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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
PAN : AADCS 0852 Q 8-14 183 to DCIT, Cent.Cir.1(3) Sadbhav 189/Ahd/2021 Ahmedabad. Engineering Ltd. Asst.Year 2012- Nr.Havmour 14 to 2018-19 Restaurant Navrangpura Ahmedabad. (Applicant) (Responent) : Shri Dhinal Shah, AR Assessee by Revenue by : Shri H. Phani Raju, CIT-DR सुनवाई क� तारीख/Date of Hearing : 18/10/2024 घोषणा क� तारीख /Date of Pronouncement: 10/01/2025 आदेश/O R D E R आदेश आदेश आदेश PER BENCH: The above cross-appeals of the assessee and the Revenue are against the consolidated order of the ld. Commissioner of Income Tax(Appeals)11, Ahmedabad all dated 04.08.2021 passed under section 250(6) of the Income Tax Act, 1961 (“the Act” for short) for the assessment years 2012-13 to 2018-19.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 2 2. The present appeals, it was stated, arose on account of the same cause of action i.e. search action undertaken on the assessee in terms of section 132 of the Act, resulting in assessment being framed u/s 143(3) r.w.s 153A of the Act for the six years prior to the search year and u/s 143(3) of the Act for the search year . The issue involved in all these appeals, it was common ground, was identical. Therefore all the appeals were taken up together for hearing.
3. Brief facts relating to the case, as stated before us and as derived from the orders of the authorities below, is that the assessee is involved in carrying out infrastructure projects in India. Search action u/s 132 of the Act was undertaken on the assessee on 06.04.2017 as part of the main group searched i.e. Sadbhav Group. The main allegation leading to the search being that the assessee had given sub-contracts in large volumes to companies/firms/persons based in Kolkata, Mumbai, Hyderabad, Vadodra etc. which did not have any credentials and provided only accommodation entries. The parties from whom the assessee had so allegedly undertaken bogus sub-contracts were simultaneously searched. Based on statements and evidences gathered during these searches it was found by the AO that the assessee had booked bogus sub-contract expenses from the parties so identified. Accordingly, all expenses of sub-contract booked in relation to these parties were disallowed by the AO. Evidences pertaining to other bogus expenses booked were also found and disallowance/addition made of the same.
The AO also noted that the assessee had generated unaccounted cash by booking such bogus sub-contract and other expenses and utilized it for incurring expenses out of the books/unaccounted. He, accordingly, held that all the unaccounted cash so generated by booking bogus sub-contract expenses and the unaccounted expenses
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 3 incurred out of the same needed to be treated as deemed income in terms of section 69A/69C of the Act and subjected to tax at the rate prescribed for additions made u/s 69A/69C of the Act under section 115BBE of the Act.
Further the AO disallowed deduction claimed by the assessee u/s. 80IA(4) of the Act on profits derived from its activity of developing infrastructure. In the return filed u/s 153A of the Act the deduction claimed by the assessee was that as claimed in the return originally filed u/s 139(1) of the Act plus additional claim was also made. The AO held that the assessee was not entitled to additional/ enhanced claim of deduction under section 80IA(4) of the Act, and accordingly, denied the said claim in all the years involved.
6. As for claim of deduction commensurate to that claimed in the original return filed u/s 139(1) of the Act, the AO noted that in certain assessment years before us, the assessee had been denied the said deduction u/s 80IA(4) of the Act in scrutiny assessment originally done u/s 143(3) of the Act but noted that the same was allowed in appeal by the Ld.CIT(A). The AO accordingly allowed such claims of deduction u/s 80IA(4) in those assessment years. For the remaining years he disallowed the deduction claimed u/s 80IA(4) of the Act commensurate to that claimed as per original return, finding the assessee ineligible to the same. Thus in effect, in the assessment years where the claim of deduction u/s 80IA(4) was not originally adjudicated by the Ld.CIT(A), the entire claim made in the return filed u/s 153A of the Act (both originally claimed in return filed u/s 139(1) of the Act and additional claimed in the return filed u/s. 153A of the Act) was denied by the AO, while in the other years the additional claim of deduction alone was disallowed.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 4 Further on account of the resultant profits due to disallowance of subcontract expenses the AO held that the assessee was not eligible to claim deduction under section 80IA(4) of the Act on the same.
7. Besides, the AO disallowed ESOP expenses debited to the profit & loss account, and also disallowed assesses claim of deduction under section 35D of the Act. Employees contribution to ESIC /PF which was delayed was also disallowed by the AO under section 36(1)(va) of the Act.
The above, in sum and substance, summarises the additions/disallowances made by the AO in assessment framed for the impugned years before us u/s 153A/ 143(3) of the Act.
The assessee carried the matter in appeal before the ld.CIT(A) who : • restricted the disallowance made by the AO on account of alleged bogus sub-contract expenses to the extent of profit element embedded therein, being 20% thereof; • deleted the addition made by the AO under section 69A/69C of the Act read with section 115BBE of the Act. • allowed assessees claim to deduction u/s 80IA(4) of the Act to the extent originally claimed in the return filed u/s 139(1) of the Act and also to the enhanced income on account of disallowance of sub contract expenses. • allowed claim of ESOP expenses and deduction claimed under section 35D of the Act -
While he confirmed,
• the disallowance of enhanced claim of deduction u/s 80IA(4) of the Act in the return filed u/s 153A of the Act and 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 5 • the disallowance made by the AO under section 36(1)(va) of the Act of delayed payment of employees contribution to ESI/PF was confirmed.
Aggrieved by the order of the ld.CIT(A), the assessee has come up in appeal before us.
All the issues noted above, arise in all the appeals of the assessee listed before us for hearing except for some deviance. We shall first decide the issues arising in the appeals and accordingly adjudicate the various appeals by applying our decision on the issues to the grounds raised in the various appeals before us.
The major thrust of the assessment framed evidently is the finding of the AO of the assessee having booked bogus sub-contract and other expenses, which had a cascading effect, resulting in :
• disallowance of the alleged bogus sub contract expenses & others • treating the same as unexplained assets/expenses under section 69A/69C of the Act and holding it liable to tax under section 115BBE of the Act • denying deduction u/s 80IA(4) of the Act on the income resulting from the said disallowance
The primary issue arising for consideration, therefore, before us is of alleged bogus sub-contract expenses & others; with the AO disallowing the entire expenses so booked by the assessee on account of these parties; and the ld.CIT(A), on the other hand, restricting the disallowance to 20% of the said expenses. While, the assessee has challenged the concurrent finding of the AO as well as the ld.CIT(A) that the assessee has booked bogus sub-contracts expenses, the 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 6 Revenue, on the other hand, has challenged the order of the ld.CIT(A) restricting the disallowance made by the AO to the tune of 20% only.
ISSUE NO.1 BOGUS SUB CONTRACT EXPENSES & others
It is imperative to first deal with the contention of the assessee, since the assessee has challenged the very finding of the authorities below that it had entered into bogus sub-contracts.
The primary argument of the ld.counsel for the assessee before us against the said finding was that: • there was no incriminating material found during the search conducted on the assessee ,that whatever material or evidence was used by the AO was all found from other parties/ sub contractors searched; That in the absence of any incriminating material found during search no addition could be made in assessments framed u/s 153A of the Act for the years where there was no abatement of any pending assessments (Reference Hon’ble apex court decision in the case of Principal Commissioner of Income Tax, Central-3 vs Abhisar Buildwell (P) Ltd.(2023) 149 taxmann.com 399(SC). • that incriminating material/evidences found with third parties ought to have been used for framing assessment in terms of section 153C of the Act on the assessee and not u/s 153A of the Act as done in the present case. • that even otherwise, material found from other parties also was not incriminating, so as to warrant any addition on the basis of the same, since it was mainly statements of subcontractors allegedly owning up to be providing accommodation entries to the assessee with no corroborative evidence found ;and some jottings and scribblings;
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 7 16. Detailed arguments were made by both the sides, and reference was also made to various judicial decisions in support of their contentions, all of which were carefully considered by us.
What is derived from the above is that the entire/ major thrust of the argument of the Ld.Counsel for the assessee rests on the factual contention of absence of incriminating material found during search both on the assessee and the sub-contractors.
It is imperative, therefore, to first deal with the correctness of this factual contention. For the said purpose the material found during search on the assessee and the sub-contractors needs to be brought on record and considered for deciding whether it constitutes incriminating material or not.
Going through the assessment order we find that the AO has all throughout followed a top down approach beginning by first pointing out his conclusions and thereafter dealing with the specifics leading to the conclusion.
At para 2 of his order accordingly he has first crystallized the main findings of the search action on the assessee and sub- contractors, bringing out broadly all groups/entities found to have facilitated the assessee in entering into bogus transactions as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 8
Thereafter he has tabulated the paras where he has dealt with evidences found from various operators/entities, thus listing the various entities providing these bogus entries, at page 12 of his order as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 9
The above table therefore largely identifies the various alleged bogus sub-contractors/accommodation entry providers. And in the subsequent paras he has dealt in great detail, in an order running into 280 pages, with the alleged incriminating material relating to each such party found during search considered by him for finding the transactions with the assessee to be bogus. By and large
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 10 incriminating material found with respect to each party is the same and for the sake of brevity we shall be detailing the material found from Kewal Chand Jain with respect to entities run by him providing accommodation entry to the assessee.
