DCIT-CIRCLE 7 PUNE, BODHI TOWER SALISBURY PARK PUNE vs. TRIO CHEMSUCROTECH ENG. PROJECTS PVT. LTD, PUNE

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

(b) Whether on the facts and in the circumstances of the case & in the law, the CIT (A) has erred in deleting the addition made by the AO to the tune of Rs.24,23,92,146/- on account of disallowance of bogus expenditure debited by the assessee in the Profit & Loss account during the relevant previous year?

(c) Whether on the facts and in the circumstances of the case & in the law, the CIT (A) has erred in ignoring the fact that addition to the extent of Rs.2,31,13,761/- was indeed made on account of disallowance of provisions for pending expenses, for which no justification or evidence could be furnished by the assessee to link these expenses to the revenue recognized during the relevant previous year and hence ought to have been upheld?

(d) Whether on the facts and in the circumstances of the case & in the law, the CIT (A) is correct in admitting the revised stand of assessee with regard to bogus expenditure claim during the course of appellate proceedings even when there was sufficient material on record (including categorical admission of Sh. Nitin Deshpande, MD of assessee company) to prove otherwise?

(e) Whether on the facts and in the circumstances of the case & in the law, the CIT (A) has erred in holding the objections of the AO, in admitting the revised stand of the assessee, as mere surmises and conjectures (in para 5.6.4 of his order) even when the same were substantiated and logical?

(f) Whether on the facts and in the circumstances of the case & in the law, the CIT (A) is correct in solely relying on the assessment order passed in the case of Ajit Satam and completely disregarding the findings of the AO in the instant case while admitting the revised claim of the assessee vis-à-vis cash generated through bogus expenditure claim?

(g) Whether on the facts and in the circumstances of the case & in the law, the CIT (A) has erred in granting relief to the assessee by merely estimating commission income @ 2% on entire addition of Rs. 26.55 crore even when the entire addition ought to have been upheld?.”

3. Facts in brief the appellant is a Private Limited Company engaged in the business of manufacturing and selling of homogenized machines required for Bio-Composting Plants, Drawing, Designing, manufacturing, erection, Commissioning of distillery of sugar plants, land development and civil works required for bio-composting plants, trading in bio-composting cultures, technical consultancy in environment/pollution control matters etc. Assessee filed its return of income for the A.Y. 2010-11 on 15.10.2010 declaring total income of Rs.4,39,44,890/-. Thereafter, the case was selected for scrutiny through CASS and valid notices u/s.143(2)/142(1) were issued to the assessee. The assessee made partial compliance. During the course of scrutiny proceedings, ld. AO observed that during the year assessee company undertook a major Turnkey Project of Designing, Engineering, Manufacturing, Fabrication, supply of a distillery plant for M/s. Tilaknagar Industries Limited (in short ‘TIL’), Ahmednagar, Maharashtra. Ld. AO also observed that substantial amount of Commission expenses have been paid to various parties. One of such party is M/s. QST Limited to which lumpsum sale commission of Rs.6.50 crore was paid. Assessee was asked to furnish supporting evidence to explain genuineness of the expenditure. Information was also called by ld. AO issuing notice u/s.133(6) of the Act to M/s. QST Limited to provide various details to explain the genuineness of commission income. However, notice was returned back with the remark “Left without Address” and also there was no confirmation regarding the commission payment. During the pendency of the scrutiny proceedings, Sales Tax Department at Mumbai detected that certain parties of Mumbai had been issuing bogus bills for material and works in lieu of commission. Assessee company was also found to be a beneficiary of such bogus bills. Based on this information, the Investigation Wing of Income-tax Department carried out a survey u/s.133A of the Act at the business premises of the assessee on 21.11.2012. The Managing Director Mr. Nitin Deshpande in the statements recorded on 21.11.2012 and 20.02.2013 admitted that the assessee had debited bogus expenditure totalling to Rs.24.24 crore. This information was passed on to the AO who was carrying out the assessment proceedings. Thereafter, details of alleged bogus expenditure totalling to Rs.24,23,92,146/- in short Rs.24.24 crore approximately was provided which contained 13 concerns including QST Limited. The DDIT (Investigation) also provided the information that Mr. Nitin Deshpande had admitted that for the turnkey project of TIL, the contract value has been artificially increased by Rs.26.25 crore and against this artificially increased contract value of Rs.26.25 crore, bogus bills/bogus commission expenses of Rs.24.24 crore have been booked. It was thus claimed that on one hand the sales have been inflated by Rs.26.55 crore and on the other hand expenditure have been inflated by Rs.24.24 crore arranging bogus expenses and payments made. It was also submitted that only the difference of inflated contract value and bogus expenses amounting to Rs.2,01,22,741/- has been offered to tax. Thereafter, ld. AO has discussed about the alleged claim of the assessee of inflated contract value and bogus expenses in para 7.5 of the assessment order and then he also discussed about the Supplementary Agreement on the basis of which the contract value was inflated. Ld. AO finally came to a conclusion that the sales effected by the assessee and declared in the Audited financial statements are duly supported by agreements entered into with TIL and other parties and therefore sales declared in the books are correct and have proper supporting evidences.

