken by the appellant during the AY under consideration were different from the projects undertaken in preceding or succeeding years. Nothing to this effect has been brought out by the AO during remand proceedings also."

23. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) allowed the claim of the assessee following the decision of his predecessor in assessee's own case for earlier AYs. Before us, the ld. DR has not brought any contrary decision in this regard. Therefore, we uphold the order of CIT(A) and dismiss the ground raised by the revenue on this issue in both the appeals under consideration.”

11. On the other hand, the learned DR has submitted that the learned CIT (A) has pointed out the arithmetic mistake in the calculation made by the Assessing Officer and accordingly directed the Assessing Officer to consider the income of Rs.1,18,30,236/- while giving effect to the order of the learned CIT (A).

Page 19 of 48 against Rs.5 crores assessed earlier, the balance available is only Rs.60 lakhs. Even if the Assessing Officer were to give further telescoping now it cannot exceed Rs.60 lakhs in spite of telescoping to the tune of Rs.1,78,30,236/-. Accordingly, an addition of Rs.1,18,30,236 is required to be made and the Assessing Officer is accordingly directed to consider income of Rs.1,18,30,236/- while giving effect to this order”.

13. Thus, when the Assessing Officer has not made any addition while passing the assessment order u/s 153A but only disallowance of deduction u/s 80IA, then the addition as directed by the learned CIT (A) would certainly amount to enhancement of the assessment. There is no quarrel on the point that the learned CIT (A) is having co-terminus power that of the Assessing Officer but the said power can be exercised subject to the condition that the assessee be given an appropriate opportunity of showing cause against such enhancement as per sub section (2) of section 251 which reads as under: “(2)The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation. - In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant.”

14. Therefore, passing an order resulting an enhancement of the assessment without giving a show-cause notice to the assessee or reasonable opportunity is not permissible as per the Page 20 of 48 provisions of the Act. Accordingly, the enhancement of assessment without satisfying the mandatory conditions provided in section 251(2) of the I.T. Act, 1961 is not sustainable in law and the same is set aside.

2. The learned CIT(A) erred in deleting the addition of Rs. 3 crores on the ground that identical addition was made in the hands of Madhucon Land Developers Ltd., ignoring the fact that the addition made was annulled by the learned CIT(A) vide order dated 06.07.2017 on the legal ground of non-recording of satisfaction.

4. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary.”

Page 27 of 48 & 636/Hyd/2020 vide order dated 11/01/2022. The learned CIT (A) has deleted the addition by following the decision of this Tribunal in assessee’s own case.

The grounds of appeal related to this issue are ALLOWED.”

32. Thus, it is clear that the Assessing Officer has made the addition by giving reasons that the order of this Tribunal in case of M/s. GVPR Engineers has not been accepted by the Department. The Assessing Officer himself has not disputed this fact that this Tribunal in assessee’s own case for the A.Ys 2007- 08 & 2008-09 has already allowed the claim of deduction u/s 80IA of the Act. The learned DR has not disputed this fact that this issue is covered by the decision of the Tribunal in assessee’s own case. We further note that for the A.Ys 2012-13 & 2013-014, the Tribunal vide order dated 11/1/2022 in & 636/Hyd/2020 has again considered this issue in paras 21 to 23 as under: “21. The facts as taken from A.Y 2012-13 that the assessee claimed deduction to the tune of Rs.478,66,23,2235/-. The Assessing Officer disallowed the same on the ground that the assessee failed to produce supporting details.

22. The CIT (A) allowed the assessee’s claim by observing as under: "6.5 1 have carefully considered the submissions of the appellant, the order of the Assessing Officer, the additional grounds raised as well as the comments of the Assessing Officer thereon. As far as the claim of deduction u/s. 8OIA is concerned, it is an undisputed fact that the claim has been allowed for the AYs 2007 08 and 2008-09, and also, subsequently, for AY 2013-14. The then CIT(A)-12, my predecessor, while adjudicating the appeal for Asst. Year 2009-10, 2010-11 and 2011-12 held that the appellant company is eligible to claim the deduction u/s. 8OIA of the Act. The facts of the case for the appeal under consideration are identical to the preceding years and the claim of deduction u/s. 801A of the Act is made on the same infrastructural projects which were claimed and allowed in the preceding and succeeding years. Nothing has been Page 29 of 48 brought on record to establish that the projects undertaken by the appellant during the AY under consideration were different from the projects undertaken in preceding or succeeding years. Nothing to this effect has been brought out by the Assessing Officer during the remand proceedings also”.

23. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities, The CIT(A) allowed the claim of the assessee following the decision of his predecessor in assessee's own case for earlier AYs. Before us, the ld. DR has not brought any contrary decision in this regard. Therefore, we uphold the order of CIT(A) and dismiss the ground raised by the revenue on this issue in both the appeals under consideration".

33. Accordingly, in view of the fact that this Tribunal has taken a consistent view on this issue in assessee’s own case which has been followed by the learned CIT (A) while deleting the addition in question and allowing the claim of the assessee u/s 80IA of the I.T. Act, 1961, we do not find any error or illegality in the impugned order of the learned CIT (A) qua this issue.

35. Ground No.1 is general in nature and does not require any specific adjudication.

36. Ground No.2 is regarding the addition made on account of withdrawals made from the bank account of Madhucon Land Developers Ltd, a sister concern of the assessee. This issue is identical to the issue involved in Ground No.2 for the Page 30 of 48 A.Y 2009-10. The learned CIT (A) has deleted the said addition on the similar reasoning that once the addition has been made in the hand of the sister concern, no addition is called for in the hand of the assessee as this transaction is only a withdrawal from the Bank account of the sister concern of the assessee. Accordingly, in view of our finding on this issue for the A.Y 2009-10, we do not find any error or illegality in the impugned order of the learned CIT (A) for the A.Y 2010-11.

37. Ground No.3 is regarding the addition made by the Assessing Officer towards disallowance of claim of deduction u/s 80IA which was deleted by the learned CIT (A). This issue is identical to the issue involved in Ground No.3 for the A.Y 2009- 10. Accordingly, in view of our findings on this issue for the A.Y 2009-10 and the same is decided by us against the Revenue and in favour of the assessee and consequently, the impugned order of the learned CIT (A) is upheld.

39. Ground No.1 is general in nature and does not require any specific adjudication.

40. Ground No.2 is regarding the addition made by the Assessing Officer on account of disallowance of claim of deduction u/s 80IA. This issue is common and identical to the issues

Page 31 of 48 involved in Ground No.3 for the A.Y 2009-10. In view of our findings on this issue for the A.Y 2009-10, this ground of revenue appeal stands dismissed and the impugned order of the learned CIT(A) qua this issue is upheld.,

ITA No.761/Hyd/2020 (Assessee)

Page 33 of 48 (Revenue) 44. The Revenue has raised the following grounds of appeal:

Page 35 of 48 1961 and therefore, the same may be allowed. In support of his contention, he has relied upon the decisions of this Tribunal in assessee’s own case in & 636/Hyd/2020 dated 11/01/2022.

11. The CIT(A) after relying on various cases of ITAT as well as High Courts and Supreme Court, held that disallowance u/s 14A read with rule 8D cannot exceed the exempt income claimed by the assessee. He, therefore restricted the disallowance to the extent of dividend received by the assessee i.e. Rs. 1,48,970/- and directed the AO to delete the balance amount of Rs. 50,25,20,230/ -.

12. After hearing both the parties and perusing the material on record as well as the orders of revenue authorities, we do not find any infirmity in the order of the CIT(A) in restricting the disallowance and, therefore, upholding the order of CIT(A), we dismiss the g round raised by the assessee on this issue.”

Page 38 of 48 Officer which is in violation of the provisions of Rule 46A of the I.T. Rules, 1963. He has referred to the remand report and submitted that the details were not filed before the Assessing Officer either during the assessement proceedings or during the remand proceedings, but the same were considered by the learned CIT (A) while granting the relief. He has relied upon the order of the Assessing Officer.

Page 39 of 48 consider the alternative plea of the assessee that the disallowance made by the Assessing Officer would result in the enhancement of the profits of the eligible business and therefore, the deduction u/s 80IA is admissible on the said profit. The CBDT in Circular No.37/2016 has clarified this issue in para 3 as under:

Page 40 of 48 made by the Assessing Officer which were deleted by the learned CIT (A) and challenged by the Revenue in the present appeal. Accordingly, we do not find any reason to disturb the impugned order of the learned CIT (A). Consequently, the appeal of the Revenue stands dismissed and the appeal of the assessee is allowed.