Adverse material relating to parties of kewalchand jain (Mumbai based parties-Padmavati Infra, Orbit Corporation, Arihant Infra)( para 6.1.1 of assessment order)
Here again the AO begins by first listing his conclusions and findings on the basis of adverse material found with K. C Jain at para D Page no 20 of the assessment order as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 11
Para E – H of the order deals in detail with all the above evidences found Para E of the order details the revelation made from the statements recorded of K. C Jain & Others as under: • Sh. K. C Jain admitted on oath to having given accommodation entry to SEL through his concerns noted above in our order • He also admitted to being in touch with the directors and key persons of the assessee company and also its key employee Girish Patel. • He admitted to providing cash to other parties on the direction of Girish Patel which was corroborated with huge transaction data found from the phone of Girish Patel • Girish Patel also in his statement recorded admitted to have arranged cash transfer through angadias as per instruction of Vikram Patel
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 12 • Two employees of K.C Jain, Shri Sunil Patil and Shri Suresh Rathore admitted to the entities of K C Jain carrying out no business and also revealed using blank letter heads of the entities for the purpose of managing communication relating to bogus entries and communication with the assessee on email on the direction of K.C Jain; • K. C Jain also revealed the names of angadias(cash carriers) involved in transferring cash and one of them, Sh Jayesh Chauhan accepted working for K. C Jain as agandia. • One Sh Atul Sanghvis statement was also recorded who stated to be working for K. C Jain for 25 years arranging parties for accommodation entries. He named K. C Jains companies involved in providing accommodation entries and confirmed that the said companies were of no means and doing no business.
Para F of the order details the corroborative evidence found as under:
• Digital back up of K. C Jains phone revealed messages from parties seeking entries, sending their account no., amount of entry required, details of amount transferred to bank accounts of entities of K. C Jain providing the entry and also the serial no of Rs. 10 currency note for identifying person to whom money is to be returned and various such information • Financials of all entities which allegedly provided accommodation entry to the assessee were analyzed and it was found that they had declared very low income/ no income to tax which was found not commensurate with the scale of work awarded by the assessee to these concerns.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 13 • Further these concerns were found to have no fixed assets to perform the scale of work awarded. • Cash flow of all these entities revealed that all credits in the bank account received from the assessee were transferred immediately to other entities, mostly jewellers.
The main points derived from the corroborative evidences is detailed at page 35 of the order as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 14 27. Para G notes that there was no documentary proof of work done by these entities by way of any agreement, purchase order, etc. Para H of the order records that commissions were sent to Departmental authorities in Mumbai to verify genuineness of the entities who in turn reported all of them to be bogus.
28. Finally at Para I, the inference from all of the above is detailed mentioning all material found and relied upon for finding entities of K.C Jain as providing only bogus accommodation entry of sub contract as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 15
Thus, briefly put, the adverse material found from K.C Jain is his statement admitting to having provided accommodation entry through bogus entities and explaining the modus operandi followed. This is corroborated by: • his employees who admitted to the said fact; • by emails and messages found from his phone /digital records corroborating the modus operandi; • the angadias who admitted to working for K C Jain; • by the financials of entities used by K C Jain for the purpose , revealing no worth ,
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 16 • the report of the inspector stating the entities to be bogus; • no documentary proof of work done in these entities.
With respect to the assessee, K C Jain admitted to providing accommodation entry to the assessee through his entities, as also revealing the entire modus operandi of providing these accommodation entries. He admitted to being in touch with key persons of the assessee group and their mobile numbers were also found in his phone. Girish Patel, a key employee of the assessee, handling cash transactions was found to be have been sent messages by K C Jain regarding details of bogus entities and he admitted to handling cash with the help of angadias on the instruction of Vikram Patel.
Similarly with all other entities identified by the AO as providing accommodation entries tabulated in his order and reproduced by us at page 7 of our order, such identical adverse material was found..
From the above facts it is abundantly clear that the contention of the Ld.Counsel for the assessee that only statement of the contractors and some jottings or notings were found during search is patently incorrect. In fact alongwith the statements various evidences were also gathered corroborating the modus operandi followed by way of email and other messages found from their phone records, bogus bills prepared by them, these entities found to be not existing at all and their financials revealing no worth besides the other parties involved in the entire trail of providing accommodation entry also admitting to the said fact .All of these evidences corroborate the statement of the subcontractors and when considered in totality lead to the only conclusion of the transaction of the assessee with the said parties being bogus and mere accommodation entries arranged.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 17
Even the assessee has in so-many words admitted to have indulged in booking bogus sub-contract expenses. The AO notes that the assessee vide its letter dated 03/03/2021 admitted to have generated cash though these accommodation entries and utilized it for making payments outside the books. The contents of the said letter are reproduced hereunder:
Respected Sir, Sub: Scrutiny Assessment u/s 143(3) rws 153A of the Income-tax Act, 1961 for the AY 2012-13 to AY 2018-19 - Reg. Justification for Telescoping Benefit in cash flow Ref.: Reply to your show cause dated 04/12/2020 read with corrigendum notice dated 07/12/2020 1.1 In continuation of our earlier submission, the Assessee gives further submission with respect to the justification for benefit of telescoping. 1.2 In its previous submission, the Assessee has drawn a cash flow and asked for the benefit of telescoping of the same. When unaccounted payments are sourced from the unaccounted inflows, in such circumstances, if the unaccounted inflows are taxed, then the source of the unaccounted outflows are to be taken from such inflows and no double / separate addition should be made for unaccounted outflow as well. 1.3 Addition under section 69C can be made only when an expenditure is not satisfactorily explained by the assessee. Whenever any addition is made by the assessing officer during the assessment proceedings and assessee claims that expenditure is made out of such income, then no further addition can be made by invoking provision of section 69C. The benefit of telescoping should be given in such cases. 1.4 Relieance is placed on decision of Bombay High Court in this regard, wherein it was held that If the unaccounted expenditure incurred is from the 'on money'received by the assessee, then, the question of making any addition under section 69C does not arise because the source of the expenditure is duly explained. It is only the 'on money' which can be considered for the purpose of taxation. Once the 'on money'is considered as a revenue receipt, then any expenditure out of such money cannot be treated as unexplained expenditure, for that would amount to double addition in respect of the same amount. - [CIT v. Golani Brothers (2018) 300 CTR 245 (Bom)] 1.5 Once the undisclosed income had been determined in the hands of the assessee, it proved that there was availability of funds with the assessee, which, in turn, could be said to have been utilized for meeting unexplained expenditure. In view thereof, the telescoping of undisclosed income against undisclosed expenditure was allowed and addition of balance net undisclosed expenditure was made in the hands of assessee.-Vide Paras Rice Mills v. Asstt. CIT2015
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 18 TaxPub(DT) 2050 (ChdB-Trib). Also see, Asstt. CITv. Ashok Kumar Agarwal 2014 TaxPub(DT) 3607(KolA-Trib).
1.6 From the above discussion it is concluded that whenever any receipt is treated as income then any expenditure out of such money cannot be treated again as unexplained expenditure for purpose of section 69C because it would amount to double addition in respect of same income.
Brief description to impediments in execution of projects 2.1. The Assessee Company submits that execution of project involves removing various impediments in actual implementation and completion of work. Various causes which regularly happen at site and their effect on the project is summarized in following paragraphs.
2.2. The ultimate object of the Assessee Company is to complete the projects within the stipulated time limit, to avoid hidden costs, penalties, loss of goodwill and even barring from future biddings etc. This is possible only by giving monetary incentives to staff / related person, partly during progress of the work and balance on completion of the project, depending upon the financial performance of particular project.
2.3. Many a times, local people, hawkers, encroachers, anti-social elements, etc, create nuisance at site and try to disrupt the work, which in turn affects profitability. In these situations, we are left with no alternative but incur some extra cost. We are also called upon to contribute for social, religious festivals etc. organized near site adjoining places, forcibly, to minimize interruptions and disturbances.
2.4. During the execution of work, various problems are being faced viz site clearance, encroachments, utilities, problems from locals, shortages of materials, theft, accidents, labour problems, traffic diversions etc. Considering minimum disturbances to the residences, shops and commuters near the site, work is executed.
2.5. The execution of work is very much time bound and any delay in the same leads to heavy penalties, loss of reputation, goodwill, barring from future biddings etc. Hence, it is in the interest of the contractor to resolve almost all problems related to the site which involves monetary consideration at 2.6. In any project certain mile stones are fixed for attaining the required of progress at a given time period, which is an agreement to be fulfilled. Failure to achieve the mile stone certain amount is withheld till the mite stones are achieved. Even though it is in our interest to proceed with the work on a time bound manner there are certain impediments which affects the progress and leads to delay in completion of the project.
2.7. Observance of important religious festivals by labourers in general and migrant labourers in particular adversely affects progress of the projects. Many a time they remain absent from the project for longer duration, which ultimately results in undue delay completion of project. In these circumstances the Assessee Company has to suffer lot of expenses to protect -its goodwill. 2.8. Encroachments by locals / activists hampers the progress as getting them evicted is a time-consuming process.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 19 2.9. In all the above cases, even though it is normal that there will be delay which are not attributable to the Assessee Company but still the department does not grant full extension for the period but levy liquidated damages which is an extra burden on the contractor. Also, a major factor affecting the infrastructure projects are the fluctuation in the market for the materials and also non-availability of skilled and unskilled labourers to the full extent of requirement. Further, once a site is mobilized, a fixed cost is incurred irrespective of any actual work being carried out. Machinery hired and labour have to be paid irrespective of whether a single brick being picked up. With all these impediments in infrastructure projects it is the contractor's vigilant approach, which decides ultimately his amount of profit in the given project.