4. So far as the bogus expenses of RS.24.24 is concerned, ld. AO was of the view that since it has been admitted by the Managing Director of the company that these expenses are bogus in nature and have been arranged through accommodation entry operators/entry providers he disallowed the same and made an addition of Rs.24.24 crore and the relevant part of the observation of the ld. AO in para 8.9 of the assessment order reads as under :

8.9 Hence in view of the totality of the facts and circumstances of this case as discussed in Paras 8.1 to 8.8 above and as available at the moment, the claim of the assessee that M/s Tilaknagar Industries Ltd was the real beneficiary of the income generated by bogus expenditure in the assessee's books lacks merit and is therefore rejected. The facts and circumstances relied upon by the assessee and the materials canvassed it are merely conjectural and at best are very circumstantial and are therefore far from sufficient to fasten M/s Tilaknagar Industries Ltd with any liability in respect of the amount in question. On the other hand, there is conclusive evidence against the assessee company and it is also admitted by Sh. Nitin Deshpande, Managing Director of the assessee company that the assessee debited in its books of accounts and claimed bogus & fictitious expenditure amounting to Rs.24,23,92,146/- (as detailed in the chart in Para 7.3 above) on account of bogus purchases, bogus expenditure shown on civil works and bogus payment of commission. Hence the claim of this bogus expenditure is disallowed and accordingly an addition of Rs. 24,23,92,146/ is made to the total income declared by the assessee. Penalty proceedings u/s.271(1)(c) for furnishing inaccurate particulars of income have also been initiated separately.

6. Aggrieved assessee preferred appeal before the ld.CIT(A). During the course of appellate proceedings, assessee along with making other detailed submissions also claimed that the huge contract of the Turnkey project of TIL was procured by the assessee with the help of Mr. Ajit Bapu Satam (in short ‘Ajit Satam’) who assisted the assessee in obtaining the contract to set up a grain distillery plant of 100 Kilo Litres Per day. He submitted that Mr. Ajit Satam worked as a liaisoner and has good contacts and for getting this contract he charged a commission of Rs.26.55 crore and for paying the said commission firstly the assessee on advise of Mr. Ajit Satam inflated the invoice value raised to TIL along with signing of Supplementary Agreement and thereafter for making the payment to Mr. Ajit Satam the bogus bills were arranged through the accommodation entry providers and the payment made against such bogus bills were finally received by Mr. Ajit Satam through his sources. In other words, all these accounting treatments of inflating the contract value and arranging bogus expenses were carried out only to make the payments out of books to Mr. Ajit Satam for securing this contract. It was also submitted before ld.CIT(A) that Mr. Ajit Satam has offered the undisclosed income of Rs.26.55 crore for A.Y. 2010-11 vide assessment order dated 31.03.2016 and due taxes have been paid and no further appeal has been preferred. In support, the additional evidences, the declaration of Mr. Ajit Satam dated 16.05.2016, declaration of TIL dated 11.04.2016 and disclosure letter of Mr. Ajit Satam to income-tax department dated 29.03.2016 and assessment order of Mr. Ajit Satam for A.Y. 2010-11 was furnished. Ld. CIT(A) accepted the additional evidences and called for the remand report from the AO who issued report on 08.08.2017. Thereafter, the comments were called from the assessee also which the ld.CIT(A) dealt in detail and finally came to a conclusion that since the inflated amount of contract value, i.e. Rs.26.55 crore has been accepted to be the undisclosed income by Mr. Ajit Satam and due taxes have been paid thereon, the addition of bogus expenses in the hands of assessee will tantamount to double addition and ld.CIT(A) accordingly gave relief to the assessee to the extent of Rs.26.02 crore and also clubbed the disallowance of bogus expenses and provision of pending expenses as part and parcel of the inflated sale value of Rs.26.55 crore and sustained the addition only to the extent of 2% of the accommodation entry of Rs.26.55 amounting to Rs.53.10 lakh.

7. Before us, Revenue is in appeal against the relief given by the ld.CIT(A) by raising the above grounds extracted above in Para No.2.

8. The ld. Departmental Representative submitted that the finding of ld.CIT(A) should not be confirmed because during the course of assessment proceedings assessee has accepted to have arranged bogus expenses through some entry providers and the Managing Director of the assessee company has even stated in the statement during the course of survey u/s.133A of the Act. The story of Mr. Ajit Satam having earned undisclosed income of Rs.26.55 crore from the transaction of Turnkey project given by TIL to the assessee is merely an afterthought colourable story which cannot be accepted. The books of accounts of the assessee are audited and in the audited financial statements have been claimed as expenditure. Gross Receipts are not in dispute because the assessee has issued the invoices to its customers duly supported by Agreements in lieu of contract work. Assessee has itself declared the Gross Sales and on the other hand out of the expenses claimed in the profit and loss account, expenses amounting to Rs.24.24 crore are admitted to be bogus expenses. Further, he submitted that Mr. Ajit Satam having offered the undisclosed income earned out of the transaction of the contract awarded by TIL to the assessee should not be considered because there is no such evidence which could prove that Mr. Ajit Satam was involved in the transaction of contract awarded by TIL. He also submitted that the bogus expenses have been claimed for various parties who have admitted to be engaged in providing accommodation entry/bogus expenses and the assessee had given the payment to them through cheques and there is no proof that the cash received by the assessee from claiming of such bogus expenses have been utilized for making the payment to Mr. Ajit Satam. He therefore stated that the finding of ld. AO needs to be confirmed.

“2. Submission on Ground (a) to (g): Disallowance of alleged bogus expenditure of Rs. 26,55,05,906/- 2.1. The grounds (a) to (g) raised by the Department raise a common issue challenging the deletion of disallowance of Rs. 26.55 crores by the CIT(A).

2.2. The assessee entered into a contract with one M/s Tilaknagar Industries Limited ("Tilaknagar") to set up a grain based distillery plant of 100 KLPD (Kilo Litre Per Day) capacity. On 12th May 2009, two agreements were entered into on account of supply and erection of the distillery plant for around Rs. 57 crores plus applicable taxes. Due to the expanding work, a supplementary contract was signed on 6th August 2009 for an amount of Rs. 36.69 crores.