. However, at the time of hearing, the learned AR of the assessee has submitted that the effective grounds are only Ground Nos.3, 4 and 7 which are as under: “3(a) The learned CIT (A) erred in confirming the addition of work contract tax to the extent of Rs.1,11,54,020/- made u/s 43B of the Act. (b) The learned CIT (A) ought to have considered the payments made till 30.11.2014 for the purpose of application of the provisions of section 43B of the Act and to have deleted the amount of Rs.1,11,54,020/- also out of the total addition made of Rs.1,14,54,020/-

4. (a) The learned CIT (A) erred in making an addition of Rs.79,950/- u/s 14A of the Act instead of deleting the entire addition of Rs.51,69,28,402/-. (b) The learned CIT (A) ought to have appreciated the fact that the investments were made out of the internal accruals

Page 41 of 48 and funds available with the company are more than the investments made. (c) The learned CIT (A) ought to have appreciated the fact that assessee has not debited any expenditure relating to the investments made. (d) The learned CIT (A) ought to have appreciated the fact that the assessee has not incurred any expenditure directly or indirectly connected with the investments made. (e) The learned CIT (A) ought to have appreciated that the Assessing Officer has erred in not following the Rule 8D of the Income Tax Rules for calculation of disallowance u/s 14A of the Act as there was no expenditure directly related to investments. (f) Without prejudice, the disallowance, if any to be made, has to be done on the average value of investments on which dividend income is earned.

7. The learned CIT (A) ought to have appreciated that it is an established position of law that every assessee who is qualified for deduction u/s 80IA of the Act is eligible for the deduction not only from the business income admitted in its return of income but also from the business income which has been enhanced on account of additions made in the assessment by the Assessing Officer.”

Page 42 of 48 is eligible for deduction u/s 80IA. He has also relied upon the CBDT Circular No.37 of 2016 dated 2/11/2016 and submitted that the CBDT has also clarified that the disallowance made u/s 40(a)(ia) and 40(a)(iii) and 43B etc., and other specific disallowances relating to the business activity resulting in enhancement of the profit of the eligible business for claim of deduction under Chapter VIA which is permissible on profits so enhances by the disallowances. He has further submitted that an identical issue has been considered by this Tribunal in assessee’s own case for the A.Ys 2007-08, 2009-10 to 2011-12 vide order dated 6/01/2022 in to 1875/Hyd/2019.

“9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We observe that search was Page 43 of 48 conducted on the assessee and its group cases on 04/03/2011 and further search was conducted on 07/03/2011 as per para No. 6 of the assessment order and the statements recorded by the search team, which have been recorded by the AO in his order. For deciding the issue before us, first we have to see the assessment order on the basis of which the additions made by the AO as per para 11, which is reproduced below for the sake of clarity: "11. During the previous year relevant to the AY 2007- 08, it is observed that an amount of Rs. 50 lakhs was withdrawn from the bank account of M/s Maa Highways maintained at Axis Bank, Begumpet, Greenlands by Sri Raju Magrulkar vide Instrument No. 914303. In light of the detailed narrations in the preceding paragraphs, this amount of Rs. 50 lakhs is treated as inflated expenditure by way of subcontract payments. Accordingly, the same is added."

9.1 The basis for making the addition as noted above, the AO has made the addition only on the basis of inflated expenditure by way of subcontract payments, which is in the nature of disallowance u/s 37(1) of the Act. On the above order of the AO, we find that nowhere mentioned that it is other than the business expenditure of the assessee. We observe from the arguments and paper book submitted by the assessee quoted supra, the amounts received by the sub-contractors have been offered as their turnover and the turnovers had been accepted by the revenue authorities. Therefore, it clearly shows that the payments made by the assessee to sub-contractors is a business expenditure of the assessee.

“9.2 We accept the arguments advanced by the ld. AR of the assessee that the Board's Circular No. 37/2016 dated 02/11/2016 is applicable to the case of the assessee. For the sake of clarity, we reproduce the contents in the Circular as under:

9.3 On perusal of the said Circular, it is clear that at times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. The assessee is also eligible to claim for deduction u/s 80IA on the profit earned from its business. The issue before us is also regarding the enhancement of the profit of the assessee which is covered by the said Circular quoted supra and, therefore, the assessee is eligible to claim deduction u/s 80IA of the Act. Considering the totality of the facts and circumstances of the case, we set aside the order of the CIT(A) and direct the AO to allow the assessee's claim of deduction u/s 80IA of the Act on the enhanced expenditure towards the payment to sub- contractors, which was disallowed by the AO and confirmed by the CIT(A) in all the appeals under consideration. All other grounds raised by the assessee in all the appeals, were not pressed before us, therefore, the same are dismissed as not pressed. 9.3 In view of our above observations, we allow the grounds raised by the assessee with regard to inflated expenditure by way of sub-contract payments in all the appeals under consideration.”