2.10. A major impediment in infrastructure work is project affected persons (PAP). There is one specified class of PAP who is dislocated and therefore compensated by the Government. The other PAP are persons who are not PAP as classified by Government and are therefore not entitled to any compensation. They are the persons in whose areas work will be carried out and therefore noise and dust pollution and other inconveniences like traffic jams, reduced mobility will affect their lives. These persons can and do create innumerable impediments to work and they need to be compensated by the Assessee Company contractor both individually as well as collectively. What the Project incharge in variably does where ever work is to be carried out is to donate towards social cause of the area like sarvajanik pujas, contribution to social programmes like books distribution, medicines, etc to buy the goodwill of local persons. This is invariably incurred. But many a times this is not sufficient and individually some compensation has to be given to keep them in good humour. If not kept in good humour they just wait for an opportune moment to make life of Assessee Company difficult. Such occasions could be a small accident which may not result in causing critical injuries however it is enough to mobilise people and attract press. Numerous, such harassments are done if these people are not kept in good humour. 2.11. The other class of people are "anti" social elements who survive only on extortion of money from people. The tools of extortion are not any knives or guns calling for a criminal complaint but they have newer tools like small local news channels, local newspapers, RTI applications, public opinion on issues like dust and noise pollution, child labour, etc. A reputed contractor like the Assessee Company does not violate any such laws. However, in the current 24x7 news network era with an overactive social media a small lie or mis-statement is sufficient to spoil one's reputation and goodwill .The goodwill so lost could never be regained because falsity is read and spreads fast but facts are but foot note.
2.12. It may kindly be appreciated that in order to meet the exigencies as discussed above, certain expenses are incurred which are difficult to prove to be genuine having regard to the complexity of the transactions and nature of industry in which the Assessee Operates. However, in no circumstances amounts so generated have not been retained as income. Though such expenses are not strictly prohibited under the law yet these are not third party verifiable. Such expenses are considered as inflow in the date wise cash flow as produced hereunder.
2.13. The project in-charge are always given a budget for such expenses for which they need not even take prior approval except for keeping the management informed and also to take approval for expenses which are higher than normal or represent a new set of problems.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 20 2.14. Such expenses are necessity of business and are allowable as deduction. Further major amount generated is spent and only a small amount remains unspent. 2.15. The Assessee Company submits that in order to meet the above stated expenses and to remove impediments to work, funds were generated by booking inflated/non-genuine expenses including sub-contract expenses, etc.
Updated Cash flow in place of earlier cash flow - Without prejudice to our earlier submission, we hereby furnish the following cash flow in support of our request for granting telescoping of the unaccounted outflows, which are met out of unaccounted inflows, as under: -
Though the Ld.Counsel for the assessee has stated that the above letter of the assessee addressed the cash flow of funds generated, which it was called upon to explain by the AO and in no way could be treated as admission by the assessee of having taken accommodation entries of bogus sub contract bills, but we do not find any merit in the same. The assessee we have noted in very clear terms admitted to have booked inflated/ non genuine expenses including sub contract expenses for meeting business exigencies and removing impediments to work as listed in its letter.
Therefore, we hold that incriminating/ adverse material was found during search on the sub-contractors and was not mere statement of the parties admitting to providing bogus accommodation entries but statements duly corroborated with evidences.
The ld.counsel for the assessee has referred to the decision of the Hon’ble jurisdictional High Court in the case of Pr.CIT Vs. Nanubhai Majithia R/Tax Appeal No.20 of 2024 dated 06/03/24, for the proposition that mere statement would not constitute incriminating material for the purpose of search assessment. Since we have found that it was not mere statement of the third parties which were available with the AO, therefore, this proposition relied on 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 21 by the ld.counsel for the assessee is of no assistance. In fact this decision strengthens our view since the Hon’ble jurisdictional High Court in the said case has noted that a mere unsigned excel-sheet found with the third party with no corroborative material was not sufficient to initiate proceedings under section 153C of the Act. In the present case, since we have found, as a matter of fact, that the statements were duly corroborated with evidences, therefore, this decision of jurisdictional High Court strengthens our findings of the material found during search on the assessee and the sub-contractors constituting incriminating material.
Having held that incriminating material was found during search on the sub-contractors, we shall now deal with the contention of the Ld.Counsel for the assessee that this material could not be considered for making disallowance in the hands of the assessee since they were not found during search on the assessee.
During the course of hearing before us, the ld.counsel for the assessee was pointed out at bar that the Hon’ble apex court in the case of CIT, Chennai vs S. Ajit Kumar (2018) 93 taxmann.com 294(SC) has held that all material with the AO of the searched person is to be considered for framing assessment ,irrespective of where the material is found. Ld.Counsel for the assessee countered by stating that the said decision was rendered in the context of different provisions of law dealing with search assessment, i.e block assessment proceedings under chapter XIV B of the Act, more particularly while interpreting the provisions of section158BB of the Act dealing with undisclosed income. He contended that the Hon’ble apex court in a recent decision in the case of Abhisaar Buildwell has held only incriminating material found during search on the assessee to be considered for framing assessment.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 22
We do not find any merit in the contention of the Ld.Counsel for the assessee. We have gone through the order of the Hon’ble Apex Court in the case of S. Ajit Kumar (supra) .The relevant portion of the decision of Hon’ble Apex Court in the said decision is as under:
“Discussion:-
8) In the present case, the period for Block Assessment is 01.04.1996 to 17.07.2002. Section 153A of the Income Tax Act, 1961 (for brevity “the IT Act”) provides the procedure for completion of assessment where a search is initiated under Section 132 of the IT Act or books of account or other documents or any asset are requisitioned under Section 132A of the IT Act.
9) It is a cardinal principle of law that in order to add any income in the block assessment, evidence of such must be found in the course of the search under Section 132 of the IT Act or in any proceedings simultaneously conducted in the premises of the assessee, relatives and/or persons who are connected with the assessee and are having transaction/dealings with such assessee. In the present case, the moot question is whether the fact of cash payment of Rs.95.16 lakhs can be added under the head of the undisclosed income of the assessee in block assessment.
10) In the instant case, the office and residential premises of the assessee searched on 17.07.2002 and finally concluded on 21.08.2002. During the course of search, certain evidence were found which showed that the assessee had indulged in understatement of his real income relating to the block period from 01.04.1996 to 17.07.2002. Consequently, a notice dated 25.02.2003, under Section 158BC of the IT Act, was issued to the assessee and he was asked to file block assessment. In reply to such notice, the assessee filed return on 11.08.2003, admitting the undisclosed income as “NIL”.
11) In the present case, it is admitted position that the cost of investment was disclosed to the Revenue in the course of return filed by the assessee. The assessee also disclosed the detail of transaction between the assessee and M/s ECIL in the assessment year 2001-2002. However, he had not disclosed the payment of Rs.95,16,000/- in cash made to M/s. ECIL.
12) The method of calculating the undisclosed income of the block period is provided under Section 158BB of the IT Act. It would be appropriate to re- produce the relevant part of Sections 158BB and 158 BH of the IT Act which is as follows:
“158BB. Computation of undisclosed income of the block period.-(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous year failing within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 23 such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income , or, as the case may be, as increased by the aggregate of the losses of such previous year determined…… 158BH. Application of other provisions of this Act – Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter.” (Emphasis supplied by us) 13) On a perusal of the above provision, it is evident that for the purpose of calculating the undisclosed income of the block period, it can be calculated only on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. Section 158BB has prescribed the boundary which has to be followed. No departure from this provision is allowed otherwise it may cause prejudice to the assessee. Needless to say that it is the cannon of tax law that it should be interpreted strictly. 14) However, Section 158BH of the IT Act has made all other provisions of the IT Act applicable to assessments made under Chapter XIVB except otherwise provided under this Chapter.
Chapter XIV B of the IT Act, which relates to Block Assessment, came up for consideration before this Court in Hotel Blue Moon (supra) wherein it has been held as under:
“18. Chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting the regular assessment made or to be made. Search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the assessing officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under Section 132 or requisition under Section 132-A of the Act.
Section 158-BH provides for application of the other provisions of the Act. It reads: “158-BH. Application of other provisions of this Act.- Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter.” This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The provisions which are specifically
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 24 included are those which are available in Chapter XIV-B of the Act, which includes Section 142 and sub-sections (2) and (3) of Section 143.” 15) The power of survey has been provided under Section 133A of the IT Act. Therefore, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee under Section 158BB read with Section 158 BH of the IT Act.
The same would fall under the words “and such other materials or information as are available with the Assessing Officer and relatable to such evidence” occurring in Section158 BB of the Act. In the present case, the Assessing Officer was justified in taking the adverse material collected or found during the survey or any other method while making the Block Assessment.
16) In view of the foregoing discussions, we are of the considered opinion that the decisions relied upon by learned senior counsel for the assessee do not lay down the correct law.
17) In the result, all the appeals succeed and are allowed. The impugned orders are set aside and the orders passed by the Assessing Officer making the Block Assessment are restored. However, the parties shall bear their own cost.”
As is evident from the above, the Hon’ble Apex Court in the case of S. Ajith (supra) has laid down a very important proposition of law at para-9 of its order, holding that it is a cardinal principle of law that in order to add any income in block assessment (assessments framed pursuant to search conducted prior to May 2003 ), evidence of such must be found in the course of search under section 132 of the Act, or in any proceedings simultaneously conducted in the premises of the assessee, relatives and/or persons, who are connected with the assessee, and are having transactions or dealings with the such assessee. The Hon’ble Apex Court has, in the stated case, way back in 2018, clearly laid down that all the material found during search on the assessee or material found in any proceeding simultaneously conducted on the assessee or his relatives or persons connected with the assessee , was to be considered for determining income in search assessments stating this to be the cardinal principle of law. Thus, clearly all material found
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 25 during search on assessee and in any simultaneous proceedings on the assessee or his relatives/ connected persons constituted “incriminating material” as per the Hon’ble Apex court . The Hon’ble Apex Court in the said decision went thereafter to interpret the provisions of section 158BB of the Act pertaining to the block assessment, which dealt with the computation of undisclosed income of the block period, and noted that as per the said section, undisclosed income was to be computed on the basis of evidence found as a result of search or on the basis of material or information available with the AO, and relatable to such evidence. Interpreting this provision, the Hon’ble Apex Court held that any material found in a survey simultaneously made at the premises of the connected persons can be used while making block period assessment of the assessee under section 158BB of the Act, and held that such material would fall under the expression “and such other material or things as are available with the AO, and relatable to such evidences”. Thus, in the case S. Ajitkumar(supra), the Hon’ble Apex Court categorically held that undisclosed income was to be computed on the basis of evidences found during the search on the assessee or evidences found from others connected to the assessee in any other proceedings conducted simultaneously.