2.3. In connection with the said project, the assessee debited the following expenditure during the relevant previous year :

Particulars Amount (in Rs.) S K Engineering Co. 9,23,70,630 Parth Steel 3,32,31,245 Asian Steel 54,53,932 Vitarag Trading Company 48,44,403 Hiten Enterprises 43,05,542 Bhagwati Trading Co. 42,04,075 Siddhi Vinayak Steel 31,38,487 Evershine Enterprise 19,10,969 Ridhi Sales Corporation 5,13,339 Shree Traders 48,15,757 Ganesh Metals 1,38,03,045 Manusha Enterprises 88,00,722 QST Ltd. 6,50,00,000 Provision for expenses 2,31,13,761 Total 26,55,05,907 2.4. In the course of assessment proceedings, the assessee accepted that the expenditure (although genuine) was routed through bogus entries.

2.5. The Assessing Officer completed the assessment under section 143(3) of the Act disallowing the above expenditure of Rs. 26.55,05,907/- as bogus which included provision for such expenditure of Rs. 2,31,13,761/-.

2.6. In the meantime, there were various development which brought to light the involvement of one Mr. Ajit Satam. Before the CIT(A), the assessee made submissions as regards to the true nature of transaction along with supporting gathered in light of the subsequent developments.

2.7. Before the CIT(A), the assessee submitted that in the year 2008. Tilaknagar proposed to enter into premium Indian Made Foreign Liquor brands which require grain based alcohol as its principal raw material, as against molasses based alcohol. Since Tilaknagar was not having any grain distillery plant of its own, it decided to set up a grain based distillery plant of 100 KLPD (Kilo Litres per Day) capacity.

2.8. The assessee decided to solicit the project of setting up the said grain based distillery plant. There were other competitors for this project like M/s Mojj Engineering Systems Ltd and M/s Praj Industries.

2.9. One Mr. Ajit Satam had relations with the Board of Directors of Tilaknagar including the Chairman Managing Director Mr Amit Dahanukar. Mr Nitin Deshpande. Managing Director of the assessee approached Mr Ajit Satam for assistance in procuring the project. The assessee partnered with Mr Ajit Satam to help it secure the project and necessary clearances to transport vast number of components of the grain based refinery to the Shrirampur factory. Apart from helping the assessee get the contract. Mr Satam also helped the assessee in: • Procurement of goods • Mobilization of goods • Various relevant workings in project 2.10. For all his services, the assessee made payment to Mr. Ajit Satam of Rs. 26.55 Crores during FY 2009-10. The consideration was discharged by making cheque payments to the various parties at the direction of Mr. Ajit Satam. Subsequently, one Mr. Pramod Singh, known to Mr. Ajit Satam, would arrange to make RTGS payment into the bank account of Mr. Ajit Satam. The real nature of payment was to pay Mr. Ajit Satam for the various services provided by him in relation to setting up a factory for Tilaknagar.

2.11. These facts are separately corroborated by the following documents:

• Confirmation of Mr. Ajit Satam dated 16.05.2016 (Pg 94 of the Paper Book): • Confirmation of M/s Tilaknagar Industries Ltd dated 11.04.2016 (Pg 95 of the Paper Book): • Disclosure letter of Mr. Ajit Satam to the Income Tax Department Mumbai dated 29.03.2016 (Pg 96-100 of the Paper Book); • Assessment Order for AY 2010-11 of Mr. Ajit Satam dated 31.03.2016 along with Form 35 filed on 29.04.2016 (Pg 101-112 of the Paper Book); • Remand Report dated 04.04.2018 in the case of Mr. Ajit Satam (Pg 116-120 of the Paper Book): • Reply to notice under section 133(6) issued to Tilaknagar (Pg 121-122 of the Paper Book): • Statement of Mr. Nitin Deshpande dated 23.03.2018 (Pg 123- 127 of the Paper Book); 2.12. In the assessment of Mr. Ajit Satam. The case of Mr. Ajit Satam was reopened for AY 2010-11. In the course of reassessment proceedings. Mr. Ajit Satam confessed that he had earned income of Rs 26.55 crores earned from the assessee with respect to the Tilaknagar project. A copy of said letter dated 28.03.2016 is enclosed at Pg 96- 100 of the Paper Book. The said disclosure was made on 29th March 2016. He has voluntarily offered the above sum of Rs. 26.55 crores to tax.

2.13. The Income Tax Officer. Ward 21(1)(1) Mumbai (hereinafter referred to as "the ITO") accepted the disclosure made by Mr Ajit Satam and assessed income at Rs 27.34,41,807/- after making various addition /disallowance including an amount of Rs 26.55 crores. However, the ITO commented that the nature and source of such income of Rs. 26.55 crores remained to be verified. A copy of assessment order dated 31 March 2016 under section 143(3) rvs 147 of the Act in the case of Mr Ajit Satam for AY 2010-11 is placed on Pg 101-107 of the Paper Book.

2.14. Mr. Satam challenged in appeal other additions made in the assessment order. He also challenged the AO's observations that the source of the said income of Rs. 26.55 crores could not be verified despite his explanation of such income. A copy of Form 35 is placed on Pg 108-112 of the Paper Book.

2.15. Detailed submissions appear to have been made by him before the CIT(A). The CIT(A) called for a remand report dated 4th April 2018, the ITO accepted the explanation (as made even in this submission) and held the source of income to be explained. A copy of the remand report is enclosed herewith at pg 116-120 of the paper book.

The relevant extract of the remand report reads as under : xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx 2.16. The CIT(A) allowed the appeal of Mr. Ajit Satam on said ground. No appeal has been filed by the department against the order in the case of Mr. Ajit Satam and therefore, the issue has therefore attained finality. A copy of the CIT(A)'s order in the case of Mr. Ajit Satam is enclosed herewith at Pg 150-163 of the Paper Book.

2.17. In view of the above, the fact that the assessee has made a payment of Rs. 26.55 crores to Mr. Ajit Satam as consideration in relation to the Tilaknagar project is now undisputed.

2.18. The CIT(A) deleted the aforesaid addition. The CIT(A), after being in seisin of the real nature of the expenditure, held that the expenditure was for business purpose and therefore allowable. The CIT(A), however, confirmed an addition of Rs. 53.10,000/-, being 2% of the above expenditure for routing of such expenditure through bogus entries.