Though this decision may have been rendered in the context of block assessment proceedings but we hold that it is applicable even to the present prescribed procedure of search assessment u/s 153A of the Act, which was interpreted by the Hon’ble Apex Court in its subsequent decision in Abhisaar Buildwell(supra). The Ld.Counsel for the assessee heavily relied on the findings of the Hon’ble apex court at para 14 as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 26 14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.
The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.
His emphasis before us was at point no.(iv) holding that where no incriminating material is found during search on a person, the AO cannot take into consideration any other material for making assessments.
Undoubtedly, the Hon’ble Apex Court in the said decision has emphasised the absence or presence of any incriminating material found during search for making addition/disallowances in search assessments framed u/s 153A of the Act. “Incriminating material” is a judicially devised term and is not defined either under the law or by any judgment of courts. The definition of the incriminating material vis a vis the searched person in the circumstance, therefore, can be easily borrowed from that provided by the Hon’ble Apex Court in the 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 27 case of CIT Vs. S Ajith Kumar (supra),wherein it was held that all evidence and material gathered during the search on an assessee, and that gathered from his relatives or associates in any proceedings simultaneously conducted ought to be considered for computing undisclosed income of the assessee searched.
Surely undisclosed income by its very nature can be discovered only by way of material or evidences pointing to the fact of its existence. Such material/evidences, in essence, are incriminating material. In effect, therefore, the Hon’ble Apex Court in the case of S. Ajit Kumar (supra), while considering what material is to be considered for computing undisclosed incomes of persons searched has in effect defined what would constitute “incriminating material” for an assessee searched. And therefore, borrowing from the same, we hold, that all material found during search conducted simultaneously on the assessee and/or its associates would constitute incriminating material. We hold, that incriminating material cannot be confined to only that found during search on the assessee, rejecting/ignoring the material found from others in proceedings simultaneously conducted.
Therefore, when the Apex Court in the case of Abhisar Buildwell (supra) held that addition in search assessments can be made only on the basis of incriminating material, it does not help the case of the assessee that only incriminating material found from search conducted on him alone is to be considered, since the interpretation of the word “incriminating material” by the ld.Counsel for the assessee is totally misplaced and very restrictive. In fact all adverse material found with the assessee and his sub-contractors in simultaneous search actions constitute incriminating material for the purpose of 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 28 computing the income of the assessee, as held by the Hon’ble Apex Court in the case of S. Ajitkumar (supra).
Even otherwise, we find, that the proposition advanced by the Ld.Counsel for the assessee rests on an highly illogical, impractical and absurd premise that a person indulging in generating unaccounted income will keep all evidences at his premises alone; that in no circumstances, would there be a possibility of any evidences being found with somebody-else.
We have, therefore, considered what incriminating material vis-a-vis the person searched stands for, and we hold that it constitutes the material found during the course of search conducted on the assessee, and also material found from proceedings conducted simultaneously on his friends, relatives and/or associates having dealings with the assessee.
We have also held that all evidences found from the sub- contractors were not some statements, but they were statements corroborated with the evidences, and therefore, constituted incriminating material.
In effect, therefore, we hold that there was incriminating material found during the search conducted on the assessee.
Having held so, going by the proposition of law relied upon even by the ld.counsel for the assessee in the case of Abhisaar Buildwell(supra), the said incriminating material, we hold, was rightly relied upon by the Revenue authorities for disallowance of sub-contracting expenses.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 29 50. The alternate contention of the ld.counsel for the assessee that incriminating material found with sub-contractors ought to have been considered by the AO for initiating proceedings under section 153C of the Act, needs to be rejected, for the very reason, that we have held the incriminating material found with the third party to be incriminating material of the assessee itself. The reliance placed by the Ld.Counsel for the assessee on the decision of Hon’ble Delhi High Court in the case of PCIT vs Anand Jain HUF in ITA 23/2021 & others dated 12-02-2021 while canvassing the above proposition, is of no assistance to the assessee since our interpretation and finding of material found during simultaneously conducted proceedings on others to constitute incriminating material vis a vis assessee is based on the decision of Hon’ble apex court in the case of S.Ajith(supra) Therefore, there is no question of invoking the provisions of section 153C of the Act in the facts of the present case
Even otherwise, on a bare reading of the provisions of section 153C of the Act, we find that it does not support the contention of the assessee. The provisions of section 153C of the Act are reproduced hereunder for better understanding:
“153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 30 other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub- section (1) of section 153A :
A bare reading of the above reveals that jurisdiction u/s 153C of the Act can be invoked for framing assessments only on persons who are not covered under Section 153A of the Act. In the present case the assessee is covered under section 153A of the Act being subjected to search action. Therefore, the provisions of section 153C of the Act are not applicable in the present case.
In fact the provisions of section 153C of the Act strengthen our view that material found during search conducted simultaneously on third parties is to be considered for framing assessment of the originally searched person.
The scope of section 153C of the Act is confined only to persons who otherwise are not subjected to search action, but material relating to them is found during search conducted on others. In such cases, section 153C of the Act deems such persons/ assesses who otherwise were not subjected to search action, as deemed to be searched and accordingly provides for their assessments to be framed in accordance with the provisions of law relating to persons subjected to search, i.e as per section 153A of the Act. Thus as per the scheme of the Act dealing with assessment of searched persons it recognizes two category of assessees for framing assessment u/s 153A of the Act-
Assesses subjected to search action 2. Assesses deemed to be searched where material relating to them is found during search on others.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 31 55. Therefore, for a person who is subjected to search, even if adverse material pertaining to it is found not with him but from others who are simultaneously searched, as per the scheme of the Act he/ it is to be assessed u/s 153A of the Act on account of being searched and applicability of section 153C of the Act is completely ruled out. Therefore all material found during search on others in such cases is to be used while framing assessment u/s 153A of the Act as searched entity.
In the light of all the above, we conclude by holding that there was incriminating material found in the search conducted on the assessee and its sub-contractors, and the same was rightly used by the Revenue authorities for disallowance of sub-contract expenses.
ISSUE NO.2 OF DENIAL OF OPPORTUNITY OF CROSS- EXAMINATION: 57. One of the contentions of the ld.counsel for the assessee was that the addition on account of bogus sub-contract expenses and other expenses was made in violation of principles of natural justice, since the assessee was denied opportunity to cross-examine the sub- contractors who in the statement had allegedly admitted to have provided bogus accommodation entries to the assessee. The reliance was placed on the judgement of the Hon’ble Apex Court in the case of Andaman Timber Industries Vs. Comm. Of Central Excise, Civil Appeal NO.4228 of 2006 order dated 02.9.2015. The ld.CIT(A) had dismissed this contention of the assessee stating that all copies of seized material/impounded material, as also statement of the persons, who were relied upon by the AO, were provided to the assessee during the assessment proceedings itself; that accordingly,
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 32 there was no violation of principles of natural justice in passing the assessment order.
We have considered the contentions of the ld.counsel for the assessee, and after appreciating the facts of entire case, we do not find any merit in the contentions of the ld.counsel for the assessee that the impugned order was passed in violation of principle of natural justice, by denying opportunity of cross-examination of the sub- contractors to the assessee. Courts have had occasions to deal with this aspect of the denial of cross-examination to the assessee being fatal to the assessment framed, and on consideration of the judicial decision in this regard, what is culled out is that, whether cross- examination is to be provided or not, depends on the facts of each case, and there is no thumb-rule or straight-jacket formula that denial of the same would invariably tantamount to denial of natural justice.
Courts have held that the opportunity of cross-examination is to be afforded only in the circumstances, where the AO relies merely on adverse statements of third-person against the assessee for making addition without any collateral evidence; that if there are material evidences against the assessee the cross-examination of the third person, who corroborates in a statement the adverse material found against the assessee ,would not serve any purpose. The Hon’ble Apex Court in the case of Kishan Chand Chela Ram Vs. CIT, 125 ITR 713 held that the cross-examination is must where the AO relies upon the only(emphasis provided by us) on the statement of third-person unconnected with the appellant. The Allahabad High Court in the case of Motilal Padampat Udyog Ltd. Vs. CIT, 293 ITR 565 after considering the judgment of the Hon’ble Supreme Court in the case of Kishan Chand Chela Ram (supra) held that the right of cross-
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 33 examination from the AO had collected the evidences is not required under any tax law and such assessment was valid under the Act. In the said fact, copies of rough cash book and statements of the partners of ‘V’ which were recorded had been provided to the assessee, and the assessee had also submitted its reply. In the letter, an opportunity to cross-examine the partners was asked for. The Hon’ble High Court held that since the assessee had been given opportunity to controvert the material gathered by the AO and used against it, there had been compliance of the principle of natural justice, and denial of the cross-examination to the assessee, was not fatal to the assessment framed. The ITAT, Mumbai Bench in the case of GTC Industries Ltd. Vs. ACIT, 65 ITD 380 held that the right to cross- examination the witness who made adverse report is not invariably attributes of the requirement of the dictum viz. audi alteram partem. The principles of natural justice do not require formal cross- examination. The relevant portion of the observation of the ITAT is as follows: “…ITAT has further held that, “As regards the dictum ‘audi alteram partem’ the assessee’s basic contention was that the statements of witnesses and materials which were relied upon by the Assessing Officer in the assessment order to reach the conclusions and findings which were adverse to the assessee should have been disclosed to the assessee and the witnesses should have been offered for cross-examination. The right to cross-examine the witness who made adverse report is not an invariable attribute of the requirement of the said dictum. The principles of natural justice do not require formal cross- examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence, and is the creation of Court. It is part of legal and statutory justice, and not a part of natural justice, therefore, of law that the revenue could not rely on any evidence which had not been subjected to cross- examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross- examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature.”