Allowability of Expenditure 2.19. Section 37(1) provides for conditions for allowability of expenditure as deduction in computing the income chargeable under the head "Profit and gain from business or profession". Section 37(1) is reproduced below:

"Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession"

2.20. The following conditions should concur in order that a particular item of expenditure may be deductible under this section:

• The expenditure should have been incurred in the accounting year • It should not be in the nature of personal nature • It should have been laid out or expended wholly and exclusively for the purpose of such business • It should not be in the nature of capital expenditure 2.21. In the present case, the assessee explained that the assessee had undertaken a project to set up a grain based distillery plant with the assistance of Mr. Ajit Satam. These facts have been confirmed even by Tilaknagar Industries Limited (Refer Pg 95 of the Paper Book and Pg121-122 of the Paper Book). In connection, thereto, the assessee has undisputedly incurred certain expenditure for the securing the contract, procurement & mobilization of materials. For the said services, the assessee has paid a sum of Rs. 26.55 crores to Mr. Ajit Satam. The payment is made through banking channels to parties directed by Mr. Ajit Satam. Mr. Ajit Satam has accepted the same as his income and paid the taxes on the same. In the remand proceedings concerning an appeal filed by Mr. Ajit Satam, the ITO observed that the source of income of Mr. Ajit Satam from the assessee stood proved and the aforesaid explanation was found to be in order. The above facts have been accepted by the Department in the assessment of Mr. Ajit Satam and therefore the payment of Rs. 26.55 crores to various parties relate to payment to Mr. Ajit Satam for his services.

2.22. The payment is wholly and exclusively for the purpose of the project. The revenues relating to the project have been offered to tax in AY 2010-11. Therefore, the expenditure is neither capital nor personal in nature. As the conditions for claiming deduction under section 37(1) have been satisfied, they ought to be allowed.

2.23. Moreover, the Income Tax Department has already taxed the sum of Rs. 26.55 crores in the hands of Mr Ajit Satam for AY 2010-11 and collected the due taxes along with interest.

2.24. Having accepted and taxed the sum of Rs. 26.55 crores in the hands of Mr. Ajit Satam as received from the assessee, it is not open to the department to take a different stand in the case of the assessee and tax the assessee for the same amount. The revenue cannot approbate and reprobate i.e. it cannot take different stand qua the same transaction in the hands of the parties to the transaction.

9.1 In support of its contentions, the assessee has relied on the following decisions :

“Rebuttal to Department 2.32. During the course of hearing. the department supported the order of the AO contending as under:

(a) The Department contested that the submission that Mr. Ajit Satam was the real beneficiary of Rs. 26.55 crores was brought on record first time before the CIT(A) and that the same was as an after-thought. The Department, therefore, contested that the submission of the assessee should be rejected.

Rebuttal The assessee submits that in the course of assessment proceedings, the assessee admitted that the expenditure of Rs. 26.55 was debited in the name of bogus parties. Assessment was thereafter completed vide order dated 18th March 2013 making an addition of Rs. 26.55 crores. Subsequent to the assessment, Mr. Ajit Satam's case was reopened. Mr. Ajit Satam confessed letter to ITO dated 28th March 2016 (Pg 96-100 of the Paper Book) & vide declaration dated 16th May 2016 (Pg 94 of the Paper Book) that he had received Rs. 26.55 crores from the assessee for assistance with respect to the Tilaknagar project. Assessment of Ajit Satam was completed making an addition of Rs. 26.55 crores. Mr. Ajit Satam has paid the taxes along with interest on such addition and that the matter has attained finality. It is only after such disclosure that the assessee was able to submit the true of nature of the transaction of Rs. 26.55 crores with supportings. Therefore, the assessee disclosed the role Mr. Ajit Satam for the first time before the ongoing appellate proceedings. The assessee submitted the following:

• Confirmation of Mr. Ajit Satam dated 16.05.2016 (Pg 94 of the Paper Book): • Confirmation of M/s Tilaknagar Industries Ltd dated 11.04.2016 (Pg 95 of the Paper Book); • Disclosure letter of Mr. Ajit Satam to the Income Tax Department Mumbai dated 29.03.2016 (Pg 96-100 of the Paper Book): • Assessment Order for AY 2010-11 of Mr. Ajit Satam dated 31.03.2016 along with Form 35 filed on 29.04.2016 (Pg 101-112 of the Paper Book); • Remand Report dated 04.04.2018 in the case of Mr. Ajit Satam (Pg 116-120 of the Paper Book): • Reply to notice under section 133(6) issued to Tilaknagar (Pg 121-122 of the Paper Book): • Statement of Mr. Nitin Deshpande dated 23.03.2018 (Pg 123- 127 of the Paper Book):

Therefore, the change in stance of the assessee before the CIT(A) could not be faulted with. The assessee submits that the powers of the CIT(A) are wide and co-terminus with AO. The CIT(A) was within his powers to go to the root of the matter and entertain the additional evidences necessary for adjudication.

In the case of Smt. Prabhavati Shah Vs. CIT (231 ITR 1) (Pg 40-44 of this submission) wherein the assessee produced additional evidence to prove the genuineness of loan taken, the Hon'ble Bombay High Court held as under:

On a plain reading of rule 46A, it is clear that the same is intended to put fetters on the right of the appellant to produce before the AAC any evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the ITO except ins the circumstances set out therein. It does not deal with the powers of the AAC to make further enquiry and to report the result of the same to him. This position has been made clear by sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the AAC to call for the production of any document or the examination of any witness to enable him to dispose of the appeal.

Further, under sub-section (4) of section 250 of the Act, the AAC is empowered to make such further inquiry as he thinks fit or to direct the ITO to make further inquiry and to report the matter to him.