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 34 60. Having noted the proposition of law that denial of cross- examination would be fatal to the assessment framed only in the circumstance where the statement of third person is the only evidence used against the assessee and not when the statement only supports the evidences against the assessee which evidences remain uncontroverted Applying the same to the facts of the present case, we have noted above, that sufficient adverse material had been found during the search conducted at the premises of the sub-contractors. All these evidences had been confronted to the assessee during assessment proceedings, and since the assessee was unable to controvert the said evidences the denial of opportunity of cross- examination, we hold, would not render the assessment framed invalid.
This issue, therefore stands decided against the assessee.
ISSUE No.3 being taken up for consideration is the restriction of disallowance of bogus purchases/expenses by the ld.CIT(A) to the extent of 20% thereof.
The AO had disallowed the entire bogus sub contract expenses and others which in turn was restricted by the Ld.CIT(A) to 20% of the bogus expenses.
The ld.counsel for the assessee pointed out that the ld.CIT(A) had taken note of the fact that identical disallowance had been made in the case of the assessee in Asst.Year 2011-12 in orders passed in the assessment framed under section 143(3) of the Act; that originally the AO had disallowed 20% bogus sub-contract expenses, but the ld.CIT(A) had restricted the same to 16%. Taking note of these fact- situation in the case of the assessee itself for Asst.Year 2011-12 and considering various case laws referred to during the course of hearing
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 35 before him, the ld.CIT(A) restricted the disallowance of 100% of bogus sub-contract and other expenses disallowed to 20%.
The ld.counsel for the assessee pointed out that the ITAT had adjudicated the assessee’s appeal for Asst.Year 2011-12 wherein the assessee had challenged restriction of deduction by the ld.CIT(A) to the tune of 16%, contending that the same be restricted to 8%. He pointed out that the ITAT had considered it fair and just to restrict the addition to the extent of 12.5% of the bogus purchases. He pointed out that in Asst.Year 2009-10 also, the AO on the basis of information received from the Maharashtra Sales Tax Department, it found that the assessee had claimed bogus purchase of material and accordingly had disallowed the entire purchases. The ld.CIT(A), however, had restricted the disallowance to 25% of the purchase, which in turn was restricted by the ITAT to the extent of 12.5% of the bogus purchase. Our attention was drawn to para 59.0 to 59.3 of the order passed by the ITAT in IT(SS)A.No.363/Ahd/2018 for Asst.Year 2009- 2010 as under:
“59. We have heard the rival contentions and perused the materials available on record. It is observed that assessee in the year under consideration has claimed the purchase of Rs.2,10,354/- from NB Enterprises. During the assessment proceedings, the AO has received information from Maharashtra Sale Tax Department that M/s N.B. Creation is indulged in the providing the hawala bills and no actual sale/purchase transaction has taken place. Accordingly, the AO treated the same as income of the assessee. However, the Ld. CIT(A) restricted the addition to the extent of 25% of the bogus purchases.
59.1 Nevertheless, we note that the courts have taken a view that in case of non- existent parties from whom the purchases are shown to have been made, the most logical approach would be that only part of such purchases can be disallowed, in the cases where the corresponding sales are treated as genuine, or (with eight others) A.Y. 2008- 09 alternatively the profit embedded in such sales can only be brought to tax. Therefore, what can be taxed in such transactions is profit element embedded in such alleged non genuine purchases and the entire or peak amount of such purchases cannot be treated as bogus.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 36 59.2 In the back drop of enquiries conducted by the AO and also various submission placed by the appellant, we find that it is fair and just to restrict the addition to an extent of Rs. 26,294/-being 12.5% of the bogus purchases. In holding so, we draw support and guidance from the judgment of Hon'ble ITAT Mumbai in the case of Ratangiri Stainless(p) Ltd. Vs. ITO reported in 80 taxmann.com 265 wherein it was held as under:
"In our considered view and based on facts and circumstances of the case as discussed by us in details above, end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un- rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view factual matrix of the case, while the assessee shall be granted credit of GP ratio declared on these bogus purchases in the return of income filed with the Revenue 59.3 Therefore, we direct the AO to restrict the addition as stated above, thus, the ground raised by the assessee is treated as partly allowed.
60. The other issues raised by the assessee in ground No. 2 to 4 are either general or consequential or premature to decide. Hence the same are dismissed being infructuous.”
65. He further pointed out that this issue was dealt with by the ITAT in succeeding year also i.e. Asst.Year 2010-11 and 2011-12 in its consolidated order passed along with that for Asst.Year 2009-10 in order dated 24.2.2023. He pointed out that in AY 2010-11 and 2011- 12, besides the assessee challenging the order of the ld.CIT(A) restricting the disallowance to the extent of 25%, the Revenue had also in its appeal challenged the order of the ld.CIT(A) reducing the disallowance made by the AO by 75%. He pointed out that the ITAT had dismissed the grounds raised by the Revenue, while in assessee’s appeal, it followed its order for Asst.Year 2009-10, restricting the disallowance of bogus purchased to the tune of 12.5%. He, therefore,
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 37 stated that this issue now stands covered by the order of the ITAT in Asst.Year 2009-10, 2010-11 and 2011-12 as above.
The ld.DR vehemently supported the order of the AO, but was unable to distinguish the decision of the ITAT in Asst.Year 2009-10 to 2011-12.
In the light of the same, since the issue of quantum of disallowance of bogus sub-contract expenses/other expenses already stands adjudicated by the ITAT in the case of the assessee itself in Asst.Year 2009-10 to 2011-12 (supra), following the same we hold that the disallowance be restricted to 12.5% of the bogus purchase expenses.
ISSUE NO.4 REGARDING TREATMENT OF ALLEGED BOGUS SUB-CONTRACT EXPENSES UNDER SECTION 69A AND 69C OF THE ACT AND CHARGING THE SAME AT THE RATE SPECIFIED IN TERMS OF SECTION 115BBE OF THE ACT.
The next issue being taken for consideration is the treatment of the alleged bogus sub-contract expenses as deemed income of the assessee in terms of section 69A and 69C of the Act by the AO, thereby, subjecting all the additions made on bogus sub-contract expenses at the rate specified in terms of section 115BBE of the Act, and further also denying the claim of deduction under section 80IA(4) of the Act.
The effective issue is treatment of all alleged bogus sub-contract expenses as deemed income under section 69A/C of the Act. The other issues, it was common ground, are consequential to this treatment, being taxing the same at a specified rate in terms of section 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 38 115BBE of the Act, and denial of claim of deduction under section 80IA(4) of the Act to the same.
The AO treated all the alleged bogus sub-contract expenses as deemed income in terms of section 69A of the Act, noting that the assessee’s modus operandi of booking such bogus sub-contract expenses resulted in cash being ultimately received by the assessee for these expenses booked. He noted that this cash receipt was not recorded in the books of accounts of the assessee, and therefore, liable to be treated as unexplained money in terms of section 69A of the Act. He also noted that the assessee had admitted to using of such cash generated out of bogus sub-contract expenses for meeting the expenses out of the books of the assessee. He accordingly held that all such expenses, which were those not recorded in the books of the assesse, were liable to be taxed as unexplained expenditure in terms of section 69C of the Act, but noting that, such expenditure could be telescoped against the unexplained money generated by the assessee. He held that all the additions made on account of bogus sub-contract expenses booked by the assessee were liable to be taxed specifically under section 69A of the Act, as unexplained money.
The ld.CIT(A) found that the disallowance of bogus sub-contract expenses resulted only in increase in the business profits of the assessee, and arose in the course of business carried out by the assessee. He accordingly held that all the disallowances, therefore, made was to be treated as business income of the assessee alone, and holding so, he held that the assessee was not liable to be taxed at a special rate under section 115BBE of the Act nor the assessee to be denied deduction under section 80IA(4) of the Act on account of the same.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 39 72. We have considered the issue, and we do not find any infirmity in the order of the ld.CIT(A). Admittedly, it is the alleged bogus sub- contract expenses booked by the assessee, which have been held to be liable to be taxed as unexplained money/unexplained expenditure by the AO under sections 69C and 69A of the Act respectively. The provisions of section 69A have been reproduced in the order of the AO which clearly states that where the assessee is found to be owner of money, which is not recorded in his books, and for which the assessee offers no explanation about the nature and source of acquisition thereof, the same is to be treated as unexplained money in terms of section 69A of the Act.
In the case of the assessee, it is not the case of any cash found with the assessee, the source of which was remained unexplained. In fact, it is the presumption of the AO that the assessee possessed cash which was generated by booking bogus sub-contract expenses. Looking at it from this reasoning/logic of the AO also, there is no question of the source of cash generated being unexplained. Admittedly, it is by booking bogus sub-contract expenses. Therefore, none of the criterion mentioned in the section 69A are fulfilled for treating the bogus sub-contract expenses as unexplained money of the assessee in terms of section 69A of the Act.
Similarly, the invocation of section 69C of the Act by the AO, also we find, is completely misplaced. The provisions of section 69C are reproduced in the assessment order, and perusal of the same reveals that it applies to expenditure incurred by the assessee, for which no explanation is offered about the source of such expenditure or the explanation offered is not satisfactory to the AO. The AO has invoked section 69C of the Act in the present case for the admitted expenditure incurred by the assessee out of the cash generated by 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 40 booking the bogus sub-contract expenses. Section 69C, as is evident from the above, applies to incurrence of the expenditure, for which there is no explanation about the source. In the present case, admittedly as per the AO himself the source of such expenditure was cash generated from booking bogus sub contract expenses. Clearly it is not a case of unexplained source of expenditure. There is, therefore, we hold, no question of invoking section 69C of the Act in the facts of the present case.
The ld.CIT(A), therefore, we hold, rightly held the invocation of section 69A and 69C of the Act to the bogus sub-contract expenses booked by the assessee to be incorrect. The invocation of section 115BBE of the Act and denial of deduction under section 80IA(4) of the Act to the same, being consequential, are also accordingly rightly deleted by the ld.CIT(A), we hold.
ISSUE NO.5 REGARDING DENIAL OF CLAIM UNDER SECTION 80IA(4) OF THE ACT.
The next issue being dealt with by us, relates to assessee’s claim of deduction under section 80IA(4) of the Act of profits earned from its business of infrastructure development.
There are two components to this issue, which shall be dealt hereunder and for the same, it is necessary to bring out the facts relating to the issue.
Briefly stated, the assessee in its original return filed under section 139(1) of the Act had claimed deduction under section 80IA(4) of the Act for all the years impugned before us i.e. assessment year 2012-13 right upto Asst.Year 2018-19. In the return filed in response to the notice under section 153A of the Act the assessee made a claim
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 41 of the same amount of deduction under section 80IA(4) of the Act as claimed in the original return filed under section 139(1) of the Act. However, subsequently, the assesse filed a revised return enhancing its claim of deduction under section 80IA(4) thereon multiple times. The facts as stated above are tabulated assessment year wise at page no.205 of the assessment order as under:
The AO did two things with respect to the assessee’s claim of deduction under section 80IA(4) of the Act viz ;
i) He dealt with the assessee’s claim of deduction in the return filed under section 153A of the Act commensurate to that claimed in the original return filed under section 139(1) of the Act, and allowed such claim upto Asst.Year 2013-14 noting that though the claim was originally denied in assessment originally made u/s 143(3) of the 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 42 Act, the same had been allowed by the ld.CIT(A) in appeal. For the remaining years i.e. from Asst.Year 2014-15 to 2018-19, he denied the assessee’s claim of deduction under section 80IA(4) of the Act, noting that the Revenue had not accepted the order of the ld.CIT(A) in the preceding years, and had gone in appeal to the ITAT against the same; ii) He, thereafter, dealt with the additional claim of deduction, which the assessee claimed in its revised return filed, and denied the same, holding that it was not tenable in law.
The ld.CIT(A) allowed the assessee’s original claim of deduction under section 80IA(4) of the Act finding that even the ITAT had held the assessee eligible to the said claim. But at the same time the Ld.CIT(A) upheld the denial of additional claim of deduction under section 80IA(4) of the Act.
Therefore, the issue of claim of deduction under section 80IA(4) is to be dealt in two ways –
a. relating to the claim of deduction in the return filed in response to the notice under section 153A of the Act, corresponding to the claim made in the original return of income filed under section 139(1) of the Act, and b. regarding the enhanced claim of deduction made by the assessee in the revised return filed under section 153A of the Act.
Dealing with the first issue of the assessees entitlement to claim deduction under section 80IA(4) of the Act, the order of the ld.CIT(A)
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 43 reveals the fact that the assessee’s claim of deduction under section 80IA(4) of the Act was found to be in accordance with law by the ITAT in the A.Y 1998-99 TO 2013-14. Before us, copy of the order of the ITAT in the case assessee for Asst.Year 1998-99 TO 2013-14 in and others dated 24.2.2023 was filed, disclosing the said fact.
In the view of the same, we see no reason as to why the assessee should be denied the claim of deduction under section 80IA(4) of the Act, commensurate to that as claimed in the original return of income filed under section 139(1) of the Act . The AO has no made out no case for denying the said claim except for stating that the department has contested the order of the Ld.CIT(A) in earlier years allowing the claim to the assessee. The order of the Ld.CIT(A) being upheld by the ITAT there remains no case with the AO for denying the original claim of deduction u/s 80IA(4) of the Act to the assessee .
ISSUE NO.6 REGARDING ENHANCED DEDUCTION CLAIM MADE IN THE REVISED RETURN:
Now, taking up the next issue, i.e. additional claim of deduction made by the assessee, this relates to the component of deduction, over and above that claimed in the original return of income filed u/s 139(1) of the Act. Further the enhanced deduction was not claimed in the return filed in response to the notice under section 153A of the Act but was made in a revised return filed.
The AO denied the deduction holding that search proceedings are for the benefit of Revenue for unravelling undisclosed incomes of assessees and assessee cannot take any benefit thereunder and also that law is settled that earlier completed assessments cannot be disturbed in search assessments u/s.153A of the Act in the absence
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 44 of any incriminating material found during search. His findings in this regard are as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 48
The Ld.CIT(A) has upheld the order of the AO denying this claim of enhanced deduction.
We are in agreement with the ld.CIT(A)/ AO that the assessee is not entitled to claim enhanced deduction under section 80IA(4) of the Act in a return filed in response to the notice under section 153A
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 49 of the Act, particularly, in cases where the assessments are completed and unabated.
The AO has referred to various decisions of the Hon’ble High Courts/Supreme Court laying down the principle that in proceedings for the benefit of Revenue, the assessee cannot take any benefit. Reliance has been placed on the following decisions for the purpose
The AO has also relied on the proposition of law now settled by the Hon’ble apex court in Abhisaar Build well (supra) that completed assessment s cannot be disturbed in assessments framed u/s 153A of the Act, unless some incriminating material is found.
Ld.Counsel for the assessee has distinguished both the above by referring to various decisions where courts have held returns filed u/s 153A of the Act to be treated as filed u/s 139(1) of the Act. And thus as a corollary entitling assessees to make any claims therein, irrespective of whether claimed in original return or not.
Having heard both the parties, we are in agreement with the AO/ CIT(A) that the assessee is not entitled to claim any additional/ fresh claim in return filed u/s 153A of the Act. We completely agree with the Revenue that search proceedings being for the benefit of the Revenue.,the assessee cannot take any benefit in the same. This is a settled proposition of law, as laid down by the Hon’ble apex court in the case of Sun Engineering(supra). Added to it is the proposition of law settled by the Hon,ble apex court in the case of Abhisar Buildwell P.Ltd., (supra) holding that in case of completed and unabated assessments, no addition/ disallowance can be made by the AO in the absence of any incriminating material found during the course of search under section 132 of the Act. The Hon’ble Apex Court has 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 50 approved the order of the Hon’ble Delhi High Court in the case of CIT Vs. Kabul Chawla, where it was held that completed assessments can be interfered with by the AO only on the basis of incriminating material found during the course of search. The reasoning being that an original return filed by an assessee having already been scrutinized by the Department and thereafter subjected to several levels of appeals, the assessments accordingly attain finality, which cannot be disturbed unless some incriminating material is found during search. Now this theory, though propounded to the prejudice of the Revenue, applies equally to the assessee. Completed assessments can be disturbed by the assessee by making claims not made in the original return already scrutinized, as in the present case before us wherein the assesse has claimed additional deduction u/s 80IA(4) , over and above that claimed in the original return of income filed u/s 139(1) of the Act. In such a situation where is assessee is claiming benefit in the return filed u/s 153A of the Act, there is no question of any adverse material being found during search the AO relating to the same. Accordingly the AO, as per settled position of law, would be precluded from scrutinizing this additional claim of the assessee and making any adjustments thereto. This would in essence give a free rein to assessees to make any additional claims without the fear of scrutiny. Law can never be so completely to the prejudice of one party alone.
The decisions relied on by the Ld.Counsel for the assessee, we find, are of no assistance to the assessee. These decisions hold that the return filed under section 153A of the Act is to be treated as return filed under section 139(1) of the Act. The Ld.Counsel for the assessee has borrowed this proposition to contend that accordingly fresh claims can be made in returns filed u/s 153A of the Act. But, we find,
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 51 that these decisions have been rendered while addressing completely different issue, relating to levy of penalty for furnishing inaccurate/ concealing particulars of income, on additional income , revealed during search conducted. Courts is such circumstances have held that disclosure of such incomes in the return filed under section 153A of the Act, even if not disclosed in the original return of income filed u/s 139(1) of the Act ,would not attract the levy of penalty. The said decisions interpreted the provisions of section 271(1)(c) Explanation- 5/5(a) and held that no penalty would be levied as the returns filed u/s 153A of the Act are to be treated as filed u/s 139(1) of the Act. These decisions being rendered in completely different context and in the background of totally different set of facts, they have no application in the fact situation of the present case nor any benefit can be derived by the assessee from these decisions. There is no denial to the proposition that the returns filed under section 153A of the Act are to be treated as return filed under section 139(1) of the Act, but this alone does not address the assessee’s claim of additional deduction in the return filed under section 153A of the Act. It has to be considered by us from the interpretation of the provisions of section 153A of the Act, dealt by the Hon’ble Apex Court in the case of Abhisar Buildwell (supra), and the proposition settled by the apex court in Sun Engineering (supra) that no benefit can be taken by the assessee in proceedings which are for the benefit of the Revenue. Therefore, the aforementioned decisions have no applicability to the issue before us in the present case.
Ld.AR also relied on the decision of the ITAT, Pune Bench in the case of Malpani Estates Vs. ACIT, (2014) 44 taxmann.com 242 (Pune- Trib.). The said decision also does not help the case of the assessee on the specific issue involved i.e. the claim of enhanced deduction. In 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 52 the said decision it has been held that the assessee is entitled to claim of deduction on the enhanced business income resulting from addition or disallowance made to the income of the assessee. The ITAT did not hold the assessee entitled to claim of enhanced deduction in the return filed in response to the notice under section 153A of the Act. Therefore this decision is also no assistance to the assessee.