It is, thus, clear that the powers of the AAC are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do. He can also direct the ITO to do what he failed to do. The power conferred on the AAC under the said sub-section being quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the AAC fails to exercise his discretion judicially and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority.

On a conjoint reading of section 250 and rule 46/1, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the AAC under sub-section (4) of section 250. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the ITO.

In the instant case, the ITO treated the amount of two loans as income of the assessee from undisclosed sources because the summons issued by him could not be served on the creditors. At the time of hearing of the appeal against the above order before the AAC, the assessee wanted to prove the genuineness of the loan from one of the borrowers by relying upon the fact that the amount had been received by the assessee by cheque and repaid by cheque. In support of this contention. the assessee wanted to produce photostat copies of the cheques and a certificate from the bank to show that the sum was received by the assessee from the creditor by cheque and a copy of the account of the assessee with the said bank. Prima facie, this information was necessary to decide the controversy in regard to the genuineness of the loan.

The AAC should have considered this evidence in exercise of his powers under sub-sections (4) and (5) of section 250 which he failed to do. Thus, it was a fit case where the AAC should have exercised the powers conferred upon him and taken on record the zerox copies of the cheque, the certificate from the bank and the copy of the account of the assessee with the said bank and considered the same for deciding the genuineness of the loan.

Similarly, the Hon'ble Bombay High Court in the case of CIT Vs. Surectech Hospital & Research Centre Ltd. (293 ITR 53) (Pg 45-46 of this submission) held as under:

In the case of M/s M M Chhabra & Sons (HUF) Vs. ACIT (ITA 429/Del/2010) (Pg 47-57 of this submission), the assessee before the AO took the stand that the expenses debited to the profit and loss account were related to the business. Later on, before the CIT(A) assessee took a ground that the expenses were related to loan taken for acquiring the let out property and submitted additional evidences for the same. The CIT(A) rejected the additional evidences. The Hon'ble Delhi Tribunal held as under:

"During the appellate proceedings, the assessee has changed the stand by taking the additional ground that the loan raised from the Corporation Bank for acquiring the let out property and the same has been debited in profit & loss account under the head 'Finance charges amounting to Rs.34.85.328-which are allowable u/s 24 of the Income-tax Act from the income under the head Income from house property We would also like to mention that assessee had completely changed his stand in respect of finance charges in this additional ground. One of the assessee's stands definitely have no legs to stand. Assessee's claim that the money was borrowed for acquiring property which is fetching rent needs proper verification and investigation. CIT (A) had all the powers as of Assessing Officer while considering the appeal of assessee. He had power to reduce enhance the income. In such circumstances, in the interest of justice and equity, we hold that the CIT (A) should have admitted the additional evidence and then dispose of the appeal of the assessee.”

Therefore, the CIT(A) has rightly entertained the additional evidences/submission not made before the AO and adjudicated the issue thereafter.

(b) The Department submitted that Mr. Ajit Satam was smuggler and that the impugned transaction of Rs. 26.55 crores with the assessee was tainted:

Rebuttal We understand that there are certain allegations report that Mr. Ajit Satam was involved in smuggling red sand. We submit that the assessee had engaged the services of Mr. Ajit Satam in relation to the Tilaknagar project and that such project had no link with the smuggling cases against Mr. Ajit Satam. Specific enquiries were made by the Department with all parties i.e. the assessee. Mr. Ajit Satam and Tilaknagar who have confirmed the real transaction and that the same have no connection with the smuggling activities. Further, the material relied upon by the AO are in the nature of unproven allegations. Therefore, the department's contention to link the other activities of the Mr. Ajit Satam with the impugned case is unwarranted.

(c) There is no evidence that the sum of Rs. 26.55 crores offered to tax by Ajit Satam is linked to the consideration for the Tilaknagar project as Mr. Ajit Satam has received the said sum from one Mr. Pramod Singh.

Rebuttal The assessee had engaged the services of Mr. Ajit Satam in relation to the Tilaknagar Project for which the assessee has paid a sum of Rs. 26.55 crores. Mr. Ajit Satam has explained that for all his services, the assessee made payment to various payment. Thereafter. Mr. Pramod Singh would withdrew the amount and make the payment to him via RTGS entries.

To corroborate, the assessee has submitted the following:

• Confirmation of Mr. Ajit Satam dated 16.05.2016 (Pg 94 of the Paper Book): • Confirmation of M/s Tilaknagar Industries Ltd dated 11.04.2016 (Pg 95 of the Paper Book); • Disclosure letter of Mr. Ajit Satam to the Income Tax Department Mumbai dated 29.03.2016 (Pg 96-100 of the Paper Book); • Assessment Order for AY 2010-11 of Mr. Ajit Satam dated 31.03.2016 along with Form 35 filed on 29.04.2016 (Pg 101-112 of the Paper Book); • Remand Report dated 04.04.2018 in the case of Mr. Ajit Satam (Pg 116-120 of the Paper Book); A perusal of the aforesaid documents would show that the payment made by the assessee to various parties are infact consideration paid to Mr. Ajit Satam in relation to Tilaknagar project. It was at the direction of Mr. Ajit Satam that the payment was made to the said parties. However, the true nature of the transaction remains that the same was consideration paid to Ajit Satam for the Tilaknagar project. The Department has infact accepted in the assessment of Mr. Ajit Satam that the nature and source of Rs. 26.55 crores is from the assessee for the Tilaknagar project. Therefore. the payment by the assessee to various parties and receipt by Ajit Satam are one and the same transaction routed via the intermediate parties. The transactions have to been looked together as a whole.

2.33. In view of the above, we request Your Honors to uphold the order of the CIT(A) and dismiss the department's appeal.”

“FINDING OF CIT(A) :

6.0. ANALYSIS OF THE FACTS AND ADJUDICATION OF THE GROUNDS:

5.1. After considering the Order under dispute, Grounds of the appeal, the facts of case and as well as submissions made by the appellant and cases laws relied upon by the appellant, the case is discussed and decided hereunder:

5.2 The issue involved is disallowance of bogus expenditure of Rs.24,23,92,146/-and provision for expenses of Rs.2,31,13,761/- making together total disallowance of Rs.26,55,05,907/-. It is an undisputed fact that the Appellant Company had debited its account by bogus expenditure of Rs.26,55,05,907/-. At the time of survey, in the statement recorded of Mr. Nitin Deshpande, Managing Director of the appellant company it was claimed that such bogus expenditure was debited in the books at the behest of Tilaknagar Industries Ltd("TIL") from whom a big contract was received during the year and cash received against such bogus expenditure was given to Tilaknagar Industries Ltd. Now during the appellate proceedings, the appellant is claiming that the cash so generated for booking of such bogus expenditure was given to Mr. Ajit Satam with whom the appellant company has partnered in getting the contract from Tilaknagar.

5.3 Since it is undisputed that Cash is generated by debiting bogus expenditure in the books; the following issues needs to be examined: a) The cash so generated was retained by its Managing Director. It is neither given to TIL nor to Mr. Ajit Satam. b) The cash so generated is given to Tilaknagar Industries Ltd("TIL") as contract was given by TIL; c) The cash so generated is given to Mr. Ajit Satam for the services provided in connection with the contract from TIL.

The above issues need to be examined and answered in the light of various facts and evidences on records and surrounding circumstances. Whether the above said expenditure is allowable or not shall depend upon the answer of the above questions.

5.3.1 The Appellant is a company having turnover in the range of 5-15 crores over the years. For the assessment year under consideration, it has achieved a turnover of Rs.107 Crores. The main reason for this increased turnover is order from TIL for a grain-based distillery plant at Srirampur. The total value of the order from TIL is of Rs.96.68 crores. Thus, the cash is generated against the business received from TIL by debiting bogus expenditure of Rs.26.55 Crores which is the subject matter of dispute.

5.3.2 It is on record that a survey action under section 133A of the Income Tax Act was conducted in the business premises of the appellant company on 21.11.2012 by Investigation Wing of Income Tax Department. During that survey, statement of Managing Director of the Appellant Company was recorded wherein it was categorically admitted that bogus expenditure was debited in the books and cash so generated was given to TIL.

5.3.3 The AO held that bogus expenditure is debited in the books, therefore, the same has to be disallowed. Whether it is given to TIL or not, that really does not matter. The AO is of the opinion that no cash was given to TIL. The AO held that the statement of it Managing Director and various hawala parties cannot relied upon. I note that in the survey, no entries related to share capital, unsecured loan, bogus capital gain were found in the books of the appellant company or its directors. Thus, the possibility of cash generated through bogus bills and retained by the appellant is less as no corresponding deployment could be found.

5.4 During the course of survey conducted on the appellant, the Managing Director of the Appellant Company admitted the bogus bills of Rs. 26.55 Crore were debited in the books and cash generated for such bogus billing were given to TIL The Appellant continue with the same stand during the course of assessment. On the other hand, it was the case of the AO that no cash was given to TIL and statement of various hawala parties cannot be relied upon.

5.4.2 I further note that subsequently, the appellant himself has changed his stand that the cash generated from the bogus billing was given to TIL rather during the appellate proceedings the appellant proceedings the appellant claimed that cash was given to Mr. Ajit Satam who has partnered with it to get the business of TIL and execution thereof.

5.4.3 Since the appellant itself has changed its stand and the department has accepted that cash generated out of bogus billing was never been given to TIL; there remain no basis for the analogy that money was given to TIL; therefore, I rule out this proposition.

5.5 With regard to the cash so generated given to Mr. Ajit Satam, the appellant claimed that such payment was made pursuant to various services provided in connection with the contract of TIL. The appellant has submitted the following evidences to substantiate its claim:  Confirmation from Mr. Ajit Satam explaining the nature of services provided and justification for bogus expenditure in the books of Appellant and such cash of Rs. 26.55 crores offered to tax as his income in Assessment Year 2010-11.  Confirmation from TIL regarding services of Mr. Ajit Satam.  Declaration of Mr. Agit Satam made before ITO-21(1)- 1,BBY wherein income for Rs.26.55 crores from Triochem offered for taxation.  Assessment order under section 143(3) r.w.s 147 dated 31.03.2016 passed by ITO-21(1)-1,BBY wherein the above income of Rs26.55 crores were taxed in the hands of MR. Ajit Satam and a demand of Rs. 14.52 crore was raised.  Copy of appeal filed before CIT(A) by Mr Ajit Satam wherein the addition made of Rs. 26.55 crore was not challenged; this, effectively entire income of Rs. 26.55 crore was taxed in the hands of Mr. Ajit Satam and issue has taken finality.

5.5.2 The Income Tax Department has also examined the above evidences and challenged the above under the remand report of AO dated 08.08.2017 mainly on the following counts:  The additional evidences submitted by the appellant cannot be accepted.  The theory of payment to Mr. Ajit Satam has surfaced for the first time in appellate proceedings. This is contrary to the stand of the appellant itself inthe assessment that entire cash generated from bogus billing were paid to TIL.  Thus, the entire story of payment to Mr. Ajit Satam is an after-though and there is no direct evidence to this effect.  As per internet search, Mr. Ajit Satam has indulged in smuggling of red Sandalwood and arrested as well; therefore, this exercise is done with a view of establish the source of income as commission income. Further the Income Tax

Department has also not verified the source of Income in the hands of Mr. Ajit Satam as stated in the assessment order.

5.5.3 The appellant claimed that the reason for the delayed disclosure is not an afterthought rather a business compulsion being understanding with Mr. Ajit Satam from whom the biggest business of its life was secured that such cash payment cannot be disclosed.