Further during the course of hearing conducted on 18/10/2024 the Ld. DR pointed out that the Special Bench of the ITAT has now decided this specific issue, whether an assessee can make fresh claim for deduction under Chapter VIA of Income Tax Act for the first time in return filed u/s 153A of the Act in the case of DCIT VS M/s SEW Infrastructure Limited in & Others dated 07- 10-2024. He pointed out that the ITAT special Bench had ruled that such claim for the first time can be made only in those years where assessments are abated. That for assessment years where the assessments are unabated/ completed no such fresh claim can be made in returns filed u/s 153A of the Act. Copy of the order was filed before us.
Considering the above also, there is no case for allowing the assessee any additional claim of deduction u/s 80IA(4) of the Act.
The only contention of the Ld.Counsel for the assessee before us was that this was not a fresh claim but only an additional claim.
We see no difference in the same. The fact remains that the additional claim is being made for the first time in the return filed u/s.153A of the Act. It is beyond any doubt a fresh claim. Therefore the decision of the Special Bench of the ITAT would squarely apply to it.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 53 97. In view of the same, on the issue of deduction under section 80IA(4) of the Act, we confirm the order of the ld.CIT(A), holding that-
The assessee is entitled to claim of deduction under section 80IA(4) of the Act, corresponding to the claim made in the original return filed under section 139(1) of the Act. That the assessee is not entitled to additional/fresh claim of deduction under section 80IA(4) of the Act in those years where assessments are completed.
ISSUE NO.7 REGARDING ASSESSMENT ORDER BARRED BY LIMITATION: 99. The next issue which came up for consideration before us was regarding assessment order passed in the present case being barred by limitation as prescribed under section 153B of the Act.
During the assessment proceedings itself the assessee had objected to the AO, of the proceedings being time barred by limitation. The assessee had pointed out that search in the case of the assessee- company was conducted on 06.04.2017, and accordingly, the period of limitation for making the assessment for Asst.Year 2012-13 to 2018-19 expired on 31.12.2019. The assessee had objected so in its reply filed to the AO during the assessment proceedings, which continued beyond the stated expiry of the same on 31.12.2019, vide its reply dated 19.12.2020. The assessee had also contended that on the very last date i.e. on 31.12.2019, it had been intimated through a letter that a reference had been to FT & TR for exchange of information through competent authority, and therefore the time limit for completion of the assessment was extended as per the provisions of section 153B of the Act. The assessee had stated to the AO that it was not served with any documents to prove the facts of reference made to the competent authority, and therefore, had 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 54 objected to the continuation of the assessment proceedings beyond the limit prescribed for the same. The AO, however, countered by stating that there was a valid reference made to the FT&TR by the AO vide letter dated 11.11.2019 based on various documents, which were seized during search proceedings pertaining to the foreign bank accounts of the concerns relating to the Sadbhav Group, including the assessee i.e. Sadbhav Engineering. To carry out investigation on this transaction, FT&TR reference had been made to the foreign countries on 16.12.2019 through competent authority. Therefore, in accordance with the provisions of section 153B of the Act the limitation for completion of the assessment was extended by one year upto 31.12.2020; that due to prevalence of COVID situation, the limitation for all case had been extended vide Notification in the Official Gazette to 31.3.2021, which was further extended by another notification upto 31.4.2021. The AO, accordingly, dismissed the objection of the assessee to the assessment proceedings being barred by limitation, pointing out that the same were being carried out within the prescribed period of limitation in law.
The assessee raised this issue of the assessment order passed being barred by limitation before the ld.CIT(A), who also found no merit in this ground of the assessee, noting the fact of limitation to have been extended on account of reference made by the AO to FT&TR.
Before us, the ld.counsel for the assessee did not dispute the fact that in terms of section 153B of the Act limitation for passing assessment orders were extended by a period of one year where a reference is made by the AO to FT&TR. He also does not dispute the fact of the Government notifying extension of limitation during the period of COVID by 31.3.2020 to 31.4.2021 by two notifications.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 55 What is being disputed by the ld.counsel for the assessee is the genuineness of the reference made by the AO to FT&TR. His contention was that this reference was made at the fag end of the assessment proceedings i.e. December 2019 when the assessment was getting time barred; that no information has been divulged to the assessee as to the incriminating documents on the basis of which such reference was made by the AO to the FT&TR. His case, therefore was that, in truth, this reference by the AO to FT&TR was without any basis and only to buy time for framing the assessment.
During the course of hearing before us, the ld.DR was asked to produce the copies of the letter containing the reference made by the AO to FT&TR. To which, he responded by stating that it was a confidential document and could be produced only for the perusal of the Bench. The ld.counsel for the assessee stated that if the Bench is satisfied that the reference made was a valid reference based on the basis of incriminating documents found during the course search relating to some foreign bank transactions of the assessee/foreign entities of the assessee, then he had no objection to this plea of the assessment being time barred, being dismissed.
The ld.DR, thereafter, produced a copy of the reference made by the AO to the FT&TR, which we noted had a mention of incriminating material found during the search, relating to the foreign bank accounts transactions of the assessee/foreign investments of the assessee. The same was duly communicated to the ld.counsel for the assessee during the course of hearing itself, and he fairly conceded to there being no merit in the grounds raised by the assessee regarding the assessment order being barred by the limitation.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 56 Therefore, this issue of the assessment order being time barred, we hold, has been rightly held to have no merits.
ISSUE NO.8 REGARDING DISALLOWANCE OF ESOP EXPENSES 106. The next issue being taken up for adjudication, relates to the disallowance of ESOP expenses by the AO, which in turn was deleted by the ld.CIT(A). The order of the AO reveals that the AO had noted that the assessee had claimed ESOP expenses in the original return of income filed under section 139(1) of the Act for AY 2012-13 to 2015- 16; that in scrutiny assessment framed under section 143(3) of the Act, this claim of the assessee was disallowed by the AO for AY 2012- 13 to 2014-15. The AO has also noted the fact that the impugned disallowance had been deleted in the first appeal by the ld.CIT(A). However, he went on to disallow the claim of ESOP expenses of the assessee in Asstt.Year 2015-16 stating that the deletion of disallowance by the Ld.CIT(A) in Asstt.Year 2012-13 to 2014-15 had been challenged by the Department before the ITAT. Ld.CIT(A) in turn, following orders of the Ld.CIT(A) in the preceding years, deleted the disallowance.
The quantum of ESOP claimed by the assessee for Asstt.Year 2012-13 to 2015-16 and its disallowance under section 143(3) for Asstt.Year 2012-13 to 2014-15 is tabulated in para 6.4.2 of the assessment order as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 57 108. Before us, the ld.counsel for the assessee pointed out that the ITAT had confirmed the order of the Ld.CIT(A) deleting the disallowance of ESOP expenses in Asstt.Year 2012-13 to 2014-15 in its order passed in and others dated 24.2.2023.Copy of the order was placed before us.
The ld.DR fairly conceded with the same, though, he vehemently supported the order of the AO.
In the light of the fact that the identical disallowance in Asstt.Year 2012-13 to 2014-15 of the ESOP expenses claimed by the assessee stands deleted by the ITAT, we see no reason to disagree with Ld.CIT(A) deleting the disallowance of ESOP expenses claimed by the assessee in Asstt.Year 2015-16 amounting to Rs.85,67,905/-.
The issue of disallowance of ESOP expenditure in the Asstt.Year 2015-16 accordingly stands adjudicated in favour of the assessee and is directed therefore to be deleted.
ISSUE NO.9 REGARDING DISALLOWANCE UNDER SECTION 35D OF THE ACT 111. The facts relating to the same are that the assessee had claimed deduction under section 35D of the Act, on account of amortization of the expenses incurred on “Qualified Intuitional Placements” (QIP). The claim of the assessee for different assessment years is tabulated at para 6.4.3 of the assessment order as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 58
The AO noted that assessee’s claim in Asstt.Year 2012-13 had been disallowed in scrutiny assessment under section 143(3) of the Act, which in turn had been deleted by the ld.CIT(A) in first appeal filed by the assessee before him. The AO, however, stated that since the Department had contested the deletion of disallowance by the ld.CIT(A) in Asstt.Year 2012-13 before the ITAT, accordingly, he went on to disallow the assessee’s claim under section 35D for the other assessment years also i.e. Asstt.Year 2016-17 to 2018-19. The ld.CIT(A) however following his order for Asstt.Year 2012-13 deleted the disallowance made by the AO before us.
Ld.Counsel for the assessee pointed out that in A.Y 12-13 the ITAT had confirmed the order of the ld.CIT(A) deleting the disallowance of deduction under section 35D of the Act, in its order passed in dated 24.2.2023. Copy of the order was placed before us.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 59 The ld.DR agreed with the same, though, he vehemently supported the orders of the ld.AO.
In the light of the admitted fact that identical disallowance of deduction claimed by the assessee under section 35D of the Act, disallowed by the AO in Asstt.Year 2012-13 stands deleted by the ITAT, we see no reason to uphold the disallowance made in Asstt.Year 2016-17 to 2018-19.
Accordingly, the issue of disallowance of claim of deduction under section 35D of the Act stands adjudicated in favour of the assessee.
ISSUE N0.10 REGARDING DISALLOWNACE OF ESI/PF U/S.36(1)(va) OF THE ACT.
116. The net issue being taken up for consideration is relating to disallowance of Employee’s contribution to ESI/PF made in terms of provisions of section 36(1)(va) on account of delayed deposit of Employees’ contribution to ESI/PF. The AO had made the impugned disallowance in assessment framed under section 143(3) of the Act for the Asstt.Year 2012-13 to 2014-15, which stood confirmed by the ld.CIT(A). Accordingly, he went to make disallowance of delayed payment of Employees’ contribution to ESI/PF in Asstt.Year 2015-16 to 2018-19 which is tabulated at page no.256 of the AO’s order as under:
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 61
The ld.CIT(A) confirmed the same, following the decision of the jurisdictional High Court in the case of CIT Vs. Gujarat State Road Transport Corpn., (2014) 41 taxmann.com 100 (Guj) and following his order in the preceding years.