5.5.4 The appellant claimed that the source of cash was examined by Income Tax Department in the remand report proceedings of Mr. Ajit Satam for Assessment year 2010-11; the said remand report issued under letter no ACIT-21(1)/ Remand Report/2018-19 dated 03.04.2018 issued by ACIT-21(1), BBY reads as under:

"2. In this case an order u/s 143(3) was passed on 31.03.2016 assessing Total Income at Rs.27,34,41,810/- as against returned income of Rs. 2,42,060/- The major addition was on account of suo moto disclosure made by the appellant of Rs. 26,55,05,907/-. The assessee has not challenged the addition made but has only challenged the fact that the source of the income was not verified.

1. Your Honour has called for remand report vide letter dated 26.09.2017 with the following directions:

"2. In this case, an order u/s 143(3) r.w.s 147 was passed on 31.03.2016 assessing the income at Rs. 27,34,41,180/-. The major addition was on account of disclosure of Rs. 26.55 Crores made by the assessee who has not been agitated in appeal. The appellant has preferred only appeal with respect to double addition of Rs. 33 lakhs in respect of unsecured loan received during the year.

4. In this regard, it is observed that, as per the appellant, the disclosure of Rs. 26.55 Crores was made on account of amounts received from M/s Triochem Sucrotech Engineering P Ltd. However, AO has made a comment that the source of the disclosure could not be verified due to paucity of time. Apart from that it is claimed that the disclosure of Rs. 26.55 Crores included an amount of Rs 33 lakh unsecured loan from M/s Asian Steel which was already taxed u/s 68 of the Act during original assessment proceedings. According to the AR, in the computation of income the assessed income has been taken into consideration instead of returned income. You are therefore directed to verify the records make factual verification and comment on both the issues."

4.2 In order to verify the genuineness of the additional evidences a notice u/s 133(6) of the Act dated 19.03.2018 was issued to M/s Tilaknagar Industries Ltd to explain the role of Mr Ajit Satam in awarding the contract to M/s Triochem Sucrotech Engineering & Projects Pvt Ltd. M/s Tilaknagar Industries Lt vide letter dated 21.03.2018 submitted that Mr Ajit Satam has played active role in awarding contract to Triochem. However, payment to Ajit Satam if any, is made directly by Triochem Sucrotech Engineering & Projects Pvt Ltd only. Tilaknagar Industries Ltd have not made any payment to Mr Ajit Satam.

4.3 in order to verify the payment, a summons under Section 131 of the Act was issued to m/s Triochem Sucrotech Engineering & Projects Pvt Ltd on 19.03.2018. Mr Nitin Deshpande the Managing Director of M/s Triochem Surotech Engineering & Projects Pvt Ltd attended on 23.03.2018 and his statement was recorded on oath under section 131 of the Act. A copy of the statement recorded is enclosed herewith. The statement recorded is self explanatory. Mr Deshpande has confirmed that M/s Triochem Sucrotech Engineering & Projects Pvt Ltd made payment of Rs. 26.55 Crores to Mr Ajit Satam during Assessment Year 2010-11 against the various services rendered.

4.4 Thus, on the basis of statement recorded of Mr Nitin Deshpande, Director of M/s Triochem Sucrotech Engineering & Projects Pvt Ltd, it is proved that M/s Triochem Sucrotech Engineering & Projects Pvt Ltd has made payment to Mr. Ajit Satam for the services rendered for securing contract from M/s Tilaknagar Industries Ltd. Thus, source of income of Mr. Ajit Satam stood prove and declaration made is found to be correct.

Therefore, the issue may be decided on merits."

A reference to the remand report would show that after having examined ACIT-21(1), Mumbai (AO of Mr.Ajit Satam) has caterorially held that source of income of Rs. 26.55 crores in the hands of Mr. Ajit Satam are receipts from M/s Triochem Sucrotech Engineering & Projects Pvt Ltd for the services rendered for securing contract from Tilaknagar Industries Ltd. 5.5.5 It is also on record that the sales of the company pre and post Assessment Year 2010-11 has always been in range of Rs.10-15 Crores. Only in the current year, it had high sales of Rs 107.10 Crores because of business from TIL.

5.6 In view of above, I find that the various objections raised by the AO in the remand report is not maintainable because of the reasons given in the ensuing paras.

5.6.2 The additional evidences were accepted by my learned predecessor and adequate opportunity was given to the AO to examine such additional evidences and offer his comment. Thus, this objection of AO that additional evidences cannot entertained is not maintainable.

5.6.3 The claim of the AO was that during the survey as well as during the course of assessment, it was always the case of the assessee that money generated from bogus billing was given to TIL, therefore, the entry of Mr. Ajit Satam at the appellate stage is an afterthought. This objection of AO is as to the name of Ajit Satam is an after-thought is also not maintainable. The Appellant has clearly proved that the disclosure of name of Mr. Ajit Satam at a later date was a business compulsion. Further when the Income Tax Department has clearly examined the role of Mr. Ajit Satam in the business secured by Triochem from TIL and also such income has been taxed in the hands of Mr. Ajit Satam and such taxation has already taken the finality, this objection has no leg to stand.

5.6.4 The objection of the AO that during the course of Google search it was found that Mr. Ajit Satam is engaged in the business of smuggling of rend sander and the only objective to disclose his name is to legalize the income of Mr. Ajit Satam. I find that this objection of AO is also not maintainable. The observation of AO was on ad-hoc basis of internet search. Such ad-hoc search on internet cannot be a basis for any conclusion and it can never replace the evidences and conclusion reached after a specific investigation! in the case of Umacharan Shaw & Bros. vs. CIT (37 ITR 271) (SC), the Hon'ble Supreme Court held that surmises and conjectures cannot take place of proof. It held as under:

"Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income- tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters.

The Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd Vs. CIT (26 ITR 775) (SC) held that the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment

Respectfully following the above rulings, hold that when the Income Tax Department has specifically examined the "source and also taxed such income in the hands of Mr. Ajit Satam, there remain no scope for any speculation. Since the observation of AO is without any basis and speculative in nature, such objection is not maintainable.

6.2 It stands proved that the cash generated from the bogus billing was belong to Mr. Ajit Satam who has offered the entire receipt of Rs. 26.55 crore for taxation. The Income Tax Department has independently examined the source in the hands of Ajit Satam. It is also on record that the turnover of the appellant was always in the range of Rs. 10-15 crores and during the year because of business from TIL, the appellant could achieve a turnover of Rs. 100 crores plus. Thus, it can be conclusively held that the above expenditure was incurred for the purpose of business. Further such expenditures are neither the personal expenditure nor the capital expenditure, therefore, the same are clearly allowable under section 37(1) of the Income Tax Act, 1961.

6.3 I further note that the bogus expenditure of Rs. 26.55 crore was debited in the books of the assessee and this amount of Rs. 26.55 crores were offered to tax in the hands of Mr. Ajit Satam and such taxation of Rs. 26.55 crores in the hands of Mr. Ajit Satam has taken finality. Since the entire income has already been taxed in the hands of Mr. Ajit Satam; if the same remained also taxed in the hands of the appellant company, this will amount to double taxation. The Hon'ble Supreme Court in the case of Laxmipat Singhania vs. CIT [72 ITR 291, 294] held as under "It is the fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice."

Similarly in the case of Joti Prasad Agarwal vs. ITO [37 ITR 107, 111] [All] it was held that the charge is to be levy tax on an income only once; the same income cannot be charged separately in the hands of different persons or in the hands of the same person for two different years. Therefore, the same income cannot be taxed twice; once in the hands of one person and again in the hands of another person. In other words, same income cannot be doubly taxed.

The Hon'ble Bombay High Court in the case of CIT v Noshira D Mody (50 taxmann.com 193) held that where the recipient of commission has offered the same to tax, it cannot be disallowed u/s 37(1) of the Act in the hands of the payer. On similar lines, when Mr. Ajit Satam has offered the income to tax, it cannot be disallowed in the hands of the payer, i.e. the appellant company.

"8.5.3. Form the remand report, it is seen that the A. O. has concluded the enquiries and found that the source of income disclosed of Rs. 26.85 crore is from Triochem Sucrotech Engineering and Projects Pvt Ltd. On the basis of A. O's report, the appeal on this ground is allowed."

In view of above order of CIT(A), there remains no doubt that the expenditure of Rs. 26.55 crores debited by the appellant in its books has duly been offered for tax in the hands of Mr. Ajit Bapu Satam.

In view of all the above factors, I hold that the payment of Rs 26.55 Crores was made to Mr. Ajit Satam for the purpose of business so as to secure and execute the contract of TIL. Mr. Ajit Satam offered the entire income of Rs. 26.55 crore for taxation in his hand and such taxation of Rs. 26.55 crore has taken finality. Since such expenditure of Rs. 26.55 crores were incurred "for the purpose of business" of securing contracts; the same shall be allowable under section 37(1) of the Income Tax Act, 1961 as the expenditure relatable to the business and in instant case for obtaining the contracts. However, it is not out of place to mention that the appellant has facilitated the above bogus expenditure entry in its books for the benefit of Mr. Ajit Satam, certainly for such facilitation, the appellant must have earned some income. I estimate such income at 2% of expenditure entry of Rs. 26.55 crore, i.e. Rs. 53.10 lakhs. Thus, to the extent of Rs. 53.10 lakhs, addition is confirmed and balance addition of Rs. 26.02 crores (Rs. 26.55 crores minus Rs. 0.53 crore) is deleted. Thus, the appellant get a relief of Rs. 26.02 crore.

7.1 To conclude, the disallowance of expenditure to the extent of Rs. of Rs.26,02,00,000/ is hereby deleted. Ground No. 1-12 of grounds of appeal is thus, partly allowed.”

13. From perusal of the above finding of ld.CIT(A) and also considering the documents filed before us as well as before the ld.CIT(A) about the confirmation of TIL dated 11.04.2016, disclosure letter of Mr. Ajit Satam to income-tax department dated 29.03.2012, confirmation of Mr.Ajit Satam dated 16.05.2016 and also the assessment order of Mr. Ajit Satam for A.Y. 2010-11 dated 30.03.2016, we find that the assessment proceedings in the case of assessee was concluded on 18.03.2013 and the appeal was pending before ld.CIT(A) and during the pendency of the appeal before ld.CIT(A) Mr. Ajit Satam gave a letter to the ITO, Ward-21(1), Mumbai on 28.03.2016 stating that he has earned share of profit from contract with TIL at Rs.26.55 crore. Here, we would like to extract the copy of certificate issued by TIL stating about its connection with Mr. Ajit Satam and the alleged transaction, the scanned copy of which is given below :

18. Apropos to Ground (c) relating to disallowance of provision for pending expenses is concerned, we find that ld. AO has made the disallowance given general observations without pinpointing any defect in the provisioning made by the assessee which is reflected in the audited books of account. Basis of the alleged disallowance made by the assessee is incorrect. Ld. AO has not accepted the provision solely on the ground that some work was pending to be completed by the assessee in respect of this plant and that some bills for purchases and expenses were still pending to be received even till 31.03.2010. Before us, the assessee has filed the audited financial statement and also provided the explanation about the calculation of provision made for the pending expenses. We also notice that the assessee had already offered the excess income of Rs.2.01 crore in the transaction which have been referred (supra) and dealt by us while adjudicating grounds (a), (b), (d), (e), (f) and (g) raised by the Revenue. Under these given facts and circumstances, we find that impugned disallowance is uncalled for. Accordingly, Ground (c) raised by the Revenue is also dismissed.