Before us, the ld.counsel for the assessee fairly conceded that the issue stood covered against the assessee by the decision of the Hon’ble Apex Court in the case of Checkmate Services P.Ltd. Vs. CIT, (2022) 143 taxmann.com 178.
In view of the same, the issue of disallowance of Employees’ contribution to PF/ESI in terms of section 35(1)(va) of the Act is adjudicated against the assessee.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 62 118. Having dealt with the aspects in the appeals before us issue- wise and given our findings thereon as made in the aforementioned paragraphs, we now proceed to dispose of the appeals of the assessee as under.
IT(SS)A.No.170/Ahd/2021 for Asst.Year 2012-13 (Assessee’s Appeal)
The grounds raised in this appeal read as under:
“1. The Ld. CIT (A) grossly erred in law and facts of the case in not appreciating the fact that assessment order under section 143(3) r.w.s 153A (1) (b) dated 26/03/2021 passed by the AO is outside the time limit prescribed under section 153B of the IT Act, 1961 and therefore the said order is bad in law by reason of it being time barred. It is therefore prayed that the said assessment order may please be cancelled as being time barred.
2. The Ld. CIT (A) erred in law and facts of the case in confirming disallowance/ addition made by the AO on alleged bogus subcontract charges, alleged cash receipts by booking alleged bogus diesel expenses etc. in as much as entire addition is made based on third party evidence, without any corroborative evidence at office premises of appellant company or residential premises of directors.
3. Without prejudice to the above, the Ld. CIT (A) grossly erred in law and facts of the case in retaining a part of the disallowance/ addition made by the AO on alleged bogus sub contract charges, alleged cash receipts by booking alleged bogus diesel expenses etc. by adopting the element of profit at the rate of 20% in utter disregard to the fact that the net profit rate disclosed by the appellant company here under the appeal was 7.79% and the average rate of NP for the past several years was 6.33%. It is therefore prayed that the addition/ disallowance may please be restricted to the element of profit calculated on such alleged bogus expenses at the disclosed NP rate.
4. The Ld. CIT (A) grossly erred in law and fact of the case in retaining a part of the disallowance/ addition made by the AO on alleged bogus sub contract charges, alleged cash receipts by booking alleged bogus diesel expenses etc. in utter disregard to the fact that such disallowance had been made on the basis of the statement of unrelated third parties and the appellant had been denied an opportunity to cross examine the deponent whose statement had been relied upon for making such additions/disallowances. It is therefore prayed that the part of disallowance/addition retained by the CIT (A) may please be deleted.
5. The Ld. CIT (A) grossly erred in law and fact of the case in not allowing the deduction under 80-IA(4) as claimed in the revised return of income filed. Having held that the appellant company is eligible for deduction under 80-IA (4), the Ld. CIT (A) grossly erred in not allowing deduction under that section 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 63 as claimed in the revised return of income filed on 27/03/2018. It is therefore prayed that the appellant may please be allowed deduction under 80-IA(4) as claimed in the revised return of income filed. The appellant craves leave to add, amend, alter, delete change or modify any or all ground of appeal before or at the time of hearing.
121. In the ground no.1 the grievance of the assessee is that the ld. CIT (A) grossly erred in law and on the facts of the case by failing to appreciate that the assessment order under section 143(3) r.w.s. 153A(1)(b), dated 26/03/2021, passed by the AO, is outside the time limit prescribed under section 153B of the IT Act, 1961, and is therefore bad in law as time-barred. Therefore, it is prayed that the assessment order be quashed as being time barred.
122. The above aspect has been discussed and dealt by us in Issue No.5 of this order above, and held that there is no merit in the contention of the assessee in this regard for the reasons recorded therein. Therefore, the ground no.1 of the assessee is dismissed.
123. In ground no.2 the grievance of the assessee is that the Ld. CIT(A) erred in confirming the disallowance/addition based on alleged bogus subcontract charges and diesel expenses, relying solely on third-party evidence without corroborative proof at the appellant's office or directors' residences. While, the ground no.3, which relates to ground no.2 however states that the ld. CIT(A) incorrectly retained part of the disallowance by adopting a profit rate of 20%, disregarding the assessee’s disclosed net profit rate of 7.79% and past average of 6.33%. And therefore, it is prayed that the disallowance be restricted to the disclosed NP rate.
124. In ground no.4 which is also part of ground nos.2 and 3 the grievance of the assessee is that the ld. CIT(A) erred in retaining part of the disallowance based on statements from unrelated third parties
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 64 without granting the appellant the right to cross-examine the deponent. It is prayed that the retained disallowance/addition be deleted.
All the disputes raised in the above grounds, have been dealt with by us while dealing with the Issue No.1, 2, 3 and 4 above. Therefore, for the reasons given therein, we reject the ground nos.2 and 4, while ground no.3 in respect of disallowance of bogus expenses to the extent of 20% restricted by the ld.CIT(A) is further restricted to 12.5% following the decision of the ITAT in the case of the assessee itself in Asst.Year 2009-10 to 2011-12(supra) as discussed in Issue No.3 above. This part of the ground is partly allowed.
Similarly ground no.4 regarding denial deduction under section 80IA(4) of the Act, the issue has been discussed by us in Issue No.5 above, and therefore, for the reasons contained therein, we also dismiss the ground no.4 of the appeal.
In the result, the IT(SS)A.No.170/Ahd/2021 for the Asst.Year 2012-13 is partly allowed.
Now comes remaining appeals of the assessee for the 2013-14 to 2018-19.
Based on our issue-wise findings detailed above, and considering the grounds and facts outlined in IT(SS)A No. 170/Ahd/2021 for the Assessment Year 2012-13, as discussed in our order, the remaining four appeals, which involve identical grounds and a common set of facts, are also decided and held so in a similar manner. In a sense, against all the issues raised by the assessee in its appeals, except the issue of restriction of disallowance of bogus expenses to 12.5%, which was decided by us at ISSUE No.3 (above) in 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 65 accordance with the decision of the ITAT in the case of assessee itself for the year cited (supra), we confirm the order of the ld.CIT(A). Thus, all the appeals filed by the assessee are partly allowed.
CROSS APPEALS BY THE REVENUE:
The Revenue has filed seven appeals for the assessment years 2012-13 to 2018-19 in IT(SS)A.No.183 to 189/Ahd/2021. The grounds raised are similar and identically worded except variation in the quantum. For the convenience of our adjudication, we first take up the appeal of the Revenue for Asst.Year 2012-13 i.e. IT(SS)A.No.183/Ahd/2021.
The grounds raised by the assessee in the Asst.Year 2012-13 are as under:
“1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the disallowance of Rs.22,19,13,751/- being 80% of the disallowance of the inflated expenditure on account of payment to subcontractors, purchase of diesel etc. without appreciating the fact that the assessee already has taken shelter of telescoping for avoiding double taxation on unaccounted cash receipts from various parties and unaccounted cash expenses made by it.
2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the disallowance of Rs.22,19,13,751/- being 80% of the disallowance of the inflated expenditure on account of payment to subcontractors, purchase of diesel etc. without appreciating the fact that the assessee company booked bogus bills in the name of various entities and payment for the same were made through online modes / cheques for which actual work was not carried out and the cash thereafter brought back after commission thereon. It was established by claiming telescoping of such unaccounted cash transactions to avoid double taxation, by the assessee.
3. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in allowing the deduction u/s 80IA as per the return filed u/s 139(1), even though the assessee did not fulfil the conditions as laid down in section 80IA(4) of the Act.
4. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in allowing the deduction u/s 80IA on the confirmed disallowances u/s 69A r.w.s. 69C holding as business income, without considering the decision 170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 66 of jurisdictional High Court in the case of Fakir Mohamed Haji Hasan vs. CIT [2001] 247 ITR 290.
5. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition of Rs.2,40,000/- made u/s 69A without appreciating the fact that the assessee has totally failed to explain the source of cash receipt, which were not recorded in the books of accounts.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.
It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.”
At the outset, ld.DR submitted that for the Assessment Years 2013-14 to 2018-19, the grounds raised therein are identical to those raised in the assessee’s appeal in IT(SS)A No. 183/Ahd/2021, except for other grounds relating to additions under sections 69A, 69B, and 69C and their taxation under section 115BBE of the Act, disallowance of ESOP expenses, and denial of deduction under section 35D. Thus, the Ld. DR submitted that the arguments presented for the appeal concerning the Assessment Year 2012-13 are equally applicable to these appeals.
Heard both the parties.
While dealing with the Issue No.1 to 4 in our foregoing paragraphs, we have upheld the order of the ld.CIT(A), except restriction of bogus expenses to 12.5% from 20%, which we discussed and decided in ISSUE NO.3 in light of the decision of the Tribunal in the case of the assessee cited (supra). Since the grounds raised by the Revenue in the above appeal are related to the issue as above, whereby we confirmed the order of the ld.CIT(A), the grounds raised by the Revenue in Asst.Year 2012-13 are also dismissed. As a result, the appeal of the Revenue for Asst.Year 2012-13 is dismissed.
170/Ahd/2021 and 12 Others (Cross Appeals) Sadbhav Engineering Ld. Vs. DCIT, Cent.Cir., Ahd 67 135. So far as the remaining appeals of the assessee are concerned, looking to the identical nature of grounds raised therein, and since we have upheld the order of the ld.CIT(A) for the reasons discussed in Issue No.1 to 5, and for the remaining grounds in Issue No.6 to 10 above, all the grounds raised in the appeals of the Revenue are dismissed.
In the result, all the appeals of the assessee are partly allowed and that of the Revenue are dismissed. Order pronounced in the Court on 10th January, 2025 at Ahmedabad.